Polish renewable subsidy crash hits biomass

Biomass prices have fallen on average by 25pc in recent weeks as generators scale back buying, pull out of contracts or demand price reductions.

“The biomass market has crashed in just a few weeks,” Polish biomass association Polbio president Jan Bocian said. “Generators have stopped buying biomass.”

A sharp drop in demand for biomass since the beginning of 2013 is the result of an unexpected plunge in the price of tradeable green certificates, which are part of Poland's scheme to support renewable energy. Green certificate prices fell by 70pc from 280 zlotys (€70) in early 2012 to less than 100 zlotys in early February, although in the past week they have recovered to about 180 zlotys.

In Poland, producers of renewable energy — including dedicated and co-fired biomass — receive one certificate for each 1MWh produced. They can trade to distributors, which need to buy a certain part of their energy from renewables. The obligatory level last year was 10.9pc, but in 2013 it was increased to 12pc. Distributors that fail to meet the obligatory level have to pay a compensation fee.

The structure of the Polish scheme itself led to the crash, according to market participants. In March 2012, Polish energy regulator URE suspended a large number of green certificates, questioning whether several types of imported biomass — including palm kernel shell — should be eligible for the certificates. Several distributors agreed to pay the compensation fee. But the regulator then cleared the use of imported biomass and a large supply of green certificates flooded the market. This coincided with a decline in Polish demand for electricity caused by the economic slowdown, which worsened the oversupply.

Polish Energy Partners (PEP), which specializes in the development of wind and biomass projects, estimates that there is currently an oversupply of green certificates amounting to about 5TWh of electricity — in comparison to the total obligation on distributors to buy renewable energy of about 12.6TWh.

Polish lawmakers exacerbated the oversupply by delaying progress on the new renewable law, which was expected to tighten the supply of green certificates.

“The rumour spread in the market that the new law will be delayed or might not happen at all, which caused panic,” PEP president Zbigniew Prokopowicz said.

Biomass is the largest part of the Polish renewable sector, accounting for more than half of renewable generation. About 9.5TWh of electricity was produced from biomass, including more than 7.3TWh in joint combustion of biomass with coal or lignite, according to figures from agency ARE, which monitors generators in Poland. Bocian estimates that Poland consumed up to 8mn t of biomass last year, including 1.5mn t of imports.

But late last year, generators — particularly those involved in co-firing — started to pull out from burning biomass, finding it unprofitable at current commodity prices.

“Many biomass suppliers face an ultimatum from generators — either they reduce prices or lose the contract,” Bocian said.

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