Regulatory environment

• The key amendments: (i) introduced the obligation for the President of URE to approve a storage facility code, (ii) clarified the rules governing the operation of closed distribution areas, (iii) set out the rules governing the operation of electricity storage facilities, (iv) introduced a ban on the conclusion of off-premises contracts, (v) clarified certain aspects related to the provision of security for licensed operations, (vi) introduced a systemic solution for smart metering, (vii) introduced the definition of production site pipelines, and enabled energy companies to adjust their activities accordingly.

Additionally, in December 2021 an Act Amending the Energy Law was passed

• enabling energy companies to submit for approval a tariff calculated on the basis of a portion of reasonable costs, and to cover in subsequent years those reasonable costs which were not covered by that tariff.

The key elements of the proposed regulations include: (a) support for development of the low-emission and renewable gas sector and reduction of tariff discounts related to security of LNG supply and storage facilities; (b) better accessibility of the market and networks for low-emission and renewable gases; (c) emergence of the internal hydrogen market and changes in the internal market for gas/all methane based gases (natural gas, renewable gases, synthetic gases); (d) enhanced cooperation, also on network development (among sectors and operators, and in geographic terms); (e) implementation of regulations governing long-term contracts; (f) strengthening of consumers’ position on the market; (g) oversight functions of the Commission.

• European Regional Development Fund (ERDF) and Cohesion Fund (CF)

In 2021, the ERDF/CF Regulation was finally adopted by the European Parliament and the Council. In its final version, the regulation provides for the possibility to finance from the ERDF/CF, under certain conditions, investments in the use of natural gas. Fossil fuels have been excluded from the support, except for situations where district heating systems are switched from solid fuels to natural gas; extension/modernization of natural gas networks on condition that the investment adapts the network to the use of renewable and low-emission gases; clean vehicles within the meaning of Directive 2009/33/EC. Hydrogen, biomethane and RES projects as well as Carbon Capture and Storage / Carbon Capture and Utilisation (CCS/CCU) technologies will be eligible for funding.

• Just Transition Fund (JTF)

The regulation establishing the Just Transition Fund was adopted in 2021 by the European Parliament and the Council. The Fund will not support investment in the production, processing, transport, distribution, storage or combustion of fossil fuels and is limited to coal regions. Hydrogen, biomethane and RES projects as well as CCS/CCU technologies will be eligible for funding.

• Recovery and Resilience Facility (RRF)

The RRF Regulation was finally adopted in 2021 by the European Parliament and the Council. Support will be available for replacement of district heating systems (transition from coal to gas), distribution and transport of natural gas to replace coal, high-efficiency co-generation and district heating. Hydrogen, biomethane and RES projects as well as CCS/CCU technologies will also be eligible for funding.

• InvestEU

In 2021, the regulation establishing the InvestEU programme was adopted by the European Parliament and the Council. In the Sustainable Infrastructure window, sustainable investments in energy infrastructure will be supported. Priority will be given to RES projects, but support for natural gas infrastructure has not been explicitly excluded from the scope of support. It may potentially include investments in high-efficiency cogeneration, alternative fuel infrastructure and critical infrastructure. Hydrogen, biomethane and RES projects as well as CCS/CCU technologies will also be eligible for funding.

• Connecting Europe Facility (CEF)

The regulation establishing the CEF was adopted in 2021 by the European Parliament and the Council. The PGNiG Group was not a direct beneficiary of the funds under the Facility, but the development of interconnections financed with such funds had a positive effect on the operations of the PGNiG Group. The CEF is designed to support infrastructure projects that form part of the so-called supply corridors allowing diversification of natural gas supplies to the European Union

• European climate legislation

The European Climate Law, a regulation establishing the framework for achieving climate neutrality, was adopted in 2021, setting a binding objective of EU’s climate neutrality by 2050. The regulation also sets a more ambitious target to reduce greenhouse gas emissions by 55% by 2030, relative to 1990. Moreover, under the regulation, the European Commission is required to propose an intermediate reduction target for 2040.

• TEN-E Regulation

A provisional political agreement in trilogue was reached by the EC, EP and the EU Council on December 14th 2021 to revise the TEN-E Regulation [COM (2020) 824]. The revision aims to support the development of infrastructure designed to pursue the EGD objectives, including new eligibility criteria for Projects of Common Interest (PCI), aligned with the EGD objectives. The key changes include: (1) end of financial support for natural gas and oil infrastructure; (2) possibility of granting a PCI status – during the transitional period (until December 31st 2029) – to projects that use the existing natural gas infrastructure for transport and storage of hydrogen or blend of hydrogen and natural gas or biomethane. Such projects will retain eligibility for financing until December 31st 2027; (3) inclusion of hydrogen infrastructure into the scope of the regulation; (4) inclusion of Projects of Mutual Interest (PMI) into the scope of the regulation, as long as they are likely to be beneficial for the EU as a whole; (5) allowing projects already included in the 5th PCI list and approved for consideration by a competent authority to benefit from the accelerated permit granting procedure for a period of four years after the regulation comes into force.

