CARBO by Cleantech Poland LLC

CARBO

Q4 2015 1

POLAND OVERVIEW

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MEET OUR TEAM Dear Colleague, As a power market player, CARBO aims to keep you informed. Ask yourself: what will be the price obtained in Poland's new feed-in-tariff obtained at auction? Will the price be PLN 350, PLN 290 or PLN 245? Many factors are at play, but one thing is certain. If investors don't obtain the right price for their project, much renewable energy capacity will never be built.

Parker Snyder Commercial Director

Wojciech Kość Editor in Chief

Barbara Marciniak Project Manager

Piotr Wdowiński Head Analyst

Gabor Chodkowski-Gyurics Analyst

Ozan Saglik Analyst

Łukasz Mazurek Art Director

Robert Walczyński DTP

Natalia Szydlak Office Manager

CARBO is a primary power database and we are sending you a preview of our first deliverable, which we will issue in Q1 2016. Why should you subscribe to CARBO? If you're an investor, you can use CARBO to build or balance your portfolio. If you're a developer, you can use CARBO to predict which projects will compete in the auction. And if you're a supplier, you can use CARBO to find buyers for your products and services. What's missing from the market is actionable commercial intelligence. Cleantech has been on the market since 2010 providing data, sales and marketing. We invite you to contact us at the information given on the back cover and meet the members of our team who are here to help you navigate CEE's power markets. Subscribe today to have your business decisions powered by CARBO. Kind Regards, Parker Snyder

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MEET OUR TEAM

Power Markets

CARBO

POLAND OVERVIEW

SCOPE OF CARBO FI

NO SE

LATVIA

BIOGAS

WIND

LITHUANIA RU

BIOMASS

LAND

UGAL

ESTONIA

OIL SHALE

UNITED KINGDOM NL

POLAND DE

HYDRO

CZECH REPUBLIC

NATURAL GAS

SLOVAKIA LI

SOLAR PV

HUNGARY

FR SLOVENIA

SRB

BiH ANDORA

COAL

ROMANIA

CROATIA

MNE

KOS

GEOTHERMAL

BULGARIA

NUCLEAR

GEORGIA

ARMENIA A

SPAIN CARBO

SCOPE OF CARBO

COMMERCIAL ANALYSIS

3000 2000 1000

SOURCE: CLEANTECH

CARBO

CROATIA

ESTONIA

POLAND

8000

[MW]

6000 4000 2000

LATVIA Latvian power producers also wait impatiently for the decisions of the government. Will Latvian FITs be restored in 2016 and the sector will kick off? In Latvia, as in the other Baltic states, natural gas plays an important role, powering 90% of Latvia’s installed conventional capacity. A risk, however, is that all the resource is imported from Russia, potentially impairing energy security. If Latvia sees further growth in its major renewable power source, hydropower, restricted and development of wind power is hindered by political decisions, the country should go for the increase in biomass-fired CHPs to create more baseload capacity.

0 ROMANIA

[MW]

4000

CARBO COAL PIPELINE

CROATIA

5000

POLAND Poland’s energy policy is likely to change, following a change in the government after Law and Justice (PiS) won power in elections held in late October. The new government will establish a new ministry dedicated to oversee the energy sector. The wider impact of PiS’ shifting priorities in energy policy, which is expected to favor coal as energy source, is difficult to assess. Polish renewable power market is in a period of transition. From 2016, the old system of certificates of origin will coexist with the new auction-based support scheme. Power companies are waiting for the first auction to take place in the first half of 2016, with high hopes and high risks attached to the process. To read more about Poland turn to page 10.

POLAND

CARBO WIND PIPELINE

OVERVIEW Following the accession to the European Union in 2004, the investment potential of Central and Eastern Europe’s (CEE) power markets became much more appreciated. The CEE countries - Poland, Czech Republic, Lithuania, Latvia, Estonia, Slovakia, Slovenia, Hungary, Croatia, Romania and Bulgaria - are the emerging power markets, where abundant renewable energy resources provide fast-rising investment opportunities, unlike in the mature markets of the West. The renewable energy sector in the region has been developing mostly through feed-in-tariffs (FITs). FITs are a policy mechanism designed to support investment in renewable energy technologies by providing them a fee, called "tariff", above the retail electricity price. This mechanism provides long-term stable revenue to renewable energy producers. Apart from FITs, and their variation known as market premium, there also are other support schemes like green certificates (GC) and investment subsidies. Green certificates, also known as Certificates of Origin (CO), can be traded in some countries like stocks on power exchanges contributing to the additional income for asset owners. The amount of possible support in the form of FITs or GC is announced annually by the government, using quotas. With regard to FITs, quota is a set percentage of renewable energy producers that will be qualified for support in a given year. In a GC scheme, quota means a percentage of the GCs that the state will remit in a given year. Between 2009 and 2012 renewable energy policies in CEE were primary driver of growth in the renewable energy sector, and made their way into the wider public debate on energy generation and security. Depending on government decisions concerning support systems, some power markets were developing sustainably, while others - the Czech Republic’s PV sector is a case in point - saturated quickly.

SOURCE: CLEANTECH

CROATIA Another country awaiting a change in renewables’ support system is Croatia. The new renewable energy law, coming into force on January 1, 2016, will end the current FIT scheme and introduce a different support system for eligible power producers. Wind is the dominant renewable energy type in Croatia and it roughly translates into 80%

C O M M E R C I A L A N A LY S I S

COMMERCIAL ANALYSIS CONTINUED share in installed renewable capacity and 6% in power generation, according to 2014 data. The growth in the sector continues, however, and there is 405 MW of wind projects in the pipeline. To read more about Croatia turn to page 11.

however translate into renewable energy investment. Indigenous oil shale, with an 86% share in electricity consumption (2014), remains the principal power source in Estonia, whereas renewables contribute only 12.5%. The dominant renewable energy source is wind and there is one major offshore wind project with over 1 GW in the pipeline. Another technology with pipeline capacity is biomass. To read more about Estonia turn to page 13.

