One of the company's primary responsibilities as a transmission system operator is to ensure the operational security of the power system. This objective is supported by the implementation of a capacity mechanism, i.e. a capacity market, which should guarantee generation adequacy in the medium and long term. The capacity market should also provide available capacity for further development of renewable energy sources without adversely affecting the security of electricity supplies to end users.

The power market has been operating in Poland since January 18, 2018, the day the Act of December 8, 2017 on the capacity market entered into force. The first year of the performance of the capacity obligation by capacity market units was 2021, in which the capacity obligation was performed by units that won the main auction held on November 18, 2018 and the supplementary auctions for each quarter of 2021 held on March 18, 2020.

The capacity market is an important part of the power industry transformation. Its operation can generate investment incentives to support the construction of new generating units, the replacement of decommissioned units and the modernisation of existing units. It should also allow the implementation of an effective and competitive mechanism to coordinate the construction and decommissioning of generating units and the development of demand side response services, while ensuring that the costs to end users are minimized.

Since the beginning of 2022, a number of processes have been carried out to enable the execution of the capacity agreements concluded to date, as well as the conclusion of further ones.

In 2022, the implementation of the capacity market processes began with the general certification, conducted between January 3 and March 11. Participation in the general certification is mandatory for all existing physical generating units with a gross generating capacity of not less than 2 MW, and compliance with this obligation is monitored by the President of ERO. Participation of scheduled physical generating units, physical demand side response units and scheduled demand side response units is optional, but is a prerequisite for subsequent participation in auction. A unit which has successfully completed the general certification process is entered into the register.

For the 2022 general certification, applicants submitted 1412 applications for entry into the register. A total of 1,379 units were successfully verified and subsequently entered into the register, including 1,144 physical generating units and 235 demand side response units. The summary of the 2022 general certification is presented in Tab. 1.

The following charts show information on the number of physical generating units entered into the register in the 2022 general certification year, by primary energy source used.

Within 14 days of completion of the general certification, PSE submitted a detailed report summarising the general certification to the Minister responsible for energy and to the President of ERO. Furthermore, within 28 days of the completion of the general certification, PSE prepared a proposal for the parameters of the main auction for the delivery year 2027 and the parameters of the supplementary auctions for individual quarters of the delivery year 2024, and also submitted it to the President of ERO and the Minister responsible for energy.

The final values of the parameters were published in the Regulation of the Minister of Climate and Environment of August 10, 2022 on the parameters of the main auction for the delivery year 2027 and the parameters of the supplementary auctions for the delivery year 2024.

Certification for supplementary auctions for individual quarters of the delivery year 2023 that began back in 2021 (November 23, 2021), ended on February 18, 2022. Capacity suppliers submitted 103 certification applications, 60 of which were for existing generating capacity market units, including 40 unconfirmed demand side response capacity market units and 3 confirmed demand side response capacity market units. As a result of verifying the requests, PSE issued 102 certificates allowing capacity market units to participate in the capacity auction or the secondary market. Tab. 2 includes detailed information on the number of certificates issued.

Immediately after the announcement of the preliminary results of the supplementary auctions for individual quarters of the delivery year 2023, PSE launched the possibility of reporting in the register of secondary trading transactions concerning the delivery year 2023 (implementation of the provisions of Article 48(1)(1) of the Act). Each secondary trading transaction must be reported to the PSE for verification for compliance with the requirements of Article 48(2) of the Act. The minimum volume of the transferred capacity obligation covered by a single transaction is 0.001 MW and the minimum duration is one hour from 7:00 a.m. to 10:00 p.m. on business days. A transaction conducted in secondary trading must be reported no later than 24 hours before the start of the period to which it relates.

Simultaneously to the certification processes, PSE continued the process of replacing scheduled demand side response units. This process is conducted in cooperation with the DSO and is intended to obtain information on physical demand side response units replacing the scheduled demand side response units and to enter these units into the register. Capacity suppliers may submit replacement requests no later than 3 months prior to the start of the delivery period for which the capacity agreement was concluded, or 3 months prior to the start of the last quarter of the delivery year specified in the certificate – this applies to units not covered by the capacity agreement. Ultimately, 26 scheduled demand side response units were replaced in 2022.

