Warsaw, 7^th March 2023

 

Direct lines – key to the development of modern power industry

 

• Direct lines and cPPAs are key to a new energy reality in the EU
• The draft act to implement Directive 2019/944 into the Polish legislation fails to guarantee the expected investment freedom in the area of direct lines
• Hampering the development of RES installations powering industry will have implications for the entire national economy

One of the most significant regulations currently in development, of key importance to the Polish energy transformation, concerns the principles of operation of direct lines, that is the possibility of direct transmission of energy from the producer to the consumer. This aspect is particularly important for the undisturbed functioning of enterprises exporting their products to countries where it is already necessary to document that green energy was used for manufacturing purposes. The supply of energy from RES, or rather the lack thereof, may therefore become a fundamental problem for the further functioning of enterprises.

In accordance with the definition contained in Art. 3 sec. 11 (f) of the Polish Energy Law: “direct line – a power line connecting an isolated generation site directly with a customer or a power line connecting an generation site of an energy company with installations belonging to that company or installations belonging to its subsidiaries”. This translates into an entrepreneur’s own investment or a partnership with a RES producer. This instrument is crucial for the development of the cPPA/vPPA sector, that is long-term B2B contracts for the purchase of green energy.

The currently processed amendment to the Energy Law and the Act on Renewable Energy Sources (UC74), which is planned to be adopted by the Council of Ministers in the first quarter of 2023, aims to implement into the Polish legal system, among others, the Directive 2019/944 on common rules for the internal market for electricity. It also covers the issue of direct lines.

As the legislators themselves have noted, current practices of the market regulator and the courts indicate that the provisions regarding direct lines, in their current wording, are insufficient to achieve the objectives provided for in Directive 2019/944. Thus far, the main problem has come down to the narrow interpretation of the direct line as an installation operating in an island system. For this reason, obtaining a permit for the construction of a direct line has so far only been possible, as a rule, when it was impossible to connect the recipient to the power grid. Meanwhile, direct lines should, on the one hand, be a substitute for the distribution network, and on the other hand, it is only when the coexistence of these two types of connections on a customer’s end (network and via a direct line) is enabled that the act has a chance to positively influence the development of the market in this area.

The Union of Entrepreneurs and Employers is of the opinion that this is an extremely important issue for the economic development of our country, due to the fact that, in the future, direct lines will become a fundamental element of market rules in energy trading. It is regrettable that this issue is one of several included in the UC74 draft act that negatively affect not only the clarity of legal provisions, but also the pace of their processing. A separate act would therefore be a preferred solution. All the more so, since any regulations concerning the development of distributed energy in Poland should in the future take into account the new rules regarding the operation of direct lines. It is, however, certainly good news for entrepreneurs that work on these regulations is still in progress.

One ought to clearly state in this place that direct lines will not be a threat to the national energy system or to the functioning of the traditional power industry, because due to their capacity, they will serve an entirely different segment of the economy. At the same time, they will in the future significantly improve the functioning of medium- and low-voltage lines, which in turn will have a positive impact on the operation of the power system as a whole.

The overarching objective of direct lines should become the key incentive for lawmakers with regard to this type of lines: direct supply of energy to industry as well as local, medium-sized enterprises, mainly manufacturing companies, which require cheap, green energy to develop.

The present model of network operation is incompatible with the provisions on direct lines contained in Directive 2019/944, which obliges member states, among others, to undertake all necessary measures to enable all producers and electricity supply undertakings operating in individual countries to supply their own premises and customers through direct lines, without being subject to disproportionate administrative procedures or costs.

The currently proposed version of the UC74 draft act obliges the recipient to include the trading company even if the producer of electricity and the recipient thereof are the same entity and they only partially use the power line. Such an approach on the part of the legislator will have a significant impact on the prices of electricity supplied through direct lines.

And reducing the cost of energy supply is the main objective of direct lines, especially for large consumers, energy-intensive entities in particular.

Then again, the regulations regarding the need to enter direct lines for production units with a capacity of more than 2 MW to a registry kept by the Energy Regulatory Office (Urząd Regulacji Energetyki) significantly limit the possibility of free investments. This in turn will slow down the investment processes related to generation of distributed energy. It will also significantly limit the use of direct contracts between the producer and the recipient (cPPA/vPPA).

The proposed shape of the regulation is unacceptable, as it limits the possibility of increasing supply of green energy to the industry, which may in the end hamper the development of the entire economy.

The form of the so-called solidarity fee (a surcharge to be paid by recipients connected to the power grid in spite of the fact that most of their energy supplies will be sent through direct lines) also changed in the latest proposal of the regulations. The introduction of the solidarity fee is in its essence understandable, because the operator is legally obliged to bear the maintenance costs of the energy network to which the recipients are connected, despite the decreasing supply of energy through these lines. However, according to the draft, the fee is to be related to the amount of energy transmitted through a direct line and will be paid to the trading company. In the opinion of the Union of Entrepreneurs and Employers, the fee payment mechanism should be covered by a transitional period and fully regulated later in the future, when both producers and consumers already have more experience in this new energy trading model at the local level, based on direct lines.

The number of rejected motions to connect new RES installations to the distribution and supply network is constantly growing, which impedes the development of investments and threatens the Polish economy. Investment opportunities in direct lines are supposed to remedy such barriers and the emphasis here should be on expanding the rights of producers and recipients followed by reducing administrative costs and obligations.

One ought to keep in mind the determination of the European Commission in establishing a common energy market, where direct lines and cPPAs are key elements in creating a new energy reality. A reality based on a different business model in the power industry than before, where relations between producers and recipients are not burdened with unjustified additional costs.

It might be worth considering how such a new business model is going to affect the competitiveness of the economies of countries that will actively participate in it.

The Union of Entrepreneurs and Employers calls for the abolition of all legislative restrictions on investment processes related to the construction of direct lines.

 

See more: 07.03.2023 Direct lines – key to the development of the modern power industry

Warsaw, 20 January 2023

 

Summary of 2022 in the energy industry as a year of changes and challenges

 

• Although the energy crisis did not bring the predicted catastrophe to Europe, it did lead to a significant turnaround in resource and raw material policies.
• Accelerating distributed energy development in the EU today is a race against time and other markets – a race for stable and lower energy prices on the Old Continent.
• In the face of new challenges, the energy transition all the more needs to be implemented in a smooth, rational and economically efficient manner.

With Russia’s attack on Ukraine on 24 February 2022, the old order to which the European continent had been accustomed to for more than 20 years, was gone. Until that day, fluctuations in energy commodity prices were stabilized by the steady supply from Russia. As it turned out, however – and this had already been noted by Polish policymakers, among others – Russia’s raw materials policy not only pursued economic goals, but also served as an effective weapon in the struggle against the more broadly defined Western world. Last year was thus a sad lesson on the consequences of years of naiveté in assessing the Kremlin’s intentions. Despite everything, however, we entered 2023 as a winning continent. Thanks to widespread mobilization in the face of the energy crisis, for the time being we have avoided a wave of blackouts in Europe. And while it is possible that without the support of mother nature (high temperatures + wind), the image would be less optimistic – it should also be acknowledged that so far, the darkest scenarios have not come true.

At the same time, there is no doubt that, under the influence of events beyond our eastern border, the 2022 energy policy of countries based solely on economic analysis, has been undermined. Nowadays, the strategic perception of energy, its independence, diversification of sources, stability of supply, stockpiles of raw materials, dispersion or, finally, resilience to threats, are equally important. This is not to say that such thinking has not existed in Europe before, but it has definitely been in the vanguard. Today’s overhaul of European countries’ energy systems is beyond economic.

With the above in mind, it is necessary to consider whether Poland’s energy industry is stable, secure, efficient, and whether the existing concepts of its development are defensible when confronted with new challenges. For example – further dispersal of energy generation sources has almost become the raison d’etre of most countries in Europe, but it is the state generation and transmission system that is supposed to guarantee the necessary energy supply to maintain production in times of emergency (e.g. war).

It is therefore worth analyzing in more depth whether accelerating the implementation of the FitFor55 package, under the provisions of RePowerEU in response to Russian aggression, is an effective response to the challenges that have arisen. In our view – no. The move away from Russian hydrocarbons should, of course, be accompanied by the development of renewable-based generating units (and the accompanying infrastructure), but also by a rational approach to the energy resources at the disposal of European countries – coal units powered by domestic raw materials, or nuclear units. Strong acceleration and radical increase in climate targets will be a counter-effective strategy, leading to the impoverishment of European consumers.  We should base plans and decisions on precise calculations and analysis. The loop made of exorbitant climate targets must not take oxygen away from the European economy and elevate energy prices, or we will irretrievably lose the industries we absolutely need to fuel the future. So, while reducing CO2 emissions and building energy efficiency are crucial, the path to zero-carbon should be smooth, economically sound and take into account the use of available sources, including assuming the rational use of coal resources.