CZECH REPUBLIC The Czech Republic should not have difficulties in achieving the EU-imposed 13% target of renewable energy share in final consumption by 2020, as the country continues public support for wind, hydropower, biomass and geothermal power. It can be expected further growth will mainly take place in small hydropower and wind sectors. After Poland, the Czech Republic is one of the CEE countries where coal still plays an important role in energy generation. The Czech Republic also has over 4 GW of installed nuclear power, the most in the region, ahead of Hungary, Slovakia, Romania, Slovenia and Croatia. It can be assumed that as the European Union’s drive to reduce emissions from the power sector, the Czech Republic will adjust its energy mix and slow down development of conventional capacity, especially coal. That said, Prague, like several of its CEE peers, perceives nuclear power as a clean alternative to fossil fuels.

SLOVAKIA Apart from hydropower, which is the dominant renewable source in several CEE countries, Slovakia has a good potential for solar PV. Nevertheless, with the installed capacity of only 533 MW (2013), there is a lot room for improvement. Can we expect growth in PV next year? There is little hope for renewable energy in Slovakia at the moment, because of ongoing friction between the industry and the government. Renewable power investors might be taking the Slovak government to court over retroactive cuts to FITs imposed by the government, which undermined business cases of many renewable energy projects. The cuts were introduced to reduce the cost of support for renewables, the government says.

LITHUANIA Like its neighbor Latvia, Lithuania produces a significant share of their power in hydroelectric plants. Lithuania’s hydropower sector has 225 MW in the pipeline. However, Lithuania’s cumulative green energy capacity will not change in the second half of 2015 due to exhausted quota for FITs. Nevertheless, over a longer time horizon by 2023, there will be some growth, with 800 MW of wind projects in the pipeline as well as 355 MW in biomass and biogas sectors.

SLOVENIA Slovenian renewable energy support system has recently undergone transformation. From the beginning of 2015 the old FIT system is on hold for new installations. The recently introduced Energy Act is supposed to stimulate sustainable growth in the renewable energy sector. Renewable energy plants connected to the grid after September 2014 are applying for a support through public tenders. Out of available renewable energy technologies, solar power has shown the biggest growth in 2014, with capacity increase of almost 13% year-on-year and we can expect this sector to further develop in 2016. To read more about Slovenia turn to page 12.

ESTONIA Estonia provides one of the most stable FITs in the CEE without restrictions on technology. This does not

CARBO

C O M M E R C I A L A N A LY S I S

COMMERCIAL ANALYSIS CONTINUED HUNGARY Despite Hungary’s great potential for solar energy yield, the photovoltaic market remains underdeveloped with installed capacity of only 38 MW in 2014. The wind sector has second biggest potential, with 329 MW of installed capacity. Nevertheless, the main reason behind the slow development of renewable power was a flawed FIT system. Could it change? The new FIT scheme has been under development since 2011 and its planned introduction for 2014 did not take place. Hungary has not achieved their 2020 EU renewable energy target yet and the new support system was designed to enable growth in renewables to meet that target. According to the Hungary’s Renewable Energy Action Plan until 2020, it was the biomass sector with the biggest expected growth in capacity.

800 600 400 200 CROATIA

LITHUANIA

ROMANIA

BULGARIA Bulgaria is often referred to as a country most susceptible to energy poverty among EU member states. What is more, the country is facing infringement proceedings from the European Commission in the area of energy

SOURCE: CLEANTECH

CARBO

CARBO NUCLEAR PIPELINE 3500

[MW]

3000 2500 2000 1500 1000 500 0 ROMANIA

[MW]

1000

ROMANIA Two markets offering currently practically no commercial opportunities for renewables are Romania and Bulgaria. The Romanian renewable power market used to thrive thanks to the favorable quotas and high value of green certificates. Currently, like in Poland, the Romanian market suffers from a surplus of certificates, which translates into decrease of their market price. Additionally, reduced quotas hinder trading in certificates. We should not expect the government to fix the problem, however, as the 2020 target is within reach despite problems.

POLAND

1200

FORECAST Hydropower and wind are the main renewable sources in CEE in terms of installed capacity. It is solar power, however, that has a big potential for growth. It is up to the governments in the CEE region, if the implementation of PV projects will go in line with the potential. If it comes, however, development might be already late, as investors worldwide are already looking elsewhere seeking a fresh start on markets with no competition and no hurdles in renewable energy policies. Some of the most attractive investment opportunities in PV lie in Africa and the Middle East, with Egypt, Jordan and Dubai as common reference markets in business talks. Polish PV companies bet additionally on Kazakhstan. Kazakhstan is a very exciting emerging market for wind and solar PV investments, especially after the introduction of improved FIT scheme in June 2014. Kazakhstan's first large-scale PV plant of total 50 MW was constructed in April this year. There are also at least three wind farms under development to be launched in 2018. Another interesting lead is Turkey where solar power promises good investment opportunities, but also hydropower, wind and geothermal. This year a 170 MW geothermal plant is scheduled to go online in Turkey. It will be one of the top ten largest geothermal plants in the world. •

SLOVAKIA

CARBO HYDRO PIPELINE

guidelines compliance. The Bulgarian parliament put through an amendment to the energy act, which put an end to FITs for new wind farms and other types of renewable power. The aim was to contain power prices and stabilize Bulgarian energy market. The changes are coming into effect this year for new installations. As Bulgaria’s 2020 target has been achieved already, there will be no more incentivized growth in renewables in the coming years, maybe except for biomass power.

SOURCE: CLEANTECH

C O M M E R C I A L A N A LY S I S

DATABASE

ASSET FORM

DELIVERABLE

SUBSCRIBE TODAY! Barbara Marciniak Project Manager tel: (+48) 883 307 149 email: barbara.marciniak@cleantechpoland.com

WEBSITE

Key Markets

CARBO

POLAND OVERVIEW

POLAND LV

OVERVIEW Poland’s dependence on coal is well known across Europe, with Warsaw’s reputation being one of member states particularly opposed to the EU climate change policy. Both hard coal and lignite play a key role on the Polish energy market covering the majority of the electricity consumption. PGE is the biggest player in coal and power generation with 38% market share. As the megatrend to divest from coal gains momentum, Poland’s coal-fired baseload capacity will become an ever greater liability.