• Amendment of the Energy Performance of Buildings Directive (EPBD)

On December 15th 2021, the European Commission presented a revision proposal for the Energy Performance of Buildings Directive – EPBD [COM(2021) 802]. It is an integral part of the European Green Deal, intended to contribute to the achievement of the EU’s climate neutrality objective. The proposed amendments seek to improve the energy performance of buildings and reduce CO2 emissions from buildings in EU Member States by introducing a zero emissions requirement for new buildings, starting from 2030 (2027 for buildings occupied or owned by public authorities); accelerating renovation of existing buildings through the implementation of national renovation plans aligned with the integrated national energy and climate plans, and submitted to the European Commission for an opinion; and by promoting the use of smart technologies in buildings and solutions for electromobility. Building renovation plans must encompass roadmaps to phase out the use of fossil fuels for heating purposes. In its official statements the Commission declares that fossil fuels should be abandoned by 2040. Moreover, under the proposal, Member States will be permitted to subsidise fossil-fuel boilers only until the end of the current Multiannual Financial Framework (MFF), i.e. until the end of 2027.

• Proposal for a directive restructuring the Union framework for the taxation of energy products and electricity (ETD)

[COM(2021) 563 final], indexing the current tax rates for energy products. Significant increase in the tax rates for fossil fuels is proposed, including the minimum levels of taxation of natural gas used for heating by business users. The proposal gives Member States freedom to grant conditional exemptions or reductions in the level of taxation prescribed by the directive. However, these tax reductions should respect the minimum levels of taxation set out in Annex I to the ETD, in particular as regards cogeneration and the use of energy products for heating and electricity generation by households or for local public passenger transport.

• Carbon Border Adjustments Mechanisms (CBAM)

The proposal [COM(2021) 564 final] establishes a carbon border adjustment mechanism to be rolled out in the EU, with adjustment payments planned to be collected from 2026 onwards. According to the proposal, the CBAM would cover the GHG emissions embedded in the goods referred to in Annex I to the proposal. Goods to be covered by the CBAM during the first phase include: electricity, cement, iron, steel, fertilizers and unwrought aluminium. The emissions to be regulated by the CBAM include carbon dioxide, nitrous oxide and perfluorocarbons embedded in the listed goods. The CBAM aims to encourage the implementation of emission trading systems in third countries. In particular, a removal of a third country providing support for the establishment of new generation capacity that emits more than 550g of CO2 of fossil fuel origin per kWh of electricity from the list of countries exempt from the application of the CBAM, may discourage third countries from investing in gas cogeneration units. The reduction in the number of free emission allowances in the EU ETS may have an adverse effect on the competitiveness of manufacturers of goods covered by the CBAM, who are trading partners of the PGNiG Group. Consequently, the supply of the PGNiG Group fuels may decline.

• Revision of the Directive establishing the EU Emissions Trading System (EU ETS)

The Commission’s proposal [COM(2021) 551] provides, among other things, for a one-off reduction in the number of allowances and a significant increase of the linear reduction factor (LRF) from the current 2.2% to 4.2% per year. This is the key instrument of the directive, which will accelerate growth in prices of CO2 emission allowances. As a result of the proposed regulations, including the increase of the LRF, free allocation of emission allowances will be reduced. The proposal also provides for inclusion of the maritime sector in the EU ETS and the creation of a self-standing ETS for building and road transport sectors, with a separate pool of allowances, where regulated entities (defined as entities responsible for the release for consumption of fuels which are used for combustion in the sectors of buildings (for heating of business, institutional, and household buildings) and road transport) would be responsible for surrendering allowances. Phasing out of free allocations is proposed for the sectors to be included in the CEBAM to prevent carbon leakage. Additional funding is planned for the Modernisation Fund to finance the energy transition. However, according to the new rules, no funding will be provided for fossil fuels (including natural gas) investments.

• Revision of the Energy Efficiency Directive (EED);

The key objective of the proposed EED revision [COM(2021) 558 final] is to increase the level of energy efficiency ambition by at least 9% in 2030 compared with the level of efforts under the 2020 Reference Scenario (the current ambition level being at least 32.5%), so that the Union’s final energy consumption amounts to no more than 787 Mtoe (down by 36%) and the Union’s 2030 primary energy consumption amounts to no more than 1,023 Mtoe in 2030 (down by 39%). The proposal sets thresholds for energy-efficient district heating and cooling systems. The new requirements pose risks related to the use of natural gas in the energy generation sector.