The details will be insanely important here, because as the example of Poland has shown, mere access to a raw material such as coal, without proper safety mechanisms and regulations, will not stabilize energy prices. Besides, no EU country has passed the test of community solidarity, as egoistic interests in securing energy resources for their own local market have come to the fore in times of uncertainty.

In our view, the experience of this war should reset some opinions about the future of Poland’s energy architecture, centered around large-scale energy projects currently located mainly in northern Poland. More attention should be paid to dispersing energy sources and relying mainly on renewable sources, stabilized in the future by nuclear, hydrogen, biogas and energy storage facilities. In doing so, it is important to consider what role natural gas facilities will play and what will flow through them in the future. In contrast, coal power generation should remain within the system, as a complementary and stabilizing source, supporting us in a smooth transition, but also guaranteeing energy security for as long as it is necessary.

In 2022, there was a reversal in polarization in the energy industry in 3 areas:

1. Gas and nuclear power were included in the EU taxonomy,
2. Poland concentrated on energy from nuclear and offshore wind farms,
3. In the perspective of two decades, there will be a shift of electricity production from the south to the north of Poland.

In Poland in 2022, it was not possible to notice a particular legislative acceleration enabling increased diversification of energy sources, guaranteeing energy security. Quite the contrary – there was the will to further concentrate the sector. The protracted discussions on the windmill law and direct lines have delayed the passage of these laws, which are extremely important for the development of distributed sources. Meanwhile, wind power should be expanded on a par with photovoltaics to complement each other in the future. The availability of clean and cheap energy should not be held hostage to political struggle. These issues require consensus spanning the divisions.

The scapegoat of the 2022 energy crisis was also the long-developed Commodity Power Exchange. The abolition of the exchange obligation and legal interference in market mechanisms, which was supposed to guarantee a reduction in price fluctuations, in retrospect will not change the market to provide greater flexibility and lower prices, but will strain its transparency.

In 2023 – as in the previous year – the bottleneck for the energy industry will be the distribution network, which cannot accept and distribute the amount of energy we are able to produce at peak times. The associated connection problems basically prevent work on new projects, which in the coming years will exacerbate the deficit of green energy which is badly needed by Polish industry. The PSE company, which manages the grid, sees solutions in expanding existing connections and increasing their capacity, without leaning toward promoting to potential producers the construction of new sources, energy storage, or direct lines that would relieve pressure on the grid. There is also a lack of simplified procedures for entrepreneurs to build their own energy sources. These issues will hopefully be addressed in the updated Energy Policy of Poland 2040 strategy.

The 2022 summary should not overlook positive signs, showing that policymakers are slowly realizing the threat to the overall economy from the green energy deficit in the Polish market. The power of prosumer energy, which is becoming a significant shareholder in the energy market, supporting the green transition, indicates that taking part of the market out of institutional oversight serves a common cause. It is also noticeable that the legal foundation is being laid for the construction of local energy communities planning to invest in renewable energy sources. Local initiatives are an extremely important source of modern energy development, and any state assistance in this regard is most welcome. In doing so, it is important to emphasize the need to relieve the pressure on the high- and medium-voltage power grid, for production and direct distribution of energy locally.

What is also positive is the idea of sharing the profits with surrounding communities for locally produced energy from RES. This leads us to think more deeply about the advantages of renewable energy, especially windmills, which have long since ceased to be associated in the minds of the society with negative environmental effects, and have even become a positive part of the non-urban landscape. The government’s amendment to the windmill law in the form of a mandatory contribution of 10% of the energy generated for local consumers is, in this case, perhaps not the best way to build an investor-community coalition. However, the initiative itself seems to have had a positive reception and, most importantly, has subjected long-held views in this area to critical thinking.

The Union of Entrepreneurs and Employers also welcomes the amendment to the Renewable Energy Sources Law and the extension of the time for the first sale of PV energy in support schemes from 24 to 33 months, putting the technology on a par with wind farms. The basis for these changes was to mitigate the effects of broken supply chains during the pandemic, intended to give PV power generators additional time to adjust to the new market situation and ease price pressures.

We are very happy about the doubling of the auction volume for investments in offshore wind farms (RES Act UC 99). This is an important initiative for investment in this type of RES and, in the future, the basis of the hydrogen industry.

We are closely and optimistically following the preparatory process for a law on so-called cable pooling, i.e. making already owned connection power available to other types of renewable sources, within the framework of the existing connection agreement. The law will allow more flexible use of existing transmission lines, which could translate into additional investment in RES and a rapid increase in the supply of green energy for the Polish economy.

On the other hand, the Law on Emergency Measures to Curb Electricity Prices and Support Certain Consumers in 2023 and its secondary legislation are, in our opinion, inaccurate, and in the opinion of market participants, changes have been introduced that are unfavorable to the entire energy system, which in turn may result in a reduction in energy production in Poland. The rules for calculating the price cap introduced by this regulation pose a threat to the profitability of RES investments. Seeing what role RES played during the summer and autumn months, where the use of renewable energy gave the conventional power industry the time it needed to replenish gas and coal storage, these decisions that are hard to understand.

From the point of view of the entire Polish economy, today the passing of the windmill and direct line laws is an absolute legislative priority, as is the cable pooling law. Investments related to these laws could result in an increased supply of green energy by at least 10 terawatt hours per year, starting in 2026. And this is without any visible contribution from the State, including without a particularly intensive support system.

In this context, there is also a need to rearrange dependencies in the energy industry. The current completely vertical system promotes concentration practices that deviate from the principles of a market economy.

Moving distribution into the realm of market energy would be a revolutionary move, but if it is done with the participation of a Distribution Network Operator, the existing distribution system operators will largely control the process. Such an impulse is already being felt, but the role of the state in this area is to shape it in such a way that the restriction of market principles is minimal and dictated only by Poland’s energy security.

Invariably, the launch of the program of revitalization of multi-dwelling units 200+ (which awaits the concentration of coal assets under the National Energy Security Agency (NABE)) along with passing the wind law, remain important. This would clearly show the direction of Poland’s transition and gradual move away from coal, as well as provide more room for negotiations with the European Commission on Poland’s energy transition path, taking into account the temporarily important role of conventional power generation.

Poland should push the concept of maintaining coal mines and coal power in Europe at a level that allows the economies of European countries to function under the threat of war. In view of the military situation, maintaining only the profit criterion in the European energy industry would be a big mistake, and our country is particularly vulnerable to the consequences of a military conflict with Russia. The wealth of European countries allows the creation and maintenance of an energy reserve base based on fossil fuels.

Poland, as well as Europe, has large coal and lignite deposits that allow to maintain energy independence in special cases, and this should not be abandoned prematurely. Likewise for nuclear sources, for which the plans to extinguish in some EU countries, were a bit too hasty. It is worthwhile to make parallel efforts to develop emission-free technologies for the use of fossil resources. Such an energy policy is in no way at odds with the energy Green Deal and the need to decarbonize the power and heating industry based on carbon-free sources. On the contrary, it can inspire the development of such sources as long as it is coordinated with a program to make the operation of coal blocks more flexible.

The program of revitalization of multi-dwelling units 200+ fits perfectly into such a coordinated policy. We should present the results of this program to the decision-makers in the European Commission and try to get it approved both formally and financially.

The concept outlined above could be integrated into Poland’s overall energy transition and form the basis for optimal development of both renewables and nuclear power.

The most important tasks in 2023 for policy-makers in the Polish energy sector:

• Passing a law eliminating investment barriers in onshore wind power.
• Passing a law on direct lines and cable pooling.
• Refining and passing the law on effective support for energy communities.
• Promptly developing and passing a law on investment facilitation for renewables on brownfield and post-mining sites.
• Maximum removal of barriers to development of solar power.
• Launching a program of revitalization of multi-dwelling units 200+.
• Strong presence at the European Union level – consistent opposition to ideologically motivated programs to accelerate the energy transition and tighten climate policy;
• Building a strategy for the use and development of transmission and distribution networks
• Consistent, planned construction of nuclear power plant(s)
• Changing the state’s raw materials policy and the creation of permanent stocks to make Poland independent of price fluctuations

Those of the above tasks that are regulatory in nature should be implemented in the first half of 2023, so that their effects on the economy will begin to be felt as early as 2025. This means, as mentioned earlier, an increase in the supply of green energy by at least 10 terawatt hours per year.

Despite the impediments associated with the election year in our country, we are counting on constructive legislative momentum in the energy-related area and the passing of basic and necessary laws to enable the development of modern energy based on distributed sources.

According to ZPP, we could have expected a bit more legislative activity in the energy area in 2022, but the year should definitely not be counted as a lost year in terms of progress in Poland’s energy transition. At the same time, it is worth remembering the consultation-based formula of cooperation between lawmakers and the society, which guarantees far better final results.

From the perspective of the EU energy market, Poland could be one of the few countries secure in terms of energy. However, the lack of crisis solutions and late legislative initiatives have only allowed ad hoc relief, without redefining the energy system. 2023 is the year of another opportunity for those in power to ensure our country’s competitiveness and energy stability.