CARBO INTEL Statistics - Country Total installed capacity 38,705 MW Pipeline capacity 22,154 MW Statistics - CARBO coverage Total installed capacity 14,811 MW Pipeline capacity 15,122 MW Who is developing power assets? EDP Renewables Polska, PGE Energia Odnawialna, GDF Suez Energia Polska, Termall Energy CARBO

KEY PIPELINE

2014-2025 LT

3000

LEGEND

RU OFFSHORE

WIND

2000 MW

RENEWABLE ENERGY Poland has a prominent potential for renewable energy and the market is still young. The dominant renewable energy types are wind and biomass burned in cogeneration. Poland is a leader in CEE both in terms of already installed wind capacity of 4 GW and in business opportunities for the future projects. Reported green energy share in 2014 was 10.8%, so to reach Poland’s EU target of 15% there is still a lot to be done. The new support scheme - auction FIT - is coming into force at the beginning of 2016. Many foreign investors see a great opportunity in the new system. The comparison of FIT schemes across CEE shows that currently Poland is the top country in this region to invest.

BIOMASS

NATURAL GAS

HYDRO

COAL

1800 MW

SOLAR PV

NUCLEAR

SK SOURCE: CLEANTECH

AT GENERATION IN 2014 POWER

LEGEND

5.76% Industrial plants

FORECAST Coal will remain the staple energy source. It will provide security to the power system for many years to come. Renewables however, could become the second pillar of the Polish power sector with wind in the spotlight. As for the plans of introducing 3 GW of nuclear power to the energy mix, the final decision will be made by the new government, which took over in November. CARBO gives total forthcoming capacity as 15,122 MW, including e.g. 7,730 MW of coal, 4,070 MW of wind, 3,000 MW of nuclear and 104 MW of solar PV.

85.90% Coal

4.59% Wind

1.61% Big hydro

75-100% 50-75% 25-50%

2.09% Gas

0-25%

0.05% Other RES SOURCE: CLEANTECH

KEY MARKETS

CROATIA AT

ANDORA CARBO INTEL

Statistics - Country Total installed capacity 4,547 MW Pipeline capacity 1,002 MW Statistics - CARBO database coverage Total installed capacity 2,593 MW Pipeline capacity 1,027 MW Who is developing power assets? C.E.M.P., Koncar Renewable Sources, WPD, RP Global CARBO

OVERVIEW LI The power generation is dominated by Hrvatska Elektroprivreda (HEP), which CHis a national electricity company engaged in electricity production, transmission and distribution. The conventional power market, with 24% in electricity generation in 2014, is dominated by big thermal plants owned by HEP using coal, oil and gas as fuel. Import covers 28% of total energy consumption and the majority of import is supplied by the Slovenian-based KrĹĄko nuclear plant.

KEY PIPELINE

2014-2025 HU

LEGEND

500

SLO

RENEWABLE ENERGY In Croatia the renewable energy support system is based on FITs. Existing Certificates of Origin have the sole function of providing proof of renewable energy generation. Renewable power sector is dominated by big hydropower plants. They donâ&#x20AC;&#x2122;t receive any public support, and yet deliver nearly 70% of total electricity generation. IT The biggest green power type supported by FITs is wind with 82% of installed green capacity in 2014. Since 2014 new FITs have been in operation, supporting bigger installations as well. Nevertheless, power producers need to hurry, if they plan to benefit from the current support system. The new law on renewables is coming into force in Jan 2016. It introduces different support scheme for eligible power producers. However, due to extra legal procedures, the new system is delayed and expected to become operational from H2 2016. FORECAST New system, new hopes. In the forthcoming capacity, apart for further growth in wind (405 MW of pipeline) we can also expect biomass (57 MW) and biogas (17 MW) to increase their share in the energy mix. The solar PV sector gets slower with 15 MW of reported forthcoming projects, while biomass is going to triple its capacity according to the current data on the amount of signed electricity purchase contracts.

OFFSHORE

WIND

BIOMASS

NATURAL GAS

HYDRO

COAL

SOLAR PV

NUCLEAR

SRB

BiH

MNE

KOS SOURCE: CLEANTECH

POWER GENERATION IN 2014 AL

LEGEND

23.94% Fossil fuels 0.3% Solar PV

1.24% Biomass

75-100% GR

68.53% Hydro

50-75% 25-50% 0-25%

5.99% Wind

SOURCE: CLEANTECH

KEY MARKETS

CARBO INTEL Statistics - Country Total installed capacity 4,043 MW Pipeline capacity 3,935 MW ANDORA Statistics - CARBO database coverage Total installed capacity 2,624 MW Pipeline capacity 696 MW

SLOVENIA KEY PIPELINE

OVERVIEW Slovenia depends heavily on energy imports, which contribute to over 58% of the total energy consumption 2014. There are three pillars of energy generation market in Slovenia: nuclear, hydropower, lignite-burning thermal power plants. Most of the assets belong to the stateowned Holding Slovenske Elektrarne (HSE). LI Although the strategy is to gradually replace coal with renewable CH energy sources, Slovenia will not give up coal completely and plans to use their abundant coal reserves. To mitigate the impact of climate change, the country is investing in modernization of existing facilities.

2014-2025

LEGEND AT OFFSHORE HU

WIND

696 MW

BIOMASS

NATURAL GAS

HYDRO

COAL

SOLAR PV

NUCLEAR

RENEWABLE ENERGY In the old FIT system, qualified power producers were offered two possible tariffs: a so-called Guaranteed Purchase for small capacities and so-called Operating Support for bigger installations. In 2014, after several years in the legislative pipeline, the Sloven足ian government finally adopted the new Energy Act. However, the Act was received with mixed feelings, as despite many benefits, it will not bring reduction of elec足tric足ity prices. The old support scheme was replaced by new auction FITs starting from January 2015. Apart from hydropower, solar PV has a big potential for development in Slovenia.

SRB

BiH SOURCE: CLEANTECH

POWER GENERATION IN 2014 IT

FORECAST We can expect no major changes in the energy mix. Slovenia will mainly strengthen their base power by adding 1,735 MW of hydropower, 1,504 MW of conventionals and 696 MW of nuclear.

