Virtual prosumer – will new onshore wind farms be allowed to dispose of only 90 percent of their installed capacity to the market

November 20, 2024

The recently published so-called draft amendment to the Distance Act provides for (besides the main amendment concerning diminishing the distance between the wind turbines and residential/mixed-use building from 700 to 500 meters) a solution having potentially significant impact on various aspects of onshore wind farm investments. Under the draft law (currently at the public consultations stage), an investor developing a wind farm with an aggregated installed capacity exceeding 1 MW must dedicate at least 10 percent of the installed capacity of all wind farms constituting the investment to be allotted to the local and nearby commune residents where the wind farm is located, for the period of 15 years following the first electricity generation. The purpose of the above is for the said residents to become the virtual prosumers. Provisions governing this process are to enter into force on 2 July 2025.

Virtual prosumer

A virtual prosumer is:

• an end user generating electricity from a Renewable Energy Source ("RES") for its own needs in a RES installation connected to the distribution network at a connection point different than the connection point where electricity is supplied to that user; and
• such a RES installation cannot be connected to the distribution network via an internal electrical installation of a multi-family building; and
• the said generation (except for a household electricity user) may not constitute a user's predominant economic activity.

Procedure

Within 15 days following the wind farm occupancy permit becoming final and binding the investor must inform its local authorities (the mayor of the local and immediate vicinity communes) on: (i) obtaining such a permit; (ii) the maximum level of total installed capacity to be allotted to the residents (in kW); (iii) the forecasted annual amount of electricity generated by the wind farm (in kWh per kW); and (iv) the amount of the participant contribution. A template agreement for the prosumers must be also provided.

It shall be noted that fulfilment of this information obligation is also one of the conditions for the President of the Energy Regulatory Office to issue the generation licence.

Within 30 days of receipt of that information, the local authority shall announce that such a share in the total installed capacity may be allotted. The term for the residents to submit respective applications is between 30 and 60 days following the announcement (to be determined in each case). Each resident is allowed to apply for a share in the total installed capacity which is not higher than 2 kW per each own connection point located in this commune.

Within 14 days following the lapse of the application deadline, the local authorities shall deliver to the investor a list of residents interested in entering into the agreement on allotting part of the total installed capacity and some basic data related thereto.

If the investor's installed capacity dedicated to be allotted to the residents is lower than residents' total demand for installed capacity declared by them, the share in total installed capacity - as applied for - is diminished pro rata for each connection point, provided that the local commune residents have priority over the vicinity communes residents.

Under the draft law it is explicitly indicated that the currently present provisions governing the settlement of prosumers under the RES Act will also be accordingly applicable to settlements with commune residents.

Agreement

Within 90 days following the receipt of the abovementioned list, the investor shall conclude agreements on allotting appropriate share in total installed capacity with listed residents.

The draft law indicates specific provisions to be included in such an agreement, the template of which must be also published on the investor's website.

In case residents accomplish and conclude such agreement they will become virtual prosumers - for the period of 15 consecutive years following the date electricity is first generated and its injection into the distribution system, also covering the cost of allotting the share in total installed capacity.

The cost of allotting a share in the total installed capacity should be calculated by multiplying the share itself (in kW) and the participant contribution which is calculated based on a specific formula encompassing: (i) the reference price for onshore wind farm installations exceeding 1 MW of installed capacity; (ii) the reference annual volume of wind farm electricity production for 1 MW of installed capacity and (iii) the co-factor of the resident's share in the cost of wind farm electricity production - as determined by way of the regulation issued by the Minister of Climate.

Remaining total installed capacity

The investor must inform the DSO, not later than 30 days prior to starting the electricity generation, on (i) each resident's share in total installed capacity in percent and the amount of electricity (in kW) to which that share corresponds and also (ii) the location and identification numbers of connection points for respective residents.

If the share in total installed capacity allotted to the residents is lower than 10 percent the investor:

• Informs the respective local authorities on the forecasted annual amount of electricity generated by the wind farm (in kWh per kW) corresponding to the not-allotted share (within 7 days following the lapse of the 90 day period for concluding agreements with residents or the date of concluding of the last agreement);
• if the local authorities where the wind farm is located announce a public procurement for the purchase of electricity within 12 months following the receipt of information on unallotted shares - shall submit an offer for the sale of electricity, provided that such a remaining share can be offered at a price not higher than the reference price for onshore wind farm installations exceeding 1 MW of installed capacity as of the date of the investor's bid. This procedure falls under the requirements of Polish public procurement law.

The implementation of public procurement procedure might lead to certain doubts as to the practical aspect of its application and potential interferences.

It should be noted that commune residents allotting shares in total installed capacity are generally exempted from any obligations related to the operation of a wind farm (i.e., its management, safety, operation, maintenance, overhauls, and balancing).

What is also worth noting is that the volume of electricity allotted as a share in total installed capacity shall not have a negative impact on fulfilling the penalty regulation if the wind farm awarded a CFD at an auction delivers less than 85 percent of the declared generation volume during full-3-year periods. In other words, the penalty for not delivering the 85 percent minimum threshold shall not apply in case the energy was generated to fulfill the obligation of allotting at least the 10 percent of total installed capacity or selling it to the commune in the procurement procedure.

Applicability

The said provisions (i.e., the original one which has already been adopted and introduced this procedure, as well as amendments thereto discussed in the Draft) are to enter into force on 2 July 2025.

The discussed provisions shall apply only to new ventures. Wind farm investments which obtain the building permit prior to 2 July 2025 are not subject to the discussed obligation.

The current wording of the Draft explicitly indicates that the discussed requirement will also be applicable to wind farms that will be connected to transmission network.

Impact on the investors

Firstly, it must be stressed that each investor developing a new wind farm will be able to freely dispose of only 90 percent of the installed capacity of a given installation. Up to 10 percent of the installed capacity of a given installation will have to be offered to the local community (residents) or to the commune. The amendment does not explicitly indicate what can be done with the remaining electricity if neither the residents, nor the commune decide to use the offered share. However, given the specific timeframe for taking actions under this regulation, one may assume that any such share left should be free to be disposed of by the investor following the lapse of the statutory deadlines.

It seems that a part of the potential investor's revenue from a wind farm generation will effectively fall under a kind of maximum price regulation given that the price formula used for the calculation of the participant contribution is based generally on the reference prices. Assuming this is less favorable for an investor than concluding a market based PPA covering this amount, this amendment can be seen as diminishing the profitability of wind farm development within the scope of the obligatory share (10 percent).

Apart from that, any such additional procedures and new requirements may potentially increase the administrative costs of a wind farm development and pose new legal challenges and questions arising around the development and operational phase of a wind farm's existence (for instance, potential conflicts resulting from contracts concluded with residents).
It is also worth noting that implementing the procedure based on public procurement law may also increase the complexity of the investment. However, the draft law provides fairly clear time boundaries for all actions to be taken.

Summing up, this amendment is definitely worth monitoring and should be thoroughly assessed (once the final wording is eventually adopted by the Polish Parliament) from the commercial, financial and legal perspective since it may have impact on wind farm investment financial modelling and, as a consequence, its bankability and profitability in the longer term.