 

See: 20.01.2023 Summary of 2022 in the energy industry as a year of changes and challenges

Warsaw, 21 December 2022 

 

Commentary of the ZPP:
Activation of seniors as an opportunity to fill supply gaps in the labour market

 

• The analysis of demographic trends, conducted based on the Statistics Poland data, indicates that persons at the age of 50 and over will constitute approximately 50% of Polish society in 2050.  This means the necessity of professional activation of that group, with special emphasis on persons of retirement age.
• In Poland, approximately 90 % of people reaching retirement age decide to leave their jobs.  Experts point out that retirement is too often treated as a compulsion rather than an option.
• In the coming years, the average age of an employee will increase and so will the average age of a customer.  Activation of seniors in the labour market may be a response to the inevitable change in consumer trends.
• Shaping the senior policy in relation to the labour market should be preceded by a thorough diagnosis of the needs of the diverse group of people aged 50+.

In Poland, the number of persons receiving a pension is growing. Based on the Statistics Poland data, approximately 5.98 million persons were receiving pension in the period from January to April 2021. After a slight decline in the period from May to August, the number of beneficiaries increased to 5.999 million in September and was growing.  In October 2021, 6.02 million persons were receiving pension, 6.03 million in November and 6.04 million in December of the same year.

Conclusions drawn based on the Statistics Poland data make it necessary to analyse the forecasts related to the number of senior citizens in Poland. Statistical data analysts have calculated that the number of persons aged 60+ is expected to increase to approximately 10.8 million in 2030, reaching 13.7 million in 2050. This means, taking into account other demographic data, that persons aged 50 and over will constitute approximately 50% of the Polish population.  Polish residents at the age of 60 and over will constitute just over 40% of the population in 28 years’ time. This data involves an unprecedented increase in the burden on the pension system and a sharp reduction in the working-age population but not only.  On average, the group of professionally active persons will be much older than today.

The issue needs to be addressed now. In Poland, approximately 90% of persons who reach retirement age resign from work.  This is related to the perception that reaching the retirement age is a sort of compulsion to retire and not one of the possibilities.  Based on the Statistics Poland data, only 39% of persons aged 60-64 and only 6% of persons over 65 will be professionally active in 2020.  Although companies recognise the problem, the percentage of employed senior citizens is still significantly low in Poland, compared to most Western European countries.

The situation is partly made better thanks to the inflow of economic immigrants and refugees – especially from the territory of Ukraine. However, in any case, the scale of that phenomenon must not obscure the consequences of the ageing of the society, which will be of key importance for shaping the labour market in Poland. At the same time, one should not forget that, in addition to a larger number of older employees, there will also be a greater number of older customers in Poland. This correlation may have a positive impact on the already existing trend of employing senior citizens. In Poland, in the first quarter of 2021, the number of working women at the age of 60 and over and men over 65 years old was  687,000. In the second quarter, it was already 721 thousand persons, and  754 thousand persons in the third quarter.  This is a positive trend; however, it does not compensate for the persistently low fertility rate, which will amount to 1.4 children per woman in 2022. The economic indicators, which are worrying the society, will not bring a demographic miracle.

Adapting the labour market to the needs of older workers is becoming a great challenge. Shrinking down of the group of people in the traditionally-understood working age will translate into changes in the employment model in companies in the near future, and increase the number of senior citizens in professions where their representation is currently low. In addition to the increase in the average age of employees, the aforementioned increase in the average age of customers will also be a challenge for the market, which will translate into an evolutionary change in consumer trends.

There is no doubt that employers will have to implement certain methods to activate senior citizens in their enterprises, organizations or institutions.  Actions making the workplace more accessible to persons at the age of 50 or over should be subject to special supervision. The methods of implementing those measures should include special activation programmes, retraining courses (including language courses) and better use of flexible forms of employment.

The analysis of demographic and macroeconomic trends leaves employers no choice.  Already today, companies are forced to implement measures to build an inclusive organisational culture that takes diversity into account, i.e., a diversity and inclusion strategy. 
State structures – both at the central and local government levels – must also become more involved in the process of activating senior citizens in the labour market than they are today. Although initiatives such as “A skilful worker has no age” and other related initiatives are being implemented in the country, their scale and the response of the labour market still remain too small. In the meantime, although many companies still do not want to accept it, Generation X will be retiring in 15 years’ time.

Senior policy strategies must not take on the form of coercion. As practice shows, activation “with the use of force” does not bring the expected results.  The real needs of senior citizens must be taken into account and correlated with the needs of the labour market. It should not be forgotten, and many initiators of programmes addressed to the oldest citizens have fallen into this generalising trap, that the group of senior citizens is diverse in terms of age and territory – the perspective of the residents of large cities is different from that of medium-sized agglomerations and inhabitants of rural areas. It also seems economically justified – within a rational framework – to institutionally support forms of care for the elderly and children to increase the participation in the labour market of people who also have caregiving responsibilities.

Measures to increase the participation of professionally inactive senior citizens in the labour market can reduce the non-wage burden on salaries and increase the profitability of taking up work. The estimated number of persons at the age of 50 and over who could supply the labour market is 2 million. A bold move, albeit politically difficult, would be to raise the retirement age.  Such a decision would certainly increase the efficiency of the pension system, which will face an increased disproportion between the number of professionally inactive seniors and those of working age soon. Based on the Personnel Service report, professional activation of persons aged 50+ and bringing the level of participation of senior citizens in the labour market closer to the level in Western European countries “could, in the long run, bring an increase in GDP of up to USD 66 billion”.

Activating senior citizens in the labour market is not only an opportunity but also an obligation of employers. More effective integration of employees aged 50+ in the labour market is an opportunity to increase the economic and social well-being of Poles – all the more so that their health condition and life expectancy increase year by year.

See: 21.12.2022 Commentary of the Union of Entrepreneurs and Employers: Activation of seniors as an opportunity to fill supply gaps in the labour market

                                                                                                              Warsaw, 20 December 2022

 

Commentary of the ZPP on draft Regulation of the Council of  the European Commission on the development of renewable energy as a key form of achieving energy independence of Europe

 

The Council of the European Commission is proposing another instrument to speed up investment in RES (Renewable Energy Sources) – the Regulation of the Council of  the European Commission on the development of renewable energy as a key form of achieving energy independence of Europe;

Shortening the investment process in carbon-free energy sources is, in the opinion of Brussels, the basis for achieving independence from fuel from Russia;

The proposals of the Council could trigger a thaw for government-frozen solutions in the field of modern renewable energy;

Brussels does not look at the legal blockages in the area of renewable energy and speeds up the introduction of solutions for wind farms, district heating and even biomass and biomethane, one by one.

When reading the draft Regulation of the Council of the European Commission establishing a framework to accelerate the introduction of renewable energy solutions, it should be noted that most of the regulatory dispositions of the Regulation are in line with the expectations of the green energy sector in our country.

On many occasions, as the ZPP (the Union of Entrepreneurs and Employers), supported by the RES industry in Poland, we have drawn attention to the need to facilitate investment in that sector, which could primarily include post-mining and industrial areas. It seems reasonable to introduce regulations obliging administrative bodies, entities that deal with energy transmission and distribution, to determine appropriate areas for RES installations, where significantly simplified administrative procedures would be introduced to allow investors to quickly implement projects (e.g. road lanes along motorways, former landfill sites, large surface car parks) both for environmental (negligible, minimal impact on the environment), social (lack of conflicts and acceptance of residents) and technical (grid connection conditions) reasons. In this way, the installation of renewable energy generation infrastructure would be facilitated as administrative bodies, local authorities and grid companies would have to verify the compliance of such installations with local environmental and technical requirements. The issue of selecting areas for faster RES investments is proposed in the from of yesterday’s amendment to REpowerEU approved by the European Parliament – discussed at the end of the text.

With regard to photovoltaic investments, the Commission suggests reducing the time limit for issuing a building permit to one month, which seems a bit too short in our national circumstances.

The Regulation demonstrates the determination of the European Union countries to develop renewable energy sources and there is no doubt that the war in Ukraine will speed up decarbonisation processes in Europe.

The future economic image of Europe will be shaped based on green energy. This should be a supra-political guideline for the decision-makers in our country, which does not mean us giving up defending our energy interests, even those based on fossil fuels for a long time to come.

An example of reconciling energy interests is the assumptions of the programme “Bloki 200+”, as part of which the development of renewable energy is based on stabilising our own coal sources. Such a policy is certainly in line with the Regulation of the Council and it just needs to be properly presented and justified.

The fact of diversity of energy and heating situation in Poland must be understood in Europe, especially considering the new geopolitical conditions we find ourselves in after Russia’s aggression against Ukraine.

