Four changes introduced by the amendment to the Energy Law that are important for industry

1 Closed distribution systems (SCS)Regulations on closed distribution systems, which have been expected for several years, have finally found their way into the Energy Law, although time will tell whether they will be widely used by entities entitled to do so. It is intended that the newly introduced regulations will make it easier for companies for which this activity is only ancillary to their main business to conduct energy activities. The regulations will therefore mainly affect industrial plants, but also shopping centres, housing estates or special economic zones with their own distribution networks in a limited geographical area. In the case of industrial plants, this situation is the result of historical conditions, in which the plants supplied their own production units with electricity or gas, as well as customers located on the premises. To date, such entities have typically used and continue to use one of two opposing solutions.

The first is to fully regulate the energy activities on the site, which involves obtaining a licence for distribution and, in many cases, for trading in electricity or gas, obtaining the status of an OSD, submitting tariffs for approval, the obligation to prepare and approve IRIESD, drawing up development plans and a number of other obligations such as reporting. Thus, while the industrial plant can make money from its energy activities, it is also obliged to fulfil regulatory obligations that are disproportionate to its activities.

The second solution is to re-invoice the costs of electricity or gas to consumers on the premises, which, as it is not considered an economic activity, does not require obtaining any licence and thus fulfilling the obligations of an energy company. The invoice must, of course, not contain any mark-up over and above the price which the utility itself has obtained from the energy company for both the distribution and the sale of energy or gas. The utility cannot therefore make money on such activities. At the same time, basing the relations of an industrial plant with its sub-consumers on cost re-invoicing does not give these sub-consumers the attribute of “final customers”, and thus prevents them in practice from exercising their right to choose the seller or the right to negotiate the price with the energy company.

Thus, it can be said that the first approach described above is over-regulated, while the second is under-regulated, which is addressed by the above-mentioned amendment to the Energy Law. The assumption is that an entity which obtains the status of a ZSD will be able to take advantage of two exemptions with regard to its energy activity:

• firstly – it will be exempt from submitting tariffs for approval, with the proviso that rates for distribution services for customers who are users of ZSD cannot be higher than those resulting from the tariff approved by the President of URE of the energy company to whose network the ZSD is connected, or in the absence of such connection – in whose area of operation the ZSD is located.

• At the same time, in the event that an industrial enterprise intends to carry out not only distribution activities, but also trade in electricity or gas to customers who are users of ZSD, in settlements with those customers (but only customers in households), prices of electricity or gaseous fuels should be applied no higher than those contained in the tariff of the ex-officio seller operating in the area in which this operator operates within ZSD, approved by the President of ERO.

• If, on the other hand, the ex-officio seller has been exempted from the obligation to submit a tariff for approval (an example here is Innogy Polska S.A.), any sales rates may be applied in the ZSD;
• secondly, it will be exempted from drawing up development plans for meeting the current and future demand for gaseous fuels or energy as referred to in Article 16 of the Energy Law.

An analysis of Article 9da and Article of the Energy Law, leads to the conclusion that in order for the ERO President to establish a closed electricity or gas distribution system in a geographically defined area – in this case, the area of an industrial plant – the following conditions must be met:

• no more than 100 consumers of gaseous fuels or electricity may be connected to the network of the industrial establishment (which, however, does not exclude any number of non-household consumers connected to that network);
• the operation or generation processes carried out by the users of that system are integrated for specific technical or safety reasons;
• 50% of the volume of electricity or gaseous fuels distributed annually is consumed by the owner or operator of the distribution system or enterprises associated with that owner or operator.

As it seems, most industrial plants are able to meet the above conditions.

At the same time, in order to obtain the status of ZSD, it is inevitable to first:

• obtain a concession for the distribution of electricity or gas (and, if the company wishes to sell energy, also a concession for trading);
• apply for the

status of DSO.
Of course, in the case where an industrial establishment already holds the relevant concessions and DSO status, it can directly apply to the President of the ERO for ZSD status.

The very fact of the introduction of closed distribution systems into the Polish legal order should of course be assessed positively, although these changes should not be overestimated either. The number of obligations to be fulfilled by entities obtaining the status of a ZSD will still be so high that industrial facilities whose main activity is production will usually be forced to separate from their staff dedicated to energy activities, especially when such an entity also decides to carry out the activity of trading in electricity or gas on the territory of the ZSD. It seems that the legislator could have been tempted to exempt ZSDs also from a number of other obligations, in particular reporting obligations, such as the obligation to provide information on the values of available connection capacities for sources (Article 7(8l) of the Energy Law), information provided to the President of the ERO regarding changes in the scope of business activities performed and capital relations of DSOs (Article 9d(8) of the Energy Law) or decide to introduce a simplified way of drafting and approving IRIESDs.

At the same time, closed distribution systems may help to regulate the historically unregulated status of networks on the territory of industrial plants, especially as such entrepreneurs, today often already aware of the conditions related to climate protection, are interested in weaving into the ZSD at least a RES source or an energy storage facility (especially after the introduction of new regulations on storage facilities). Once the relevant concessions are obtained and other regulatory conditions are met, this can be an advantageous operating model.

2 Remuneration for complying with restrictions on the supply and off-takeof electricity One of the significant changes introduced by the amendment to the Energy Law – in this respect, however, entering into force only as of 19 June 2023. – is to grant electricity consumers the right to remuneration for the introduction of restrictions on the supply and off-take of electricity, only, of course, insofar as such consumers have complied with such restrictions.

