We’re working on sunshine

According to a report by the Renewable Energy Institute, photovoltaic installations in Poland reached a capacity of 7.67 GW by the end of 2021, however by the end of this April, the figure had already reached 10 GW. By comparison, according to the Polish Energy Agency, by the end of 2021 wind farms in Poland were generating a total capacity of 7.1 GW. However, unlike wind farms, solar panelling in Poland is above all the domain of the prosumer and accounts for 80 pct of solar power generation.

Commercial solar power projects have only started to have an impact on power generation in recent years. In 2016, the 10H rule came into force, which set the minimum distance of a wind turbine from buildings or nature reserves as ten times its height, which in practice resulted in a freeze in the development of wind farms in Poland. Those companies that had up to this point been building such turbines, suddenly had to switch to solar panelling. “At the start of this century, we began to take our first steps into the renewable energy sector,” says Paweł Średniawa, the CEO of Onde, a subsidiary of Erbud. “Over the next few years, we developed wind farms with a capacity of 3 GW. In a much shorter period, since 2017, we have developed a capacity of 0.5 GW through operating in the solar energy segment. And last year we developed another 250 MW in this segment,” he reveals.

Other companies are also hoping to benefit from this favourable situation by engaging in such projects in various ways. Onde is not only a general contractor, but is also building up its own portfolio of projects, which mainly comprises solar energy. “Among the developments we own, we also have wind farms; but in terms of generating capacity, solar power dominates. The entire portfolio, which we have built up more or less in a year and a half, can generate over 800 MW. Since we own these kinds of projects, we can expect a developer’s margin when we come to sell them – or we can just profit from the sale of the electricity,” points out Paweł Średniawa.

Interest in solar energy in Poland is attracting foreign companies and international capital. In 2021, Kajima Europe set up a joint venture with Griffin Capital Partners to buy 72 pct of Pad-Res, another Polish developer specialising in the renewable energy sector. “Kajima has been very active in Poland since 2016 through investing in logistics and student homes. Now we have become interested in the renewable energy sector in both Poland and the UK. We believe that energy transformation will be one of the most important issues in Europe over the years to come. In Poland this is particularly important due to the huge reliance on fossil fuels. I am convinced that the renewable energy market in Poland has huge potential,” insists Chris Gill, the investments director and head of renewables at Kajima Partnerships Limited.

Rafał Skowroński, the head of the energy and infrastructure advisory for Poland at JLL, who heads up a JLL unit that has offices in London, Madrid, Warsaw and Milan, also draws attention to the huge value of the renewables market. “Poland’s renewable energy market is currently seen as very attractive by foreign investors,” he claims. He immediately points out the relationship between the development of the solar sector and the restrictions imposed on wind farms. “Investors have been more interested in the solar sector for a number of years, but let’s hope that the 10H legislation will eventually be relaxed, so that we can move on to developing wind projects. Wind is the most effective source of renewable energy in Poland – they are more efficient than solar panels. But the solar energy segment is now growing very rapidly because there are funds available that under other circumstances would have been invested in wind power,” admits Rafał Skowroński.

The bigger the better

In the first stage of the development of the solar energy market, the auction system in Poland preferred smaller installations of around 1 MW. But over the last few months, much bigger farms have appeared. The largest now operating opened in 2021, owned by Ze Park in Brudzew between Łódź and Poznań, with a capacity of over 70 MW. But this is a record that’s not going to be held for long. There are already a number of developments in the pipeline with capacities of more than 100 MW, and next year a solar farm with a capacity of as much as 285 MW should come online, developed by Goldbeck Solar Group and Respect Energy in the Pomeranian region. In fact, this will be the largest solar farm in the entire CEE region.

