Document of TheWorld Bank Report No: ICR2605 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-80700) ON A LOAN IN THE AMOUNT OF €750 MILLION (EQUIVALENT TO US$1.11 BILLION) TO THE REPUBLIC OF POLAND FOR AN ENERGY EFFICIENCY AND RENEWABLE ENERGY DEVELOPMENT POLICY LOAN June 25, 2013 Sustainable Development Department Central/South Europe and Baltics Country Department Europe and Central Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective as of February 2011) Currency Unit US$1.00 2.8 PLN EUR 1.0 3.97 PLN Weights and Measures Metric System FISCAL YEAR JANUARY 1 – DECEMBER 31 ABBREVIATIONS AND ACRONYMS BAU Business As Usual (scenario) CHP Combined Heat and Power CPS Country Partnership Strategy CFAA Country Financial Accountability Assessment EE Energy Efficiency ESCO Energy Service Company FDI Foreign Direct Investment GDP Gross Domestic Product GIS Green Investment Scheme GNP Gross National Product HIPC Heavily Indebted Poor Countries IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation IMF International Monetary Fund JSAN Joint Staff Advisory Note LDP Letter of Development Policy MAC Marginal Abatement Curve MDGs Millennium Development Goals MOE Ministry of Education MOF Ministry of Finance MOH Ministry of Health MOI Ministry of Infrastructure MTEF Medium-Term Expenditure Framework NBP National Bank of Poland NEEAP National Energy Efficiency Action Plan NREAP National Renewable Energy Action Plan OPFs Open Pension Funds PER Public Expenditure Review PHRD Japan Policy and Human Resources Development Trust Fund RE Renewable Energy ROSC Report on the Observance of Standards and Codes SDR Special Drawing Rights TMRF Thermodernization and Renovation Fund Vice President Philippe H. le Houerou Country Director Peter C. Harrold Sector Manager Ranjit J. Lamech Project Team Leader Gary Stuggins ICR Primary Author Ryszard Malarski THE REPUBLIC OF POLAND ENERGY EFFICIENCY AND RENEWABLE ENERGY DEVELOPMENT POLICY LOAN CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Program Performance in ISRs H. Restructuring 1.  Program Context, Development Objectives and Design ............................................................ 1  2.  Key Factors Affecting Implementation and Outcomes .............................................................. 4  3.  Assessment of Outcomes ........................................................................................................... 7  4.  Assessment of Risk to Development Outcome ........................................................................ 17  5.  Assessment of Bank and Borrower Performance ..................................................................... 18  6.  Lessons Learned ....................................................................................................................... 20  7.  Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......................... 20  Annex 1. Bank Lending and Implementation Support/Supervision Processes .............................. 21  Annex 2. Beneficiary Survey Results ............................................................................................ 22  Annex 3. Stakeholder Workshop Report and Results .................................................................... 23  Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR ...................................... 24  Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders ........................................ 25  Annex 6. List of Supporting Documents ........................................................................................ 26  MAP ............................................................................................................................................... 27  A. Basic Information Energy Efficiency Country: Poland Program Name: Development Policy Loan Program ID: P115426 L/C/TF Number(s): IBRD-80700 ICR Date: 06/25/2013 ICR Type: Core ICR REPUBLIC OF Lending Instrument: DPL Borrower: POLAND Original Total USD 1,114.50M Disbursed Amount: USD 1,077.79M Commitment: Revised Amount: USD 1,114.50M Implementing Agencies: Ministry of Finance Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/06/2010 Effectiveness: 07/05/2011 Appraisal: 03/22/2011 Restructuring(s): Approval: 06/07/2011 Mid-term Review: Closing: 03/31/2012 03/31/2012 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating: Performance any) Potential Problem Program No Quality at Entry None i at any time (Yes/No): (QEA): Problem Program at any Quality of Supervision No None time (Yes/No): (QSA): DO rating before Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Energy efficiency in Heat and Power 83 83 Other Renewable Energy 17 17 Theme Code (as % of total Bank financing) Climate change 92 92 Pollution management and environmental health 8 8 E. Bank Staff Positions At ICR At Approval Vice President: Philippe H. Le Houerou Philippe H. Le Houerou Country Director: Mamta Murthi Peter D. Thomson Sector Manager: Ranjit J. Lamech Ranjit J. Lamech Program Team Leader: Gary Stuggins Gary Stuggins ICR Team Leader: Gary Stuggins ICR Primary Author: Ryszard Malarski F. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) The program development objective of the proposed operation is to support the Government's program to: (i) decrease actual final energy consumption by 9% by 2016 and reach a 20% reduction target by 2020 compared to business as usual; and (ii) increase the share of renewable energy in final energy consumption to 15.0% by 2020. These targets are part of Poland's commitment towards the EU in the context of the latter’s energy and climate change package. Against the backdrop of tight fiscal constraints and the need to maintain economic growth and alleviate poverty, energy efficiency measures have been identified as the highest priority and least cost way to decrease airborne emissions. Because of its large energy savings potential, the buildings sector will be the primary focus of measures to reduce energy use. Biomass and wind power are expected to be the main sources of new renewable energy through 2020. ii Revised Program Development Objectives (if any, as approved by original approving authority) (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Draft Ordinance determining the level and method of calculation of the energy Indicator 1 : savings obligations imposed on energy suppliers for the implementation of the White Certificate Program to be prepared by Ministry of Economy Draft Ordinance was Value prepared and finanl (quantitative or No Ordinance Draft Ordinance ordinance was Qualitative) adopted Date achieved 06/07/2011 06/30/2012 09/04/2012 Comments (incl. % Fully achieved achievement) Adequate support for the implementation of the energy efficiency program as Indicator 2 : measured by at least maintaining 2011 staffing and budget levels of the energy efficiency unit within the MoE. Value (quantitative or 4 staff 4 staff 7 staff Qualitative) Date achieved 06/07/2011 06/30/2012 06/30/2012 Comments (incl. % Fully achieved achievement) Indicator 3 : Energa to install 200,000 smart meters Contract in place for installation of Value 200,000 smart 310,000 by end of (quantitative or 0 meters to be 2013, of which Qualitative) installed 109,000 were installed in 2012 Date achieved 06/07/2011 06/30/2012 06/30/2012 Comments (incl. % Partially achieved and in progress to achieved by end 2013 achievement) Provide financing for the Thermo-Modernization and Renovation Fund of at least Indicator 4 : PLN 200 million in 2011 200 million PLN allocated for the In 2011 260 million Value No allocation in the 2010 TMF in the 2011 PLN was allocated, (quantitative or budget for the TMF budget, leveraging and 1.7 billion Qualitative) more than 1 billion leverage PLN iii Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Date achieved 12/31/2010 12/31/2011 06/30/2012 Comments (incl. % Fully achieved achievement) First year data available on categories of heavy vehicles, their emission levels and Indicator 5 : their estimated fuel consumption Total fuel consumption and top down estimation of Value CO2 emissions (quantitative or No data available No data available available. Complete Qualitative) data by category of heavy vehicles not available. Date achieved 06/07/2011 06/30/2012 06/30/2012 Comments (incl. % Partially achieved. achievement) Indicator 6 : The share of renewable energy in final energy increases Value 7.2% of final energy 9% of final energy 2010: 9.58% (quantitative or consumption consumption 2011:10.60% Qualitative) Date achieved 12/30/2009 12/30/2011 06/30/2012 Comments (incl. % Fully achieved achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Number of applications for approval of heat tariff changes and forecasted reduction of Indicator 1 : heat and power Value No applications were 15 applications to be (quantitative or 12/31/2011 submitted submitted Qualitative) Date achieved 12/15/2010 12/15/2011 06/30/2012 Comments (incl. % achievement) iv G. Ratings of Program Performance in ISRs Date ISR Actual Disbursements No. DO IP Archived (USD millions) H. Restructuring (if any) Not Applicable v 1. Program Context, Development Objectives and Design 1.1. Program Context: 1. At appraisal, Poland had shown remarkable resilience to the global financial crisis. In the decade leading up to the crisis, Poland’s increasing integration with Europe brought strong economic expansion and convergence to EU income levels. As the crisis broke out, this integration made Poland vulnerable to collapse in regional capital, trade and labor flows, but Poland’s companies, workers and households weathered well the impact of the global financial crisis. Poland remained one of the fastest growing EU countries in 2010. Real GDP expanded by 3.8 percent in 2010, the fourth highest rate in the EU. Growth was driven by growing domestic demand and supported by the overall resilience of the labor market and reviving bank credit expansion to households. The decline in private investment was largely compensated by a double-digit expansion in public investment, which constituted about 30 percent of total investment. Public investment was stimulated largely by EU funds. 