It should be noted that the draft Regulation does not refer to combined heat and power plants but only to the expansion of renewable energy power plants. Given the challenges of the heating sector, in terms of the need for its transformation, which is linked to, among other things, the proposals of the ”Fit for 55 package”, we believe that it would make sense to introduce a principle based on which the construction of RES installations in existing district heating systems could also benefit from accelerated procedures. This could be expressed as follows: The authorisation process for the expansion of district heating systems to include renewable energy projects and authorisations related to upgrading the assets necessary for their connection to the grid, should not exceed six months, including environmental impact assessment, if required by the relevant legislation. To be consistent, in the draft Art. 2 sec. 2, after the word “power plant” the expression “or combined heat and power plant” should be added, and in Art. 4, after each word “power plant” the expression “or combined heat and power plant” should be added.

We need to be aware that, in the future, it will be renewable energy sources that will be the basis of the European energy market and that Poland, with its huge burden of the energy sector with coal sources, must remodel its energy market to a much greater extent than other EU countries.

Observing the costs of generating energy from renewable sources today, it is already possible to predict the costs of energy and heat on European markets once energy independence is achieved. Poland cannot remain outside that market as high-cost sources and a loss of competitiveness would threaten our entire economy.

The Council formulates the need for immediate action and this requires more details  as some of them will require statutory changes. Although the Council indicates that this is an internal regulation with the possibility of extension, it can be considered that it will be in place for a very long time and is likely to take a permanent form.

The Regulation draws attention to further works on the rules for direct contracting, the so-called CPPAs (Corporate Power Purchase Agreement), which is an extremely important form of the bottom-up shaping of energy market. This is closely linked to the development of distributed energy. Further on, the Regulation draws attention to the need to disperse energy and heat generation sources. So far, the Polish energy sector has been moving towards centralisation, i.e., in the opposite direction.

The document emphasises the need to reduce procedures for those sources that have particularly high generation potential and investment in which will bring rapid results for the system. This concerns onshore wind farms and large-scale photovoltaics. Meanwhile, the 10H rule blocking the development of that form of energy generation is still in force and the investment in photovoltaics is currently not particularly supported in our country. The sdherence of a Polish legislator to the assumptions of the proposed Regulation would increase the potential of onshore wind farms by at least 10 gigawatts of installed capacity, and perhaps as much as 20 gigawatts of installed green energy in solar sources, which could translate into the production of 40 terawatt hours of green energy per year in 2030. The acts allowing that level of green investment are being prepared. Today, their adoption depends solely on the political will of decision-makers.

The Council encourages joint action and cooperation within the framework of the Single Market Enforcement Taskforce (SMET ), which seems particularly relevant for our energy sector as we could assimilate some best practices and also, through such cooperation, we could participate in shaping the future energy market in Europe.

According to the proposal, the Regulation would have direct and immediate application, which is expected to lead to a swift, uniform and EU-wide approach to the various legislative procedures in the green energy investment sector. The Commission plans to consult stakeholders to ensure that the Regulation is implemented as effectively as possible.

The strategic objective of the Regulation is to reduce energy demand and replace natural gas, oil and coal supplies with renewable energy – within a foreseeable time horizon.

The Regulation of the Council also draws attention to connection problems and suggests connection facilitation for renewable sources, which, in turn, fits in with the Direct Lines Act currently being developed.

The expansion and modernisation of existing power plants, in the opinion of the Council, is an extremely important part of increasing the generation potential of renewable energy sources. Maintaining or increasing the capacity of wind farms based on fewer, but more efficient, wind turbines should be an administratively straightforward task that would require no special paperwork.

This fits in with the law on the joint use of connection infrastructure by renewable sources (cable pooling) which the Ministry of Climate and Environment is currently preparing.

The Regulation pays particular attention to heat pumps as an extremely important solution for the future of modern district heating. District heating accounts for half of energy consumption in the EU countries. Heat pumps may also be of particular importance in Poland, especially in rural areas and small towns. Perhaps this is a solution for the country’s district heating systems, where heat pumps could be combines with a gas source – measurably reducing gas consumption.

The reality of ground pumps with a vertical collector and water pumps currently looks as follows: building permit is required to install a heat pump if the works are to be carried out in a building listed in the register of historic buildings. If the building itself is not listed in the register but the area is – an application must be submitted. Both of the above applications must be supplemented with a consent of the conservation officer. A building permit may also be required for the construction of a facility in ‘’Natura 2000’’ area. Additionally, ground and water pumps require geological works. For that purpose, a project of geological works needs to be created, which needs to be presented to the district governor. Water heat pumps also require a water permit if groundwater extraction of more than 5 m³ per day is planned or extraction from a water intake of more than 30 m depth is necessary. All of the above-mentioned permits are issued by the district governor, and the same applies to the applications – they must also be submitted to the district governor. However, it is a different unit in the district governor’s office each time. Furthermore, pursuant to Art. 29, sec. 4, pt. 3 c of the Act of 7 July 1994 Construction Law (consolidated text Dz.U. /Journal of Laws/ of 2021, item 2351), the installation of heat pumps with an installed electrical power of no more than 50 kW does not require a building permit or application.

The introduction of the proposed rule that the authorisation process for the installation of heat pumps should not exceed three months will help to unify the regulations in force in Poland.

The principle of energy solidarity, which is a general principle of the European Union invoked in the Regulation, may be of particular significance for Polish industry as it will make it possible to purchase green energy until the time the domestic sources will meet the needs of domestic factories. Although the Regulation only refers to new authorisation procedures, in our Polish circumstances it should be extended to include already initiated procedures for obtaining building permits and connection conditions.

Despite so many positive stimuli in the Regulation, the reality of the Polish energy market shows that the amendment of Directive (EU) 2018/2001 to increase the EU target for 2030 to 45%, compared to 40% in the previous proposal of 14 July 2021, is unlikely to be achievable in our country.

An EU-level approach is needed to create the right incentives for the Member States with different levels of ambition to accelerate, in a coordinated manner, the energy transition from a traditional fossil-fuel-based energy system to a more integrated and energy-efficient one based on renewable energy, which is rightly indicated in the Regulation with the statement “a higher level of funding should be introduced for investments in renewable energy sources for companies and individual citizens”.

What the Regulation does not contain, and should, is considering the specificity of the Polish market.

To simplify the licensing and operation of renewable energy power plants, they should be within the competence of a special administrative unit at a voivodeship level.

The authorisation process for the installation of solar energy equipment and associated storage and grid connection facilities in existing or future constructions created for purposes other than solar energy production should be handled by the aforementioned special administrative unit.

The process of issuing permits for the construction of large PV farms should also be shortened (DSO grid connection conditions).

To achieve a rapid transition and to use renewable sources in Poland, the modernisation and construction of new grid infrastructure should be a priority – the grid is currently outdated and it is not possible to distribute renewable energy.

A system of gratification should be introduced for investors in the field of RES installations: PV installations, heat pumps, windmills, geothermal, biogas plants, hydrogen, etc. – introducing incentives to encourage entrepreneurs to invest in RES.

It should be possible for electricity or heat producers to demonstrate/report the percentage of RES (company- and country-specific) in the energy production process in return for appropriate incentives/allowance to reduce the financial burden on energy producers to invest towards climate neutrality.

Taking into account the direct cooperation of parties in the field of RES investments, rules of cooperation between the state, the energy generation company and a private person should be introduced: provision of property by a private person for a renewable energy investment to an energy generation company in exchange for discounts in the form of a lower price for electricity or a percentage share of the generated energy. The terms of cooperation could apply to individual persons as well as to a group of residents in a local community where the RES investment would be carried out. This would speed up the implementation of the tasks without having to go through the process of acquiring land for renewable energy investments.

We would like to request the deletion of the provision in Art. 4, sec. 2, ”unless there are justified safety concerns or there is a technical incompatibility of system components”. This provision leaves a lot of room for interpretation and may constitute a false argument based on which administrative authorities may refuse to grant permission for the expansion of RES power plants.

Last minute information

In the opinion of the ZPP, the proposal of the Regulation is a clear signal of the direction in which the European energy industry will go and that the decarbonisation process is irrevocable.

The issue of accelerating investment in RES is wildly topical. On 14 December, the European Parliament voted in favour of amendments in the REPowerEU document to speed up the licensing of renewable energy sources. An essential element of the document, which is part of the REPowerEU strategy, concerns the creation of “renewables acceleration areas”.

The purpose of the proposed law is to speed up the procedure of granting permits for new RES power plants, thereby increasing the domestic production capacity of the EU. The EU Member States still need to approve the text before it comes into force. The EU countries are currently examining the proposal of the Commission and are expected to take a position next Monday paving the way for talks with the Parliament with a view to finalise the bill after the new year.

The amended text proposes shorter deadlines for the approval of new installations – up to a maximum of nine months for the so-called “renewables acceleration areas”, which will be defined individually by each EU country depending on local circumstances. Under the principle of “tacit consent”, an application will be considered approved if the competent authority does not respond within the set deadline. Outside those areas, the acceleration process should not last longer than 18 months.

