QUO VADIS local source?

We have already marginally dealt with local sources in our article Legislative “whirlwind” brings significant changes and new opportunities in the Slovak energetics, which was published in the issue No. 1/2019 PRO-ENERGY Magazine. The article concerned the amendment to the Renewable Energy Support Act, which brought the biggest changes of the last decade in the Slovak energetics. Its major changes included also the implementation of a new institute – local source.

Firstly, it is necessary to mention that the main impulse for the implementation of the local source into our legal code came from the part of the Slovak association of photovoltaic industry and Renewable energy sources (SAPI). After all, the concept of the local source itself comes from the Association as well.

The main reasons motivating the creation of a new type of source in our legislation can be seen mainly in the effort to break the so-called “stop state.” The stop state has been in existence since the year 2013 throughout all regional networks.

While the “stop state” had no support of the law, because of it, it was factually impossible to connect any unit for the production of electricity with the installed capacity higher than 10 kW into a distribution network. Due to the impossibility to install new sources, the energetics within RES was basically sleeping until the year 2019.

Of course, another motivation for the implementation of the local source was the fulfilment of the commitments of Slovakia towards the European Union, mainly regarding the proportion of electricity produced from renewable energy sources. However, the demand of many subjects for the installation of energetic units, which would bring them energy costs savings, cannot be overlooked either.

After its successful incorporation into our legislation (with the effectiveness from 1^st January 2019), the local source has been in Slovak energetics for almost two years. The success is that it, at least partly, helped to break the still lasting factual “stop state.” However, the possibility of its connection to the network is still dependent on the disposable (free) installed capacity, which the Ministry of Economy of the Slovak Republic determines annually (the Ministry).

However, it is questionable if the local source has been able to fully utilize its potential since its implementation. Hence, after the introduction of its basic characteristics, we will look closer in this article at its utilization in practice and at some application problems with the connection to the network, which we have so far encountered in our law firm.

BASIC CHARACTERISTICS

Regarding the characteristics of the local source itself, it is a source, which, according to the law, is intended to be used exclusively for the production of electricity for own consumption.

Another condition is that the local source must produce energy only from renewable energy sources, such as water, wind, sun, biomass, biogas, geothermal energy, etc. Further, the law limits the maximum installed capacity of the local source to 500 kW.

As it is a source intended solely for the production of electricity for own consumption of the offtake point, the legislator imposed another restriction concerning its total installed capacity. It cannot be higher than the maximum reserved capacity of the offtake point. The aim of the restriction is so that the producer does not produce more energy than it is able to consume on their own.

The law also allows the local source certain flows of electricity into the network. For this reason, the maximum reserved capacity of the local source is no more than 10% of the total installed capacity of the local source. However, the regime of the allowed flows is set differently for entrepreneurs and non-entrepreneurs. Furthermore, with regard to entrepreneurs (producers with a license in energetics), the law allows the producers to sell the excess electricity to the consumers on the market. However, such supply still cannot exceed the maximum reserved capacity of the local source. In case of exceeding the allowed flows, it would constitute an unlawful supply of electricity on the part of the producer and the risk of their physical disconnection from the network.

Except for the advantages in the form of the right to free and preferential connection to the distribution network, as well as the free replacement of the designated meter, it is worth mentioning that the producer in the local source is exempted from paying the tariff for the operation of the system for all produced electricity, which he consumes on his own.

In relation to these advantages, it is necessary to point out that the electricity produced in the local source is not supported by a surcharge or the purchase of electricity for a regulated price.

UTILIZATION IN THE PRACTICE

As we have already mentioned, the local sources cannot be connected unlimitedly. The capacities available for connection are set annually by the Ministry. In practice, the available capacities, which can be connected to the network, are divided between the three operators of the regional distribution network in the notice of the Ministry.

Table No. 1 shows the overview of the allocated available capacities according to the individual regional distribution companies.

Table No. 1: The allocated capacities of local sources in the years 2019 to 2021 within the territory of the SR
Source: The data published at the website of the Ministry of Economy of the SR

For completeness, we state that the system of drawing of the available capacities is set in a way that if the whole capacity is not used within a particular year, it is possible to relocate it and use it in the next period.

In relation to this, the regional distribution companies at their official websites continuously publish the actual state of drawing of the available capacities.

