Almost 10 have passed since you have begun to sell energy to Polish shopping malls and other commercial facilities. Given the dynamics of changes taking place on the market, what would you consider to be your greatest achievement?
Bartłomiej Chlebek The fact that we continue to grow every year! The founders of our company have gained a lot of experience in the real estate market, and so right from the very start we have been able to tailor our services to make sure that owners of shopping malls, office buildings or logistic facilities get exactly what they need – infallible powering at a market price level, wrapped up in expert advising package.
Danuta Tyrowicz: One should also keep in mind that the dynamics of changes do not apply only to the real estate market, but also to the Polish energy market, particularly as the recent years have been exceptionally “hot” not only because of the well-known „electricity law” (not only due to its several amendments), but also owing to changes in the law concerning renewable energy sources. The so-called „ electricity law” has frozen prices for final users at the level of 30 June 2018 for the first six-month period of this year, and for entities who have submitted declarations and for households also for the second half of the year. Apart from rather dynamic financial turbulences for all involved parties, commercial customers are also faced with significant legislative and information chaos, and as a consequence – it has become necessary to have a huge number of invoices corrected, which in the case of re-invoicing electricity onto tenants also causes the necessity of correcting those the relevant invoices as well. On the other hand, the act on renewable energy sources has extended the definition of a prosumer, and enabled small and medium enterprises to sell their energy generated from green sources to the grid, in such a way do enhancing the potential profitability of the installation.
Now then, you have mentioned green energy installations – so where do you see possibilities for the sector of commercial real estate?
Bartłomiej Chlebek Poland is currently experiencing a boom on the market of photovoltaic installations (PV). At the end of 2018 the total capacity of installed PV installations in Poland has almost achieved 0.5 GW according to data of the Institute for Renewable Energy, and already in May 2019 it exceeded 700 MW. Generation costs of electricity from renewable energy sources keep falling and they no longer pose a barrier to the generation of pure energy. As emphasised by Christoph Kost, PhD., head of study conducted by the Frauenhofer Institute, the falling costs and the growing energy prices become reflected in the period of return on investment. Given the present electricity prices, the feasible period of return on investment is 8 to 13 years if share capital is contributed, or 13 to 15 years in the event of external financing. It should be borne in mind that this is an investment of a long-term nature, and the period of unimpaired panel operation is a minimum of 25 years.
Danuta Tyrowicz: And commercial facilities are a perfect choice for this type of installations. Roofs and parking lots situated over the ground, or even elevations, may be used to install solar panels in an effective and aesthetic way. Solar panels generate the biggest amount of energy in the spring and summer period, and so they cannot become the only electricity source for a facility, yet they may considerable contribute to limiting power off-take during summer heatwaves, which allows real savings. Also to be borne in mind is the corporate social responsibility (CSR), which apart from a value as such is also reflected in the value of the investment, especially in the opinion of western investors.
Speaking of investments… Electricity remains a significant item in costs cost for business operations. How in this situation do you sell “value added” if all customers want to buy as cheaply as possible?
Danuta Tyrowicz: To be able to answer this question it should be understood that the demand for power keeps growing, and so also electricity prices would keep growing as well. We have already described the causes, as well as forecasts for the oncoming years, in the July edition of the Shopping Centre Forum. Christopher Sweeney (board member of Plus Energia) has taken up the aspect of coal-based economy (in practice 80% of energy in Poland comes from coal), as well as the impact of European policy on prices of property rights, the price of which change in a highly dynamic way, and consequently affect the prices of electricity. As we can see the problem is not to buy at the lowest price, but to a much bigger extent find out how to buy in the most prudent way in the log-term horizon.
