Insights into the legal environment for large-scale energy storage in Poland

Krzysztof Cichocki

Sołtysiński Kawecki & Szlęzak, Warsaw

krzysztof.cichocki@skslegal.pl  

Introduction

Poland’s renewable energy market continues to grow dynamically. The scale of this growth is such that the main problem facing investors in the development process is the shortage of interconnection capacity (grid congestion) and, as a result, difficulties in connecting renewable energy installations to the grid. At the same time, a large number of existing weather-dependent renewable energy sources such as PV or wind installations force the balancing of a fluctuating production profile.

Large-scale energy storage could be the answer to both of these problems. It could be argued that without energy storage, further development of the renewable energy systems (RES) market in Poland, while maintaining grid stability, will be difficult, especially given the obligation to meet increasing EU targets for the share of RES energy in the national energy mix and ambitious GHG emission reduction targets.

Since the introduction of provisions on energy storage into the Polish legal regime in July 2021 (subsequently amended and supplemented), we have seen a significant year-on-year increase in storage projects, particularly in battery technology. This is also affected by new opportunities to implement specific business models, such as the capacity market, price arbitrage or the provision of ancillary services.

Below is a summary of the key legal aspects relating to the operation of energy storage in Poland, especially in light of the recent legislative developments and the noticeable growth of storage projects.

Connection to the grid of energy storage facilities

One of the most important elements in the development of energy storage is the connection to the grid of the distribution system operator (DSO) or – for the largest scale energy storage – connection to the grid of transmission system operator (TSO). This process is initiated by the investor filing an application for the issue of connection conditions to the DSO/TSO.

At the time of applying for the connection conditions, the investor should at least hold a decision on land development (zoning decision) for the energy storage facility or a confirmation of the compliance of the location of facilities with the local zoning plan. In addition, for an energy storage facility with a capacity exceeding two MW, an expert report on the impact of the storage facility on the energy system is also required.

Once the grid connection conditions have been issued, the investor and the DSO/TSO conclude a grid connection agreement within the validity period of two years. The agreement specifies the work schedule and each party’s obligations and establishes the date of connection. The investor is also required to pay the connection fee. An advance payment towards the connection fee is made with the connection conditions application, while the full connection fee is paid within the connection works. Under Polish Energy Law, the connection fee amounts to 50 per cent of the actual expenditure incurred for the construction of the electricity connection.

It should be noted that in the case of a RES installation the investor bears the entire cost of building the connection line between the DSO’s/TSO’s grid and its facilities. In the case of energy storage, half of the costs are borne by the DSO/TSO.

Regardless of the fact that energy storage facilities alleviate the effects of the unstable nature of the operation of RES installations and stabilise the operation of the grid, an investor wishing to obtain connection conditions may face obstacles. So far, it has happened that system operators, when considering applications for the grid connection conditions, have treated energy storage facilities as generation units which can potentially inject energy into the grid when the grid is overloaded. This has resulted in a refusal to issue connection conditions due to insufficient connection capacity.

Such an approach is fundamentally flawed from a business perspective, as the storage owner would not be injecting energy into the grid when it is congested and energy is at its cheapest on the market. The energy from the storage would be injected when there is a shortage of energy on the grid and the price is high, helping to balance the energy system. Given the growing demand for large-scale energy storage in the Polish power system, it can be expected that such barriers will be removed in subsequent amendments to the law or changes to the practice of system operators.

In the event of a refusal to connect an energy storage facility to the grid, the investor can appeal to the Polish regulator: the President of the Energy Regulatory Office.

Requirement to obtain a licence

The Polish legislator has introduced the licensing of energy storage operations above the threshold of ten MW of energy storage installed capacity. In such cases, the investor is required to apply to the Polish regulator for a licence and to obtain it before starting operations. The procedure for obtaining a licence can be time-consuming, due to the requirement to provide a number of documents as well as a business and financing plans. Therefore the application should be submitted at least several months before the planned start date. At an earlier investment stage, it is also possible to obtain a promise of a licence, which is often required to obtain financing or participate in the capacity market.

The procedure is simplified for smaller storage facilities with an installed capacity of up to ten MW. Such installations are subject to registration in the register of energy storage facilities maintained by transmission grid operators. The operator is required to make an entry to the register within 14 days.

Business models

From a business perspective, a key aspect is a model in which energy storage can operate and the potential revenue streams. Currently, the revenues generated by an energy storage facility can be derived from three main sources: capacity market, ancillary services or price arbitrage.

The aim of the capacity market, introduced in Poland in 2018, is to provide additional capacity in the power system at times of shortage or increased demand for energy. Entities which can offer readiness to deliver power/capacity at the request of the TSO and which have won the capacity auction are required to provide the capacity commitment in return for remuneration. In 2018-2021, the auction winners were mainly owners of conventional installations, such as gas power stations. A marked breakthrough came in the auction held in December 2022, in which a 17-year capacity contracts were awarded to five large-scale battery storage facilities with a total capacity of around 165 MW.[1] At the final capacity auction held on 14 December 2023, the capacity contracts were awarded to around 30 large-scale storage facilities for a total capacity of around 1.7 GW. On the capacity market in 2023, around one GW of power from foreign units (including Swedish, Slovakian and Czech units) was also contracted. The closing price of the main auction was PLN 244.9/kW/year, compared to PLN 406.35/kW/year in 2022.[2]

In order to take part in a capacity auction it is necessary to have secured grid connection conditions and, once a capacity contract has been awarded, to comply with the Polish Capacity Market Act’s other regulations. These include maintaining financial collateral or being subject to detailed verification of the fulfilment of so-called operational and financial milestones and the degree of investment progress.

The threshold for energy storage in order to participate in the capacity market is the requirement to provide capacity for a continuous period of at least four hours. However, the emergency period during which owners of capacity market units are required to fulfil their capacity obligation can last for a continuous period of up to 15 hours (from 0700 to 2200). In an extreme case, this would mean that the energy storage would have to maintain the capacity and to deliver it to the grid throughout this period, which may not be feasible.

On the other hand, it is unlikely (although it cannot be completely ruled out) that the emergency period would last for so many hours. To date, the Polish TSO has declared a state of emergency lasting for two consecutive hours. Nevertheless, there remains a risk of failure to meet the capacity requirement in the case of energy storage. This risk should be mitigated by the legislator by adapting the maximum length of the emergency period to the technical conditions of operation of energy storage. Notwithstanding these requirements, it appears that capacity contracts are currently becoming the primary revenue model for large-scale energy storage in Poland.

Participation in the capacity market may be supplemented by the provision of ancillary service to the electricity system operator. Such a possibility was introduced by the latest amendment to the Energy Law, which came into force in September 2023. Ancillary services are services necessary for the operation of the power system, including balancing service and other services such as voltage control, fast reactive current injections, short-circuit current etc. Under the new rules, system operators will procure ancillary services on the basis of transparent and non-discriminatory market procedures.

A third possible business model for energy storage is price arbitrage, which takes advantage of electricity price spreads throughout the day. This involves purchasing electricity from the grid when it is at its lowest price (high RES production, low demand), storing it and selling it later, at higher prices, during peak demand or low production from RES.

The above is not an exhaustive list of potential models for the operation of energy storage facilities. For example, it is also possible for energy storage to operate as part of a RES installation, which allows such a RES installation equipped with storage to participate in incentive schemes, provided that they are equipped with separate dedicated meters.