Under the proposal, renewable energy projects will be considered as projects of
“overriding public interest” and may therefore benefit from simplified procedures and specific derogations from EU environmental legislation.

Furthermore, the EU countries will have to ensure that permits for the installation of photovoltaic devices on buildings will be issued within one month, and a notification procedure will be sufficient for smaller installations, below 50 kilowatts.

While biomass incinerators were not part of the original proposal, a last-minute amendment by the EPP group gives the possibility for the EU Member States to include them in the fast-track permitting system.

“Renewables acceleration areas should be created at least for wind turbines and photovoltaics and could be created for biomethane plants”, reads the final text voted on by the MEPs. And while biomass plants are generally “excluded from renewables acceleration areas”, an exception could be made “for installations located in outermost regions”, it is added in the text.

According to the approved proposal, no revewables acceleration areas can be designated in nature conservation areas or bird and marine mammal migration routes – with the exception of artificial and built-up areas such as rooftops, car parks or transport infrastructure.

However, environmental groups have expressed concern that projects in “focal areas” will be exempted from environmental impact assessments (EIAs), such as those required under the Birds and Habitats Directives.

The Union of Entrepreneurs and Employers follows with interest the process of establishing the EU consensus in the area of accelerating investments in renewable energy sources and declares its readiness to issue an opinion on draft Polish laws arising as a consequence of that process.

See: 20.12.2022 Commentary of the ZPP on draft Regulation of the Council of the European Commission on the development of renewable energy as a key form of achieving energy independence of Europe

Warsaw, 24 November 2022 

 

Commentary by the Union of Entrepreneurs and Employers: economic regulations should come into force once a year, after at least 12 months – a recipe for regulatory instability

 

• According to a Grant Thornton study, in the period from January to September 2022, the average vacatio legis period for laws and regulations governing business in Poland was 31.9 and 6.9 days respectively.
• Year on year, the tendency to reduce the length of the vacatio legis period increases, forcing businesses to implement new regulations immediately, which becomes particularly difficult with the start of each new calendar year, when the accumulation of the introduction of new regulations is observed.
• Too short vacatio legis period is a real barrier to the development of Polish business, with particular emphasis on micro, small and medium-sized enterprises, which account for 99.8 per cent of businesses in Poland.
• For years, the Union of Entrepreneurs and Employers has been calling for the introduction of a principle whereby all economic regulations come into force only on 1 January of a given year and are preceded by at least 12 months of vacatio legis.

The stability and predictability of the legal and regulatory environment is one of the basic elements necessary for the continuous development of domestic enterprises. Meanwhile, the law in Poland changes too often and entrepreneurs have far too little time to adapt to new regulations. Companies’ confidence in the state therefore remains limited, and this translates into a decline in investment potential.

The Union of Entrepreneurs and Employers has long taken the view that all new economic regulations should come into force simultaneously on the first day of January with a 12-month vacatio legis. This will give businesses a year to adapt to the changes in the law and reduce the amount of time needed to implement new procedures and requirements. This bold move would definitely change entrepreneurs’ perception of Poland as – in many cases – a business-hostile environment in terms of the quality and pace of legislative change. Such a pro-business refocusing would also help officials, who, with more time to refine documents, could improve the quality of legal acts, which today are often drafted in haste and enacted in the same way – many times with numerous errors.

As calculated by Grant Thornton analysts in the study Zwolnij, szkoda firm! Vacatio legis w polskim prawie gospodarczym as recently as 2011, the average vacatio legis of legal acts regulating the rules of conducting business activity in Poland was 53.2 days for acts and 19.8 days for regulations. At the time – from today’s perspective – it was a relatively comfortable situation. In 2022, in the period from January to September, as the referenced report reads, this time has decreased to 31.9 days for acts and 6.9 days for regulations. At a time of rising business costs, these figures cannot instil optimism – especially when one considers the continuing trend of reducing “response times” to new legislation.

Data provided by Grant Thornton also shows that as many as 44 of the 78 laws that came into force in 2021 had a vacatio legis of between 0 and 14 days. Similarly, as many as 178 of the 355 regulations that came into force in 2021 were implemented “on the fly”. Of the 78 laws that came into force last year, only 4 were subject to a minimum six-month vacatio legis. Similarly, only 4 out of 355 regulations received a vacatio legis of minimum three months. Statistics show the abuse of Art. 4 of the Act on promulgation of normative acts and certain other legal acts, and the use of provisions on “important state interest requiring immediate entry into force of a normative act”.

The tendency to abruptly shorten the vacatio legis in the context of laws entering into force with the arrival of the new year is also worrying. Here, the average vacatio legis for laws is 25.8 days, and for regulations 5.9 days. This only demonstrates an unnecessary haste in the creation and implementation of laws, which entrepreneurs often cannot keep up with. However, once they manage to implement the new regulations in their business, it often turns out that – while the vacatio legis is still in effect or immediately afterwards – numerous amendments are introduced, destroying the new order that has just been established.

Meanwhile, while in 2021 the average vacatio legis of the Polish law was 33 days, in the Czech Republic it was 98.7 days, and while in the same year the average vacatio legis for regulations was 7.2 days, in Sweden it was 76.6 days. Both countries compared with Poland are members of the European Union, so they are bound by similar procedures to our country. 

The problem is relevant for all businesses operating under Polish law, but it is most acutely felt by representatives of the SME sector, which often does not have specialised units responsible for thorough analysis of legislative acts. It is worth mentioning that SMEs account for as much as 99.8 per cent of domestic enterprises, while employing 67.4 per cent of those working in the business sector. Therefore, the “problematic” vacatio legis particularly affects companies generating every second zloty (49.6% of GDP according to PARP data), which are the flywheel of the Polish economy.

It should be remembered that the creation of a business-friendly legal and regulatory environment should be one of the main objectives pursued by the state. This is particularly important at a time of economic turbulence and general uncertainty about the development of the macroeconomic situation. Today, however, the legislative environment forces companies to adapt immediately to new regulations, which is time-consuming and costly – often companies in the SME sector have to use the services of specialised external entities in order to implement new regulations immediately. The lack of order in the issue of vacatio legis – bearing in mind also the tendency to reduce it every year – already makes companies take a close look at the issue of planning investments in Poland, which should be treated as a priority in the current economic situation. The uncertain legislative environment disturbs continuous economic development.

For years, the Union of Entrepreneurs and Employers has been calling for the introduction of a principle whereby all economic regulations come into force only on 1 January of a given year and are preceded by at least 12 months of vacatio legis. We believe that this solution would be a good answer to the problem of an increasingly unstable regulatory environment for companies.

Warsaw, 5 December 2022 

 

Commentary of the Union of Entrepreneurs and Employers on the Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions. Digitalising the energy system – EU action plan

 

• The European Commission has stepped up its efforts to develop a common European energy data space;
• with the implementation of an appropriate energy data sharing framework, we could gain more than 580 GW of flexible energy resources by 2050;
• the implementation of the digitalisation will improve the demand for flexibility in the EU’s electricity grids.

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Digitalising the energy system – EU action plan is a long-developed action plan, formulated and recently submitted by the European Commission for consultation, and intended to define actions for the coming years in the area of digitalisation of the European energy system. The Ministry of Climate and Environment is coordinating the preparation of the Polish government’s position on the proposals set out in the communication. Comments on the document had to be submitted by 23 November this year. We hope, however, that these are not the final provisions of the document, and it will be widely consulted with the public.

According to the document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Digitalising the energy system – EU action plan the EU’s overarching goal for the coming years is to become independent from non-EU fossil fuels. According to the Commission, the only way to achieve this goal is

• to install photovoltaic panels on the roofs of all commercial and public buildings by 2027 and on all new residential buildings by 2029,
• to install 10 million heat pumps in the next five years,
• to replace 30 million cars on the road with zero-emission vehicles by 2030,
• to reduce greenhouse gas emissions by 55% and to achieve a share of renewables in the energy consumed of 45% in 2030, among other things.

All these objectives can only be achieved if the energy system is ready for it. Energy efficiency, resource efficiency, decarbonisation, electrification, sector integration and decentralisation of the energy system require a massive digitalisation effort. Without digitalising the energy system, it will be difficult, if not impossible, to achieve the goals set by the European Green Deal and the European 2030 programme ”Path to the Digital Decade”.

Between 2020 and 2030, around EUR 584 billion will need to be invested in the electricity grid, particularly in the distribution system. A substantial part of this investment will have to focus on digitalisation, as digital communication with energy consumers will help avoid the need for USD 270 billion investment in new electricity infrastructure.

Modern technology will help to visualise our energy consumption in real time and get tailored advice on how to reduce it. Digital tools can automatically control room temperature, charge electric cars and manage appliances so that energy is used at the same time when prices are at their lowest, while maintaining an optimal and healthy environment at home or at work.

Already 51% of all households and SMEs in the EU use smart electric meters.

