POLAND | Information from the President of the Energy Regulatory Office No. 15/2024

Kamil Zawicki - co-managing partner, leader of Energy & Natural Resources Practice, Kubas Kos Gałkowski, Poland

Patrycja Nowakowska - senior associate, Energy & Natural Resources Practice, Kubas Kos Gałkowski, Poland

Important interpretative guidelines for the application of the commercial mode of connection to the electricity grid

On 22 March 2024, Information No. 15/2024 of the President of the Energy Regulatory Office was published concerning the issues that have recently given rise to the most frequent interpretative doubts regarding connection to the grid. The President of the Energy Regulatory Office [hereinafter: PERO] thus expressed his position with regard to the increasing number of refusals to specify the connection conditions, among other things, in relation to the commercial mode of connection to the grid. The PERO’s position may be helpful to both operators and applicants, in particular producers of electricity from renewable energy sources, in the processing of applications, all the more so as the Regulator’s opinion can usually only be obtained in the course of specific administrative proceedings. However, it should be borne in mind that the Regulator’s interpretation is abstract and that each individual case may be assessed differently.

Public law and commercial modes

In general, issues related to connection to the electricity grid are regulated by Article 7 of the Energy Law. Pursuant to section 1, an energy enterprise engaged in the transmission or distribution of electricity is obligated to conclude a connection to the grid agreement with entities requesting connection to the grid on terms of equal treatment and connection of Renewable Energy Sources installations in first order if it is technically and economically feasible to connect to the grid and supply energy and the applicant meets the requirements for being connected to the grid and taking supply. Thus, operators are obligated to connect applicants if the technical and economic conditions are met. It is a public law obligation to conclude a connection agreement, so operators do not enjoy complete freedom in this respect. Thus, Article 7 (1) of the Energy Law establishes the prerequisites for the application of the ‘public law’ mode of connection to the grid.

Pursuant to Article 7 (9) of the Energy Law, if the energy company refuses to connect to the grid due to the lack of economic conditions, it may conclude a connection to the grid agreement in which it determines the connection fee in the amount agreed with the entity applying for connection to the grid. This is the ‘commercial’ mode – the fee is determined on an individual basis, independently of the rules provided for in the generally applicable legislation. In addition, as of 15 December 2022, section 9a stipulates that the construction and expansion of sections of the grid used for connecting installations belonging to the entity seeking connection to the grid may be provided by the entity seeking connection in agreement with the energy company.

Technical and economic conditions - how does PERO understand them?

The provisions of the law do not define the prerequisite of technical and economic conditions, leaving a certain discretion to the operators themselves, who naturally have the best knowledge of their grid and its connectivity. In its stance, the PERO first and foremost clarified how the absence of technical and economic conditions should be interpreted.

As indicated by the President of the ERO in the commented stance: ‘The technical and economic conditions for connection to the grid are strongly correlated; therefore, the situation of refusal to conclude a connection agreement solely due to the lack of technical conditions for connection to the grid should only be limited to cases where the connection to the grid is impossible in the current and future state of the grid, regardless of the expenditures made. Other cases of refusal based solely on technical grounds should be considered unfounded.’ The PERO based his position on the following arguments: ‘According to established doctrine and some case studies, the absence of technical conditions for connection is to be understood as a permanent technical obstacle that cannot be removed despite attempts to do so. Therefore, to speak of the absence of technical conditions for connection, there must be objective and irremovable obstacles preventing the implementation of the investment aimed at connecting the installation or premises of the entity seeking to conclude the agreement. These are, therefore, highly exceptional situations which should be described very precisely in the refusal to issue connection conditions. (...) It is, therefore, assumed that technical conditions are primarily objective, and their possible absence is irremovable, also in the economic realities of the case in question, and the company’s development plans providing for network modernisation remain an important piece of evidence.’

As regards the interpretation of the economic conditions, the President of the ERO stated: ‘Within this prerequisite, the connection should be considered in the category of expenses that the company has to incur to connect the installation to the grid and the avenues for obtaining the possible funds for this purpose. In this context, it is also relevant to consider whether the current development plan of the company provide for the expansion of network facilities necessary for the connection, as this secures the costs of network expansion due to tariff revenues, or whether it is possible to obtain external financing, e.g. grants, special funds, EU assistance programmes or other means, e.g. connection fees pursuant to Article 7 (9) of the Energy Law.’

It appears that for the Regulator, the development plans, as objective documents reflecting the actual state of the grid at present and in the future, play the main role in assessing the actions of operators in the context of the existence of technical and economic conditions. It is primarily on the basis of their analysis that the PSOs should examine applications for the determination of grid connection conditions.