The farms are growing in size but their output has been expanding at an even greater rate, thanks to the improved efficiency of solar panels. “You could say that on an area that was once required for the construction of a 1 MW farm, you can nowadays build a 2 MW farm,” points out Paweł Średniawa. Onde’s CEO also makes the point that larger projects mean larger economies of scale. “If you were to develop ten 1 MW projects scattered across several regions, you’d have to employ a greater number of people than for a single 10 MW project. So it’s much better to develop larger facilities. On the other hand, you have to bear in mind that larger solar farms come with bigger logistical and technical challenges,” admits Paweł Średniawa.

It is not only the size of the wind farms that count, it is also the portfolio. Developers and investors have portfolios that can generate hundreds of megawatts, but they are usually made up of many different installations. “We have a diversified portfolio with projects that can generate 3–5 MW up to large scale developments of over 100 MW – the construction on which is going to start this year,” reveals Chris Gill of Kajima. “At the moment, smaller projects are better in terms of the investment costs, but it’s more effective to build and operate larger facilities. They also make very tempting propositions for international investors to buy once they’ve been built,” he adds.

Gridlocked out

Despite the boom in the sector and all the investors queueing up for a slice of it, it turns out that the chances of a solar power project in Poland failing are surprisingly high, and the reason for this is the Polish power grid. It is ageing and cannot cope with taking on power from new sources. Industry players, therefore, have to face the risk of being refused connection to the grid for reasons that are completely beyond their control. “The Polish power grid is overburdened and has not had enough investment. As a result, you can’t get the final approval for a project, despite the decision having been taken to connect to the grid half a year earlier. All it requires is for someone else to submit a similar application a little earlier and the full capacity for such power to be added is used up,” complains Rafał Skowroński. “It’s also worth pointing out that Polskie Sieci Elektroenergetyczne, the operator of the Polish power grid, has announced that by 2023 it will have invested around PLN 14 bln in improvements. As a result, we can expect that the grid will be able to meet the expectations of this market,” adds Paweł Średniawa, hopefully. Chris Gill is aware of the same problems. “The biggest challenge is the access to the grid. As well as acquiring projects with guaranteed grid access, Pad-Res develops its own from the ground up. Last year, we applied to connect a capacity of 300 MW to the grid, but only some of our projects received a positive decision,” he says.

The letter of the law

Kajima also has concerns about the current Polish regulations. “The Polish legislature needs to understand that the law has to support the energy transformation over the long term. And the 10H rule is one such issue. We hope that it will be lifted in the near future, which would allow for the development of land-based wind farms. In the UK we have similar restrictions on the grid, but we see that combining different renewable energy sources is essential to the entire economy and supports the transition to green energy,” argues Chris Gill. Dawid Cycoń, the CEO and founder of ML Systems, which builds solar energy farms, also emphasises the importance of having the right legal regulations in place. “One of the challenges that investors certainly have to deal with is how often the regulations change. If the law, no matter what it is, remains stable for many years, you can plan to attract long-term, non-speculative investment. It’s the lack of certainty that’s the problem. Delays in implementing EU mandated directives have sometimes carried on for many years and have resulted in the bankruptcy of more than one business,” claims Dawid Cycoń, who then goes on to mention that it’s necessary to wait longer for a building permit for a solar farm than it is for a normal building. “Often it takes around a year and the extended time taken on developing the project is an additional cost – as is inflation. Problems are also occurring when it comes to the availability of solar batteries and the materials for their production, such as glass. Since the outbreak of the pandemic, these issues have been a real roller-coaster ride,” he adds.

Big challenge, big risk

Even given such problems, building and investing in solar farms remains a profitable business. “In practice, investors treat solar farms as a safe asset,” claims Rafał Skowroński. The unit he leads at JLL helps businesses to raise capital and also to commercialise their projects. “Not long ago, the crucial element that gave investors the security they needed was the use of the auction system for the sale of electricity. Nowadays, however, the prices offered at auction are not so attractive when compared to the free market price or those offered by a power purchase agreement, so it seems the auction system has become redundant,” he explains.