The use of data across the energy value chain and linking this data with weather models, mobility patterns, financial services and geographical location systems through increasingly powerful computing capacity will enable the provision of innovative services at new levels of precision and adequacy and contribute to economic growth and job creation in the EU.

With the implementation of an appropriate framework for sharing energy data, more than 580 GW of flexible energy resources that take full advantage of digital solutions could participate in wholesale markets by 2050. It is estimated that this would cover more than 90% of the overall demand for flexibility in the EU electricity grids. Enabling smart and bi-directional charging of electric vehicles, the participation of virtual power plants in energy markets, and harnessing the potential of energy communities, smart buildings and smart heating with the use of heat pumps could contribute most to meeting this demand. In addition, car batteries can be used to store surplus energy and make it available when needed. This is achieved by keeping track of when the vehicle is in the garage, predicting periods of non-use and calculating how much spare capacity can be made available.

The aim of EU actions is to establish a common European energy data space and to ensure its robust governance in the form of a coordinated European framework for sharing and using this data. The preparatory phase is expected to be completed by 2024, with implementation starting immediately afterwards.

The EU’s research, innovation and digitalisation programmes will continue to play a key role in this context. Therefore, the Commission intends to support – through the “Digital Europe” programme – the implementation of a common European energy data space. Actions in this area will build on the demonstrations made by a number of projects funded by “Horizon Europe”.

To further support the digitalisation of the energy sector, the Commission will officially re-establish the existing Smart Grid Task Force (SGTF). Under this smart energy expert group, the Commission will set up, by March 2023 at the latest, the “Data for Energy” (D4E) working group. This group will include the Commission, Member States and relevant public and private stakeholders to contribute to the creation of a European framework for energy data sharing.

The Commission announces in “Digitalising the energy system – EU action plan” that it intends to support EU Transmission System Operators (TSOs) and Distribution System Operators (DSOs) in the creation of a digital twin of the European electricity grid, an advanced virtual model of the grid. The purpose of the digital twin is to make the grid, and with it the energy system as a whole, more efficient and smarter.

The sustainable design of digital devices and clear information on their environmental footprint and reparability and recyclability can, on the one hand, contribute to reducing the use of raw materials and facilitate a shift towards circularity, but on the other hand, can put an additional burden on fossil fuel-based economies.

Collective energy schemes that involve a whole community, village or town can allow such consumers to connect and scale-up their potential interaction with the electricity system. Such schemes can enable communities to, for example:

• better monitor their performance as measured by energy consumption or
• share photovoltaic panels or otherwise engage in power sharing or peer-to-peer trading of electricity generated by joint investment projects, which can reduce their dependence on high electricity prices set in the wholesale market.

The proposed framework for an Ecodesign for Sustainable Products Regulation[1] is aimed at:

• establishing EU regulations to ensure that only “circular” products (i.e. products that are more durable, can be easily reused, repaired and recycled, and are made up of recycled materials as far as possible) are placed on the EU market;
• creating a framework for digital product passports containing information on energy-related aspects (carbon footprint), among other things; and
• setting mandatory minimum sustainability requirements on public procurement of products, for a selection of product groups including electronic and ICT products. To address the energy consumption of working ICT devices, the Commission will develop an energy labelling scheme for computers that takes into account the different uses of computers, such as (i) office work, (ii) gaming and (iii) graphic design and video editing, respectively.

The Commission will aim to establish an EU Code of Conduct by 2025, based on the work done to measure the environmental impact of electronic communications services. The EU’s Code of Conduct for the Sustainability of Telecommunications Networks can help guide investment in energy-efficient infrastructure.

Bearing in mind the content of the document submitted to the Union of Entrepreneurs and Employers for consultation, on 23 November this year we sent our proposals to the Department of Informatisation of the Ministry of Climate and Environment. We pointed out that such a wide-ranging document setting out policy directions cannot be over-regulated in terms of the energy transition, as the Polish energy market has its own specific characteristics that distinguish it from other countries on the old continent. On the positive side, there is a proposal to involve entrepreneurs in the work of future advisory bodies. We also emphasised the need to develop electricity grids in the context of problems with connecting new power generation installations.

***

[1] Proposal for a regulation establishing a framework for the setting of ecodesign requirements for sustainable products and repealing Directive 2009/125/EC, COM(2022) 142 final.

https://eur-lex.europa.eu/legal-content/PL/TXT/?uri=CELEX:52022AE0598

Warsaw, 10 November 2022 

 

Commentary of the Union of Entrepreneurs and Employers (ZPP) on the necessary reduction of expenditure on social and welfare programmes in hard economic times

• Due to the increasingly difficult situation of public finances, the government should aim to redefine the direction of its social policy. The abolition of benefits such as the thirteenth and fourteenth pension, the launching of the “Dobry Start” (Sure Start) programme and the reorganisation of the “Rodzina 500 plus” (Family 500 plus) programme could contribute to a significant reduction in budget spending and constitute a key source of desired savings.
• Returning to the original form of the “Rodzina 500 plus” programme, excluding the payment of the benefit for every first child without setting an income threshold, could reduce the budget costs of the programme by about PLN 20 billion per year.
• The abolition of the so-called thirteenth and fourteenth pension can lead to a direct reduction of expenditures related to the pension system by almost PLN 25 billion a year.
• Moreover, the effectiveness of any other social and welfare programmes should also be thoroughly assessed.

Rising inflation and the instability of the economic environment caused by the negative economic consequences of the pandemic and Russia’s armed aggression against Ukraine and the related energy crisis should force the government to redefine the direction of its fiscal policy.

Although the Ministry of Finance reported a budget surplus for the period from January to September 2022 in the amount of PLN 27.5 billion, it should be remembered that a significant proportion of expenditures is charged to non-budgetary funds. And thus, based on Poland’s fiscal notification presented by Eurostat, the general government deficit in 2022 will be approx. PLN 141.4 billion compared to approx. PLN 48.195 billion in 2021. The deficit of the central government subsector will increase from PLN 49 billion in 2021 to PLN 135.9 billion this year. The local government surplus will also be lower – PLN 6.52 billion in 2022 compared to PLN 14.92 billion in 2021. The deficit of the social security funds subsector is expected to be PLN 12.84 billion. The cost of aggregate debt servicing for the public finance sector will also be high and will amount to 1.75% of GDP, i.e. almost PLN 53 billion.

The government seems to assume that adjustments to fiscal policy should involve instruments that have as little direct impact on the sphere of social benefits as possible. According to reports, the Prime Minister issued a working order for the introduction of a programme of budget cuts in ministries, which is expected to result in savings of about PLN 10-15 billion – it is still a negligible amount with respect to real needs. Reducing expenditures on social programmes seems to be the most natural and desirable response today, which should be reflected in the decisions of state authorities, especially given the fact that the most important social programmes have cost us around PLN 250 billion since 2016.

In February 2022, even before Russia’s invasion of Ukraine, the Union of Entrepreneurs and Employers (ZPP) urged the decision-makers to adopt a “conservative turn in social and budgetary policy” in the face of potential economic risks that make it much more difficult to stimulate economic growth with consumption, which is misguided in its nature. Already at that time, ZPP warned that, in the near future, high expenditure on social benefits could become cumbersome from a budgetary point of view. Cuts in spending on social programmes are today the surest way to restore the sustainability of the public finance sector. Plans to redefine the policy directions in other areas are subject to considerable risk resulting from uncertain estimates and forecasts, which are made in times of pandemic and war.

“Rodzina 500 plus” programme

As far as social spending is concerned, the flagship programme of Zjednoczona Prawica – “Rodzina 500 plus” (Family 500 plus) has been the biggest strain on the budget for years. By the end of 2021 alone, it cost us about PLN 180 billion. As at today, the annual cost of the “Rodzina 500 plus” programme is PLN 41 billion. This is more than twice as much as the cost of the programme in its original version – at the time, the then Ministry of Family, Labour and Social Policy reported that the cost of the programme would be PLN 21 billion.

In this context, it is worth recalling that in the original version of the “Rodzina 500 plus” programme, benefits were provided with respect to the second and each subsequent child to recipients whose income per household member did not exceed PLN 800 or PLN 1,200 in the case of a child with a disability.  In the second half of 2019, the income threshold was abolished, and the benefit was extended to every child, which led to an increase in expenditure on the programme to PLN 41 billion per year.

Restoring the original version of the programme, i.e. restoring the income threshold and excluding every first child from the benefit, would result in savings of about PLN 20 billion per year and a more targeted flow of funds under the programme.

Potential plans to index the benefit in its current form should also be abandoned. The Pollster research institute asked Poles in a survey commissioned by se.pl in October this year whether the government should increase the “Rodzina 500 plus” benefit to PLN 800. Fifty-one per cent of the respondents answered unequivocally “no”, 12 per cent answered “hard to say”, and 37 per cent of the respondents were in favour of an increase in the benefit. The results of the survey show a change in the way Poles think about budget spending. The majority of the respondents are aware of the fact that the costs of indexation of the “Rodzina 500 plus” programme would be borne by everyone, and that any attempt to “catch up with inflation” by indexing social benefits is too costly and counterproductive from the point of view of an already strained state budget. The results of the survey are also a signal for the ruling party, which should not see an increase in this benefit as an opportunity to extend the electorate – this is particularly important in the context of next year’s parliamentary elections.

