The development of wind power engineering has accelerated in Poland over the past few years. Companies have been outdoing one another in new ideas on where to locate their projects. Poland has committed itself to generating 15 percent of its power from renewable sources by 2012 and 20 percent by 2020. That’s an extremely ambitious and difficult task.
The wind energy market in Poland is a new one that is only beginning to develop. The best areas for wind power are in the northern part of Poland not far from the Baltic coast. This is where most wind farms have been built so far. There are other locations though. “In view of wind conditions, investment projects can also be expected in the Kujawy region in north-central Poland and around Suwa?ki in the northeast,” says Asko Kampinga, owner and president of the Windpol company. “These are flat areas, without forests and with excellent wind flow.”
The development of wind power projects in Poland has faced several barriers recently.
The Energy Law of 1997 introduced the concept of a “certificate of origin,” a document that confirms the generation of power from a Renewable Energy Source (RES) and can be traded on the Polish Power Exchange in the form of property rights. “The problem is that tax offices don’t know how to treat these certificates,” says Katarzyna Kampinga, co-owner of Windpol. “The Energy Law failed to define whether these certificates of origin were property rights that should be counted among financial instruments, or some other kind of instrument. Civil partnerships are often discriminated against because officials treat the certificates as income from a private individual’s financial assets, and not as income from business operations that could be offset by a windmill’s maintenance costs.” Kampinga added, “In this situation, profitability becomes questionable.”
Depreciation is another issue that raises doubts because of the inconsistency of Polish law. A memo of Sept. 28, 2005 from the Ministry of Finance’s Department of Local Taxes and Land Register, and a memo of Aug. 17, 2005 from the General Office of Construction Supervision’s Legal Department state clearly that “installed equipment and technological apparatus that transform wind energy into renewable energy transmitted to a generator, such as rotors and their blades, generators, transmissions, computers, transformers, switching stations, alarm systems, and remote control systems-do not constitute buildings, but are considered only as technical and technological fittings of a power plant.”
Meanwhile, in the official classification of fixed assets, wind power plants are listed in section 201 as buildings, and in section 346 as “wind-and-power units.”
That makes all the difference, because in the former case the depreciation rate is 4 percent, whereas in the latter (“operating power plants”) it is 20 percent, which means that a return on such an investment project (that involves huge outlays anyway) can be expected much sooner. Tax offices, meanwhile, treat the situation extremely arbitrarily, without relying on previously recognized and accepted opinions.
The next issue that compounds the problem is real estate tax. Every year local governments demand 2 percent of the initial value of a wind power plant, without accounting for the fact that its value decreases every year. This means that an investment like this becomes 50 percent more expensive in the course of 25 years. To compare, in Germany, according to reliable data, tax for wind power plants is the same as for technical equipment. The owners of the land on which a wind power plant stands only pay an agricultural tax on the land. In Denmark, the tax on a wind power plant is paid just like on any other technical equipment. In the Netherlands, even though wind power plants are classified as buildings, 40 percent of the investment’s value is exempt from tax straight away, while the remaining 60 percent is only subject to about 0.25 percent annual tax payable to the local administration. Moreover, the value of the wind power plant is reduced every year by the amortization rate.
In Poland, there is a danger that people will seek to operate illegally in the “gray zone,” or the off-the-books, tax-evading segment of the economy, because wind power plant owners will have no incentive to report the true value of their power plants, and money will circulate under the table, to the detriment of the country as a whole. Another issue is that foreign investors who believe that Poland has good prospects will start withdrawing from unprofitable investments.
By then it will be too late to start thinking about how to generate 20 percent of energy from renewable sources by 2020, especially when you consider that today Poland generates just 3 percent.
All this means that although many changes have been made to Polish law in recent years to remove various barriers, there is still a great deal to be done in this area.
2 April 2008
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