Large portfolios also help to insulate against risk. If some projects fail, then the others can cover the costs of this. “You have to realise that out of all the 10 to 100 GW projects on paper that could be built in Poland, barely a fraction of them will be developed, even if this is just due to issues with connecting to the grid. Almost every developer has to assume that a particular percentage of his plans will succeed, and our clients say that this is between 10 pct and 30 pct. Investors are well aware of this,” points out Rafał Skowroński. But how can any of this actually pay off? Solar projects are costly in the early stages. In many cases, this just involves a usufruct agreement, which often only comes into effect when the project is granted a connection to the grid. “Theoretically, therefore, you can acquire many hectares through usufructs and then not even be able to use the land. If someone is building up a very large portfolio of projects, they simply have to include all this in the overall costs. If you compare the cost of developing a project with the price of a ready-built facility, including all the required permits and permissions, the difference is so huge that it makes sense for developers to work on several projects at the same time, so that even with a 10 pct success rate they can make a huge profit,” explains JLL’s representative.

Such a situation is also playing a role in the structure of the market. “There are many Polish developers in our country and new players without any knowledge or experience, but who have land banks where it’s possible to install solar farms, even though they haven’t done any research into the actual possibility of developing it. But nevertheless, they can still find investors who are interested in such projects and want to develop them,” adds Rafał Skowroński.

Chris Gill feels that there’s room enough for everyone in Poland’s renewable energy sector. “Competition works differently on this market than it does in, for example, the commercial real estate sector. As soon as a connection to the grid is secured, all the rivalry becomes irrelevant. In recent years, when the solar installation market moved onto projects capable of generating greater power, companies began to consolidate. Many local developers weren’t able to develop their projects beyond the ready-to-build stage. This has opened up an opportunity for us, because we are able to take over developments at this stage and complete them. Through the acquisition of Pad-Res twelve months ago, we have taken on 400 MW of project developments with permission to connect to the grid. This was only possible through Pad-Res working together with Griffin. For projects in the early stages of development financing, the barriers are low as is the risk to profit profiles, making them so attractive that many smaller players are going to remain active on the market,” he predicts.

Companies are constantly on the lookout for better business solutions. “In order to develop the projects that are currently ready to build, a capital investment of around EUR 250 mln is required. We don’t take a final decision as to what happens to these projects once their construction is completed. We can generate revenue from them over the long term through the sale of the electricity, or we have the option of selling them to secure a quicker return on the investment,” explains the CEO of Onde.

Transformed by the war

Another type of player has recently entered the market – Poland’s power generating giants. Many view this as an opportunity for technological progress in this sector, because only the largest enterprises have the funds required for research and development. Such large companies as Energa and Tauron can now be found among the owners of the most solar farms in Poland – although Tauron is which currently is quite low down this list with its largest installation being 5 MW in Jaworzno, but it does have another under construction in Mysłowice with a capacity of 100 MW. “We are living through a global energy transformation. Right now, we are seeing geopolitical disruption and rising energy prices, which are causing significant changes to the market, changes that take effect much quicker than EU regulations,” says Dawid Cycoń of ML Systems, which has its own R&D centre where it is working on storing energy from renewable sources. “We decided that we would start working on hydrogen fuel cells just after we received a gas bill. In the space of three months, our laboratory produced its first working prototype,” he reveals with some pride. Onde can also see opportunities arising from the difficult geopolitical situation. “The rising prices for conventional fuels and their restricted supply poses challenges but also opportunities for green energy. The need for electricity in Poland and throughout Europe is growing, so the proportion of renewables in electricity generation is definitely going to be higher than it has been up until now,” expects Paweł Średniawa of Onde. “I believe that Poland has a huge opportunity to take part in the development of renewable energy in Europe. But we need to have science and production centres here. An energy transformation is underway across the continent, so we have to make good use of this five-minute window, or we will find ourselves firmly in the last carriage of the train,” argues Dawid Cycoń.