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Position on the result of negotiations concerning the Market Design Regulation and the Market Design Directive

The Polish Electricity Association (PKEE) welcomes the provisional agreement on the completion of the last of the Clean Energy Package files which are crucial for the completion of the Energy Union. The result is a product of long series of talks between the negotiators in the EU. PKEE was an active stakeholder during discussions in Brussels and European capitals.

The new legislation will ensure the capacity market is working together with the renewable energy sources. For countries like Poland, this should translate to energy security and certainty of energy supply. The Polish capacity market is technologically neutral and already coherent with the State aid rules. Moreover, it ensures the development of demand-side response, as recent auctions have shown. 

While the Polish power sector is constantly reducing its emissions by improving energy efficiency and moving towards renewable energy sources (inter alia offshore and PV), we welcome that the co-legislators strive to make the market fit for the integration of a higher share of RES. The final shape of Market Design Directive covers the price comparison tools, smart meters and dynamic electricity price contracts, which can be understood as more flexibility to the market and better consumer protection.

One of the major issues discussed during trilogues was the 550 Emissions Performance Standard in the Market Design Regulation which limits the possibility of high-emission generation to obtain payments from capacity mechanisms. Introduction of this standard results in a confusion between the environmental and energy files. The overlapping policies do no good to the CO2 market or to electricity production. This view was rightly shared by the Rapporteur of the market regulation. This should be taken into account when planning the ETS reform next year. 

We would like to underline the importance of confirming the acquired rights for the power sector. We therefore welcome the grandfathering of contracts concluded before 31.12.2019. Protection of the legitimate expectation is key taking into account long term investment.  The Commission clearly stated in the recent State aid decision that without the capacity mechanism, the Polish security of supply will be put at risk.

We took note that for the rest of existing plants (without contracts signed before 31.12.2019), there is a derogation to the limit 550 until 1 July 2025 while the emission cap will apply on new plants that started commercial production after date of entry into force of the Regulation. We consider this time limit as a challenge which Polish electricity sector will have to solve. It is only a short term solution, because it gives less time to replace energy sources in order to provide security of supply and emissions’ reductions.

It should be also acknowledged that the negotiators have agreed upon the Just Transition clause, which aims to facilitate Member States’ efforts to provide carbon-neutral future for the carbon-dependent regions. However, the financial support is to be determined by the forthcoming negotiations concerning Multiannual Financial Framework for 2021-2027 period including the structural and cohesion funds.

According to Eurelectric’s study results, placing the Polish electricity sector on a pathway towards full carbon neutrality by 2045 would require at least EUR 20bn of additional investments in generation assets alone on top of EUR 128bn required by a close-to carbon neutrality scenario. As the costs of the full carbon neutrality scenario result in EUR 147bn of total investments in generation assets alone, they overlook the costs of stranded assets that would certainly further increase the overall system costs further.

The total transition cost may be even higher – due to the additional operational cost caused by the carbon price. It is estimated that the total carbon cost may cause EUR 68-85bn cost depending on the reduction scenario.

The final text will be further analysed and assessed regarding its impact on the market, while the agreements on both files will be formally adopted by the European Parliament and the Council prior to the European elections.