Table No. 2: The available capacities for connection of sources within the territory of SR in the year 2020
Source: ZSD, SSD and VSD, data available to 18. August 2020 (including the unused capacities from the year 2019)

As can be seen from the table above, more than half of the 50 MW capacity allocated for the years 2019 to 2020 was still available to the date of 18 August 2020. Therefore, the question arises whether there is such a low demand for the local sources on the market or there is another reason for such low drawing of available capacities.

According to the information available to us, producers are interested in the local sources. For instance, according to the data published at its website, VSD already registers 250 applications for the installation of the local source. However, a large number of applications for the installation of the local sources are rejected by the distribution company. A similar situation is also within the two remaining regional distributors. However, we do not know the exact reasons for the rejection of the applications of individual producers. The distribution companies do not publish the reasons on their websites.

Nevertheless, we regularly encounter one specific reason for the rejection of applications for the connection of local source for the applicants, at which local source has the biggest prospect.

YOU WILL NOT BE CONNECTED TO LOCAL DISTRIBUTION NETWORKS

In our practice, we noticed that there is quite a large interest in connecting local sources to local distribution networks (MDS).

However, numerous clients met with the resistance of the regional distributors in this matter, which constantly reject the connection of local sources to the local distribution networks.

We met with such a negative approach to the connection of local source to the local distribution network for the first time last year during the then-ongoing energetic conference, where such opinion was expressed by a representative of one of the regional distributors.

As it became clear after some time, this opinion is shared by all three operators of the regional distribution networks. According to the distribution companies, the available capacities for the connection of new local sources apply solely to the units connected to the regional distribution networks. However, from our point of view, this opinion cannot be agreed with.

Said discussion regarding the possibility of connecting local source to the local distribution network arose within the interpretation of the provision of Section 14 (1) (e) of the Renewable Energy Support Act. The provision in question regulates the competency of the Ministry to determine the available capacities for the connection of the local source to the network.

However, said legal provision does not differentiate between the types of the distribution network to which the new unit for the production of electricity can be connected. In the provision, the Act uses only the general word “network,” and does that without differentiating whether it is a local or a regional distribution network. Respecting the legislation, we are of the opinion that the refusal to connect the local sources to the local distribution network is unacceptable. The said objection applies even more since the individual operational rules subordinate the installation of any sources into the local distribution network to the approval of the regional distributors. If we went to the extreme, following the opinion of the distribution companies, it would not be possible to install anything whatsoever into the local distribution network. To the local distribution network, the established stop state, which the amendment to the Renewable Energy Support Act sources sought to break, would still apply in its entirety.

Moreover, we are of the opinion that such allocation of the capacity, exclusively for the benefit of the regional distribution network would clearly be inconsistent with Section 3 (1) of the Regulation Act, according to which the “aim of the regulation is to ensure the availability of the commodities and relating regulated activities in a transparent and non-discriminatory way (…).” Thus, it is clear that within the legal regulation, there are certain quality requirements of a fair and transparent ensuring of the availability of the commodities and relating regulated activities, that is, the prohibition of discrimination is also emphasized.

Therefore, we think that the notice of the disposable installed capacities for the new sources must be interpreted in a way that the Ministry of Economy of the Slovak Republic determined the installed capacity for the regional distribution networks, including the subordinate networks connected to them. A different interpretation would be, from our point of view, discriminatory at the least to the potential producers, who are connected to the local distribution networks.

We assume that if the regional distributors do not change their opinion, it is possible that some of the rejected applicants will protect their rights in a court.

THE CONCEPT OF THE LOCAL SOURCES IS THE RIGHT WAY TO FULFIL THE CLIMATE COMMITMENTS

The implementation of the local source brought at least small recovery to the energetic market after long years of the blanket “stop state.”

Nonetheless, as it seems from the published data, the local source has not been fully utilizing its potential so far. It is possible to argue about the reasons, but from our practice, we know that the strict approach of the regional distribution companies, which without legal justification obstruct the drawing of the available capacities in case of projects, which are to be carried out in local distribution networks, plays a part in this.

However, we believe that the situation will change soon, and it will be possible to connect the local sources to the local distribution networks. We expect the impulse towards this change due to the commitments of the Slovak Republic, which are set in the National energy and climate plan for the years 2021 – 2030. The plan includes the commitment to reach the proportion of energy from renewable energy sources in the gross final energy consumption to be 19,2% in the year 2030.

Fulfilment of these ambitious goals with the help of the local sources (at least partially) could be the right way. A positive effect on the fulfilment of these goals is multiplied by the fact that due to the absence of any type of support, local sources do not increase the final price of the electricity for the consumers.