After the scheduled demand side response units replacement process was completed, PSE proceeded with demand side response testing for unconfirmed demand side response capacity market units. For unconfirmed demand side response units of the capacity market that do not receive a confirmed demand side response capacity test before the start of the delivery period specified in the capacity agreement, the capacity agreement is terminated. Tests are conducted at the request of the capacity supplier submitted through the register. Capacity delivered of at least 80% of the product of the net available capacity and the corrective availability factor is considered a positive test result. In 2022, 25 units received a positive result and changed their status to a confirmed demand side response unit.

On August 25, 2022, PSE conducted three preliminary auctions via the Capacity Market Participant Portal. Foreign physical units located in countries where power system is directly connected to the NPS may participate in the preliminary auctions. The Act allows units located in three areas to participate: in the synchronous profile zone (part of the transmission system of the Federal Republic of Germany, the transmission system of the Czech Republic and the transmission system of the Slovak Republic), in the Republic of Lithuania and in the Kingdom of Sweden. The preliminary auctions are carried out separately for each zone and the maximum volume of capacity obligations for a given zone is determined under the ordinance of the minister responsible for energy issued pursuant to Article 34 of the Act. In a preliminary auction, bids are accepted starting with those with the lowest price until the maximum volume for a given zone is reached. The bids selected in the preliminary auction are then replaced with capacity market units in the auction certification.

The preliminary auctions carried out in 2022 concerned the admission of foreign physical units located in the territory of the Republic of Lithuania, the Kingdom of Sweden, and the synchronous profile to participate in the main auction for the delivery year 2027. The preliminary auctions ended with 8 bids accepted.

The next capacity market process conducted in 2022 was certification for the main auction for the 2027 delivery year. Participation in the certification for the auction is not mandatory, but is necessary to set up the capacity market units and allow them to participate in the auction or in the secondary market for a given delivery period. As a result of successful verification of the applications, PSE issued certificates authorising the capacity market units to participate in the main auction and the secondary market. As part of the certification for the main auction for the delivery year 2027, capacity suppliers submitted 221 certification applications, 144 of which were for generating capacity market units (including 7 foreign units), and 77 were for demand side response capacity market units. Following the certification, PSE submitted a detailed report summarizing the certification to the minister competent for energy and the President of ERO for the auction. As a result of the verification of the applications, PSE issued 185 certificates allowing the capacity market units to participate in the capacity auction or the secondary market. Tab. 4. includes detailed information on the number of certificates issued.

The main auction for the delivery year 2027 was also conducted in 2022. This was the seventh main auction in the Polish capacity market. It resulted in a total of 95 capacity agreements, including 17 for more than one year. As with the main auction for the delivery year 2026, only capacity market units meeting the carbon dioxide emission limit of 550 g/kWh were admitted to the main auction for the delivery year 2027. Tab. 5. presents a summary of the main auction conducted.

The rules for conducting main auctions are similar to the rules used for supplementary auctions. Unlike the supplementary auctions, however, in the main auctions, capacity market units may – depending on the type of capacity market unit and the duration of the capacity obligation offered by the unit – enter into multi-year capacity agreements. Existing generating capacity market units may offer capacity obligations for only one delivery period. Modernized generating capacity market units and demand side response capacity market units that declare that they will make the investment and meet the unit capital expenditure levels specified in the ordinance may offer the obligation for no more than 5 delivery periods. Whereas, new generating capacity market units declaring to meet the unit capital expenditure levels from the ordinance may offer the obligation for no more than 15 delivery periods. In addition, it is possible to extend the term of the capacity agreement by additional 2 years for low-carbon generating capacity market units (the so-called green bonus). Tab. 6. presents a breakdown of capacity agreements by the duration of capacity obligations.