Allowance for pensioners

The desire to maintain the so-called thirteenth and fourteenth pension is an incomprehensible move from the point of view of the difficult economic situation in recent years. It is worth recalling that the second pension was originally intended to be a one-off allowance, but – according to the government’s announcement – it is also to be paid in 2023 at an indexed, higher rate. According to the Ministry of Family, Labour and Social Policy, in 2022 alone, the cost of the fourteenth pension is expected to be PLN 11.4 billion. In 2023, it will be higher, as the minimum pension rate will also be adjusted. The popular thirteenth pension will cost us about PLN 13.1 billion in total in 2022.

In October 2022, inflation in Poland stood at 17.9 per cent and was the highest from December 1996. Despite regular increases, instead of reforming the ossified pension system, the government has only exacerbated its problems in recent years. The introduction of the thirteenth and fourteenth pension and the increase in the retirement age have dramatically increased costs generated by the pension system. It is also difficult to find an economic justification for further transfers. We should still consider them in the context of purely politically motivated actions.

According to the Union of Entrepreneurs and Employers, the “belt-tightening” policy should largely apply to the pension system. From the outset of the discussion on the introduction of additional allowances in the form of the thirteenth and fourteenth pension, we believe that they unnecessarily strain the budget and are used to achieve political goals with respect to an arbitrarily designated group of the electorate; therefore, once again we emphasise the urgent need to abolish both allowances, namely the thirteenth and fourteenth pension. It should be noted that compared to the group of OECD countries, the Polish pension system is one of the most expensive systems, consuming more than 10% of GDP annually.

“Dobry Start” programme

“Dobry Start” (Sure Start) or “wyprawka” (school starter kit) or “300 plus” is another social programme that is excessively costly from the point of view of budgetary burdens. The essence of the programme is the annual payment of a one-off benefit to parents of school-age children up to 20 years of age or up to 24 years of age in case of children with disabilities.

The annual cost of the programme is almost PLN 1.45 billion, amounting to a total of almost PLN 7.5 billion from the start of the programme until the end of 2022. Based on the latest data on the condition of the public finance sector, it would be reasonable to abandon the programme in subsequent editions, which would give real savings of around PLN 1.45 billion per year.

Other relevant social and welfare programmes

The “Rodzinny Kapitał Opiekuńczy” (Family Care Capital) programme, which is a new benefit proposed in the Polish Deal, costs the budget PLN 3.15 billion per year. Moreover, parents of children aged between 12 and 35 months are entitled to a benefit of PLN 12,000 for their second and subsequent child. The allowance is paid in monthly instalments. The aim of the benefit is to encourage parents to return to the labour market, but it is difficult to determine its effectiveness due to the short duration of the programme. However, the introduction of an income threshold should be considered, which could significantly reduce the amounts of the payments and relieve the state budget.

“Mama 4 plus” (Mother 4 plus), the tourist voucher and other similar programmes represent a relatively small budgetary burden.

Conclusions

Abandoning some of the budgetary burdens associated with spending on social programmes or changing the criteria for some of the existing programmes will make it possible to save funds in the short term, which is necessary in light of the current crisis. If we return to the original version of the “Rodzina 500 plus” programme and give up the thirteenth and fourteenth pension, as much as PLN 40 to 50 billion per year will remain in the budget.

The government should also make every effort to change the tax system in order to give entrepreneurs a sense of stability and ensure an increase in the level of investment. The savings of PLN10-15 billion achieved by the government’s policy of cuts in ministries is a significant value but insufficient in the face of current challenges – after all, the anti-inflation shield alone is worth three times as much.

 

More: 10.11.2022 Commentary of the Union of Entrepreneurs and Employers (ZPP) on the necessary reduction of expenditure on social and welfare programmes in hard economic times

Warsaw, 22 September 2022 

 

Commentary of the Union of Entrepreneurs and Employers (ZPP) on the economic activity of Ukrainians in Poland – 2022, an absolutely record year

Certainly, the beginning of the year was not successful for Polish entrepreneurs. In February, almost 5,000 fewer new businesses got registered than a month earlier. However, in March, Ukrainians arrived “to help” and they felt so confident in Poland that they greatly contributed to exceeding the January’s threshold. By 2021, in Poland, there were 7,117 registered businesses managed by Ukrainian citizens.  In 2022 alone, and only until September, Ukrainian citizens submitted 9,374 applications to set up a business.

Total applications to establish a business in Poland
 Monthly data for 2022

January                26,567
February              21,792
March                   26,962
April                     25,806
May                      27,369
June                     27,250
July                      25,539
Source: CEIDG, InfoCredit

Based on the data collected by the InfoCredit analytical company, a large percentage of Ukrainians associate not only their family future but also their business activity with in Poland. Proximity to the home left behind certainly makes a difference in settling in, and professional fulfilment is reflected not only in full-time work but also in newly established businesses. The removal of employment barriers is definitely motivating for Ukrainians, as currently no work permits are required. There is only a procedure in place to notify the district employment office that a given person got employed.  By August, almost 390 thousand persons from Ukraine got employed under the simplified procedure. By the middle of the summer holidays, over 770 thousand Ukrainians  were legally employed in our country.

As the Border Guard indicated on Twitter on Sunday, women and children constituted the vast majority of the 6.36 million people who have crossed our southern-eastern border.

That structure of Ukrainians settling down in Poland corresponds to the type of businesses most frequently opened, which are hairdressing and beauty therapy. But not only. This year, also IT specialists found employment in Poland. Compared to previous years, a large amount of activity was also noticed in construction and transport.

Large cities are the main target

This year, the largest number of businesses was established by the citizens of Ukraine in Mazowsze (2,262), as well as in Dolnośląskie (1,473) and Małopolskie (1,285) voivodeships.  Pomorskie Voivodeship was on 4th position, and Wielkopolskie Voivodeship on 5th  (1,040 and 701 respectively). In the voivodeships located in eastern Poland, the number of businesses established by our visitors was smaller. It was 209 businesses in Podkarpackie Voivodeship, 253 in Lubelskie Voivodeship and only 59 in Podlaskie Voivodeship, less than in Warmińsko-Mazurskie Voivodeship (61).

It seems that our visitors set up the most businesses in places where there is the best opportunity to gain new customers. Not surprisingly, their most popular destiny was Warsaw and the largest cities. The distance from the border was irrelevant here. What mattered was an attractive market, a chance to make a good living and find accommodation to stay.

The main destination, taking business and income opportunities, was Warsaw. This year, in the capital, the visitors established 1,764 new businesses.  Kraków came second (1,042 new businesses), slightly ahead of Wrocław (1,040). In Gdańsk and Poznań, 434 and 417 new businesses were established, respectively. Szczecin was much ahead of Łódź (314 and 237, respectively). Out of the above-mentioned cities, the biggest jump in the number of new businesses was recorded in Wrocław (from 635 before 2022 to 1,040 this year), in Kraków (from 697 to 1,042) and in Gdańsk (from 200 to 434) – adds Jerzy Wonka, the President of the Management Board of InfoCredit.

Economic activity, despite increasing burdens and constant changes in tax regulations, is still the simplest form of business. With a PESEL (Polish Resident Identification Number) assigned, with the help of volunteers and the support of officials, it can be established almost immediately. The cooperation of Polish and Ukrainian business in the process of the reconstruction of the neighbour country is still a topic of the future. Today, our visitors are trying to make their way in our country, also in business, as they want to be independent.

 

See: 20 September 2022, Commentary of the Union of Entrepreneurs and Employers (ZPP) on the economic activity of Ukrainians in Poland – 2022, an absolutely record year

Warsaw, 26 July 2022 

 

ZPP’s commentary on desirable joint actions of European countries related to the energy threat

 

The war in Ukraine has formed an entirely new geopolitical situation, and therefore the primary task of all European decision-makers is to ensure sustainable energy independence for the countries of the Old Continent, based on the assumption of a temporary inability to import energy resources.

Further complications of the international situation should be taken into account, including, for example, provoking further conflicts that prevent or impede the import of energy resources, in an unpredictable time frame. Today, a war in any part of the world involving a NATO member will be a global event with consequences that are difficult to foresee.

Having regard to the above, the energy, transport and storage systems of European countries should also take into account such a crisis situation. We should have a precise plan to enable the economies of individual European countries to quickly switch to operation under conditions of resource independence, which, in turn, would probably involve temporary restrictions on the free consumption of energy resources.

In view of the above, we believe that a body should be established that would create solutions related exclusively to ensuring energy and resource security, common for all Member States of the European Union.