Pursuant to the newly amended Article 11(3a) of the Energy Law, remuneration is due for each kilowatt-hour of electricity not taken in a given hour, determined on the basis of the customer’s plan for introducing restrictions on the supply and off-take of electricity, and no higher than five times the average price for the sale of electricity on the competitive market announced by the President of the ERO. These will therefore be lump-sum remunerations for the implementation of the reduction.

The remuneration will be paid by either the transmission system operator or the distribution system operator, depending on which network the customer is connected to. In turn, the costs of remuneration will be covered by a quality charge, which is part of the distribution bills.

The conditions and rules for payment of the remuneration will be defined in an implementing regulation.

Bearing in mind the events of August 2015, when the so-called 20th degree of supply, i.e. the highest possible restrictions on the supply and off-take of electricity, were introduced in Poland, it seems that the remuneration awarded to consumers could be an important incentive for the actual introduction of restrictions in the event of a crisis situation, provided that the mistakes that took place in August 2015, related primarily to the lack of sufficient information as to the value of individual degrees of supply for individual consumers and the long-standing omissions related to the provision of restriction plans to consumers, can be avoided.

It should also be noted that the existing regulations on the introduction of restrictions on the supply and off-take of electricity burden the consequences of the introduction of these restrictions primarily on entrepreneurs and, to the greatest extent, on large production plants, which are unable to extinguish production from one hour to the next. The new regulations therefore seem to be the most appropriate and take into account market signals that have been raised for several years.

3 Smart metering and central energy market informationsystem The largest part of the amendment to the Energy Law concerns the new rules for the operation of the metering system for electricity and the creation and operation of a central energy market information system. The key issues include:

• an obligation for the distribution system operator to install remote reading meters at at least 80% of customers by the end of 2028 (with gradual implementation of the obligation in individual years);
• billing for the electricity consumed on the basis of actual data;
• collection and administration of metering data by a single central energy market information system managed by the transmission system operator – i.e. Polskie Sieci Elektroenergetyczne S.A.

These changes have an undoubted impact on the industry. From the electricity consumer’s point of view, the introduction of remote meters and a central energy market information system will not only allow settlements to be made on the basis of actual data, but will also, for example, significantly shorten the timeframe for the supplier switching process. According to the amended Article 4j(6)(b) of the Energy Law, a transmission system operator and a distribution system operator are obliged to enable a change of supplier to a final consumer of electricity no later than within 7 days of informing the relevant operator of the conclusion of a sales agreement or a comprehensive agreement with a new supplier. As a reminder, this was – and still is – 21 days. At the same time, if an industrial entity has the status of an DSO, it will be obliged to fulfil a number of obligations at its end customers related, firstly, to the installation of remote reading meters (the cost of which, as a rule, will be transferred to the tariff) and, secondly, involving the remodelling of the existing method of providing metering data and other information on end customers to entities such as electricity sellers, entities responsible for commercial balancing or the superior operator of the distribution system and transmission system.

The changes introduced by the amendment concerning importers ofliquid fuels obviously apply only to a selected group of industrial operators – those who import liquid fuels from abroad for the purposes of their business. It is worth remembering that within the meaning of the Energy Law, liquid fuels are not only petrol or oils, but also lubricants, which constitute one of the groups of fuels most frequently imported by industrialists.

According to the wording of the Energy Law, importing entities, prior to their first import, are obliged to apply for an entry in the register of importing entities. In the entry procedure, the importing entity has so far had to demonstrate, for example, that the entity has no criminal record or that it is not in arrears with taxes. The amendment introduces slightly stricter requirements for entities that are legal persons, consisting primarily in the necessity to submit certificates of not only the company’s criminal record as a collective entity, but also that of all persons authorised to represent the company (members of the management board, proxies), as well as members of the supervisory board.

At the same time, the legislator decided to expand the catalogue of prerequisites leading to the automatic deletion of the importing entity from the register. In addition to the existing deletion premise in the case of failure to import for a consecutive 6-month period, the ERO President has been granted the right to automatically delete an entity if it fails to submit monthly reports on the types and quantities of liquid fuels produced, imported and exported, as well as their destination – if the failure to do so relates to 6 consecutive reporting periods.

The legislator has also supplemented Article 28 of the Energy Law with regard to importing entities, allowing the ERO President to request inspection of the accounts and presentation of information concerning the business activity performed. Until now, this provision applied only to energy companies (i.e., as a rule, licensed). With the entry into force of the amendment, importing entities will also be obliged to provide this type of information upon request, on pain of a fine, which may not be less than PLN 2,000 and more than 15% of the fined entrepreneur’s revenue generated in the previous fiscal year.

Summary One of the biggest amendments to the Energy Law in recent years is not indifferent to the largest energy and gas consumers and production facilities. Closed distribution systems, in particular, may be an opportunity not only to tidy up the historical network structures of large industrial plants, but perhaps also to use the new scheme for profit-making activities. It is time, however, that will tell whether the new regulation will fit in with the business objectives of industrialists and whether they will not be deterred by the still significant number of regulatory obligations.

[1] Act of 20 May 2021 amending the Energy Law and certain other acts (Journal of Laws 2021, item 1093).