In 2022, we continued the works as part of the process of monitoring the implementation of capacity agreements. According to the amendment to the Act, a power supplier that has entered into a capacity agreement for a new or modernized capacity market unit as a result of the main auction is required, no later than 24 months from the date of announcement of the final results of the main auction, to demonstrate that the unit owned has reached the so-called Financial Commitment Milestone (hereinafter: “FCM”). The FCM is achieved by demonstrating that investment expenditures of at least 10% of the required investment expenditures have been incurred and investment agreements with a total value of at least 20% of the required investment expenditures have been entered into [Articles 52(1)(1) and (2) of the Act]. In 2022, PSE positively verified the statements on the FCMs for 2 capacity market units with capacity agreements concluded in the course of the main auction for the delivery year 2025 and for 1 capacity market unit with a capacity agreement concluded in the course of the main auction for the delivery year 2026.

According to the Act, a capacity supplier that has entered into a capacity agreement for more than 1 delivery year as a result of the main auction is required to demonstrate – no later than before the beginning of the first delivery period, and in the case of a new capacity market unit no later than before the end of the third delivery year or before the end of the term of the capacity agreement if it has been entered into for less than three delivery years – that the capacity market unit owned has reached the Substantial Commitment Milestone (hereinafter: “SCM”). The SCM is achieved by presenting documents confirming the completion of the material scope of the investment project, incurring the required investment expenditures and demonstrating the ability of the unit to deliver capacity in an amount of not less than 95% of the capacity obligation resulting from the capacity agreement concluded in the course of the main auction, with continuous operation of the unit, for a period of at least one hour [Articles 52(2)(1) and (2) of the Act]. It is also necessary to present an independent expert opinion containing information in accordance with Article 52(2)(3) of the Act and accompanied by information on the amount of public aid provided and, in the case of new capacity market units, additionally a list of metering points. In 2022, PSE positively verified the statements on the SCMs for 4 capacity market units with capacity agreements concluded in the course of the main auction for the delivery year 2024 and for 1 capacity market unit with a capacity agreement concluded in the course of the main auction for the delivery year 2025, and 1 capacity market unit with a capacity agreement concluded in the course of the main auction for the delivery year 2026.

As part of the process of monitoring the implementation of power agreements, investment reports submitted within 10 working days after the end of 6 full months starting from the third calendar year after the main auction were reviewed. They allow to monitor whether timely achievement of the SCMs is at risk. In January 2022, 34 investment reports, and in July 2022 – 33 reports were positively reviewed.

2022 was the second delivery year for the capacity contracted as a result of the capacity auction. PSE continued to handle subsequent capacity market processes, i.e. demonstrating the ability to perform the capacity obligation, test periods of demand on the capacity market, and payments for the performance of the capacity obligations. In 2022, for the first time there was a situation in which the amount of excess capacity available to the operator in the daily scheduling processes of the system operation required intervention by declaring a period of demand on the capacity market. Based on the results of the daily scheduling of NPS operation as of September 23, 2022, it was found that between 7:15 and 8:30 p.m., the available capacity reserve was between 3.8–8.2 percent of demand compared to the required 9 percent of demand. Accordingly, PSE announced two periods of demand on the capacity market: for 7:00–8:00 pm and 8:00–9:00 pm. This brought the lowest reserve level between 7:00 pm and 9:00 pm to 9.4 percent. The amount of the adjusted capacity obligation (hereinafter: ACO) for all capacity market units under the capacity obligation amounted to 19,796.612 MW for 7:00–8:00 p.m., and 19,796.612 MW for 8:00–9:00 p.m., respectively. The adjusted capacity obligation performance (hereinafter: ACOP) for all capacity market units under the capacity obligation amounted to 22,568.798 MW for 7:00 to 8:00 p.m., and to 22,842.76 MW for 8:00 to 9:00 p.m., respectively. Table 7 presents the performance of the capacity obligation by the capacity market units for 7:00 to 8:00 p.m. and 8:00 to 9:00 p.m.

Due to negative results of the demonstration, capacity suppliers returned remuneration totalling PLN 3,807,718.15 net.

