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Advicero Nexia | Taxation and renewable energy | April 2020

  1. VAT implications of the installation of renewable energy systems by the municipality
  2. Signed act on the promotion of electricity in offshore wind farms
  3. Work on abandoning the 10h rule in wind farms
  4. Attempts to circumvent the obligations of Power Purchase Agreements
  5. The municipality has agreed to tax the hybrid PV farm
  6. Power-to-X offshore wind energy and green hydrogen production in Denmark

1. VAT implications of the installation of renewable energy systems by the municipality

In the same case, the court pointed out that projects of installing renewable energy source systems are not obligatory and are regulated by a civil-law relationship. Consequently, even the provision of access to the owner’s property is regulated by a contract concluded by the parties, even for the purposes of maintenance of the systems, as is the transfer of ownership of the systems to the property owner after 5 years. In the case in question, the commune is not an organ of public authority and does not have any powers of authority.

Another issue was whether the subsidy was taxable. For this purpose, it is necessary to verify whether the subsidy serves to finance a specific activity subject to VAT. Whether it corresponds to all or only part of the remuneration for the service financed.

The tax base drawing the legal basis from art. 29a paragraph 1 of the VAT Act is everything that is the payment that the supplier of goods or the service provider has received or is to receive from the buyer, recipient or a third party, including received subsidies, subsidies and other surcharges of a similar nature having a direct impact on the price of the goods provided or services provided by the taxpayer. Consequently, subsidies that cannot be directly linked to taxable activities do not constitute the taxable amount.

There is no doubt that, in the present case, the subsidy is granted to finance the installation of renewable energy systems at a specific property owner. Thus, it is impossible to accept the argument that the above-mentioned the activity is not subject to VAT.

Theses of the judgment of the Provincial Administrative Court in Warsaw of September 18, 2020, file ref. III SA/Wa 2160/19

2. Signed act on the promotion of electricity in offshore wind farms

The Act of 17 December 2020 on the promotion of electricity generation in offshore wind farms has finally received the President’s signature. The Act aims to support the offshore energy industry and is a response to European Union strategies.

The key assumption of the act is to introduce the possibility to apply for the right to cover the so-called negative balance. This is to cover the difference between the market price of energy and the price allowing generators to cover the costs of producing electricity offshore.

Until 30 June 2021 it is possible to enter the first phase of the support system. Support will be granted to the farms by decision of the President of the Energy Regulatory Office. In the first phase, the order of applications will be decisive, and in the subsequent phases auctions will be held.

Support will be granted by administrative decision of the President of the Energy Regulatory Office, upon application of the energy producer. In subsequent years, support will be granted in the form of competitive auctions.

Furthermore, the act introduces a concession fee for erecting or using artificial islands in maritime areas in order to balance the choice of investment form. At this point it is worth reminding that offshore wind farms are not subject to property tax as onshore ones are. Due to the fact that none of the communes is able to cover the sea zone with its territorial range, they are charged with a fee as they are located in some kind of economic zone. The fee will be the product of the installed electrical capacity of the offshore wind farm expressed in MW and a coefficient derived from the regulation, not exceeding 23,000 PLN, and its beneficiary will be the state treasury, not the communes.

3. Work on abandoning the 10h rule in wind farms

Once again the topic of the media-attractive 10h rule in wind farms has been raised. In fact, the whole battle has already been going on for years about Article 4 of the Act of 20 May 2016 on investments in wind farms which reads as follows:

The distance within which the following may be located and constructed:

  1. a wind turbine – from a residential building or a building with a mixed function which includes a residential function, and
  2. a residential building or a building with mixed functions including residential function – from the wind power plant

– is equal to or greater than 10 times the height of the wind turbine measured from ground level to the highest point of the structure, including technical elements, in particular the rotor with blades (total height of the wind turbine).

Ten times the height of a wind farm from residential buildings is the distance that is to protect residents from disruptions. Unfortunately, this is not the first change to this rule. Quite recently, Jadwiga Emilewicz announced it, and then the government was reconstructed and the topic died down again. Currently, more specifically, the ministry is announcing the publication of changes for the second and third quarter, and the amendment is to make the assessment of the investment more real and analyzed each time.

It is one of the most awaited changes that the RES industry, led by the Polish Wind Energy Association, needs. The industry is not calling for the rule to be abolished altogether, but for it to be softened as it was before 2016, where each municipality took such decisions individually in a given case.