MNE

20.29% Thermoelectric

LEGEND KOS 75-100% 50-75%

37.22% Nuclear

Who is developing power assets? GEN-Energija, HSE Group, Elektro Primorska, VEPA CARBO

7.27% Other

SOURCE: CLEANTECH

25-50% AL0-25%

35.21% Hydro GR KEY MARKETS

Hyd

8% Wind

ESTONIA

63 % Oil shale

al g tur

1100 MW

RENEWABLE ENERGY Interestingly enough, Estonia is one of the few EU member states that already reached their 2020 targets of renewablesâ&#x20AC;&#x2122; share in the final consumption. Wind power, withSE currently 301 MW installed, is the top source of renewable energy in Estonia in terms of installed capacity, followed by biomass. In Estonia, electricity from renewable sources is mainly supported through a feed-in premium tariff. There has been a uniform subsidy rate for new renewable energy installations since 2011. Additionally, investment support is available for specific types of renewable energy production technologies. FORECAST One of the main goals of Estonian state is to increase their energy independence by installing more power generation capacity based on domestic resources. Can we expect a big shift in the nearest future? Not likely. The main project in the pipeline currently is the 1100 MW wind offshore project at a very early stage of development, alongside some oil shale and biomass capacity.

OFFSHORE

WIND

BIOMASS

NATURAL GAS

HYDRO

COAL

SOLAR PV

NUCLEAR

Statistics - CARBO database coverage Total installed capacity 1,518 MW Pipeline capacity 1,140 MW

Statistics - Country Total installed capacity 2,713 MW Pipeline capacity 1,140 MW

LEGEND

nti ve on rc he Ot

CARBO INTEL

2014-2025

Na 4% PIPELINE KEY

OVERVIEW As Estonia is one of the biggest oil shale producers, its power market is heavily dependent on this resource, with an 86% share in electricity production in 2014. The state-owned Eesti Energia is the leading energy company in the Baltic states and the largest company in the world working with oil shale. Conventional power plants are also fueled by natural gas, with the latter coming mainly from Russian imports.

LV SOURCE: CLEANTECH

POWER GENERATION IN 2014 LT

2% Peat

4% Other conventional

Who is developing power assets? Eesti Energia AS, VKG Energia OĂ&#x153;, Nelja Energia

LEGEND

Hydro 1%

10% Biomass 8% Wind

63 % Oil shale

75-100% 50-75% 25-50% 0-25%

4% Natural gas BY

SOURCE: CLEANTECH

PL CARBO

KEY MARKETS

DATABASE

ASSET FORM

DELIVERABLE

SUBSCRIBE TODAY! Barbara Marciniak Project Manager tel: (+48) 883 307 149 email: barbara.marciniak@cleantechpoland.com

WEBSITE

CARBO Intel

CARBO

POLAND OVERVIEW

POLAND - FIT AUCTION WHAT & WHEN Get ready. The auction is about to begin. From 2016, the new support scheme for renewable energy in Poland starts up. We will refer to this system as so called feed-in tariffs (FITs) obtained at auction, or the auction system in short. Only plants launched after January 1 will participate in the auction system. The previous support scheme, based on certificates of origin (CO), will remain binding until December 31, 2015. The owners of renewable energy installations supported by green certificates can decide whether to switch to the auction system or remain in CO scheme. The old support mechanism will last 15 years, or no later than 31st Dec 2035 or 2040 for wind offshore. The exact date of the first auction in 2016 will be announced by the Energy Regulatory Office (URE) by 31 March 2016. In the auction all power types compete against each other in two capacity baskets: below and above 4000 MWh per MW per year.

TOP MARKET PLAYERS

PGE Grupa Energetyczna S.A. YTD 2015 Net income: EUR 250.9 mln ▲ (+172%) Net turnover: EUR 1,686 mln ▲ (+4%) CARBO

tion even between closest business partners, when the lowest possible price per MWh is at stake. PRICE The reference price is the maximum price for 1 MWh that you can get in an auction defined according to technology and capacity. When do I know the auction reference price?

FIT AUCTION - KEY DATA MILESTONES: 2010 - National Renewable Energy Action Plan 2012 - The draft of the RES Act 2013 - Amendment of the Energy Act 2015 - The RES Act in force 2016 - First auction for renewable energy support FIT 2020 - 15% share of renewable energy 2030 - CO2 emissions reduction of 40%

BENEFITS The auction system provides stable financial support to investors for 15 years of project operation. The old system of green certificates is at a disadvantage against the new auction scheme because the prices of CO continue to fall down. Despite challenges and risks investors are excited about Polish auctions and they declare being prepared to participate.

KEY FIGURES*: REFERENCE PRICE:

385 PLN/MWh

GOV. PROFITABILITY THRESHOLDS AUCTION 2016: Max volume of existing RE (shift to auction): 2.3 mln MWh Total budget for the existing RE (shift to auction): 1.7 bln PLN Max volume of NEW RE: 30.9 mln MWh Total budget for NEW RE: 18.2 bln PLN

EXPECTATIONS For some participants it will be quite easy to win and they will get a good price. Other investors, due to extreme competition, will bid on the edge of project realisation, risking bankruptcy. The new system will force power developers to push the efficiency and quality of their projects to the maximum. How much did you pay for the turbines? What is your CAPEX? Hush! The auction system is not going to improve transparency in the market. According to Vestas, there is no room for open conversa-

RISKS: •Underbidding due to overcompetition •Uneven distribution of volumes and financing •Promotion of the cheapest renewable technologies * Source: Draft decree on auction conditions

TOP MARKET PLAYERS

Tauron Polska Energia S.A. YTD 2015 Net income: EUR 263.2 mln ▲ (+2%) Net turnover: EUR 3,317 mln ▼ (-0.6%) COUNTRY FOCUS

POLAND - FIT AUCTION CARBO INTEL

TOP MARKET PLAYERS

Energa S.A. YTD 2015 Net income: EUR 171.5 mln ▼ (-15%) Net turnover: EUR 1,941 mln ▲ (+2%) CARBO

VOLUME [MWh]

800,000

600,000 150 400,000

AVG. SESSION PRICE [PLN/MWh]

200,000 100 7/2015

6/2015

5/2015

4/2015

3/2015

2/2015

1/2015

CHALLENGES Can my project participate in the auction? To be considered for the auction you need to submit documents like: decision on environmental conditions, construction permit, local zoning plan and grid connection conditions. What makes the application complicated, is that these documents have different validity periods. If one of the permits expires before an auction is won, the investor will need to start preparations from the beginning.