• Revision of the Promotion of Energy from Renewable Sources Directive (RED)

The RED proposal [COM(2021) 557 final] sets a target to increase, by 2030, the share of energy from renewable sources from 32% to 40%. To this end, the following sector targets have been set for Member States: (1) increasing the share of renewable energy in the amount of energy produced for the industrial sector by 1.1% per year by 2030; (2) increasing the share of renewable energy in the heating and cooling sector by at least 1.1% per year (an annual average calculated for the periods 2021-2025 and 2026-2030); (3) increasing the share of energy from renewable sources and of the use of waste heat and cold in the heating and cooling sector by at least 2.1% per year (an annual average calculated for the periods 2021-2025 and 2026-2030); (4) ensuring, by 2030, a 50% share of renewable hydrogen in renewable fuels of non-biological origin used to produce energy for the industrial sector and as a substrate.

• Proposal for a regulation on the use of renewable and low-carbon fuels in maritime transport

The proposal [COM(2021) 562 final] imposes limits on the greenhouse gas (CO₂, CH₄, N₂O) intensity for ships arriving at, staying within or departing from ports under the jurisdiction of a Member State and the obligation to use on-shore power supply or zero-emission technology in ports under the jurisdiction of a Member State. Additional emission reduction obligations may limit the use of natural gas in maritime transport. New obligations concerning review and measurement of ship emissions are provided for in the proposal, imposing additional administrative burden on fleet owners and operators, which may adversely affect the PGNiG Group companies.The requirements regarding emissions and the use of port infrastructure at berth will contribute to the growth of the low-emission and renewable gas sector.

• Proposed revision of the regulation setting the CO₂ emission performance standards for new passenger cars and new light commercial vehicles

The proposal [COM(2021) 556 final] sets a new emission reduction target for passenger cars and light commercial vehicles for 2035, which would in fact ban the registration of new cars emitting CO2. The ban on the registration of new cars with internal combustion engines from 2035 onward may adversely affect the return on investments in CNG or LNG fuelling infrastructure. The proposal aims to promote the zero-emission vehicle market, which may include hydrogen or biogas vehicles (bioLNG or bioCNG) satisfying the relevant technical requirements. Growing demand for such vehicles may contribute to the growth of the hydrogen market and development of hydrogen distribution and storage infrastructure.

• Proposed revision of the Alternative Fuels Infrastructure (AFIR) Directive

The AFIR proposal [COM(2021) 559 final] provides for a change of the legal form of the law from a directive to a regulation. The proposed regulation introduces a new category of fuels for a transitional phase – ‘alternative fossil fuels’ – which covers LNG, CNG, and LPG. The proposal sets the following targets concerning infrastructure: (1) a minimum number of publicly accessible hydrogen refuelling stations put in place by December 31st 2030; (2) an appropriate number of publicly accessible refuelling points for LNG put in place, at least along the TEN-T core network by January 1st 2025; (3) an appropriate number of refuelling points for LNG put in place at TEN-T core maritime ports by January 1st 2025.

• Regulation establishing a Social Climate Fund

The Social Climate Fund [COM(2021) 555 final] aims to address negative social consequences of the inclusion of the buildings and road transport sectors into the ETS. Initiatives to be financed from the fund include: renovation and decarbonisation of buildings, support for increasing energy efficiency, providing access to zero and low-emission vehicles and bicycles and to free public transport, development of zero and low-emission mobility and transport services. The fund budget is EUR 76.2bn, of which EUR 12.7bn is planned to be allocated to Poland.

A rise in gas prices driven by the EU’s climate policy, affecting the PGNiG Group’s core business involving production and distribution of natural gas, seems unavoidable.

Support mechanisms for new technologies reducing GHG emissions and improving energy efficiency provide an opportunity to receive support and raise capital to finance climate friendly projects.

• Obligation to submit leak detection and repair (LDAR) surveys, to immediately repair leaks of 500 ppm (parts per million) or more, and to regularly check the repaired components.
• Ban on venting except in the case of defined emergencies and requirements concerning flares and their replacement.

The regulation applies to oil and fossil gas upstream exploration and production, gas transmission, distribution, underground storage and liquid gas (LNG) terminals, to operating underground and surface coalmines, closed and abandoned underground coal mines, as well as to active and plugged wells in earth layers resulting from mining operations. The regulation also lays down rules on tools ensuring transparency of methane emissions from imports of fossil energy into the Union