Warsaw (Platts)--6Nov2012/1153 am EST/1653 GMT

Poland's draft renewable energy law will threaten the development of wind energy in the country because it would reduce the return on investment to an unacceptable level, consultancy PwC said Tuesday.

"The implementation of the draft law from October 2012 would lead to a situation where the profitability of most wind farm projects would be insufficient to start them," PwC said in a report prepared for the Polish Wind Energy Association.

The final version of the draft law was unveiled by the Ministry of Economy last month. The ministry drafted the renewable energy sources law to cut the level of support for some renewable sources, codify and simplify the regulations for the sector, and implement a European Union directive that sets Poland a target of producing 15% of its final energy consumption from RES by 2020.

PwC noted the draft law reduces state subsidies for onshore wind farms with capacities of more than 500 kW by 10% in 2013 and by 17% in 2017. State support is guaranteed for a 15-year period following the commissioning of a wind farm. Under currently binding legislation, no time frame is specified.

The bill also caps the price RES projects can sell electricity for and still receive green certificates, their main source of income, and sets a mandatory purchase price for RES electricity. It states that suppliers of last resort, typically the dominant distribution company in the region a wind farm is located, are obliged to purchase electricity from a wind farm or any other RES installation, at a price of Zloty 198.90 ($61.86)/MWh indexed to inflation, or the average wholesale market price for the previous year, whichever is lower.

However RES installations that sell their electricity for more than 105% of the mandatory purchase price will no longer be entitled to receive green certificates, in effect capping the price of RES electricity. Market participants say the provision is designed to prevent the country's four vertically-integrated power companies from making windfall profits by trading RES energy within their capital groups at inflated prices.

PwC also noted that wind farms will suffer because it effectively caps the price of green certificates, the other main income stream for RES producers in Poland apart from electricity sales. The bill sets the substitution fee -- a regulatory cap on the price of green certificates -- at Zloty 286.74/MWh and it will not be indexed to inflation. Under existing legislation the substitution fee is indexed to inflation. Therefore the draft law caps both forms of income for RES producers, by imposing upper limits on the price of green certificates and the price of electricity they sell.

The bill has proved controversial and was more than two years in the drafting, which in effect put a brake on wind energy development in Poland as developers and creditors knew regulatory changes were coming but had no details. Poland's installed onshore wind energy capacity has grown 20-fold in the past six years. For the first time since 2005, growth in the amount of wind capacity connected to the grid slowed last year and those were projects that were developed several years ago.

The Treasury Ministry, which controls Poland's four vertically-integrated power companies, has stated it wants the substitution fee to be indexed to inflation and to remove the penalty for selling electricity at a price above the mandatory purchase price.

The bill still needs approval from the Polish Cabinet, which may prove difficult given the differences between the ministries, before it is sent to the Polish Parliament for discussion and voting.

--Adam Easton, newsdesk@platts.com --Edited by Deepa Vijiyasingam, deepa_vijiyasingam@platts.com