The PERO’s final conclusion may lead to a broader range of cases where a commercial mode of connection can be applied: ‘Thus, in a situation where connection to the grid is technically feasible, but only the expansion of the grid necessary for its implementation is not included in the company’s development plans, the refusal to conclude a connection to the grid agreement should be justified by the absence of both technical and economic conditions, with the consequences resulting from the provision of Article 7 (1²) of the Energy Law. The actions of the PSO in such a situation, consisting in referring only to the lack of technical conditions and omitting the obstacle of the lack of economic conditions, may be evidence of an attempt to circumvent the provisions of the Energy Law in order to evade the obligations arising from Article 7 (1²) of the Energy Law, and thus may be subject to evaluation from the point of view of the provisions of Article 56 (1) (15a) of the Energy Law. The abovementioned improper practice results in the entity applying for the connection being deprived of the possibilities specified in Article 7 (9) of the Energy Law’. However, the Information also points to the need for a detailed analysis of each commercial connection case as a derogation from the general rules: ‘The conclusion of connection agreements in the commercial mode, in which the connected entities finance the necessary reconstruction of the grid serving the connection, constitutes an alternative – besides the tariff-based – source of financing for the expansion of the network, and each such initiative should be particularly carefully examined by the PSO as a source of financial support in relation to ‘public’ (tariff) funds, since it does not burden all consumers, but above all the entities that want to carry out a given economic activity.’

Despite the fact that failure to provide an estimated charge for connection in the commercial mode, when the conditions for doing so are met, may be subject to a fine according to the PERO’s opinion, operators must not overlook the principle of equal treatment. The commercial mode does not, under any circumstances, exclude its application.

The PERO indirectly encourages operators and requesting entities to engage in dialogue even when a dispute arises from a refusal to specify connection conditions: ‘It should also be emphasised that, in the opinion of the Regulator, it is possible and justified to undertake negotiations on a commercial basis also with entities that have applied to the President of the ERO to resolve a dispute on the refusal to conclude an agreement for connection to the grid. In accordance with the applicable rules, a dispute with the PSO does not prevent an entity applying for connection from concluding a connection to the grid agreement both pursuant to Article 7 (9) and the public law procedure under Article 7 (1) of the Energy Law Act (irrespective of the pending administrative proceedings). The essence of the dispute is the assessment of the specific refusal to conclude an agreement for connection to the grid, while the fact that the entity applying for connection remains a party to the dispute does not deprive it of the right to use the institutions provided for in the Energy Law Act, and the PSO is not released from the obligations arising from Article 7(1) of the Energy Law Act if the conditions for connection to the grid are met.’ The President also indicated that, in principle, the connection power could be the subject of negotiations between the parties: ‘Importantly, at present, in each case of connection of a source or electricity storage, the connection power of this source or electricity storage may be less than or equal to its installed electrical power’.

Of course, the Regulator’s call for the commercial mode to become more widespread is to be welcomed. However, we cannot allow a situation where only investors with sufficient resources are able to connect to the grid and finance infrastructure development as if alongside operators. The problem of the unavailability of connection capacity is broader and also relates to the phenomenon of applicants blocking connection capacity solely for the purpose of checking network availability in several variant locations.

Blocking connection capacity

The PERO also referred to this practice: ‘With regard to the repeated/multiple submission of applications to specify the terms and conditions of connection for a given RES installation in different locations or indicating a different connection location, it should be noted that the entity applying for connection to the grid has the right to apply for connection at a specific location of the grid and the PSO should verify this location and only in the case of the inactivity of the party in indicating the connection location, the PSO should independently select the connection location. The criterion used by the PSO to select the connection point should be clearly defined (e.g. the nearest main feeding point) and communicated to the applicant for connection so that the PSO’s procedure is transparent and does not raise doubts as to the equal treatment of entities applying for connection.’

Importantly, the President of the ERO confirmed that PSOs should not reserve connection capacity pending the resolution of the dispute before the President under Article 8 (1) of the Energy Law, as if the connection conditions were to be specified, because: ‘By denying connection to the grid, the relevant PSO has concluded that technical and economic feasibility does not exist so that taking this capacity into account subsequently when assessing the impact of subsequent installations on the grid would constitute an unjustified blocking of connection capacity. It would, therefore, significantly restrict the possibility of establishing connection conditions for other facilities and provide grounds for unequal treatment of market participants. Only in a situation where the PSO has confirmed the existence of technical and economic conditions for connection by issuing connection conditions, while the disputed issues in the content of the proposed agreement concern other areas, should the connection capacity of the disputed facility be taken into account when considering applications from other entities for specifying connection conditions.’

The Information also clearly states that a change in the location of the RES installation after the connection conditions have been issued will result in the need to submit a new application for specifying connection conditions unless a connection agreement has already been concluded – in such a situation, an amendment to the existing agreement may be considered, even if it was concluded as a result of a dispute settlement before the PERO. However, each such case should be considered on a case-by-case basis to avoid the mass modification of already concluded connection agreements under completely different conditions and in different locations.

We will certainly have to wait for the practical implications of the PERO’s position. Complete information is available here: https://www.ure.gov.pl/pl/urzad/informacje-ogolne/komunikaty-prezesa-ure/11816,Informacja-nr-152024.html

For further information on this topic please contact Kamil Zawicki or Patrycja Nowakowska at Kubas Kos Gałkowski by telephone (+48 12 619 40 40) or email ( [email protected]) or [email protected]). The Kubas Kos Gałkowski website can be accessed at www.kkg.pl.