In addition to the demonstration, the second process related to the performance of the capacity obligation, according to Article 67(5) of the Act, is the test period of demand on the capacity market. PSE may declare a test period of demand on the capacity market for one capacity market unit subject to the capacity obligation no more than once per quarter (except for units that have received a negative result from the test period of demand on the capacity market). The chart below shows the number of test periods of demand on the capacity market broken down by each quarter of 2022.

Out of a total of 162 test periods of demand on the capacity market, 154 cases resulted in a positive outcome and eight in a negative outcome. In view of the above, pursuant to Article 68(8), in the case of a negative result of a test period of demand on the capacity market, PSE fined capacity suppliers for non-performance of the capacity obligation at a total net amount of PLN 373,306.51. In the event of a positive outcome of the test period of demand on the capacity market, PSE reimbursed any reasonable expenses associated with its execution at the request of the capacity supplier. Table 9 presents the amounts reimbursed by PSE to capacity suppliers following the approval of requests for reimbursement of reasonable expenses in each quarter of 2022.

2022 was the second year of settlements in the capacity market, including in particular the payment of remuneration for the performance of the capacity obligation and the calculation of fines for non-performance of the capacity obligation and the failure to meet the SCMs. Table 10 presents the remuneration earned by capacity suppliers in 2022 on a monthly basis.

In 2022, PSE did not fine for delays in meeting the SCMs.

In early 2023, PSE began another general certification, which was conducted between January 2 and March 10, 2023. During the certification, applicants submitted 1,735 applications for entry into the register. A total of 1,679 units were successfully verified and entered into the register, including 1,360 physical generating units and 319 demand side response units. A summary of the number and net generating capacity of units in the register is included in Table 11.

Within 14 days of completion of the general certification, PSE submitted a detailed report summarising the general certification in 2023 to the Minister responsible for energy and to the President of ERO. Additionally, within 28 days of the completion of the general certification, PSE prepared proposed parameters for the main auctions for the delivery year 2028 and parameters for supplementary auctions for each quarter of the delivery year 2025. The proposal of parameters was submitted to the President of ERO and the Minister competent for energy.

At the same time, between November 22, 2022 and February 17, 2023, PSE conducted certification for supplementary auctions for individual quarters of the delivery year 2024. As in the certification for the main auction, participation in the certification was not mandatory, but was necessary in order to establish the capacity market units and allow them to participate in the supplementary auctions for each quarter of the delivery year 2024 or in the secondary market for that delivery year. As a result of successful verification of the applications, PSE issued certificates authorizing the capacity market units to participate in the above mentioned processes. Following the certification, PSE submitted a detailed report summarizing this certification to the Minister competent for energy and the President of ERO for the supplementary auctions.

Supplementary auctions were conducted for the third time by PSE on March 16, 2023. Four supplementary auctions for each quarter of the delivery year 2024 were held simultaneously. The process resulted in conclusion of a total of 254 capacity agreements. Table 12 includes a summary of the supplementary auctions conducted.

While meeting the statutory time limit of 3 business days after the end of the capacity auction, PSE published the preliminary results of the auction in the register and made them public. Subsequently, a detailed report summarising the auction process was submitted to the competent minister for energy and the President of ERO. The final results of the supplementary auctions for the delivery quarters in 2024 were announced by the President of ERO in the Public Information Bulletin on April 7, 2023.

After the announcement of the preliminary results of the supplementary auctions for individual quarters of the delivery year 2024, PSE launched the possibility of reporting in the register of secondary trading transactions concerning the delivery year 2024 [implementation of the provisions of Article 48(1)(1) of the Act].

The chart below shows the capacity obligations resulting from the agreements concluded during the capacity auctions (main and supplementary) conducted between 2018 and 2022.

PSE, obligated under the act, conducted the general certification, the supplementary auction, the preliminary auction, the replacement of planned demand side response units, the certification for the main auction, the main auction for the delivery period 2026, and the certification for the supplementary auctions for each quarter of the delivery year 2023. Certifications and auctions are held annually on dates established by the act. The next general certification and supplementary auctions for individual quarters of the delivery year 2024 were conducted in 2023. The verification of the performance of capacity obligations is also carried out and settlements of capacity contracts are conducted.