
While everyone agrees the capacity market (CM) is the foundation of the business case for BESS in Poland, that might not always be the case, one developer suggested.
The 17-year contracts for the provision of standby capacity during stress events are auctioned out each year, with 1.7GW of battery energy storage systems (BESS) winning last year and a similar sort of amount expected this year, according to most delegates asked at the Energy Storage Summit Central and Eastern Europe (CEE) 2024 last week.
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But, as others have said, the main benefit of the CM in Poland is its fixed revenues and the advantage this brings to discussions with lenders for financing projects, said Michal Maćkowiak, executive director of Harmony Energy Poland, local arm of the UK developer of the same name. Last year’s clearing price was PLN 244.90/kW (US$64.01) per year, and obligations start five years after the auction.
The conversation nicely complements our ESN Premium interview with Jan Kloczko at independent power producer (IPP) Greenvolt, which swept the board in last year’s CM auction, taking 1.2GW of the total 1.7GW awarded to battery storage. In the interview published last week, Kloczko discussed the time and cost-intensive bidding process and the auction’s de-rating for batteries, among other topics.
Incidentally, last week the European Commission (EC) approved the Polish government’s €1.2 billion scheme to support at least 5.4GWh of electricity storage deployments. Around half the capital cost of eligible projects of 4MWh capacity or more will be supported by the scheme under the European Union’s Temporary Crisis and Transition Framework (TCTF). While the industry awaits the implementation and impact of that framework, the CM still looks to be the main game in town for Poland’s developers, IPPs and investors.
Capacity Market (CM): ‘not just 17 years of free money’
“Eventually the CM might also not be the best and more economical use of your capacity, it’s mainly beneficial for financing projects right now. In the UK it’s only 5-10% of revenues,” Maćkowiak said, speaking to us at the two-day event in the Polish capital Warsaw.
Harmony Energy Poland bid in around 500MW to last year’s auction, unsuccessfully, while this year it will bid in 400MW split across two BESS projects.
“At first glance, it did look like the de-rating factor cut killed the business case for BESS but it’s not quite the case,” Maćkowiak said, commenting on the de-rating cut from 95% to 61%, which he also commented on during a panel discussion at the event.
“We’ve gone for 2-hour systems and the de-rating factor affects those a bit less. Since the CM contracts are for four hours of discharge and a 4-hour project might rely on it more for revenues, our 200MW projects will bid into the upcoming CM auction with 61MW of their capacity.”
He also said that, alongside the possibility that the CM might not be the most economical way of using your capacity once projects are online and the revenue stack is more developed, many people underestimate the CM’s challenges.
“Many people bidding into the CM don’t have any clue what obligations it comes with. Some see it as 17 years of free money. It is five years until the obligations start but a lot has to happen far ahead of then. You need to spend some money and procure equipment to show financial milestones to the transmission system operator (TSO) to demonstrate your project will happen,” Maćkowiak said.
“The stress tests will increase in frequency, and the TSO might end up calling for longer durations than four hours too, and there are financial penalties for failing to fulfil your obligation.”
Maćkowiak said slightly more BESS have been certified for this year’s auction as last year’s, which was 16GW, and a ‘similar ratio’ of projects should win contracts.
‘New government has been good news for energy storage’
Harmony Energy Poland is aiming to start construction on its two 200MW BESS projects early next year, Maćkowiak said. Both have non-appealable building permits.
The government of Poland changed in December 2023 to one led by Donald Tusk of the centrist Civic Coalition, after eight years of the Law and Justice party (PiS), a right-wing populist and national-conservative group.
This is good news for the clean energy and energy storage industry, Maćkowiak said, but getting projects online still requires a lot of work.
“Under the old government the EU blocked money due to disagreements, while the new government is pro-EU and this has unlocked a lot of funding for investments. On top of the capacity market (CM) there is €16 billion for energy transition investments and another €1.2 billion for large-scale stand-alone energy storage systems for grid optimisation.”
“What we now need is a good quality pipeline of projects that can be built, as a lot of the ones out there right now are poor quality.”
Maćkowiak also shared his thoughts on who will be the main BESS integrators supplying their technology for Poland’s pipeline of large-scale projects.
“In principle the main players in the market will be for sure Tesla, Fluence, and then some newcomers like Envision, Hithium, BYD, LG and Samsung. Degradation and augmentation are really important in Poland because of the CM and the general long life of these projects. Having gigawatts online in the UK helps with the market’s understanding of this, because without that you can only rely on what the suppler is saying.”
Poland part of Harmony’s international expansion
Note that Harmony Energy Poland’s UK-based parent company Harmony Energy has used Tesla for all its UK projects to-date, all 2-hour systems. This would make using Tesla’s 2-hour solution a logical choice for its first projects in Poland too, though the firm has not revealed the choice of supplier for those yet.
Those total 395.4MW/790.8MWh of capacity across eight projects, all under the Harmony Energy Income Trust (HEIT), a listed vehicle managed by Harmony Energy, with first refusal on projects it develops in the UK.
Harmony Energy is also active in Germany and France, with a ready-to-build (RTB) pipeline and construction set to begin on France’s largest BESS project at 100MW/200MWh, also using Tesla Megapacks, the firm claimed recently.
However, as with all operators HEIT has seen plummeting revenues in its UK projects, to the extent that the fund is considering, and may be close to, selling the entire portfolio to demonstrate how much the market is undervaluing it.
Maćkowiak’s colleague Piotr Czembor also spoke at the event in Warsaw last week, on the ‘What is the Forecast for Poland?’ panel discussion on Day 2, pictured at the top of this article.