12/2014

0 11/2014

Basket of interest technology above 1 MW and below 4000 MWh/ MW/ year

LEGEND 200

1,000,000

10/2014

Expected variation from the calculated value is up to 15%

OLD SYSTEM - GREEN CERTIFICATES

9/2014

CARBO calculates the winning price in the first auction 2016 for wind power to be 290 PLN/MWh

At least 60 days before an auction the prices are announced to the public. How is my revenue secured, if the power market price goes down? The negative balance between the price obtained on the power exchange and the price from the auction will be paid by Renewable Energy Settlement Operator (OREO) within 30 days. Positive balance a power producer returns to OREO at the end of the support period. The opponents of the auction scheme criticise the lack of a minimum price. The lack of the bottom limit can cause underbidding. As a result, some of the winning projects might not be finalized due to lack of resources.

8/2014

NEW SYSTEM - FIT AUCTION

SOURCE: MONTHLY REPORT OF THE POLISH POWER EXCHANGE Wolumen [MWh] Śr. waż. cena [PLN/MWh]

justified. Different groups are trying to exert pressure on the economy ministry to adjust the prices to investors' profitability scenarios. Still, the market is expected to push prices down, otherwise renewables would not be able to compete with conventional energy in many years to come. Is the system well-prepared? The first real auction will show if concerns of power developers are justified.

CONCERNS Some investors fear that because different renewable energy technologies will be competing with each other within one capacity basket, the more expensive ones stand no chance. We can expect that this system is not aimed to promote the most innovative solutions but to promote the cheapest ones. In Sept 2015 a draft regulation with reference prices for the first auction in 2016 was published. The critics say that the prices are too low and hardly diversified depending on the power source, making the competition unfair. Are these prices going to change before the first auction? Most likely not. According to the Polish National Energy Conservation Agency (KAPE), concerns about reference prices, as well as about volumes and budget limits are not fully

TOP MARKET PLAYERS

WIND AUCTION - BASIC DATA* Avg. wind farm CAPEX

PLN/MW

7,380,000

Avg. wind onshore OPEX

PLN/year/MW

78,720

Avg. wind turbine price 2.0MW

PLN/MW

3,382,500

Avg. turbine productivity

MWh/MW/year

2,100

Avg. BoP cost

PLN/MW

1,700,000

* Data we provide are avarage values for Polish wind sector acquired through open source intelligence.

ENEA S.A. YTD 2015 Net income: EUR 102.5 mln ▲ (+106%) Net turnover: EUR 619 mln ▲ (+6%) COUNTRY FOCUS

POLAND - FIT AUCTION GREEN CERTIFICATES [PLN] 2012 Avg. market energy price

179

Avg. GC price

253

Total revenue per 1 MWh

433

2015 Market energy price

172

Avg. GC price

146

Total revenue per 1 MWh

318

Revenue drop 2012 vs 2015

26%

SOURCE: POLISH POWER EXCHANGE

TOP MARKET PLAYERS

Polenergia SA YTD 2015 Net income: EUR 15.6 mln ▲ (+ 83%) Net turnover: EUR 165 mln ▲ (+312%)

RENEWABLE ENERGY SUPPORT The 2012 revenues from renewable energy plants supported by green certificates (GCs) with values around 470 PLN/MWh belong to the past. The revenue drop from 2012 to 2015 can go to ca. 30%. However, one can argue that in the current situation on energy market any total revenue above 300 PLN/MWh is already a good profit.

In the 2nd scenario, with PLN 344 winning bid the payback time would be 10 years what gives the operator still 5 years of support and 5 years of project operation without support and the bottom bid would be PLN 244 with no years of support remaining after payback. My assumption is that the winning bid for this most competitive basket will be between 360 PLN/MWh suggested by the Polish Wind Energy Association PSEW and 244 PLN/MWh, which seems the profitability bottom. This leaves us with ca. 300 PLN/ MWh. If we consider additionally the situation of over competition, the winning bid could be around 290 PLN/MWh.

PROS GC had no restriction as to the MWh/year. In the auction system you need to delivered the volumes you declared when applying. The GC scheme was theoretically more accessible to all technologies as it didn’t have so many requirements. In practice however, cheap cogeneration flooded the market with certificates stopping other technologies from receiving support.

FIT AUCTION - ALTERNATIVE SCENARIOS*

CONS The number of GCs which can be remitted in a given year is restricted by quota. The surplus of certificates continues to grow. After remission of 2014 green certificates in March this year, Polish Energy Exchange (TGE) announced that the GC surplus for 2014 amounted to 9.6 TWh, as compared 7.3 TWh of remaining certificates for the year 2013. As the red certificates for cogeneration with coal have been brought back the surplus of certificates will grow and the GC value will further go down. AUCTION WINNER In the 1st scenario, with PLN 344 winning bid the payback time would be 11 years compared to average 12 years in 2012. In this scenario the asset operator still has 4 years of support and 5 years of project operation without FIT. If we assume PLN 279 winning bid then the payback time equals support period what makes little sense for the investment. It can be assumed therefore that the winning price in the first auction should be above that value to assure profitability.

INDICATOR

UNIT

1st EXAMPLE

2st EXAMPLE

Avg. wind farm CAPEX

PLN/ MW

7,380,000

6,757,513

Avg. wind farm OPEX onshore

PLN/year/ MW

78,720

184,125

Avg. turbine productivity

MWh/MW/ year

2,100

2,554

Reference price

PLN/MW/ MWh

385

Winning bid price carbo

PLN/MW/ MWh

344

244

Annual revenue

PLN/ year

722,400

623,245

Avg. payback time

year

Auction FIT support period

year

Avg. operating life-span

year

* This is a simplified calculation to encourage discussion on economic feasibility of renewable energy plants. It does not include costs of financing, inflation rate and other indicators to be considered in the proper financial analysis. SOURCE: CLEANTECH

CARBO

TOP MARKET PLAYERS

ZEPAK - Zespół Elektrowni Pątnów-Adamów-Konin S.A. YTD 2015 Net income: EUR 5.2 mln ▼ (-70.6%) Net turnover: EUR 550 mln ▲ (+14.4%) COUNTRY FOCUS

CARBO Intel Maps

CARBO

POLAND OVERVIEW

CARBO CEE COVERAGE

TOTAL INSTALLED CAPACITY NO

ESTONIA SE LATVIA RU

DK LITHUANIA

CARBO INTEL Countries with biggest power generation capacity in CEE are Poland, Romania UNITED KINGDOM and Czech Republic, while the Baltic states remain largely dependent on energy imports. Current CARBO coverage depends on the market size and availability of credible data. In the next submission CARBO will increase the CEE markets coverage and extend FR the scope onto other prospective markets.