2. Fiscal policy supported the recovery. The general government deficit was estimated to have increased further from 7.4 percent of GDP in 2009 to 7.9 percent of GDP in 2010. The overrun in the 2010 fiscal deficit compared to the target of 6.9 percent of GDP was due to higher local government deficits as well as weaker-than-expected tax collection, linked mainly to low corporate income tax collection, as enterprises used loss carry-over provisions to lower tax returns. For example, state budget execution data suggest that the underperformance of corporate income tax and personal income tax caused an increase in the fiscal deficit of 0.5 percent of GDP. The Public debt according to ESA95 (Eurostat) methodology was estimated to have increased from 50.9 percent of GDP in 2009 to 54.8 percent of GDP in 2010. 3. In this macroeconomic context, the Government faced the dilemma of reducing harmful emissions while maintain its focus on economic growth to converge with EU-15 and do this in a constrained fiscal environment. Poland is committed under EU regulations (referred to as the EU 2020 climate package) to make improvements in energy savings on supply and demand sides, limit Greenhouse Gas (GHG) emissions, and introduce a larger share of renewable energy in its energy supply mix. Energy efficiency measures particularly in the buildings sector were identified as the highest priority and least cost way to decrease GHG emissions. Renewable energy was also expected to help reduce GHG emissions to some extent, with biomass and wind power expected to be the new main sources of renewable energy through 2020. 4. Consistent with these findings, the Government’s Energy Policy until 2030, adopted by the Council of Ministers in November 2009, identified the key objectives of Polish energy policy: (i) improve energy efficiency; (ii) enhance the security of fuel and energy supplies; (iii) diversify electricity generation by introducing nuclear energy; (iv) develop the use of renewable energy sources, including biofuels; (v) develop competitive fuel and energy markets; and (vii) reduce the environmental impact of the power industry. The Energy Efficiency and Renewable Energy DPL was an anchor for the strategic dialogue between the Bank and the Polish authorities, in particular in the area of regional and global public goods. The overarching goal of the Country Partnership Strategy (CPS) is to support Poland’s convergence towards EU living standards. The Bank’s strategic partnership with Poland is based on four pillars: (i) Growth and Competitiveness; (ii) 1 Public Sector Reform; (iii) Social and Spatial Inclusion; and (iv) Regional and Global Public Goods. With the Energy Efficiency and Renewable Energy DPL, the Bank focused on supporting energy sector reforms related to the EU’s energy and climate policies. 1.2. Development objective: 5. The program development objective of the operation was to support the Government’s program to: (i) decrease actual final energy consumption by 9% by 2016 and reach a 20% reduction target by 2020 compared to business as usual; and (ii) increase the share of renewable energy in final energy consumption to 15.0% by 2020. 1.3. Project design: 6. The Policy Areas and prior actions supported by the program were: 7. Policy Area I: Developing the Legal Framework to support the Energy Efficiency Strategy. In the Government’s Energy Strategy for 2030, Energy Efficiency was given key priority and considered a cornerstone for successful implementation of the Policy. A National Energy Efficiency Action Plan (NEEAP) was prepared in compliance with the requirements of the EU’s Energy Services Directive. However, it was unlikely that energy efficiency targets were met without changes to the legal and regulatory frameworks. 8. The prior action supported by the DPL was approval in 2011 of the Energy Efficiency Law. The Law put in place the enabling environment for the Government’s White Certificates program which was critical in helping Poland meet its EU targets on energy efficiency in a quasi-market- based manner. The Energy Efficiency Law also made provisions for the Government to reduce its energy consumption; thus playing an important role in setting a good example for others. 9. Policy Area II: Decrease Supply-Side Energy Use. Increased use of cogeneration for the production of electric power and heat, particularly in the small-medium size plant ranges, was of critical importance in increasing energy efficiency on the supply side. To accomplish this, the Government set a target to double the amount of electric power supply through cogeneration between 2006 and 2020. One of the principal tools used by the Government was expansion of the existing “rainbow scheme� of guarantee of origin certificates favoring various modes of cogeneration production based on fuel: red for coal-fired cogeneration plants, yellow for gas-fired plants and brown for biogas (from agricultural biomass) fired plants. 10. The prior action supported by the DPL was to provide incentives to increase the share of cogeneration by allowing cogenerators to price their bulk heat up to the average price of heat produced by heat-only boilers. This was achieved through the issuance of the Ordinance on Heat tariffs in September 2010 which was expected to increase the construction of new small-medium sized cogeneration capacity. 11. Policy Area III: Improvements in Demand-Side Energy Efficiency. The Government identified the deployment of smart grids as a crucial instrument to enhance energy efficiency, accelerate demand-side management, distributed energy options and encourage the use of renewable energy resources. The Smart Grid program involved feasibility studies and pilot 2 projects. Earmarked budget was PLN 550 million (US$187 million) for investments in the country’s energy infrastructure from 2011 to 2018 and the development of a nationwide Smart Grid. Governance of this process was formalized by the establishment of a Smart Grids Working Group to identify the necessary legislative and regulatory changes that would enable the accelerated deployment of the smart metering program. 12. The prior action supported by the DPL was the issuance of a draft Regulatory Statement which covered all the key areas of implementation of Smart Meters, and, through the State-owned enterprise Energa, the initiation of the said implementation. 13. The residential and services buildings sector in Poland accounted for about 40% of the final energy demand. Due to the country’s relatively cold climate and below-average thermal insulation of buildings, major energy savings could be obtained by improving thermal insulation of buildings. The Government has established a three-pronged approach to addressing this issue: (i) improved energy standards for new buildings; (ii) design of a near-zero energy building concept for implementation starting in 2020; and (iii) support for retrofits of existing buildings with a subsidy program. The Government has made grant funding for up to 16% of project costs available since 1999 through the Thermo-Modernization Fund, which is resourced from the State budget. However, funding for this program was interrupted during fiscal 2010 as a result of pressures on the State budget. 14. The prior action supported by the DPL was the allocation of PLN 200 million for financing the Thermo-Modernization and Renovation Fund in fiscal year 2011. The prior action was achieved through the enactment of the Budget Law for 2011. 15. The transport sector, the second largest energy consumer, was responsible for 24% of the energy consumption in Poland. Furthermore, energy consumption of this sector was growing fast at an annual rate of 9 percent. The sector accounted for 12-13% of Poland’s GHG emissions, 95% of which were caused by road transport. This level is expected to increase significantly without active policy measures on charging for road usage. 16. The prior action supported by the DPL was the Introduction of the Electronic Tolling System (ETS) for heavy vehicles on major national roads section. This was an important policy tool in managing heavy vehicle (trucks and buses) road transport demand and thus GHG emissions. The ETS was also fully compliant with current EU transport policies and related directives. 