NEW DIRECTIONS OF ENERGY TRANSITION IN POLAND

For many years, we have been assisting investors and developers in the analysis of RES projects.

In the following article, we would like to provide an overview of the legal and technical environment for energy storage systems in Poland

The energy transition in Poland is accelerating, revealing both opportunities and challenges. Both investors and end-users of energy, are gaining a deeper understanding of future options. Many are recognizing that investing in their own generation sources can enable industrial users to maintain lower energy costs and thus lower production costs, reduce their carbon footprint, and secure energy supply and market independence. The limited possibilities for connecting new installations, as well as the increasingly frequent shutdown of RES installations by the National Electricity System Operator due to the limited flexibility of the transmission system, make it necessary for investors to consider a variety of investment development scenarios with battery energy storage systems now playing a growing role in the projects we analyze.

Potential and limitations of renewable energy sources:

In-house generation is an increasingly common investment direction for industrial customers – Poland's largest manufacturers see the opportunities opened up by the prospect of active participation in the energy market.

• According to a report prepared by the Renewable Energy Institute (IEO) for the Re-Source Poland HUB, the technical potential of wind power plants that would be feasible in industrial areas (in the absence of regulatory restrictions and additional system costs) is nearly 17 GW.
• Although there is great potential in renewable energy, investors must also take into account numerous challenges – the biggest of which remains the underdeveloped transmission and distribution infrastructure.
• According to a report by the Supreme Audit Office, despite ongoing plans to develop the distribution network, their quality and development to date have not ensured that all renewable energy sources can be connected. While the number of applications and requests for connection to the renewable energy grid was growing, so was the number of refusals to connect RES investments to the grid. While in 2018 the share of refusals was 5.9% of all applications submitted, by the first half of 2022 it was already at 99.3%. For applications to connect storage facilities, the share of refusals was nearly 30%.

New direction of energy transition

Currently, the conditions of the National Electricity System require investors and developers to make a thoughtful technical and legal analysis to choose the most optimal way to develop the project and fit it into the chosen economic and financial model. Increasingly, in the case of renewable energy sources, the use of battery systems combined with photovoltaic or wind installations (so-called hybrid installations) is being analyzed, which allow us to store surplus generated energy at times when we cannot send it to the grid (e.g., when the National Electricity System is overloaded) or it is uneconomical (energy prices reach low or negative values).

Energy storages and legal regulations in Poland

The amendment to the Energy Law of May 20, 2021, introduced a number of regulations concerning, among other things, the definition and operation of energy storage. As a result, energy storage was included in a separate license. The power threshold for which a license is necessary has been set at 10 MW (however, if their installed capacity is greater than 50 kW, they are subject to registration in the register kept by the Transmission System Operator or Distribution System Operator). In addition, regulations have been introduced for the issuance of connection conditions and connection agreements. Currently, for a storage facility connected to a grid with a voltage rating higher than 1 kV, the deadline for issuing conditions is 150 days. In turn, the fee for connecting an electricity storage facility is half of the actual expenditures incurred for the connection. Subsequent amendments to the Energy Law also regulated the following issues:

• aggregation - the activity of combining the volume of capacity or electricity offered by customers, electricity generators, or electricity storage holders
• flexibility service - provided to the electricity distribution system operator by system users to ensure security and increase the efficiency of the development of the distribution system, including the management of network congestion in the electricity distribution network, excluding the coordinated 110 kV network
• active customer - i.e., an end user acting either individually or in a group who:consumes self-generated electricity,stores self-generated electricity, or sells self-generated electricity, or implements energy efficiency improvement projects within the meaning of the Energy Efficiency Act, or provides system services, or provides flexibility services

Energy storage in Poland: Administrative procedures:

In the case of simultaneous construction of equipment comprising a RES installation, the investment and construction process related to the implementation of a hybrid installation can be carried out on the basis of jointly issued administrative decisions covering various generating facilities. The use of this possibility refers in particular to obtaining an environmental decision, a decision on development conditions, as well as construction and operation permits. In the case of adding equipment to an existing installation, it may be necessary to obtain all decisions separately or apply for amending permits. An investor planning to implement a hybrid RES installation will be required to obtain only one condition for connection to the electricity grid

As Horizons we successfully develop and co-develop RES-related projects, and we are taking care of them until the operational period.

Projected cost of energy storage facilities

In terms of projected costs, an analysis by the International Energy Agency (IEA) in its Batteries and Secure Energy Transitions report predicts that we can expect the average cost of energy storage to fall by 40% by 2030 (in the STEPS – Stated Policy Scenario forecast). This means that the initial investment in an average battery project with an output of 20 MW and a capacity of 80 MWh drops from about $23 million to $14 million in 2030. BESS projects with larger capacities have lower unit costs because the project costs are spread over a larger number of units, which involves the application of economies of scale. Some regions of the world may see even greater declines in the cost of energy storage due to declines in the price of its components, such as the battery set, battery racks, cooling, and controls. As for hybrid installations, the average global LCOE of an example project combining a 100 MW photovoltaic farm with 20 MW/80 MWh energy storage will decrease from $75/MWh today to $45/MWh in 2030, a decrease of 40%. This reduction is a combination of projected decreases in the cost of energy storage by 40% and PV installations by about 35% in 2030.

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Energy storage market in Poland: Risks and opportunities

The latest report from the President of the Energy Regulatory Office on energy storage shows that energy storage facilities have been identified in the registries of the five largest DSOs and the TSO. Included are 12 energy storage facilities with a total installed capacity of 1,464.5 MW – half of which are battery energy storage facilities. The ERO president emphasizes the role that energy storage facilities will play for flexibility services.

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Also, Polish Transmission System Operator (Polskie Sieci Elektroenergetyczne) announced accelerated implementation of storage investments that will allow the system to become more flexible. Another positive change for investments in energy storage is the ERO President's Decision approving the reform of the balancing market, thanks to which all market participants are able to provide so-called system services, which until now only large power plants have performed in practice. Investment in energy storage may be necessary in light of the increasing non-market disposition of renewable energy, through which we are losing cheap renewable energy at the expense of conventional sources.

One of the most significant problems holding back investors from embracing storage topics is the high financial outlay at the start of a project. In many cases, storage technologies need several sources of revenue to become economically viable technologies under current law.

In order to assess the profitability of investing in BESS, our team has developed a dedicated service - BESS in Poland – Profitability Study. The service is based on a detailed financial analysis of a BESS project, optimal Revenue Stacking and technical solution. It considers various scenarios for electricity price development, technology selection and the preparation of a development plan. Our financial model provides investors with the assurance that their decision to invest is economically justified.

Regulatory issues are another major barrier. Currently, there are no adequate definitions, financing rules, or facilitation of the investment and construction process. There is also a need to indicate what can be accumulated in flexibility and system services and under what rules. Our team's extensive experience and in-depth knowledge enable us to effectively oversee projects at various stages of development, addressing the administrative and technical complexities inherent to renewable energy (RES) projects. Despite the potential challenges and complexities that may emerge during project development, we strive to identify the most effective and efficient route for each project we oversee.