The Polish Draft Act on the Capacity Market in light of EU law

On 5 December 2016, on its website the Polish Government Legislation Centre published the Draft Act on the Capacity Market1. According to the justification of the Draft Act, the purpose of the Act is to prevent generation capacity deficits by remodelling the regulatory environment of the electricity market so as to create strong economic incentives encouraging the construction, maintenance and modernisation of generating units and energy demand management on the end users side.

The Draft Act is largely based on the document “Functional Solutions of the Capacity Market” of 30 September 2016. These solutions constitute a modified version of “Draft Functional Solutions of the Capacity Market”4, published by the Ministry of Energy on 4 July 2016. Both documents are preparatory policy documents with the preliminary assumptions of the capacity market design. Therefore they do not have legal force. The July draft was assessed in the report “The Functional Assumptions of the Capacity Market Design in Poland – A Legal and Economic Analysis”, prepared by the Regulatory Assistance Project (RAP)6 and ClientEarth.

Since the Draft Act on the Capacity Market is different from the original proposals underlying the Act which were published in July 2016, it seems purposeful to prepare a new study on the concept of the capacity market in Poland. The present report is substantially limited to a comparison of the Draft Act on the Capacity Market with European Union law. Not with standing this, however it also includes necessary references to the economic consequences of the introduction of the capacity market which would ensue from the Draft Act considered here. The study contains a brief characterisation of the capacity remuneration mechanism proposed by the Polish Ministry of Energy and the relevant EU regulations on ensuring generation adequacy.

The present report seeks to answer the following questions: Does the proposed capacity market constitute State aid?

– if so, then:

Does the Draft Act on the Capacity Market comply with (both the present and proposed) provisions of European Union law?