17. Policy Area IV: Renewable Energy. By 2009, renewable energy contributed to 7.2% of the overall energy consumption, while the EU target for Poland is to achieve Renewable Energy contribution of 15% by 2020. Poland was limited in its opportunities for renewable energy, as there were only a few hydropower options; solar photovoltaic options were expensive given the sunlight availability and intensity. The country initiated its support for the renewable energy program using market-based instruments: green certificates for Renewable Energy and brown certificates for cogeneration using biogas from agricultural biomass. The existing green certificates program, established in 2005, was designed to facilitate the implementation of renewable energy options by obligating energy suppliers to meet annual renewable energy targets or pay a sizeable penalty (the “substitution fee�). 3 18. The prior action supported by the DPL was the submission of the government’s National Renewable Energy Action Plan (NREAP) to the European Commission thereby detailing its commitment of at least 15% of renewable energy use by 2020. The NREAP was designed to guide investments that would enable Poland to meet its agreed EU target. It outlined the specific measures to be taken in different sectors – electricity, heating, cooling and transport, and foresees financial support for renewable energy. 2. Key Factors Affecting Implementation and Outcomes 2.1. Program Performance 19. Program disbursement of EUR 750,000,000 was completed on July 19, 2011, as expected. The DPL was designed to be a one-off loan, with medium and long-term targets established, in case the Government wished to convert this to a programmable series of DPLs. All outcomes planned for this DPL were achieved (see table below). 20. Furthermore, all the medium-term actions are either completed or in progress (see table below), as well as some of the outcomes for potential future DPLs. Actions Status (completed / ongoing) Prior Actions (by May 2011) The Act on Energy Efficiency was promulgated by the President on April 29, 2011, Completed thereby establishing the White Certificates Program The Borrower to provide incentives to increase the share of cogeneration by allowing Completed cogenerators to price their bulk heat up to the average price of heat produced by heat-only boilers The Borrower, through its Energy Regulatory Office, to issue a draft Regulatory Completed Statement to cover all the key areas of implementation of Smart Meters, and to initiate the implementation through the State-owned enterprise Energa The Borrower to allocate PLN 200 million for financing the Thermo-Modernization and Completed Renovation Fund in fiscal year 2011 The Borrower to implement an Electronic Tolling System for heavy vehicles on major Completed national road sections The Borrower to submit its National Renewable Energy Action Plan to the European Completed Commission, thereby detailing its commitment of at least 15.0% of renewable energy use by 2020 Medium-Term Actions (by May 2012) The Annual Review of the Energy Policy to be completed and adopted by the Council of Completed Ministers National Energy Efficiency Action Plan-2 (NEEAP-2) to be finalized and submitted to the Completed European Commission Monitor and evaluate the implementation of energy efficiency measures Completed An Ordinance on the methodology related to Guarantee of Origin certificates (CHP and Completed fuels used), including provisions for support of biogas from biomass and coal-bed methane (“purple� certificates) The Government to issue an ordinance to establish the “brown� certificate scheme to Completed promote cogeneration from agricultural biomass A Smart Grids Law to be submitted to Parliament Ongoing Draft Law on Energy Characteristics of Buildings to be approved by the Council of Ongoing 4 Ministries by December 2011 transposing the EU’s Recast Energy Performance of Buildings Directive Draft of the Renewable Energy Law approved by the Council of Ministers. Ongoing Long-Term Actions (by December 2013) Adopt a Revised Energy Policy Ongoing Monitor, evaluate and report on the implementation of NEEAP-2 Ongoing Draw on the monitoring and evaluation of energy efficiency measures to fine tune the Ongoing policy reforms for energy efficiency Establish mechanisms to operationalize the trading system for White Certificates by 2013 Completed Amend the Energy Law to implement the Program for Development of Cogeneration Ongoing Enact the Smart Grid Law and prepare related secondary legislation Ongoing Enactment of the Law on Energy Characteristics of Buildings Ongoing Issue an Ordinance tightening new building standards to 120 kWh/m2 covering all forms Ongoing of energy, not just heating Enactment of the Renewable Energy Law Ongoing 2.2. Major Factors Affecting Implementation: 21. In a deteriorated external environment, Poland faced strong headwinds. Between 2008 and 2011, Poland’s performance was strong by regional standards. It was the only EU member to avoid recession in 2009 thanks to a combination of sound fundamentals and proactive counter- cyclical policies, and it recorded sound economic growth in 2010 and 2011, thanks to strong domestic consumption and a rebound in investment (largely driven by the absorption of EU funds). Poland’s cumulative growth over the period, at about 16 percent, was the highest in the EU. Yet, the economy slowed down. GDP growth slowed to 1.9 percent in 2012 and further decelerated in early 2013 as renewed turmoil in the Euro zone weakened business’ and consumers’ confidence, leading to an abrupt drop in investment and consumption. The deceleration is further amplified by the negative impact of the ongoing fiscal consolidation effort, by the closing of the investment cycle under the 2007-13 EU financial perspective, and by negative growth of real wages. 22. In the context of the economic slowdown, there was a shift in public support for energy efficiency (EE) and renewable energy (RE). Poland twice vetoed EC proposals for strengthening GHG emissions targets. There was a call for re-negotiating the climate package to lower the burden on the Polish economy. These voices became stronger with the downturn of the economy as unilateral decreases of GHG emissions were perceived as a “tax� that would decrease the competitiveness of heavy industries and, hence, jobs. Wide discussion on further support of RE and EE in other European countries echoed those in Poland: there were many doubts about increasing energy prices for consumers. Under these circumstances, the Ministry of Economy’s initial proposal for a new RE law, disclosed in the spring of 2012, met considerable criticism from owners of existing RE installations (mainly wind farms and hydro power plants). Separately, the Ministry of Finance proposed to limit state support for RE until 2020 due to concerns that higher energy prices would damage Poland’s economic competiveness in the long run. 23. The Government remained committed to RE and EE support but had to balance it with other broader economic development and fiscal policy objectives and had some capacity constraints: despite strong official, political commitment to fulfill obligations from the EU climate and energy package, the Government is obligated to weigh such support against the possible negative impacts for developments on the economy. Additionally, Ministry of Finance 5 has had some concerns about the negative impact of EE support on its fiscal deficit, as positive results would accrue only in the medium to long term under the current design. Finally, the ability of the Polish Government to address EE issues is limited by the still relatively low number of dedicated EE staff and analytical resources in the Ministry of Economy, restricting its capacity to drive the Government’s vision and strategy and policy development forward. 2.3. Monitoring and Evaluation (M&E) Design, Implementation and Utilization. 24. Data was systematically measured and consolidated. At the time of the ICR most of the indicators in the policy matrix have been updated since they were regularly monitored by the Government. To fulfill its obligation to deliver data to the Eurostat framework in a timely manner, the Government has established a data collecting system similar to other EU members. Article 9f of the Energy Act (Journal of Laws of 2006 No 89, item 625, as amended) contains provisions on the system for reporting the share of electricity produced from renewable energy sources. Article 30(4) of the Act of 25 August 2006 on bio-components and liquid biofuels (Journal of Laws No 169, item 1199, as amended) contains provisions on drawing up summary quarterly reports on the market of bio-components, liquid fuels and liquid biofuels. The Government will endeavor to establish a complete and reliable monitoring system, including indicators for individual measures and instruments. 