Poland plans to cut renewable-energy subsidies after an economic slump boosted the budget deficit, the deputy economy minister said.

“We don’t plan a retreat from support, but we see that progress in technology allows us to reduce rates proposed earlier,” Pietrewicz said in his first interview on renewables since taking office.

Prime Minister Donald Tusk’s government is attempting to ease jumps in power prices while complying with European Union rules and a court decision requiring it to adopt incentives for renewables. Poland, which produces 90 percent of its electricity from coal, aims to expand the amount of energy it derives from cleaner sources to 15 percent by 2020 from about 2 percent now.

Tusk’s cabinet will vote today on amendments to the new energy law to avoid EU penalties. A final draft is expected by Pietrewicz this half after lawmakers proposed a system of feed- in tariffs granting premium rates for clean-power generators. The program would lock in payments for smaller projects, establish a tradable green-energy certificate system and set up a stabilization fund to maintain the value of those securities.

Budget Crunch

Poland estimates that the cost of state support for renewables will rise to 10.8 billion zloty ($3.4 billion) in 2020 from 5.5 billion zloty in 2014. The government budget deficit in the first quarter widened to 25 billion zloty, the most in a decade.

Subsidy cuts in Poland follow similar reductions in Spain, Italy, Germany, France and the Czech Republic, which are attempting to contain booms in solar-panel installations and stem gains in consumer power bills following the introduction of feed-in tariffs.

“Poland should definitively learn the lessons from Spain or the Czech Republic examples, where support for large solar farms resulted in serious problems,” Anna Czajkowska, a London- based policy analyst for Bloomberg New Energy Finance, said today. “Even German transmission networks struggle with the recent increase of solar-power generation.”

EU Deadline

The European Court of Justice on March 21 faulted the Polish government for failing to pass legislation in time for an EU deadline.

“Our intention is to design a good solution among a mosaic of interests which vary,” Pietrewicz said. “We understand investors need stability and predictability.”

The feed-in tariffs will pay out at fixed rates over 15 years for existing plants. The tariffs will be reviewed every year or two, with new rates applying only to new installations, the minister said.

The planned stabilization fund, designed to intervene in the green-certificates program, will take contributions from market participants and needs to be at least 300 million zloty to function properly, he said.

That’s similar to the monthly turnover in certificates on the Towarowa Gielda Energii power exchange, known as PolPx, according to Pietrewicz, who said the government has “started to discuss the idea with the market and see positive reactions.”

Price Declines

The price of certificates has dropped 34 percent this year to 119.3 zloty a megawatt-hour, reaching a record-low on Feb. 14, data compiled by Bloomberg show.

The stabilization fund will help to protect investors against price declines, according to BNEF’s Czajkowska. “It is an important proposal and a step in the right direction,” she said by e-mail. “We need to wait for details to fully assess the idea.”

Support for existing biomass co-firing projects, Poland’s most popular renewable–energy source, will be maintained until 2017. Polish power plants doubled their biomass burning from 2006 to 2011, resulting in a jump in prices for the fuel, according to data from the Economy Ministry.

“Old regulations created a significant market for biomass, which dominated renewable energy,” Pietrewicz said. Poland wants more “diversified generation,” according to the minister, who said efficient co-generation as well as small installations will keep subsidies. “We want to give the business time to find alternative ways to use biomass.”

Wind Energy

Wind power should become the “base” renewable source, weaning the nation away from its dependence on coal, Pietrewicz said. Wind capacity grew 55 percent last year to 2.5 gigawatts, according to the Polish energy-market regulator, while Iberdrola SA of Spain and Denmark’s Dong Energy A/S sold their Polish assets in February to local utilities PGE SA and Energa SA.

The minister brushed aside the suggestion that there’s a risk more investors will sell. “We still see potential for Polish shipyards that are suppliers for offshore wind farms,” he said.

For solar energy, the government plans to encourage smaller projects while limiting support to large plants.

According to the October draft law, rooftop installations of less than 10 kilowatts would get 1.30 zloty a kilowatt-hour, while those of 100 kilowatts would get less than 1.15 zloty, or almost double the rates in Germany. Projects on the ground would get 1.15 and 1.10 zloty, respectively.

Large solar plants will initially qualify for as many as 2.85 green certificates a megawatt-hour over 15 years.

“Large photovoltaic farms are actually the expensive source of energy,” Pietrewicz said. “We want to wait until it gets cheaper to fund such types of investment.”

Copyright 2013 Bloomberg

Lead image: Poland flat money via Shutterstock