New legislation in Poland on the renewable energy sector is set to reduce investment, Moody’s warned on June 29. That could reduce crucial generation capacity.

Poland is pressing to reduce the role of renewable energy sector in its energy mix, in a bid to instead support the country's struggling coal mines, which already provide fuel for over 80% of power generation. The new law on energy from renewable sources, which was signed by the president on June 28, stipulates replacing the current system of green certificates with auctions, in which renewable energy companies would bid for subsidies. Poland also recently passed a bill specifically aimed at curbing wind power development.

The new legislation will clearly hit investment, Moody's notes, adding that will in turn lead to a reduction in the 'reserve margin,' or the country's level of capacity above anticipated peak demand. That would essentially wipe out the power system’s safety net. In theory, renewable energy capacity could cover for at least some conventional capacity that is set for decommissioning in the coming years.

Under the new legislation on the wider green energy sector, auctions would be organised separately according to the size of installation and type of technology. The ministry of environment has also said Poland should support biomass and biogas projects in particular, as that would in turn help Polish farmers.

The bill curbing the development of wind power restricts wind installations to areas no closer than ten times total height of the turbine from housing areas. That will rule out the vast majority of sites, the wind industry complains.

If there is upside to these recent regulations, Moody’s claims, it is that the reduction in reserve margin will "provide some upside to the wholesale power prices." That would clearly be a positive for conventional power producers, such as state-controlled utilities PGE or, which have been suffering because of low energy prices of late. Some have also been pulled into investment into the coal industry also.

Poland has an EU-imposed target of reaching 15% of energy from renewable sources in final energy consumption by 2020. The country was at about 11.45% in 2015, which represented growth of just 0.15pp against 2014, increasing concerns the target will not be met.