25. Energy savings were calculated using a top-down method, according to the methodology published by the European Commission: “Recommendations on Measurement and Verification Methods in the Framework of Directive 2006/32/EC�. The year 2007 was recommended by the European Commission as the base year. The achieved (2009) and projected (2016) final energy savings under this Directive are presented in two ways. A top-down approach is based on national statistics and evaluation models. Total final energy savings are calculated for the national economy as a whole and by all the end use sectors. Additionally, final energy savings can be determined, for selected measures, according to a bottom-up method. The method allows for demonstrating a direct relation between the implementation of energy efficiency measures supported by the energy policy. 26. The primary source of energy savings was the Thermomodernization and Repairs Fund, based on the data from Bank Gospodarstwa Krajowego (BGK). The statistical analysis was based on energy audits verified by the Polish National Energy Conservation Agency (KAPE). Following a new order by the Ministry of Economy, BGK gathered information about savings achieved, for which thermomodernization bonuses were awarded. Therefore, the bottom-up method will in the future (2011-2016) involve simply summing up the savings in the BGK database drawing on the audits performed for such investments. The same procedure would be applied towards projects supported within programs of the National Fund for Environmental Protection and Water Management. 27. The Central Statistical Office and the Polish National Energy Conservation Agency (Krajowa Agencja Poszanowania Energii S.A.) also monitored energy savings. They participated in a 2.5-year (2010 to 2012) project under the Intelligent Energy Europe Program (IEE) called “Monitoring of European Union and national energy efficiency targets: ODYSSEE - MURE 2010�. The main objective of the project was to use the developed energy efficiency indicators for EU economies to analyze, identify and evaluate the results of energy efficiency policy 6 measures. The project involved the establishment and development of the ODYSSEE database, which included the data and amount of energy efficiency indicators, and the MURE database within formation concerning energy efficiency improvement measures. 2.4. Expected Next Phase/Follow-up Operation (if any): 28. The Government decided not to continue with follow-up Energy Efficiency and Renewable Energy DPLs. Ministry of Finance expressed its preference for support to a reform program that is centered around issues which largely fall within the scope of its own responsibilities. 29. The Bank continued its engagement in supporting the Government of Poland to meet its RE EE targets through analytical work and Reimbursable Advisory Services (RAS). The Bank is working with the Ministry of Regional Development in a RAS with the objective of shaping the overall infrastructure program along the national development priorities and the "Europe 2020" strategic agenda on Smart, Sustainable and Inclusive Growth; and optimizing the use of traditional EU grant-based funding and other financial instruments to promote low-carbon emissions investment in infrastructure. Specifically, the RAS focuses on the following investment priorities:  Production and distribution of renewable energy sources,  Energy efficiency and renewable energy use in enterprises, state-owned sector and housing sector,  Smart distribution systems at low and medium voltage levels,  Low-carbon strategies in urban areas,  High-efficiency cogeneration of heat and power energy, and  Investment needs in the waste sector to meet the requirements of the environmental acquis. 3. Assessment of Outcomes 3.1. Relevance of Objectives, Design and Implementation Rating: Satisfactory 30. The main objective of the loan and the pillars remain highly relevant to Poland’s current development agenda. Poland faces two main challenges under EU climate and energy package: to meet (i) a target of 15% of RE in final energy consumption and (ii) a target of a minimum of 9% in the overall amount of energy savings for 2016 relative to the average annual energy consumption from 2001-2005. Both challenges are achievable, but require significant common effort by the Government, business and society. The DPL objectives strongly aligned with and supported these efforts. 31. Objectives and Design: The objective(s) of the loan and the pillars were highly relevant to Poland’s current development agenda. GHG emissions reductions and energy security continue to be key priorities in the Government’s energy strategy. The obligations related to energy savings and renewable energy sources are even more important than ever, as the time to meet these targets approaches. 7 Improving energy efficiency became an important component to help Poland meet its emissions reduction targets. The Second National Action Plan for Energy Efficiency, following the obligation of Directives 2006/32/EC and 2010/31/EC, was prepared in February 2012 to provide the European Commission with reports based on energy end-use efficiency and energy. It included a description of measures to improve energy efficiency, focusing on energy end-use efficiency, and calculations concerning energy savings achieved in 2008-2009 and expected in 2016, as required by the abovementioned Directives. There is strong governmental dedication to continue a path of meeting the minimum 9% target of the average annual consumption, where the average is drawn from 2001-2005, as defined previously in the First National Energy Efficiency Action Plan (EEAP) 2007. Furthermore, the next Operational Program of the EC (2014-2020) includes a considerable focus on energy efficiency. The design of the DPL was fully consistent with this priority. 32. The new RE act is still under public discussion, and while the general principle of support for RE is widely agreed on, the issue of the level of support to different technologies is unresolved. This act is a part of the “tri-act package�, which consists of the RE act, a new energy law and a gas law. All three are proposals of the Ministry of Economy, which expects that current consultations will end in the first half of 2013. After the EC’s notification regarding the RE act, it is expected to be introduced to the parliament and enforced by the end of 2013. 33. The Government has clearly remained committed to its energy efficiency and renewable energy program after the DPL. However, the pace of implementation has been slow and some of the policy proposals and implementation could have been improved. For example, the energy efficiency program for public buildings has been slow, as has been the implementation of the RE law. The proposed feed-in-tariffs for renewable energy have been problematic; the proposed programmatic approach for the DPL could have enabled support to help improve their effectiveness and efficiency. TA supported by the GEF has successfully supported measures to implement the registration of energy efficiency of buildings and energy auditors. 34. Relevance to Bank Assistance Strategy: The DPL was designed to support the regional and public goods component of the Bank’s CPS covering 2009-2013, which emphasizes the importance of climate action for sustainable development in Poland. The DPL was designed to help Poland meet its EU commitment to the climate package by decreasing its carbon intensity and effects on global warming. 35. Analytical support for the DPL: The DPL was designed based on the Low-Carbon Country Economic Memorandum for Poland, the Government’s Energy Policy Until 2030 and its associated documents, analytical work undertaken by the International Energy Agency (IEA) and the European Commission, as well as relevant EU Directives on energy services, energy performance of buildings, and cogeneration. 