4. Attempts to circumvent the obligations of Power Purchase Agreements

Power Purchase Agreements (hereinafter: PPA) are agreements to purchase renewable energy directly from the producer. It is a civil law agreement between the producer of electricity from RES installations, e.g. the owner of a photovoltaic farm or a wind turbine (seller) and the consumer of electricity (buyer). Exactly such contracts have been scrutinised by the President of the Energy Regulatory Office (hereinafter: ERO) and the analysis has shown that there are more and more abuses and attempts to circumvent the law.

The PPA contract is practically a form of making available to the end user only the electricity generated in a given installation, the consumption of which corresponds to the amount of benefits due to the entity providing access.

Some contracts are concluded in such a way as to avoid registration and concession obligations. Failure to properly perform obligations may result in financial liability of such companies.

The President of ERO reminds that the nature of the contract is determined not by its name, but by the proper content and its provisions. Incorrectly constructed contracts result in the future, for example, the inability to disassemble or reduce the work of the installation, and this results from the failure to transfer the ownership of the installation. As a consequence, it is not the generation installation that is made available to customers, but the generated energy.

In this case, the enabling company becomes an energy company with all its statutory obligations. In addition, it is subject to the provisions of the Act of February 20, 2015 on renewable energy sources. Activities that involve the production and sale of energy require a license from the President of the ERO, and smaller installations for the Register of energy producers in a small installation – the MIOZE register.

5. The municipality has agreed to tax the hybrid PV farm

The Zgorzelec commune can undoubtedly start attracting investors. The municipality agreed on the so-called hybrid solution for photovoltaic farms – taxation partly with real estate tax and partly with agricultural tax. If the photovoltaic panels are placed in such a way that the land can also be cultivated, it is correct to apply the hybrid solution. This is a unique preference, because in principle, property tax is always significantly higher than agricultural tax.

This is according to the decision of the mayor of Zgorzelec municipality. The addressee was a farmer, who leased his land to one of the companies producing ‘green energy’, belonging to Zgorzelec Klaster of Renewable Energy Sources and Energy Efficiency Development.

According to the Act on Agricultural Tax, agricultural land is subject to agricultural tax, with the exception of land used for non-agricultural economic activity. In the case in question, the non-agricultural activity was undoubtedly the solar farm equipment, which occupied slightly more than half of the area of the entire holding. Consequently, it still allowed for free cultivation of plants and grazing of animals in accordance with the agricultural land use. In his decision, the mayor reasonably decided to subject the agricultural part of the land to agricultural tax and the rest of the land on which the facilities predominate to real estate tax.

6. Power-to-X offshore wind energy and green hydrogen production in Denmark

Denmark is obliged to achieve very ambitious climate action targets as part of its green transition. The Danish government has passed a climate bill that calls for a 70% reduction in overall CO2 emissions by 2030 (from 1990 levels) and up to 100% renewable energy use, 80% of which is to come from wind energy.

Power-to-X (PtX) plays a key role in achieving this goal, aiming for a carbon-free world. Energy storage, through wind technology, is a key challenge to achieving the targets, which is why Denmark, already a world leader, is committed to developing Power-to-X technology, particularly hydrogen. The production concerns so-called green hydrogen, which will be created by an electrolysis process using surplus renewable electricity from offshore wind turbines (Power-to-X) in Denmark.

A Danish investor is planning to build a power-to-X plant. The installation will be powered by energy from offshore wind farms. The hydrogen produced in this way will be used to produce ammonia. In this way, the energy from the offshore wind turbines will be converted into green ammonia.

According to studies, ammonia production is the source of as much as 1.4% of global carbon dioxide emissions, and with further Power-to-X projects, Denmark can become completely independent from ammonia imports.

The Danish plant’s roadmap indicates that hydrogen infrastructure will be transported through hydrogen pipelines allowing hydrogen to be stored and transported across the country, while smaller plants will be connected to the grid. Power-to-X will be certified, thus assuring users that the product is produced using green energy.

Consisting of a 1 GW electrolysis plant, the plant is to be Europe’s largest production facility for CO2-free green ammonia. The ammonia will be used in agriculture as a green CO2-free fertiliser and in the marine industry as a green fuel also CO2-free.

The surplus heat will be used to heat about 1/3 of local households in the village where the power plant will be located. The project has been announced in cooperation with companies from the agricultural and maritime industries – indicating the possibility of using hydrogen in maritime transport, among other things. What’s more, Scandinavian Airlines System expects to use 10% green fuel by 2025. Denmark has been a leader in the development of wind technology for years. The Power-to-X investment fits in with Denmark’s goa

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