GAL

2015

BY NL

POLAND

Poland

38,705

Romania

23,703

Czech Republic

21,924

Bulgaria

13,475

Hungary

10,000

Slovakia

8,445

Croatia

4,668

Lithuania

4,355

Slovenia

4,183

Latvia

2,930

Estonia

2,693

SOURCE: CLEANTECH

DE BE LU

CZECH REPUBLIC

CARBO MARKET COVERAGE

SLOVAKIA

HIGH

HUNGARY

SLOVENIA

CROATIA

MEDIUM

ROMANIA

LOW SRB

BiH ANDORA

Country

MNE KOS

BULGARIA GEORGIA

MK CARBO

SPAIN

SOURCE: CLEANTECH

REGIONAL OVERVIEW

ARMEN

CARBO RENEWABLE POWER

RENEWABLES STATE OF PLAY NO ESTONIA

Country

BG LATVIA

There are 7 markets out of 11 CEE countries that are going to provide public support for new renewable energy UNITED assetsKINGDOM in 2016. Poland and Croatia are in the spotlight as the support schemes in these countries are undergoing transformation. Latvia’s FITs are on hold, Hungary is still waiting for the renewable energy law and Slovakia’s support is in trouble over FR retroactive cuts, over which investors are mulling a court action.

CARBO INTEL

2016

LITHUANIA RU

BY POLAND

12.4

25.6

9.8

37.1

11.3

23.9

9.8

21.5

* Share of renewables power in gross energy consumption 2013 ** EU target 2020

DE BE UA CZECH REPUBLIC

SHARE* TARGET** (%) (%)

SOURCE: EUROSTAT

SLOVAKIA

RENEWABLE ENERGY SUPPORT IN 2016

AT LI

HUNGARY

SLOVENIA CROATIA

ACTIVE

ROMANIA

INACTIVE BiH SRB

ANDORA

PENDING

MNE BULGARIA

KOS

GEORGIA MK

SPAIN

CARBO

SOURCE: CLEANTECH

AL REGIONAL OVERVIEW

22 GR

ARMENIA

WHOLESALE ELECTRICITY PRICES FI

ESTONIA

€32.5 SE LATVIA

€37.1

LITHUANIA

€37.0

CARBO INTEL The electricity wholesale prices, the core element of the UNITED KINGDOM final energy price, depend on the power generation mix, market structure, flexibility of demand and pricing mechanisms. In H1 2015 some of the lowest prices in the CEE region were reported in Estonia and the Czech Republic. The highest on the other hand wereFR in Slovenia and Hungary. Poland stays in the middle of the pricing range.

Q1 2015

ANDORA

BY POLAND

€35.4 DE

BE UA

CZECH REPUBLIC

€32.3

SLOVAKIA

€33.0

PRICE PER MWh (€)

HUNGARY

€39.7

SLOVENIA

€40.2

€37-40

ROMANIA

CROATIA

€36.3

NO DATA

€34-€36

BiH

€30-€33

SRB

MNE BULGARIA

KOS

NO DATA

GEORGIA

SPAIN

CARBO

SOURCE: EUROPEAN COMMISSION

AL REGIONAL OVERVIEW

23 GR

ARMENIA

INTERCONNECTION LEVELS

ENTSO-E EXCHANGE 1975-2015 NO

TWh 400

ESTONIA

300

200 100

LATVIA

The EU electricity interconnection target by 2020 is 10%. Interconnecting Europe will contribute to more competitive electricity prices UK and better balancing of the power system. By the end of 2015 Poland’s interconnection level will reach 4% with the completion of the LitPol interconnector facility. Additionally, an interconnector between Germany and Poland is expected to increase Poland's FR interconnectivity to 10% by 2020.

LITHUANIA

2010 2012

2005

2000

1995

1990

1985

1980

1975

CARBO INTEL

2014

External exchanges

ENTSO-E ENTSO-E stands for the European Network of Transmission System Operators for Electricity. It includes 41 TSOs from 34 memeber countries.

BY POLAND

NL DE BE

UA CZECH REPUBLIC

CARBO MARKET COVERAGE

SLOVAKIA AT LI

HIGH [>15%]

HUNGARY

MEDIUM [5-15% ]

SLOVENIA CROATIA

ROMANIA

LOW [<5%]

BiH SRB

MNE BULGARIA

KOS

GEORGIA MK

SPAIN

CARBO

SOURCE: EUROPEAN COMMISSION

AL REGIONAL OVERVIEW

24 GR

ARMENIA

DATABASE

ASSET FORM

DELIVERABLE

SUBSCRIBE TODAY! Barbara Marciniak Project Manager tel: (+48) 883 307 149 email: barbara.marciniak@cleantechpoland.com

WEBSITE

CARBO Database

CARBO

POLAND OVERVIEW

CARBO DATABASE SAMPLE No.

COUNTRY

ASSET NAME

FUEL TYPE

OWNER / PARENT COMPANY

EQUIPMENT

Baczyna

WIND ONSHORE

EDP Renewables Polska Sp. z o.o.

under development

CAPEX / ESTIMATED CAPEX ** [EUR]

CAPACITY INSTALLED / PIPELINE*

DESCRIPTION

120* MW

Expected connection to the grid (...)

BEST CONTACT

PIPELINE 2

Kluczborg (Smardy

WIND ONSHORE

DP Wind 1 Sp. z o.o./Drozapol-

4 WTG Vestas V90 2.0MW

8* MW

Konin - Jóźwin 2A, 2B

WIND ONSHORE

Konin Wiatr Energia Sp. z o.o. /

9 WTG GE

25.3* MW

Equity provided by Vortex energy (...)

Bank loan EUR: 7,500,000

(...)

Ogorje (Vjetroelektrana

WIND ONSHORE

Aiolos Projekt d.o.o. / Akuo

14 WTG Vestas V112/3000

42* MW

It is expected to be functional by (...)