36. The key documents used in preparing this operation were: • Transition to a Low Emissions Economy in Poland (World Bank, 2011): The report provided the primary analytical underpinnings upon which the DPL was based. It identified energy efficiency and some renewable energy options as components of 8 Poland’s energy program that could reduce emissions over the next decade. Specifically, the study highlighted energy efficiency as the option that would best address Poland’s carbon abatement targets and associated economic impact in the long run. • Poland’s Energy Strategy Until 2030 (Government of Poland, November 2009). The Government’s Energy Strategy clearly established energy efficiency as its primary focus in meeting many of its broad-based policy objectives. The Strategy outlined the policy objectives and secondary objectives, along with the principal measures through which increased energy efficiency and use of renewable energy are to be achieved. • The National Energy Efficiency Action Plan (Government of Poland, June 2009) and the Second National Action Plan for Energy Efficiency (Government of Poland, February 2012). The NEEAPs define the Government’s energy efficiency strategy to support the Energy Strategy, and set intermediate energy savings targets (to be updated every three years in light of the results achieved and feedback obtained from the EC). • The National Renewable Energy Action Plan (Government of Poland, December 2010) and Addendum to the National Renewable Energy Action Plan. They define implementation of the Government’s renewable energy strategy in support of the Energy Strategy and set intermediate renewable energy targets (to be updated every three years in light of the results achieved and feedback obtained from the EC). • Two reports were prepared at the request of the Bank. First, the Review of Cogeneration Issues in Poland (January 2011). This review analyzed (i) the current status of cogeneration in Poland; and (ii) various incentive schemes, in operation or proposed, to promote fuel-specific forms of cogeneration. This report highlights the need for the Government to make a decision soon on the post-2012 incentive scheme. Second, the Energy Performance of Buildings in Poland report (January 2011). This report provides detailed and critical insights in the evolution of the current energy efficiency policy with regard to the buildings sector and discusses the current status. It offers specific policy recommendations on how the Government should proceed in order to make significant progress in this critical area during the next ten years. • Review of White Certificates Programs (EC, 2006). Poland’s White Certificates program was intended to be the cornerstone of its energy efficiency program, by creating energy efficiency obligations on energy suppliers and distributors. Three EU countries – France, Italy and the UK – have positive experiences that help guide implementation of Poland’s program; in particular the need to start off with a relatively simple program and build on it as experience is gained with implementation. 37. In addition, analytical support to the Government was provided by drawing on the early results of the Energy Efficiency Lessons Learned in Germany, Sweden and Ireland and their applicability to Poland. Advisory services were provided on the behavioral and marketing aspects associated with developing home/business area networks, to make smart meters more effective (funding as provided by the Poland GEF project). Finally, analytical work, funded by a multi-donor Trust Fund on poverty and social issues, was carried out to focus on the barriers faced in extending energy efficiency benefits to the poor and vulnerable. 3.2. Achievement of Program Development Objectives Rating: Moderately Satisfactory 9 38. The overall program objectives and targets for the DPL were fully met, both for the reform program as well as in terms of the macroeconomic framework. However, a substantial amount of work that was planned to be supported by follow-up programmatic DPLs remains to be addressed. The originally envisaged follow-up DPLs as well as analytical support would have helped the Government further its efforts to fully meet its EU energy and climate package commitments, in particular the 2020 target for renewable energy. By maintaining a stronger focus on achieving energy efficiency targets, the impact of an implied “tax� (see section 2.2) on the economy of investing in higher cost GHG reduction options could also be reduced. 39. Additional elements were brought into the program to assist Poland in addressing the challenges resulting from the global economic crisis. The crisis also led to some delays in structural reforms, which were postponed until the recovery gained strength. With economic recovery in 2010 and 2011, the Government initiated fiscal consolidation strategy, aimed at reducing Poland’s excessive fiscal deficit. Despite renewed slowdown in GDP growth in 2012, (Poland’s GDP growth slowed from 4.5 percent in 2011 to less than 2 percent in 2012 a result of the prolonged recession in the Euro area as well as drop in domestic demand), the Government continued fiscal retrenchment which led to the decrease in fiscal deficit from 7.9 percent of GDP in 2010 to 3.9 percent of GDP in 2012. 40. Pillar 1: Energy Efficiency Strategy. The objective of Pillar I was to develop the legal framework to support the energy efficiency strategy and its implementation. Most policy actions under this pillar have been achieved. These actions helped improve the legal framework and strategic thinking on EE, in addition to establishing monitoring schemes. However, the overall policy reforms for EE are not yet fully developed and implemented as the secondary legislation lags behind the primary legislation. Despite the remaining concerns of the Ministry of Finance on increasing energy efficiency investments in public buildings because of the possible negative impact on the fiscal deficit, the Government remains committed to meet its 9% energy efficiency improvement by 2016, is monitoring progress regularly, and appears to be on track to meet this target. 41. Pillar II: Decrease Supply-side Energy Use. The objectives of the supply-side energy efficiency measures have been partially achieved. Cogeneration, the second most important instrument of limiting primary energy use on the supply side, is not yet sufficiently supported by governmental policy: “red� and “yellow� certificates expired on December 31, 2012; “purple� certificates (for biogas) are operational until 2019. A new act, approved by the Government on January 2, 2013, proposes to extend temporary “red� (for coal) and “yellow� (for gas) until March 31, 2015, but this act needs approval by parliament. About half of 2013 CHP will not receive support by red and yellow certificates. However, new certificates have been introduced (“orange�) for new CHP constructed since January 1, 2013. The market perceives this situation to be unstable and, as a result, new CHP investments are developing slowly. 42. Pillar III: Improvements in Demand-Side Energy Efficiency. The objective of this pillar was to enable acceleration of demand-side management and loss reduction through: (i) implementation of the smart grid program; (ii) reducing barriers to energy efficiency investments in the buildings sector; and (iii) creating stronger incentives to improve fuel efficiency of road vehicle fleet and road transport operations. The implementation of the smart grid program was partially achieved. The supporting studies reveal that considerable work was needed before the 10 framework legislation could be drafted, resulting in delays to the timetable expected at the time of appraisal. The Government has, however, not abandoned this effort. Full implementation of smart meters is behind the target to enable full implementation by 2020, but it remains achievable. The pilot installation of 109,000 smart meters was completed in 2012 and an additional 520,000 are planned to be implemented in the near future by ENERGA. However, the benefits from the smart meters will not accrue unless the related infrastructure and incentive mechanisms are established. The legal framework to support these efforts is behind schedule and there are many issues which need to be resolved, like establishing independent data operator, defining home area network standards and adopting a smart grid law. 43. The Government has fully met its targets for financing energy efficiency measures in existing buildings. The Thermomodernization and Renovation Fund provided financial support as planned. However, the financing program could be more effective if the coordination with the National and Regional Environmental Funds and EU funds is improved. Other improvements in the building sector have been slower than expected; new building standards have not been implemented, the enactment of revised energy characteristics of buildings has not been adopted, and registry for energy performance of buildings certificates, supported under the World Bank GEF program, has not been introduced. These concerns are confirmed in the Report by the Building Performance Institute Europe, which states that a more comprehensive plan needs to be adopted so that it can be implemented in the Building Code. The Report also identifies the need for improved financial support schemes to achieve energy savings targets in newly constructed buildings – an issue that is disputable given the modest incremental cost (less than 5%) for improving the energy efficiency of new buildings. 44. The DPL’s transport component focused on reducing emissions from heavy vehicles by monitoring vehicles categories, emissions, and their impact through an electronic toll collection system. This objective was partially achieved. The ETS was successfully delivered and has been extended. However, the data is scattered among many institutions and is maintained in several sources: in CEPiK (Central Registry of Vehicles and Drivers) for the Ministry of Administration, in ITS (Institute of Vehicles Transport) since 2010 on request of the Ministry of Transport, by type of cars and their age, and in Samar (a business entity). Additionally, the Ministry of Transport collects data about newly registered vehicles, and Kobize issues National Inventory Reports (the last in 2012 which covers period 1988-2010) but heavy vehicles as summarized as one category. The monitoring and evaluation of results needs to be improved to make this system more effective. 