Cap on energy prices as a response to the energy crisis in Poland

In response to the challenging situation in the energy market, in early November the President signed the Law on Emergency Measures to Curb Electricity Prices and Support Certain Consumers in 2023 (the “Act”). The purpose of the Act is to protect certain entities, such as households, micro, small and medium-sized entrepreneurs, public utilities, or local governments from the effects of rising energy prices.

The proposed act introduces two mechanisms aimed at reduction of electricity prices in Poland: the mechanism of maximum prices and creation of a special fund.

Maximum prices

The Act obliges energy trading companies to apply prescribed maximum prices, regardless of the increase in electricity prices on the wholesale market and / or actual prices agreed upon in the electricity sales contracts. These prices shall apply to eligible customer groups specified in the Act. Such energy trading companies will then be able to apply for compensation from Zarządca Rozliczeń S.A. (the Settlement Administrator).

The Fund

The Act provides for the creation of a special fund into which excess profits of energy generation companies and energy trading companies are to be transferred. This shall apply to contracts for the sale of energy on the wholesale market (including trading done on commodity exchanges, as well as under contracts for the sale of energy where one of the parties is an energy generator or concluded between energy trading companies, as well as, to sales based on balancing market prices).

RES installations benefiting from either the support system or the auction system under the Polish RES Act are exempted from the above obligation but only with regard to energy sold / settled in accordance with the RES Act.

The fund contribution is to made by both the generators and, separately, by electricity trading companies.  The exact amount of this contribution is the product of the sum of the volume of energy sale on a given day and the positive difference of the volume-weighted average market price of energy sold on a given day and the volume-weighted average cap price of energy sold on a given day.

The detailed method of calculating the price cap taking into account individual generation technologies as well as the method of calculating the cap for energy trading companies is determined in the special regulation issued on 9 November 2022.

Penalties and other issues

The Act also entails a number of additional information and reporting obligations for generation and trading companies. It also empowers the President of the Energy Regulatory Office to supervise generators and trading companies. Administrative penalties are also provided as follows:

  1. For failure to comply with the obligation to apply the maximum price to an eligible group of customers - not less than 0.5% and not more than 5% of the penalized entity's revenue resulting from the licensed activity achieved in the previous fiscal year;
  2. For failing to provide a contribution to the Fund - up to 15% of the penalized entity's revenue achieved in the previous fiscal year;
  3. For failure to provide the Settlement Administrator with a monthly report on the contributions made to the Fund - up to 50% of the due amount of the contribution for the billing month.

Conclusions

The Act is causing mixed feelings in the Polish market. While intervention of the legislator seemed inevitable, it seems that many provisions of the Act have not been adequately thought out. For example the Act puts PPAs, especially financial ones, at risk of no longer being a viable alternative for regular procurement of energy (although some attempts have been made to mitigate this risk in the regulation of 9 November 2022). Furthermore, the envisaged duration of the obligation to make contributions to the Fund exceed the deadlines prescribed in the relevant European legislation, raising the question of its compliance with EU rules.

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