Poland: RES electricity curtailments 2024

For the first time in 2023 market participants in Poland faced system wide RES generation curtailments and negative electricity prices on the spot market. The curtailments were non-market based and affected just a few days. In 2024 however the situation is much different with frequent curtailments taking place in March, April and May 2024, reinforced by new regulations governing compensation payments which were added to the Energy Law framework in the third quarter of 2023.

Redispatching - General information

Real-time adjustments of generation and demand response (DSR) are a natural feature of meshed electricity systems. These adjustments are mandated by their operating characteristics and safety requirements and are recognised by market participants as essential for system balancing. Under normal operating conditions they take the form of redispatching, that is adjusting generation or DSR load, based on offers from market participants and against compensation (market-based redispatching mechanisms are part of the Balancing Market design and are based on the merit order principle). Usually, intermittent RES assets would not act as redispatching service providers unless paired with storage.

Since 2019 regulators and system operators are mandated at the EU level to always use market-based redispatching, that is to procure corresponding balancing services against compensation on the Balancing Market. Only when system operators deplete market-based resources and no alternative is available, or specific network congestion requires attention, they may fall back to non-market-based mechanisms. Non-market-based means mandating assets in a control zone or its designated part to adjust generation or load, without asking for redispatching offers first or without following the merit order. 

As a principle, non-market based redispatching should occur against compensation. The EU Electricity Market Regulation no. 2019/943 sets rules for calculating the minimum fair compensation, however the national regulatory authorities and Balancing Market operators are given considerable discretion on how exactly such compensation is calculated.

When redispatching the EU regulations give priority to electricity generated from RES or high-efficiency cogeneration, with downward redispatching adopted as a last resort, mainly in instances when protecting RES generation would be significantly disproportionate in terms of costs or would pose a severe risk to system security. 

Redispatching without compensation

As part of the 2019 EU electricity market reform (Clean energy for all Europeans) the Commission and EU Member States anticipated what has now become a standard challenge in the energy transition efforts in Poland and many other countries. Due to the intermittent nature of RES assets and the average productivity of currently available technologies, the addition of renewable energy capacities that nominally exceed peak demand is a necessity. However to maintain system stability, some of the simultaneously generated available assets would need to be redispatched, as their total generation would exceed the load of system users.

Naturally, managing supply and demand would become increasingly costly, unless sufficient flexibility services (especially storage) or flexible DSR assets are developed in parallel. This is why the EU Electricity Market Regulation allows for an exception to the redispatching rules, authorising system operators to curtail assets without compensation, but only if investors know about it prior to taking their final investment decision (FID), and at the latest when signing the connection agreement. This is referred to as non-firm connection capacity.

The current standard connection contracts should enable the management of non-firm connection capacity risk through proper alignment of balancing services. We encourage you to reach out to us for specific guidance, which we provide on a case-by-case basis, taking into account the Balancing Market Reform we covered in an earlier insight: Poland: Balancing Market Reform - Electricity.

Redispatching in Polish Energy Law

Until 2023 the Polish Energy Law included a general obligation for generators to comply with dispatch orders from system operators with a specific focus on centrally dispatched units - typically large fossil fuel assets – acting as providers of redispatching services. In recent years, the DSR would provide certain system reserves, however there were no detailed rules governing redispatching as envisaged in the Electricity Market Regulation, especially such that would address occasional oversupply of RES generated electricity.

In July 2023 the Polish Energy Law was amended, requiring the TSO to introduce new, standardised rules for handling both market based and non-market based redispatching to the Transmission Grid Code. For the interim period, generally all assets in the system may be subject to non-market based redispatching, and downward curtailment capacity should be reduced on a pro-rata basis. The affected generator and the TSO should regulate the matter of compensation in the form of individual bilateral agreements. Generators connected to distribution grids would make compensation claims through the interconnecting distribution system operator (DSO).

Compensation - A statutory deadline for claims

It’s important to note that the Energy Law now sets a fixed statutory deadline to submit a compensation request. Generators have 180 days from the end of the month, during which the curtailment took place, to make a compensation request, otherwise their entitlement for compensation would expire.

Redispatching and compensation - The challenges

The TSO published a guide on how compensation would be calculated (except for projects affected by non-firm connection capacity). However, there are a number of challenges associated with this approach, which will require attention, once public consultations of the new comprehensive framework begin.

• In principle the TSO should correctly capture the key compensation factors - lost market value of curtailed electricity, and value carriers resulting out of subsidies for RES (green certificates and auction based CfD settlements).
• However, the TSO uses the imbalance price of electricity to calculate the market value of curtailed electricity. This could prove, at least to some extent, non-compliant with the EU framework. 
• Also, the formula does not reflect the value of electricity resulting out of commitments under long-term power purchase agreements (PPA) or hedging instruments, such as virtual PPAs.
• The formula includes diverse options to calculate the curtailed volume of electricity, depending on quality and availability of forecast data.
• The TSO formula does not clarify how the curtailment decisions work against scheduled transactions, arrangements with balancing responsible parties (BRP) and the various settlement formulas in typical market arrangements (such as a pay-as-produced PPA). 

Conclusion

The Polish regulator acted under pressure to address the long overdue rules on redispatching and associated compensation. Much discretion was left to the TSO, with a number of inconsistencies that need addressing through individual negotiations. We recommend carrying out a detailed analysis of individual exposure both when making the request for compensation to the system operator and when reviewing underlying power purchase agreements (both spot and long-term), as well as relationships with BRPs.

Eventually, key principles will be defined in the TSO's Grid Code, which again will have to be monitored at the stage of public consultations. 

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