A few legal notes on the first auctions for renewable energy sources

by Piotr Mrowiec

3 March 2017

First RES auctions

The first auctions for renewable energy sources in Poland were held on 30/12/2016. Four separate auctions were scheduled, namely (1) for existing agricultural biogas plants with installed capacity not exceeding 1 MW (Ordinary Auction no. AZ/1/2016); (2) for existing agricultural biogas plants with installed capacity exceeding 1 MW (Ordinary A uction n o. A Z/2/2016); f or n ew ( so-called o ther) plants with installed capacity not exceeding 1 MW other than referred to in Article 73(3a)(1)–(3) and (6) of the RES Act (Ordinary Auction no. AZ/3/2016); and (4) for existing plants with installed capacity not exceeding 1 MW that meet the criterion of installed capacity utilisation factor – in excess of 3504 MWh/MW/year and CO2 emission not exceeding 100 kg/MWh.

Technical issues

In accordance with the new regulations, the auctions were held exclusively via a special Online Auction Platform (OAP). Participants of the December auction reported some technical issues ranging from problems with logging to the OAP and placing bids, numerous error messages, to problems with placing the electronic signature. As a result of those problems, some investors were unable to place their bids on time.

In effect, one of the auctions, namely the auction for existing agricultural biogas plants with installed capacity exceeding 1 MW (Ordinary Auction no. AZ/2/2016), was not conducted at all because of insufficient number of bids. This is because Article 78(5) of the Renewable Energy Sources Act says that an auction may be conducted only if at least three valid bids that meet the statutory requirements have been placed, and in auction no. AZ/2/2016 there was only one bid placed. The Energy Regulatory Office (ERO) has announced that the three other auctions were valid.

Standpoint of the Energy Regulatory Office

The consequences of technical errors in the OAP, including inaccessibility of the platform, are regulated in the rules of auction for electricity produced from renewable energy sources 2016 (the "Auction Rules"). According to the Auction Rules, the ERO President should invalidate an auction if it could not be conducted for technical reasons. The technical reasons that render an auction invalid include breakdowns caused by technical issues on ERO's part as a result of which:

• an auction could not start or end at times specified in the auction announcement;
• the OAP was inaccessible for at least 15 hours during the auction session;
• the access to the OAP was interrupted in the last 90 minutes of the auction session,
  or
• the ERO President has reasonable doubts as to the security and correct conduct of the auction session.

However, the ERO saw no reasons for invalidating the auctions. In its public communication the ERO stated that the OAP users indeed reported, and the system developer later confirmed, that during the session on 30/12/2016 some users had difficulties with the auction platform manifested in the form of extended logging time and protracting placing of bids. However, at times when those users claimed that they could not access the OAP, other users managed to place their bids successfully. The ERO announced that the OAP data analysis showed that enterprises successfully logged to the system in every hour of the auction session even though some enterprises reported that they were unable to place bids. Consequently, the ERO's view is that the suboptimal accessibility of the OAP did not make the auction impossible. In other words, the technical issues were immaterial. Therefore, the ERO has officially announced the results of three auctions and said that one auction was not conducted because less than three valid bids meeting the statutory requirements were placed.

What's next?

Without doubt, the issues with the first auctions on 30/12/2016 and the ERO's view may seriously undermine the trust among the present and future investors when it comes to (further) investments in the RES in Poland.

Leaving aside the organisational aspects of the auctions, the question is if the investors who were unable to effectively place their bids during the auctions may claim compensation.

Above all, the investors who have paid a deposit or supplied a bank guarantee to participate in the auction but whose bids did not participate in the auction, or investors who did not participate in the auction (for whatever reason) or who withdrew their bids, need to submit a relevant request to the ERO if they want to claim back the deposit (or the bank guarantee). Without such a request the ERO will not give the security back and will conclude that the investor has decided to leave it with them for the future auctions. Furthermore, claims against the ERO (the State Treasury) from investors who were unable to place their bids for technical reasons cannot be ruled out. Formally speaking, there is no ruling which could be challenged because their bids were not placed, meaning that they officially did not participate in the auctions. However, it seems plausible that such investors could seek damages according to general principles. Of course, they would have to determine the amount of damage they suffered, identify the cause of the damage, and demonstrate the causal nexus between the cause and the damage.

If any such lawsuit is filed, the common courts will have todeal with a legal and factual assessment of the technical problems during the auction, their impact on the investors' ability (or inability) to place bids, and the legal nature of the Auction Rules in the context of the general rules of the Civil Code.