This body should prepare a programme to ensure total energy independence of EU countries, including from imports of energy resources. This document should consist of, inter alia:

1. Balance of existing resources, including but not limited to oil, gas, coal, biomass, renewables, nuclear, etc.
2. Balance of potential resources – cots of exploration, prospecting and extraction of conventional sources; potential availability dates of conventional and other sources (RES, nuclear).
3. Programme for the development of individual energy sources in Europe, spread over a timeline.
4. European programme for the development of transmission networks, national programmes for the development of high, medium and low voltage networks.
5. Distribution of tasks related to ensuring total energy independence between individual European countries.
6. Financing system for the programme of European energy independence.
7. System of military protection of energy sources and transmission lines of European countries.

The development of such a programme and its systematic introduction into the economic cycle of the EU, together with an active programme of joint purchases of resources from non-European countries, would not only allow the optimisation of prices but also ensure the stability of supply.

All activities related to the creation of a common energy market should be accelerated – for example, establishing a fund for the modernisation of transmission networks and the establishment of cross-border interconnections.

The scenario described above should be a programme axis for the development of a new European energy security system.

The basis for the energy security of a State is the proper development of energy networks. Nowadays, Poland has limited cross-border transmission capacity, and this is a key element of common European energy policy. In the coming years, Polish exporters to European markets may also face the need to purchase green energy, which, in turn, would require Poland to join the European Guarantee of Origin scheme (AIB).

The modernisation and development of low and medium voltage networks will determine the form of development of distributed energy, i.e. the foundation of the contemporary energy security of each country.

The European Commission has recently presented another report on the implementation of the Energy Union project that proposed, among other things, new targets for cross-border interconnections between EU countries.

So far, the country that is the furthest from achieving the targets set by the EC is Poland which has the least developed infrastructure in this respect. In presenting the report on the implementation status of the Energy Union, the representatives of the Brussels administration stressed the need to develop cross-border interconnections between individual EU countries, setting a target of at least 15% share of cross-border interconnections in the energy systems of individual EU countries.

The Commission plans to promote strengthening energy links between individual EU countries by financially supporting the cross-border interconnections which were compiled in a list of so-called Projects of Common Interest (PCS). It is estimated that the share of cross-border interconnections in the Polish electricity system is only 4%. This is the lowest level in the entire European Union. 

Only intensive development of cross-border interconnections can guarantee our participation in the pan-European security system. Having a fully liquid energy and gas market in Europe would naturally also result in the harmonisation of the prices of these utilities across the Community. For consumers, the current energy crisis entails periodic intense increases in energy and gas prices; however, in the long term, Poland’s presence in the common market definitely brings more benefits for our country than any variant of energy isolation.

 

See: 26.07.2022 ZPP’s commentary on desirable joint actions of European countries related to the energy threat

 

Warsaw, 11 July 2022

 

ZPP’s commentary on the conclusions reached at the Lugano conference

 

On 4-5 July 2022, an international conference on the reconstruction of Ukraine was held in Lugano, Switzerland. More than 40 countries and international organisations such as the European Investment Bank and the Organisation for Economic Co-operation and Development (OECD) participated. In total, almost 1,000 delegates attended the conference. Although the war instigated by the Russian Federation is still ongoing, and the timing of the end of the fighting and its outcome is currently impossible to predict, arrangements are already being made as to how Western states can participate in the reconstruction of the state of our eastern neighbours.

At the conference, the international community condemned Russian aggression against Ukraine and assured of its full support for the country’s independence and sovereignty. Seven guiding principles were also established to address the partnership between Western countries, economic cooperation and investment in the reconstruction of the country, and the internal reforms that Ukraine must carry out in the coming years. These principles include:

1. Partnership

The reconstruction process is led by Ukraine and is carried out in cooperation with its international partners. Reconstruction efforts must be based on a solid and continuous process of needs assessment, agreed priorities, joint planning for results, accountability for financial flows and effective coordination.

1. Focus on reforms

The reconstruction process must contribute to accelerating, deepening, expanding and ultimately realising Ukraine’s reform efforts along with perseverance in following the path of European development.

1. Transparency, accountability and the rule of law

The reconstruction process must be transparent and credible to the Ukrainian people. The rule of law must be systematically strengthened and corruption eliminated. All reconstruction funds must be spent fairly and transparently.

1. Democratic participation by the public

The reconstruction process must be a whole-of-society effort, rooted in the democratic participation of the Ukrainian population, including returnees from abroad, taking into account local authorities and effective decentralisation.

1. Engagement of multiple actors

The reconstruction process must facilitate cooperation between national and international actors, including those from the private sector, civil society, academia and local authorities.

1. Gender equality and social inclusion

The reconstruction process must be inclusive and ensure gender equality and respect for human rights, including economic, social and cultural rights. Reconstruction must benefit everyone, and no part of society should be left out. Social inequality must be reduced.

1. Sustainable development

Ukraine’s reconstruction process must be sustainable, in line with the 2030 Agenda for Sustainable Development and the Paris Agreement, integrating the social, economic and environmental dimensions, including the green transition.

In addition to setting out the above seven principles for cooperation in the reconstruction of Ukraine, the Lugano Conference also agreed on the areas to be entrusted to individual countries for reconstruction. According to the Ukrainian proposal, Poland, together with Italy, would undertake the reconstruction of Donbass. For Polish companies, this would be an opportunity to take part in a very large venture, as the Donbas is one of the regions where the most damage has been done, while at the same time it is an extremely important area economically due to its significant amounts of strategic resources, including coal, iron and so-called “rare earth elements”. The presence of Polish companies in the region would mean expansion into a new market and opportunities for multi-million dollar contracts. However, it is important to highlight a very important issue. The Donbas is one of the main areas of interest for the Russian Federation. The internationally unrecognised (except for Russia) People’s Republics of Donetsk and Lugansk operate in the area. In addition, the current state of hostilities in Ukraine indicates that almost the entire Donbass area is controlled by the Russian Federation. Given the uncertainty that the war brings, it may not be possible in practice for Poland to take part in the reconstruction project in this part of the country, and this may mean that the Lugano provisions will have to be revised. It should also be stressed that the proposal presented in Lugano contradicts media information and communications from Polish government representatives regarding the Polish role in the reconstruction of Ukraine. In fact, worthy of note is the fact that information so far has indicated Poland’s participation in the reconstruction of Kharkiv, whereas the Ukrainian proposal indicates entrusting this task to the United States and Turkey.

It is also worth mentioning that a large group of Ukrainian entrepreneurs representing almost every sector of the economy were present in Lugano. Participants on numerous panels highlighted the strengths that characterise the Ukrainian economy, such as one of Europe’s most modern banking systems, the high computerisation of public administration (including the existence of an equivalent of the Polish mObywatel system), a dynamic IT sector that is active even during wartime, and finally Europe’s largest agricultural production sector. Ukraine also has a significant pool of well-qualified workers ready to take up employment at any time. This is emphasised by Ukrainian business owners pointing out that the huge internal migration from the areas occupied by Russian troops has resulted in tens of thousands of people in urgent need of work in Ukraine.

Ukrainian entrepreneurs also identified the most relevant issues regarding Ukraine’s reconstruction process:

• introducing a zero-tolerance policy for any signs of corruption;
• ensuring that the competition conditions for the award of contracts related to the reconstruction of the country are completely transparent and fully fair;
• ensuring that the conditions for investment capital inflows from abroad are as simplified as possible.

At the same time, Ukrainian business representatives have indicated that, alongside political instability and the risk of the war dragging on for a long time, the biggest challenges at present are:

• Enormous financial needs regarding the process of rebuilding war damage and infrastructure. These needs significantly exceed the capacity of domestic business, resulting in the need for foreign funding, whether from individual countries, international institutions or private investors. This funding should receive systemic guarantees from the Ukrainian authorities and international actors.
• The massive scale of damage to the transport infrastructure, which has caused a crisis in the logistics industry and a breakdown in the smooth flow of goods and orders within the country and for export. Participants in the panel discussions highlighted that the average time for transporting goods has increased by more than three times. It is necessary to renew and expand the transport fleet of Ukrainian companies. At the same time, foreign entrepreneurs are reluctant to fulfil orders due to concerns about security, fuel availability and, above all, queues of many days at the borders.
• A crisis involving the mining and pollution of large areas of the country. It is estimated that ¼ of Ukraine’s land area is currently mined and covered with unexploded ordnance, with significant consequences for many years to come, not least of which is the complete exclusion of these areas from civilian use.

Many of the participants in the panel discussions are entrepreneurs who have experienced family and business tragedies, lost their assets and the means to run their businesses. They, as well as many of their employees, stood up with guns in defence of the country. Despite the horrific experience of war, however, they emphasise that Ukraine faces a historic opportunity to rebuild and modernise the state and join the Western world. They stressed the importance of international cooperation and pointed out the responsibility that Ukrainian entrepreneurs have in the reconstruction process.

 

See: 11.07.2022 ZPP’s commentary on the conclusions reached at the Lugano conference