45. Pillar IV: Renewable Energy. The share of renewable energy in final energy has increased from 7.2% of final energy consumption in 2009 to 10.6% in 2011, and is projected to be 11% in 2013. Based on this trajectory, Poland is expected to meet its EU target of 15% of final energy consumption from renewables by 2020. This increasing share of RE in the Polish energy system creates new problems: 15% of final energy consumption from RE implies that about 19% of electricity should be supplied from RE by 2020. However, RE installations, once built create operational problems as their marginal operating costs are nearly zero and unpredictable for solar and wind. Polish authorities responsible for a stable electricity system are concerned about the longer-term impact on system stability in the future. This obstacle needs to be resolved in the context of the development of the new RE law. 11 46. The longer-term prospects are of concern as the current support scheme is valid only till 2015, and the discussion on new RE act has not been completed and the new RE law isn’t expected to be considered before the beginning of 2014, about two years behind original schedule. Without clear support scheme in place for the coming ten years, potential RE investors are reluctant to make commitments and Poland could see a downturn in new investments in renewable energy. Objective Actions Comments Pillar I: Develop an Energy Efficiency Strategy supported by an updated Legal Framework and an adequate governance structure to enable the strategy to be implemented Medium-term Actions The Annual Review of the Energy Achieved. Policy to be completed and Current (2012) is ongoing; there is adopted by the Council of review on the regular basis; 2011 is Ministers approved by Council of Ministers, 2012 is expected in the end of 2013. Additional review (every two years) by IEA, with the most recent one done in 2012 National Energy Efficiency Achieved on February 10, 2012 Action Plan -2 (NEEAP-2) to be Develop an finalized and submitted to Energy European Commission Efficiency Monitor and evaluate the Achieved. Strategy implementation of energy Central Statistics Office published supported by an efficiency measures report “Polish Developments on EE in updated Legal 2000-2010� (August 2012); NEEAPs Framework and are based on these reports; it will be an adequate continued every year governance Long-term Actions structure to Adopt a Revised Energy Policy Achieved. enable the Revised version was adopted in 2010 strategy to be (additional chapter on nuclear power implemented was added); new energy policy until 2050 is under consideration: assumptions will be revealed mid 2013 Monitor, evaluate and report on Achieved. the implementation of NEEAP-2 MOE plans to work out NEEAP-3 in 2014 which monitors and evaluates previous one (NEEAP-2) Draw on the monitoring and Not achieved evaluation of energy efficiency measures to fine tune the policy reforms for energy efficiency Establish mechanisms to Achieved 12 Objective Actions Comments operationalize the trading system All regulations in place. Energy for White Certificates by 2013 supply companies need to buy 1% (2013) of energy they delivered. Tender procedure: Ordinance Oct 23, 2012, the first call for proposals: Dec 31, 2012 with deadline Jan 31, 2013 Methodology for audit and method of calculation of the energy savings Ordinance in Aug 10, 2012 Pillar II: Decrease Supply-side Energy Use Medium-term Actions An Ordinance on the Achieved. methodology related to Guarantee Biogas from biomass: introduced in of Origin certificates (CHP and Oct.18, 2012, item 1229 fuels used), including provisions Cogeneration (methodology): July 26, for support of biogas from 2011, item 1052 biomass and coal-bed methane Scheme valid until March 31, 2019 (“purple� certificates) According to the 2007amendment to the Energy Law, the support system for electricity produced from high efficiency cogeneration was The Government strengthened (from March 11, 2010) intends to double through the introduction of a support the share of mechanism in the form of certificates cogeneration in of origin for the methane-fired sources energy (power) released and captured by underground supply by 2020 mining works in active, liquidated or as compared to closed coal mines and gas obtained 2006 to make from biomass in compliance with more effective article 2, paragraph 1, point 2 of the use of primary Act of August 25, 2006 on bio- energy supply components and liquid biofuels (Official Journal No 169, item 1199) The operation of this mechanism has been scheduled for March 31, 2015. Energy Department worked out a draft law aimed at extension (for another couple of years) of support system for all types of high – efficiency cogeneration. The draft law has been already adapted by Council of Ministers. The Government will issue an Brown Certificates were introduced in ordinance to establish the the beginning of 2012, and all 13 Objective Actions Comments “brown� certificate scheme to necessary regulations are on place. promote cogeneration from Because national gas provider PGNiG agricultural biomass forced high standards and parameters for this gas, cleaning it is very expensive (similar situation is in Germany: only 6 of around 3500 biogas installations clean gas);As a result, producers of biogas don’t apply for “brown� certificates, and decide to make electricity on the basis of this gas. They are authorized to acquire “green� certificates Long-term Actions Amend the Energy Law to Not achieved. implement the Program for “red� and “yellow� certificates expired Development of Cogeneration on Dec 31, 2012, “purple� works continue until 2019. New act approved by Government on Jan 2, 2013 proposes to extend “red� and “yellow� until March 31, 2015 (but this act needs further legislative way in parliament). Around half of 2013 CHP will not receive support by red and yellow certificates; new certificates are introduced (“orange�) for new CHP constructed since January 1, 2013; 2013 is the first year when CHP (gas and coal) have to buy some amount of CO2 permits Pillar III: Improvements in Demand-Side Energy Efficiency Enabling Medium-term Actions acceleration of A Smart Grids Law will be Not achieved demand-side submitted to Parliament Smart Grids Law is not on the list of management and current draft regulations: however, loss reduction parts of this law are included to the through: (i) “trójpak� (Energy-Gas-RE) which is implementation excepted to be adopted in the of the smart grid beginning of 2014 program, (ii) Draft Law on Energy Not achieved reducing barriers Characteristics of Buildings to be Ministry of Transport, Construction to energy approved by the Council of and Maritime Economy (MoTCaME) efficiency Ministries by December 2011 published in mid 2012 provisions of investments in transposing the EU’s Recast this regulation, but discussion about it the buildings Energy Performance of Buildings is not finished yet sector, and (iii) Directive 14 Objective Actions Comments creating stronger Long-term Actions incentives to Enact the Smart Grid Law and Not achieved improve fuel prepare related secondary efficiency of legislation road vehicle fleet Enactment of the Law on Energy Not achieved and road Characteristics of Buildings transport Issue an Ordinance tightening Not achieved operations new building standards to 120 MoTCaME published draft in October kWh/m2 covering all forms of 2012 but without methodology of energy, not just heating “optimal costs�, without definition of “zero-energy� building; new draft, with consumed comments, is expected in the first quarter of 2013 Pillar IV: Renewable Energy Medium-term Actions Draft of the Renewable Energy Partially achieved Law approved by the Council of The forth draft is still under public Ministers discussion as a part of “trójpak� (together with Gas Law and Energy Law) the beginning of 2014 is a most Increase the probably date of entering in to force; share of current support scheme valid until renewable energy 2017, hence suspension of entering in final energy new legislation unexpectedly caused consumption is a acceleration of new RE investments; critical 800MW new wind power generation component of the in 2012 Government Long-term Actions Energy Policy. Enactment of the Renewable Not achieved The Government Energy Law Planned in the beginning of 2014 has established a The share of renewable energy in Achieved target of 15.0% final energy increases. 2010: 9,58% by 2020 which Baseline 2009: 7.2 % of final 2011: 10,60% would also energy consumption. (Ministry of Economy report in April enable it to meet Target 2011: 9% of final energy 2011) its GHG consumption. emissions target The share of renewable energy in Data will be available in 2014; final energy increases. 2013: 11,05% (plan) Baseline 2009: 7.2 % of final (the same source as above) energy consumption. Target 2013:11% of final energy consumption. 