Bartłomiej Chlebek: Exactly. The thing is also to buy widely. Electricity costs comprise costs of sales and of distribution. Optimisations are possible in both aspects. This requires compiling lots of data, and then be able to interpret them. In the red edition of the monthly magazine you are just reading, our colleague Dorota Bąk tried to make you more familiar with elements of the invoice for electricity. Skilful optimising of parameters that affect distribution may allow making even up to 30% of savings in this respect. Another issue is to select the suitable tariff – depending on the consumption profile, it may turn out that a change to a three-zone tariff may enable achieving visible savings.
Can any simulations be made as to potential savings that a company can achieve thanks to the adoption of optimised / well-thought out and energy efficient policy of obtaining (purchase) and usage of electricity?
Bartłomiej Chlebek: Yes, it is possible to do that. In general terms, if we were to assume that for example electricity costs come up to approximately 30% of “service charge” per square metre and assume savings on electricity at the level of 10%, this would be reflected in 3% savings for the tenant. This is naturally an over- simplification, but exact data of the facility are necessary to be able to present this to an individual investor. One should also keep in mind that an important element that affects the energy price is the period for which the price can be guaranteed by the seller. In Poland electricity may be purchased on the exchange maximum 3 years in advance. This is on the one hand a safe solution, yet on the other one „forgetting” the subject for 3 years may lead to a great surprise as to the current price level, for example taking into consideration the recent 30% leap year by year.
Danuta Tyrowicz: Besides also in this case we may also expert certain surprises in that period, such as for example if charges in the distribution part become altered. Another new item is the cogeneration fee (depending on consumption), with concurrent reduction of the rate due for the transitory fee (depending on capacity). And so in the end instead of reduced distribution costs in the majority of cases their increase takes place. With annual consumption at the level of 1000MWh and capacity at the level of 560kW, this is annually almost by PLN 5300 more expensive. In our previous edition Marcin Wnuszyński, our Operating Director, has outlined for you the impact of the act on this year’s and the oncoming year’s prices and analysed them by breaking them up into prime elements. As a successful business relation is a long-lasting one, we care to make sure that our partners understand as best as possible what they are buying and how.
What possibilities in this respect arise from current regulations, technological solutions, competition on the market of suppliers, and so on?
Bartłomiej Chlebek: There are five major distribution system operators in Poland, and over 180 minor ones – they are operating within a specific field of activity, approved by the ERO (Energy Regulation office). Currently 452 enterprises hold a license for the sale of energy. In 2007 the so-called liberation of the Polish energy market took place, which means that as of that it has become possible to change the seller, even for a small customer. According to data provided by ERO, every month in Poland the seller is changed on average almost 4300 times under tariff G, i.e. for households. This clearly proves the dynamic nature of this sector. Naturally there are fewer changes for commercial customers, because there are decidedly fewer entities, and yet competition on the market does exist. Although the “electricity law”, which we have mentioned already several times, has caused a lot of confusion this year, we do believe that this is merely a transient situation, because in the presence of competition the market clearly becomes more interesting and more attractive for the investors.
Danuta Tyrowicz: As regards regulations one should also remember that distribution tariffs are approved by the ERO President, while sale pricelists for commercial customers are not subject to that process. As Bartek said – all this entails a certain regionalisation. In different places in Poland we are faced with a considerable price differentiation and so the same tenant having its stores in shopping malls for example in Kraków and in Gdańsk for “the same electricity” may have to pay two different rates, and what is more, those two rates – as compared to the average local price – may be fully competitive!
It seems that electricity is not such an obvious and uncomplicated thing, after all.…
Danuta Tyrowicz: Exactly! At the same time we are aware of the fact that what is the basis of our business activity for us, for owners of malls or commercial parks is only one of numerous components. That it exactly why we have decided to become a partner of the September edition of the Shopping Center Forum, to be able to meet with you in person and share our experience.
Bartłomiej Chlebek: During our presentation during the first day of the fair, apart from thematic presentations delivered by me and by Danuta, several experts from the real estate and from the power markets will also participate in panel discussions. We will be happy to welcome you to the conferences, as well to our stand to talk with use in person!
Well then, until September. Thank you for the interview.