Close to a year has passed since the entry into force of the Act of July, 28th 2023 on the amendment of the Act on Energy Law and other acts, hence it’s worth to take a closer look at how non-market redispatching has developed in the Polish energy sector.
What is redispatching?
Redispatching is a term originating in EU law, more specifically in the Regulation of June, 5th 2019 on the internal market for electricity ("Regulation 2019/943"). According to the referred Community legislation, redispatching means a measure, including curtailment of generation, activated by one or more transmission system operators or distribution system operators, consisting of a change in the generation schedule, load pattern, or both, in order to modify the physical flows on the transmission network and reduce physical congestion or otherwise ensure system security.
In practice, redispatching covers all the mechanisms available to network companies, the application of which is aimed at guaranteeing the two basic principles that guide the transmission system operator ("TSO"). The first is to ensure the operational security of the national electricity system ("NES", pol. krajowy system elektroenergetyczny, "KSE"). The following is to ensure this security at the lowest possible cost, this principle being secondary to the former. The types of redispatching mechanisms are divided into two: market-based and non-market-based.
It is this second type of redispatching - non-market-based - that the TSO has started to use so often this year, that its effects on RES installation generators’ core businesses, particularly photovoltaic installations, cannot be ignored. For such generators, non-market redispatching means, in the vast majority of cases, simply a loss of revenue from the sale of electricity. Any financial compensation on this account is compensation in name only, as the TSO's methods of calculating its amount raise far-reaching objections. However, let us take a step back...
Redispatching in domestic law
Rules and mechanisms concerning redispatching were implemented into the Polish legal system by the Act of July, 28th 2023 on the amendment of the Act on Energy Law and other acts, which entered into force September, 7th 2023 (“Amending Act”). Despite the measures taken to adapt the legal environment to this mechanism, their practical application raises many controversies and questions among market participants.
The Amending Act, in its transitional provisions, imposed an obligation on network operators to adapt their instructions for the operation and use of the transmission or distribution network to the (non-market) redispatching regulations introduced into the Energy Law. The TSO had 12 months from the entry into force of the Amending Act to do so, while distribution system operators ("DSOs") had 4 months from the amendment of their instructions by the TSO. As of the date of this article, the TSO - Polskie Sieci Elektroenergetyczne S.A. and the largest national DSOs have already updated their instructions in the above respect. In the meantime, however, the transitional provisions, instead of at least setting out guidelines on how financial compensation is to be calculated, indicate that compensation is to be calculated and paid on the basis of an agreement determining its amount between the operator issuing a redispatching order and the generator. This regulation of the transitional period seems to have, de facto, set the direction for operators to change their instructions for the operation and use of the transmission or distribution network. The amended provisions of the instructions are devoid of any specification of principles strictly regulating the method of calculating the amount of financial compensation; instead, reference is made to the financial settlement on the basis of separate agreements concluded between the relevant operator (issuing the redispatching order) and the generator complying with the order.
Lack of precise regulation
In the opinion of the Polish Photovoltaic Association, the redispatching provisions introduced are incompatible with EU law1. The doubts relate to, i.a. the provisions introduced by the Amending Act concerning the methods and grounds for determining the generating units which will be subject to redispatching on a given day. According to expert calculations, photovoltaic installations are currently the most frequently subjected to redispatching2. According to the cited report, by mid-May of this year, forced switch-offs, only of photovoltaic installations, covered more than 350 GWh - almost 10 times more than in the previous year. Furthermore, according to the cited publication, the total volume of energy subject to redispatching in 2024 could increase from 400 GWh to as much as 1 TWh3.
The main problem for generators in RES installations is the fact that the forced switch-offs of installations by the operator is a balancing solution for the system, rather than one solving the cause of the overload. Consequently, this poses a threat to the national energy transition and limits, the so far dynamic, development of the RES market in Poland. The Polish Photovoltaics Association estimates that in a few years the price of compensation for forced switch-offs may even reach several hundred million zloty per year4.
Lack of adequate compensation
According to the current law, grid operators are obliged to financially compensate an electricity generator in the event of non-market redispatching of an installation. In practice, however, the calculation of the amount of compensation is subject to some uncertainties. Leaving aside the content of Article 13(7) of Regulation 2019/943, and turning to the EU legislator's guidance, however vague, on which market prices should be used to calculate financial compensation, it is worth bearing in mind that non-market redispatching for payment of financial compensation is the same as any other service procured by the operator concerned. It should, however, be remunerated at least as much as the revenue, a generator would have earned by generating and selling electricity in the ordinary course of business, have they not been issued a redispatching order.
It should also be noted, that not every generator who's been subjected to redispatching will be able to apply for financial compensation. Excluded from the possibility of applying for financial compensation are generators that have accepted a clause in their connection agreement that does not guarantee reliable energy supply. Such clauses, rather than being exceptions, are - according to our experience - now introduced by operators into grid connection agreements as standard (unless there is a refusal to issue connection conditions).
A drawback in achieving EU goals
Currently, the development in the renewable electricity generators sector is mainly focused on resource-rich areas with the highest capacity factors, without considering the grid topology5. This can lead to system mismatches, as the areas where renewable generation is concentrated do not necessarily coincide with the locations of actual demand. The need to transmit the electricity generated in a given zone may therefore regularly exceed the available grid capacity.
The uncoordinated placement of generation sources will significantly increase the need for redispatching, as the grids will be further unable to fully transmit all available renewable electricity. According to experts, up to 310 TWh of renewable energy could thus go unused due to grid constraints in 2040 if the transmission grid is developed at its current rate6.