Rudine (Vjetroelektrana

WIND ONSHORE

Vjetroelektrana Rudine d.o.o. / RP

12 WTG GE 2.85-103

34.2* MW

Silute

WIND ONSHORE

Silute Vejo Projektai UAB / Nelja

24 WTG GE - 2.5 MW

197,780,880**

confidential

12,500,000

confidential

72,000,000

confidential

(...)

53,000,000

confidential

60* MW

The asset will be launched in 2015 (...)

119,500,000

confidential

Loans: EBRD (max 271,4 mln PLN), (...)

RP Global Holding owns the

Skurpie

WIND ONSHORE

Farma Wiatrowa 4 Sp. z o.o. /

16 WTG Siemens SWT-2.3-108

36.8* MW

Bałtyk Środkowy III

WIND OFFSHORE

Polenergia Bałtyk III Sp. z o.o. /

under development

600* MW

Project is currently at the stage

(...)

2,460,000,000

60,652,802**

confidential confidential

Hiiumaa

WIND OFFSHORE

OÜ Hiiumaa Offshore Tuulepark /

confidential

1100* MW

Expected construction period

(...)

2,000,000,000

confidential

Krško II

NUCLEAR

GEN-Energija d.o.o.

confidential

696* MW

confidential

(...)

2,000,000,000

confidential

Temelín

NUCLEAR

ČEZ Group

VVER 1000 Type V 320

2,133 / 1,400* MW

confidential

(...)

3,078,735,558

confidential

Oroszlany Powerplant

LIGNITE

Vertesi Eromu Rt / Hungarian

CHP

240 / - 240* MW

Until the end of 2015 - brown

(...)

642,000,000**

confidential

Turów

LIGNITE

PGE GiEK S.A.

coal-fired fluidised bed boiler

1,499 / 450* MW

New capacity is under way.

(...)

Bretea

HYDROPOWER

Hidroelectrica SA

confidential

12* MW

confidential

(...)

confidential 58,000,000

confidential confidential

Elektrownia północ

HARD COAL

Polish Energy Partners Spółka

2 blocks 800 MW

1600* MW

confidential

(...)

2,439,024,390

confidential

Kurzeme Coal Power

HARD COAL

State / Latvenergo AS

CHP, fuel: bitumunious coal (85%), biomass (up

500* MW

confidential

(...)

680,000,000

confidential

Plomin (TE Plomin: TE

HARD COAL

TE Plomin d.o.o. / HEP Generation

Condensing thermal power plant with two units:

330 / 500* MW

The first generating unit, Plomin (...)

528,000,000**

confidential

Bioelektrownia Wińsko

BIOMASS

Polish Energy Partners Spółka

Alstom condensing turbine, boiler DP Cleantech

31* MW

Expected commissioning in 2019. (...)

77,878,048**

confidential

Dunaujvaros

BIOMASS

Hamburger Hungaria

confidential

42* MW

confidential

(...)

6 WTG Senvion MM92

12.3 MW

confidential

(...)

confidential

(...)

confidential

150,000,000

confidential

INSTALLED CZ

Andelka (Andělka)

WIND ONSHORE

WSB Andelka s.r.o. / WSB Neue

Aulepa (Aulepa

WIND ONSHORE

Eesti Energia AS

16 WTG WinWind 3.0 MW

48 MW

Białogard

WIND ONSHORE

Contino Białogard Sp. z o. o. /

2 WTG Nordex N100/2500

5 MW

Cerova

WIND ONSHORE

Green Energy Slovakia s.r.o.

4 WTG Vestas V47/660

2.64 MW

EU PHARE fund provided €1.8

(...)

Crucea

WIND ONSHORE

Sc Crucea Wind Farm SA / Steag

36 WTG Vestas V112/2999

108 MW

Steag holds 100% ownership.

(...)

192,000,000

confidential

Chirnogeni

WIND ONSHORE

EP Wind Project (Rom) Six

32 WTG Nordex N90/2500

80 MW

Bank loans provided by a

(...)

130,000,000

confidential

European Regional Development (...)

confidential confidential

9,493,512

confidential

D AY !

Dolenja vas

WIND ONSHORE

Alpen Adria Energie GmbH

2 WTG Enercon E70 - 2.3 MW

4.6 MW

confidential

(...)

11,500,000**

confidential

Jarogniew - Mołtowo

WIND ONSHORE

Beta Sp. z o.o. / GDF Suez Energia

10 WTG Senvion MM92 2.05MW

20.5 MW

confidential

(...)

30,500,000

confidential

Jelinak (Vjetroelektrana

WIND ONSHORE

Vjetroelektrana Jelinak d.o.o. /

20 WTG Acciona Windpower 1.5 MW

30 MW

confidential

(...)

55,000,000

Kalin (Калин ветропарк)

WIND ONSHORE

Rübsamen Windenergie GmbH

55 WTG Vestas V100

99 MW

confidential

(...)

170,000,000**

Kavarna NW /

WIND ONSHORE

AES Geo Energy

52 WTG Vestas

156 MW

198 mln EUR provided by a

(...)

270,000,000

Kukinia

WIND ONSHORE

AWK Sp. z o.o. / RP Global Sp.

23 WTG ENERCON E82 E2, 2.3 MW

52.9 MW

Co-financed by the European

(...)

ca rb o@ C cle ont an act te us ch a po t: la nd .co m

BS C 27

confidential

87,188,405**

CARBO

confidential confidential confidential

POLAND OVERVIEW

CARBO DATABASE SAMPLE No.

COUNTRY

ASSET NAME

FUEL TYPE

OWNER / PARENT COMPANY

EQUIPMENT

CAPACITY INSTALLED / PIPELINE*

Nowogard

WIND ONSHORE

Gmina Nowogard /

1 WTG Vestas V29-225

0.26 MW

Pope

WIND ONSHORE

Winenergy / Wind One (Indrek

9 Siemens SWT-2.3-101

20.7 MW

Zagórze

WIND ONSHORE

Tauron Ekoenergia Sp. z o.o. /

15 WTG Vestas V80 2MW

30 MW

CAPEX / ESTIMATED CAPEX ** [EUR]

DESCRIPTION Loan by Wojewódzki Fundusz

(...)

