CMS, a well-established law firm operating across numerous sectors and borders, was the first to set up a stand alone energy practice in Poland. To date their practice remains the largest in the country, with 30 lawyers focusing exclusively on energy.
The renewables market is very fragmented in Poland as everywhere else - as a law firm, do you find yourselves working more on transactions compared to regulatory advisory?
LS: We do both actually. When new regulations are introduced, the amount of regulatory advice required increases significantly but decreases over time as people attain the knowledge they need.
Transactions, on the other hand, tend to be ongoing - and particularly high at this point in time, given the large number of projects developed following the auctions. Needless to say this reflects the number of equity market players in the sector. For the moment we have not noticed a slowdown resulting from the COVID-19 situation.
Looking at the past 12 months, what regulatory changes have impacted the energy sector in Poland the most?
LS: First and foremost, there have been changes around environmental and low emission schemes (i.e. the Winter Package) and also with regards to the capacity market. The latter was introduced as a new support element allowing construction of conventional generation units. In other words, it created a new product for power companies - aside from electricity, the holder of the capacity market will also be allowed to sell availability of production.
Many CCGT gas fired units have participated in auctions, as well as other conventional units that foresee modernizations. A notable example is that of Dolna Odra power plant, contracted as part of this capacity market – a key factor that allowed the project to be green lighted.
It was, however, the last capacity market auction that allowed coal-fired projects to participate. Does the legal framework already hint at Poland’s alternatives going forward?
LS: The government’s recent position was that Ostroleka would be the last coal plant to be constructed in Poland. Legally, this does not close the door to new construction projects but the market seems to have decided on a different direction. Recently it has appeared that even Ostroleka will be gasified and the likelihood of new coal units is close to nil.
We have big potential with offshore wind farms due to access to the Baltic Sea, as well as onshore wind and PV. Gas-fired units are seen as a reliable alternative, although not the most effective from a CO2 perspective if we think long term. And nuclear is also on table.
Many market players doubt that nuclear will become reality, because of high costs and lengthy development timelines…
LS: Nuclear has been under discussion for approximately 10 years now but there is still no clear idea yet about how to implement it. Even so, I cannot fathom a more viable alternative because renewables and gas will likely fall short of replacing the coal that will exit the system. Perhaps SMR’s will tear up the trails.
Small modular reactors (SMR) might be easier to implement and less cash consuming - though we are talking about a new technology that has not proven operational yet.
Interestingly enough, SMRs tend to go in the direction of private types of arrangement - in Poland we already have such a Memorandum of Understanding signed between GE Hitachi and Synthos and our Czech colleagues are also in the game. Many countries in the region face a similar dilemma - how to finance and also how structure nuclear deals from a contractual point of view. The updated energy strategy will be released this year and I envisage it pursuing this direction.
With regards to offshore wind energy, how does the draft bill respond to needs expressed by the market?
LS: Offshore wind players have made big strides and proved successful even despite the lack of legislation. The next step is to agree on the support scheme - at a first look it seems to be going in a good direction. It proposes measures to support projects that are already advanced, and anticipates a second phase that could come into operation with competitive access to support.
The most important part, however, is that it shows a long term commitment from the government to support offshore, a crucial aspect given the history of onshore wind. Private investors will be able to move forward with peace of mind and without an over regulated market.
In your experience, what are the most common pain points experienced by the industry from a regulatory perspective?
LS: Quality and stability of legislation comes to mind first. Administrative proceedings have a very formal approach and often it is unclear what is required, for instance in permission terms. In my experience developers do not have a problem going through the process itself, as long as they are not interrupted by the authorities.
Poland has great untapped potential in the waste-to-energy space, what is the climate like at the moment?
MB: The appetite of investors to invest in the WtE installations is currently enormous. Undoubtedly, we will see a sizeable wave of new projects in the next two years. At the moment we see an obvious deficit of thermal treatment installations that can process RDF or solid communal waste.
MB: Gate fees paid to operators of waste-to-energy plants in Poland have skyrocketed and at some installations are already higher than in Germany, which means that there is very fertile ground for investors looking to grow in this space.
We see many advanced commercial discussions taking place between local authorities and various entities willing to develop waste-to-energy plants.
In many ways it is up to municipalities to effectively support and promote WtE projects, and one great example is the project in Upper Silesia. This project is now actively supported by the commune’s association. Warsaw is also a considering WtE PPP project. If the City finally decides to go for the PPP project, it will involve the development of the largest WtE plant in Poland, with an annual capacity of 360.,000 tonnes. As for the rest, there will be also several privately funded projects. Let us see which ones move faster than others, but one thing is certain: all the above investments can ultimately lead to the modernisation of the heating and waste–to-energy industries in Poland.
All these processes will be incentivised by the overarching goal of gaining climate neutrality. This neutrality may be achieved sooner than anyone thinks if we use available technology wisely.
Do you already have a sense of how the COVID-19 outbreak will be impact your business/the legal sector in the short and medium term, and have you already taken any measures?
LS: As mentioned above, for the moment we do not see any negative impact in the energy and infrastructure sector. M&A deals are something we observe as we see they potentially may be impacted, however for the moment we have managed to remotely close some transactions through the social distancing time and receive new instructions, both on the sell side and the buy side. Of course, we will, however, try to be careful and analyse the situation carefully when it comes to further development of the market. On an internal note, our firm is managing this difficult time seamlessly. Chapeau bas to the entire team.