15 3.3. Justification of Overall Outcome Rating Rating: Moderately Satisfactory 47. The DPL has moderately satisfactorily supported all its objectives. At the end of the project, while the outstanding reform agenda is still significant, there have been results under each pillar, and policy foundations for future reforms have been established. The objectives of the loan set at the time of its approval remain relevant. The Government of Poland has had to face many challenges created by the slowing economy and budget constraints that impacted its support for EE and RE issues. The implementation of the revised legal framework designed under the DPL was only partially achieved as new regulations introduced difficult design and other issues leading to delays. However, the Government has demonstrated its commitment to meeting the medium-term actions and outcomes outlined in the DPL; the prospects for their completion therefore look good. 3.4. Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 48. There were no measured poverty impacts as energy prices have not increased despite the increased use of higher-cost renewable energy. However, a Poverty and Social Impact Assessment that was initiated under the DPL is addressing potential energy-related poverty issues. According to Eurostat, 20% of Polish householders have problems with paying bills for heat during the winter, 17% have a problem with paying bills for energy at all; according to URE (Energy Regulator) and 1.5 million people in Poland are at risk of “energy-poverty�. A social safety net is in place to help the poor, an important component of the solution to energy poverty. However, the energy efficiency program has not reached the poor despite the fact that they typically live in buildings with the lowest energy efficiency and hence the highest potential economic benefits from improving EE. A study was undertaken to explore the barriers that the poor and vulnerable in Poland face in investing in energy efficiency. The biggest problem is affordability, coupled with access to capital and the landlord-tenant problem (the owner of the assets typically doesn’t pay for the heating costs). The perverse incentives are further complicated by the fact that poor households often are forced to use the highest cost source of heat (electricity), as the lowest cost source (district heating) is often not available where they live. A second stage to this study was initiated in March 2013 to prepare solutions to this problem. (b) Institutional Change/Strengthening 49. As this DPL was heavily focused on establishing a legal framework in a number of areas, it was a major first step for longer term development in some institutions: (1) Ministry of Economy which took a bold action to establish the White Certificates and is preparing secondary legislation and works heavily on new RE law; (2) increased capacity at URE on the Smart Metering regulations (supported by a GEF project) and internal units for coping operationally with White Certificates; (3) the Polish National Energy Conservation Agency which is organizing trainings for energy efficiency auditors in connection with White Certificates scheme; (4) Ministry of Transport which is preparing public buildings registry and addresses the establishing higher standards of energy consumption; (5) Environment Fund (and Ministry of Environment) 16 which prepared several grants/loan lines for supporting RE and EE development in Poland; (6) Ministry of Finance which undertook discussions on White Certificates and funding of energy efficiency measures in buildings. The Ministry of Finance is also a strong supporter of “modeling group� dedicated to strengthening governmental analytical capacity. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) 50. Over the course of the DPL, there was a strategic re-engagement of the Bank in the Government’s reform program on public goods which has laid the groundwork for future collaboration. 4. Assessment of Risk to Development Outcome Rating: Moderate 51. The most important reassurance of sustainability is the commitment across the political spectrum to the development objectives of reducing energy consumption and progress in construction of new renewable energy schemes. These objectives are strongly linked to the country’s commitment to achieving EU targets of 15% share of renewable energy in final energy consumption by 2020 and the national target of 9% of energy saving in 2016. These targets are broadly owned strategic goals of the country. Related GEF and Technical Assistance projects also continue to contribute to the likelihood of sustainability of the achievements of the DPL objectives. Economic Risks 52. There is a significant decline observed in Polish Economy by the end of 2012, and prediction for 2013 shows that economy will continue to slow. Poland’s economy is not immune to the broader regional economic crisis: this situation produces mixed impacts on the DPL reform program. On one hand, lower economic activity has reduced energy consumption, and resulted in lower energy prices which should contribute to a willingness to support higher cost renewable energy. On the other hand, this creates less of an incentive to invest in energy efficiency. Taking it into account the limited capacity of the Government to address many problems in parallel, energy efficiency and renewable energy policy reforms may be assigned a lower priority over the near term. Concerns regarding competitiveness of Polish industry and the lobbying of different renewable energy technologies, as well as fossil fuel technologies, will continue to burden the processing capacity for reforms. As a result, main reform policy actions could be considerably delayed. Political and Institutional Risks 53. The Government has been willing to undertake structural reforms. For example, the relatively complex White Certificates Scheme as set out in the Energy Efficiency Law was fully introduced with only slight delay. Collaboration among the Ministry of Economy, the Ministry of Environment, the Ministry of Infrastructure, the Energy Regulator, regional and municipal Governments, as well as other public entities such as the National Fund for Environmental Protection is still a challenge for the Polish administration. The currently organized modeling 17 group, drawing on staff from these Ministries, is developing new analytical skills and makes progress in cooperation within the Government. The recent reorganization within the energy efficiency unit in the Ministry of Economy did not change significantly the capacity for strategic thinking on energy efficiency within the Government. The Energy Regulator institutional rearrangements have made more advances to enable it to cope with the White Certificates Scheme and smart grid issues. Social and Environmental Risks 54. The risk of social tensions and declining support for the Government’s Renewable Energy Program resulting from increases in energy prices and administrative costs for market participants to engage in energy efficiency investments is still relevant. Public communication campaigns to date had limited impact and would benefit from being upgraded. Energy prices have not risen, helping to mitigate this risk. Continued support for energy efficiency is expected to help maintain such support. 5. Assessment of Bank and Borrower Performance 5.1. Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 55. The Bank adequately underpinned the DPL with analytical and advisory activities. The analytical work and project preparation budget enabled a program design that was consistent with the national development strategy focused on those key constraints that could prevent Poland from achieving its EU commitments. 56. In designing the program there was close collaboration between the sector staff working in different areas of the DPL and with the counterparts in the Government and line ministries. One illustration of this close cooperation was that the Government requested follow-up analytical work on Registry for Energy Performance of Buildings Certificates, smart meters, financing for energy efficiency in the public sector and macroeconomic analysis with Ministry of Infrastructure, Ministry of Finance and Ministry of Economy. (b) Quality of Supervision Rating: Moderately Satisfactory 57. The Bank team maintained frequent dialogue with the client, including in conjunction with follow-up on GEF-funded and Bank-funded technical assistance. 58. Without team members in the field, monitoring of progress towards outcome indicators was not possible to monitor on a continuous basis and some difficulties were encountered as data and information was not always updated by various line ministries in a timely manner. 18 (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 59. Bank performance both at entry and during supervision benefitted from the close linkage with the Government’s own strategic reform pillars to achieve its own EU commitments and the Bank’s DPL. This led to a strong interlinked series of reforms and reduced the risk of any move away from addressing the carefully defined program of reforms over the first year of implementation and also in the medium term. However, a large number of dispersed development objectives, many of them very challenging to achieve in the short run, would have benefited from a series of DPLs. 5.2. Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 60. The DPL helped the Government accelerate the implementation of energy efficiency and renewable energy national strategies and its EU obligations. The Government demonstrated ownership and commitment to policies promoted under the DPL, ensuring that adequate levels of human and budgetary resources were allocated and maintained to provide institutional capacity. All prior actions were completed on time and the Government is continuing to build capacity to implement the follow-up measures to ensure that the program remains on track with medium- term actions. 61. Also, key counterparts at the Ministry of Finance facilitated communication with line ministries involved (Ministry of Economy, Ministry of Transportation) although there was some discussion between the MOF and the MOE and URE over the budgetary allocations to support the design and monitoring of the energy efficiency and white certificates program. In the end all three entities committed to at least maintaining staffing levels within MOE and URE. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 62. The implementing agencies performed well. The capacity of the energy team within the Ministry of Economy was stretched thinly as it has a fairly broad mandate and a modest team. Most Government bodies followed through on the program reforms and handled the challenge of preparing substantial amounts of new legislation well as demonstrated, e.g. by the Energy Efficiency Law. Delays in the implementation of the Renewable Energy law, the Gas law and the Energy Law as well as supporting secondary legislation are symptoms of the limited capacity of the Ministry of Economy. The Ministry of Finance and the regulator, URE, were consistently responsive, helpful and supportive throughout the process. However, there were some challenges with timely implementation of the DPL triggers and actions as they were at times viewed as a disruption to normal work e.g. at the Ministry of Economy. (c) Justification of Rating for Overall Borrower Performance 19 Rating: Moderately Satisfactory 63. The performance of the Government and implementing agencies showed that they were keen to benefit from the DPL recognizing that their energy efficiency program was important in achieving their EU targets. However, the pace of implementation of the reforms has not been maintained at a consistent pace, with a direct impact on outcomes, resulting in a moderately satisfactory rating. 6. Lessons Learned 64. A programmatic DPL with several installments would likely have enabled further progress on the policy agenda. While the Government appears to be meeting its energy efficiency and renewable energy targets, the pace of energy efficiency reforms has slowed down somewhat after the DPL was approved. As this DPL demonstrates, it is possible to deliver reforms even under circumstances where achieving political consensus is at times challenging; a programmatic DPL could have been helpful in ensuring the sustainability of the reforms and supporting further actions. 65. The breadth and depth of the DPL objectives stretched the capacity of the Government to deliver. A DPL series could have helped alleviate this constraint. For a single, one-off DPL it would have been preferable if the agenda centered on only few of the most important policies. Furthermore, it would have been also helpful if some of the specific energy efficiency analytical work currently under way would have been carried out already prior to the preparation of the DPL. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies 66. A summary of the Borrower’s comments is presented in Annex 4. The Bank has no comments on issues raised in the Borrower’s comments. (b) Cofinanciers The Project did not have co-financing. (c) Other partners and stakeholders N/A. No comments were received. 20 Annex 1. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Hinderikus Busz Consultant ECSEG Leszek Pawel Kasek Senior Economist ECSP2 Ewa Joanna Korczyc Country Economist ECSP2 Rozena Serrano Program Assistant ECSSD Carolyn Turk Lead Social Development Specialist AFMRW Claudia Ines Vasquez Suarez Young Professional YPP Iwona Warzecha Sr Financial Management Specialist ECSO3 Barbara Ziolkowska Procurement Analyst ECSO2 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY10 7004.85 FY11 37.90 368,134.11 Total: 37.90 375,138.96 Supervision/ICR FY12 2.73 85,067.62 FY13 2.76 14,569.53 Total: 5.49 99,637.15 21 Annex 2. Beneficiary Survey Results Not applicable. 22 Annex 3. Stakeholder Workshop Report and Results Not applicable. 23 Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR The Client concurs with the positive assessment of the implementation of the DPL. Despite the global economic crisis and rapidly changing conditions leading to a considerable slowdown in domestic economic growth, Poland has been able to minimize the negative impact of the global crisis inter alia by precisely carrying out this DPL program. Sustaining the efforts to fulfill the DPL areas, Poland developed a legal framework supporting the energy efficiency strategy (by preparing the National Energy Efficiency Action Plan), decreased supply-side energy (by increasing use of cogeneration for the production of electric power), introduced improvements on the demand side (Smart Grids as an instrument enhancing energy efficiency, accelerating demand-side management), designed a national renewable action plan (focusing on wind power, biogas and biomasss to support the renewable energy program through market-based instruments, e.g. green certificates and brown certificates). The medium and long-term actions set out in the DPL have been achieved or are in progress. The Clients thinks that the “Satisfactory� rating under the “relevance of objective, design and implementation� presented in the ICR accurately assesses the progress made, taking into account the external environment and its impact on Poland’s economy. The analysis of the DPL implementation indicates that in setting forth objectives and targets, it is necessary to avoid too ambitious approach that increases the risk of non-performance of some obligations. The Client observes that the overall success, however, has not been achieved in relevant areas due to external factors resulting from the global financial crisis. Some macroeconomic indicators have slumped slightly compared with their projections but the Polish economy still boasts strong economic fundamentals that may serve as a launching pad for further progress. The Client appreciates the cooperation and commitment of the World Bank team and has shown interest in further cooperation with the Bank. 24 Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders N/A 25 Annex 6. List of Supporting Documents 1. Poland: Country Partnership Strategy for the period 2009-13, Report No. 48666-PL 2. Country Partnership Strategy Progress Report for the period 2009-13, Report No.61315-PL 3. Convergence Program Update 2011 4. Convergence Program Update 2012 5. Poland: National Reform Program from April 2011 6. 2nd National Energy Efficiency Action Plan for Poland dated February 10, 2012 7. Addendum for the National Renewable Energy Action Plan of December 2, 2011 8. Program Information document March 31, 2011, Report No.: AB6382 9. Energy Efficiency in Poland 2000-2010, Warsaw 2012 10. Poland’s Energy Efficiency Policy in the Context of the EU Climate Goals, presentation by Tomasz Dabrowski, director of the Energy Department at the Ministry of Economy, dated November 27, 2012 26 IBRD 33467R PO L A N D SELECTED CITIES AND TOWNS PROVINCE (WOJEWÓDZTWO) CAPITALS NATIONAL CAPITAL POLAND RIVERS MAIN ROADS MAIN RAILROADS PROVINCE (WOJEWÓDZTWO) BOUNDARIES INTERNATIONAL BOUNDARIES 14°E 16°E 18°E 20°E 22°E 24°E B a l t ic Sea RUSSIAN To Gulf of Gusev FEDERATION Gdansk LITHUANIA Gdynia To Slupsk ´ Gdansk Vilnius To 54°N Stralsund Koszalin POMORSKIE Elblag Suwalki WA R M I N S K O - 54°N MAZURSKIE ZACHODNIOPOMORSKIE Wisla To Neubrandenburg Olsztyn Szczecin GERMANY K U J AW S K O - PODLASKIE BELA RUS To Berlin POMORSKIE , Lomza Pila Bydgoszcz Ostroleca Bialystok Notec Torun Od Gorzów Ciechanów ra Wielkopolski ew Warta ar N Wloclawek Bu g To To Baranavichy , Plock Berlin Poznan Wisla MAZOWIECKIE Konin WARSAW LUBUSKIE War ta Siedlce To Pinsk 52°N 52°N Zielona Góra WIELKOPOLSKIE Biala Skierniewice Podlaska To To Leszno Ny Berlin Kalisz Lódz Kovel' sa O Sieradz dr LUBELSKIE a DOLNOSLASKIE DOLN OSL ASKIE LÓDZKIE To Piotrków Radom Lublin To Dresden Trybunalski Kovel' Legnica Jelenia Wroclaw Chelm Góra Kielce ,, Walbrzych OPOLSKIE Czestochowa Zamosc Opole SWIETOKRZYSKIE To SLASKIE Tarnobrzeg S Prague an tula Vis Katowice To Prague PODKARPACKIE 50°N Kraków 50°N Tarnów Rzeszów To , L'viv C Z E C H R EPU B LIC LI C MALOPOLSKIE Przemysl Bielsko- Krosno Biala Nowy Sacz To Brno 0 25 50 75 100 Kilometers To Rysy (2,499 m) To UK R AI N E UKR Zvolen Kosice 0 25 50 75 Miles This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information SLOVAK SLO REPUBLIC VA K REPUBLI C shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 18°E 20°E 22°E 24°E MARCH 2007