Winergy claims the bank is trying (...) confidential

121,426

BEST CONTACT confidential

confidential

(...)

30,000,000

confidential

Societe Generale-Splitska banka (...)

ZD2

WIND ONSHORE

EKO d.o.o. / Porzana d.o.o.

8 WTG Siemens SWT-2.3-93

18 MW

30,500,000

confidential

Corabia

SOLAR PV

Transeastern Power

28,602 polycrystalline REC modules 245 Wp, 14

7 MW

confidential

(...)

21,000,000

confidential

Gdańsk

SOLAR PV

Elektrownia CCGT Gdańsk Sp. z o.

6292 QCELL-s (260 Wp), area 25,000 sq meters,

1.64 MW

confidential

(...)

2,317,073

confidential

Mimoň

SOLAR PV

ČEZ Group

Polycrystalline panels fixed to bearing piles fixed

17.5 MW

confidential

(...)

49,000,000**

confidential

Ucea de Sus

SOLAR PV

Swiss H1 Ventures Holding /

332,000 Hareon thin-film modules, area 200 ha

82 MW

The majority stake holder is the

(...)

100,000,000

confidential

Visonta

SOLAR PV

Matrai Eromu / RWE-EnBW (74%)

72,480 panels, area 30 ha

16 MW

confidential

(...)

20,900,000

confidential

Vrhovo (Hydropower

SOLAR PV

Savske elektrarne Ljubljana d.o.o.

360 PV modules on the roof of the hydro plant

0.08 MW

confidential

(...)

409,000

confidential

Dukovany

NUCLEAR

ČEZ, a. s.

VVER 440 – Model V 213

2040 MW

confidential

(...)

Paks Powerplant

NUCLEAR

MVM Group / Paksi Atomerőmű

VVER-440/V213

2,000 MW

Construction of two new units

(...)

AREJ I, II

NATURAL GAS

Elering

Dual fuel engine, natural gas/fuell oil

250 MW

Elering's emergency reserve

(...)

135,000,000

confidential

Brestanica

NATURAL GAS

Termoelektrarna Brestanica d.o.o.

AEG Kanis - PG 5341, Alstom - GT11N2

323 MW

Funded by European Investment (...)

66,000,000

confidential

Iru (Iru elektrijaama

NATURAL GAS

Iru Elektrijaam AS / Eesti Energia

CHP, f1: Natural gas (units 1&2), municipal solid

207 MW

Unit 1 was commissioned in 1978, (...)

confidential

Hodonin

LIGNITE

ČEZ Group

2 CFB boilers 2 TG sets, fuel: brown coal and lignite,

105 MW

confidential

(...)

confidential

Ljubljana

LIGNITE

Energetika Ljubljana d.o.o. / Javni

CHP, f1: natural gas, f2: fuel oil

124 MW

confidential

(...)

confidential

Cierny (Čierny Váh HPP)

HYDROPOWER

Slovenské elektrárne a.s. / Enel

pumped storage plant, 6x Francis + 1x Kaplan

735 MW

The plant was commissioned

(...)

confidential

Krško

HYDROPOWER

HESS, d.o.o. / HSE d.o.o. and GEN

3 Kaplan turbines x 500 m3 water.sec

39 MW

confidential

(...)

165,000,000

confidential

Tsankov Kamak (Цанков

HYDROPOWER

Natsionalna Elektricheska

2 Francis turbines of 40 MW

80 MW

VA TECH Finance provided the

(...)

500,000,000

confidential

Żydowo

HYDROPOWER

Energa wytwarzanie S.A.

3 Francis turbines

150 MW

confidential

(...)

695,121,951**

confidential

Ostrava - Kunčice

HARD COAL

ArcelorMittal Ostrava a.s.

Under modernisation. In mid 2016 the new a

254 MW

confidential

(...)

Jelgava Power Station

BIOMASS

Fortum

CHP

23 MW

confidential

(...)

27,000,000

confidential

Klaipėda

BIOMASS

Fortum Heat Lietuva and

waste-to-energy: municipal solid waste, non-

11 MW

Nordic Investment Bank provided (...)

140,000,000

confidential

40% funded by the Environmental (...)

924,217,920**

confidential

Pogi

BIOMASS

Pogi OÜ / Eesti Energia

CHP, wood chips

2 MW

Viridas (Viridas Biomass)

BIOMASS

Uni Viridas d.o.o. / Unit

Fueled by solid biomass - forestry and agriculture

9.7 MW

confidential

(...)

confidential 50,000,000

confidential confidential

Ardud

BIOGAS

First Biogaz SRL (a memer of

CHP; Biogest PowerRing technology; fueled by

1.5 MW

Funding provided by Banca

(...)

5,300,000

confidential

D AY !

56 57

Koczała

BIOGAS

Poldanor SA

Two-chamber initial tank 4,000 m3, tank for

2 MW

confidential

(...)

2,439,024

confidential

Popovac

BIOGAS

Energija Gradec d.o.o./

confidential

1.8 MW

confidential

(...)

6,660,000**

confidential

BE RI BS C

CARBO

The database sample is a simplified version of chosen records from the master database. The content in some of the columns is intentinally only partially displayed. The scope of master CARBO database includes the following attributes: Project Name, Fuel Type, Owner, Parent Company, DNO, Equipment Specification, Capacity, Voivodeship, District, Municipality, Address, GPS Coordinates, Equity Funding, Bank Financing, Institutional Support, CAPEX, OPEX, Annual Power Production, Carbon CO2 Output Over Lifecycle, Start Date, End Date, Stage of Project Development, Risk Ratio, Description, Company Contact and Best Contact.

ca rb o@ C cle ont an act te us ch a po t: la nd .co m

* By pipeline we mean forthcoming power assets or additional capacity which is planned or already under construction. ** CAPEX was estimated based on CARBO data.

59 60

POLAND OVERVIEW

CARBO

POLAND OVERVIEW

Data inquiries:

Cleantech Poland Sp z o.o. ul. Krucza 51/31 00-022 Warsaw, Poland email: carbo@cleantechpoland.com www.cleantechpoland.com

Barbara Marciniak Project Manager tel: (+48) 883 307 149 email: barbara.marciniak@cleantechpoland.com

ca rb o@ C cle ont an act te us ch a po t: la nd .co m

D AY !

Contact details:

BS C