Electricity law and regulation in Hungary

1. Overview

1.1 Introduction

1.1.1 On 25 June 2007, Act No. LXXXVI of 2007 (Electricity Act) was adopted by parliament. Following various amendments, the Third Energy Package (in particular Directive 2009/72) 1 Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC. .

1.1.2 The Hungarian electricity sector is fully unbundled. It is largely privatised in the generation, distribution and supply sectors. These sectors of the electricity market are liberalised and as a result end-users may now freely choose their suppliers.

1.2 Structure of electricity market

1.2.1 Following the restructuring and partial privatisation of the vertically integrated state-owned Hungarian Electricity Works Ltd. (MVM), several generating companies, six regional distribution companies and a transmission company were established. Whilst private investment in the Hungarian electricity sector has been significant (mostly in generation and distribution), the state-owned MVM is still the biggest player in the market, controlling a considerable part of Hungary’s generation capacity.

1.2.2 Pursuant to the Electricity Act, the price of electricity is generally subject to market conditions. However, the government, on the basis of legislative mechanisms, sets the mandatory off-take prices of electricity generated from renewable energy sources (RES) and the system usage fees.

1.3 Key players

1.3.1 The majority of the generators (except the Paks nuclear generating station) and distribution companies are foreign-owned (see paragraph 2.3.1 and section 4.1).

1.3.2 However, the state-owned (former monopoly) utility company MVM, although unbundled, still controls much of the market, including the Paks nuclear generating station and the transmission system operator (TSO), Hungarian Electricity System Operator Ltd. (MAVIR).

1.4 Current issues and drivers

1.4.1 Hungary is a country that is not particularly rich in fossil fuels. Consequently, except for coal and the lignite used for some of Hungary’s outdated generating stations, it is dependent upon the import of fossil fuels (particularly natural gas). The majority of natural gas (mainly for electricity generation) is imported from Russia under a long-term contract and Hungary’s ability to import from other neighbouring countries (often on more favourable prices) plays an increasing role in the

Hungarian energy sector.

1.4.2 The continuing economic crisis and Hungary’s budgetary constraints have induced the government to increase tax revenues; this has impacted Hungarian energy companies through sector specific taxes. Simultaneously, energy companies, particularly distribution system operators (DSOs) and universal service providers, are under pressure from the government to reduce end-user prices for households and small and medium enterprises.

1.4.3 Although a reform of Hungary’s renewable energy sector is planned, the new support mechanism for renewable electricity generation has not yet been implemented (see section 3.5). The uncertainties regarding the exact features of this new support system are deterring many investors.

1.4.4 Whilst, currently, Hungary’s electricity generation capacities appear to be sufficient to meet demand, many of the generation facilities need decommissioning or updating in the near future. Outdated facilities together with increasing fossil fuel prices mean that many such facilities cannot be operated economically at full capacity under current market conditions. Instead, there is an increasing reliance on electricity being imported from neighbouring countries. In 2013, Hungary imported about 11,877.7GWh of electricity (roughly 28% of the total Hungarian consumption). 2 Data of the Hungarian Power System, 2013 – MAVIR website.

1.4.5 Import (and electricity transfer through Hungary predominantly from the north to the south due to insufficient generation capacities in the Balkan countries) has been hindered in the past by capacity bottlenecks on cross-border interconnectors. However, MAVIR, together with the TSOs of neighbouring countries, has made attempts to eliminate bottlenecks and to increase insufficient capacities. Such developments were, for example, made on the Hungarian-Slovakian interconnector recently.

1.4.6 In January 2014, Hungary has entered into a bilateral treaty with Russia on the cooperation of nuclear energy in which Hungary has ordered two further blocks (roughly 2,000 MW) for its nuclear power plant at Paks to be commissioned after 2020.

1.4.7 In 2013, the government began an initiative to reduce the costs of public utilities for household consumers. In the framework of this initiative, the electricity prices for household consumers have been reduced with 10% as of January 2013, while a further reduction of 11.1% has been applied as of November 2013. The latest reduction of an additional 5.7% was introduced as of September 2014.

2. Sector Analysis

2.1 Generation

Structure of generation sector

2.1.1 Hungary’s electricity generation capacity is insufficient to meet the country’s electricity demands. Hungary often relies upon electricity imported from neighbouring countries. This is an issue that may be aggravated in the coming years due to the ageing generation infrastructure in the country and anticipated plant closures.

2.1.2 Besides the 2,000MW capacity of the Paks nuclear generating station, Hungary predominantly relies on fossil fuels (especially natural gas) for electricity generation. Recent generating station developments (retrofits) have mostly concerned natural gas fired plants (CCGTs) or biomass fired plants. The planned extension of the Paks nuclear generating station with a further block is currently on the government’s political agenda.

2.1.3 Electricity generation from RES is still immature in Hungary. In 2013, electricity generated from RES represented 7.7% of gross electricity generation, of which biomass accounted for 3.8%, wind for 2.3% and hydro for 0.7%, whilst the share of all other renewable sources (including solar) was negligible 3 Data of the Hungarian Power System, 2013 – MAVIR website. . Under Hungary’s National Action Plan for the Utilisation of Renewable Energy 2010-2020 (NAP), 14.65% of Hungary’s primary energy consumption by 2020 should come from RES. This target is more ambitious than the commitment made by Hungary under the RES Directive 4 Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC. , which was 13%.

2.1.4 Biomass is regarded as one of the most promising renewable energy resources and accounts for approximately half of the total installed renewable generation capacity.

2.1.5 Even before the new Electricity Act came into force on 1 January 2008 and the introduction of the mandatory off-take regime for electricity produced from RES (as further described in paragraphs 3.4.6 – 3.4.8), certain generators started to consider switching the fuel source of their existing generating stations from coal/gas to waste/biomass and to invest in other RES projects (e.g. Dalkia’s biomass development at Pécs). Some of the bigger generating stations have partially switched to operating on biomass and several smaller biomass generating stations operate solely on renewable sources.

2.1.6 There are several geothermal projects already in operation or under development, typically in small or medium sized towns, to provide municipal districts and public buildings with heating. Hungary has considerable potential in geothermal energy, although such reserves are typically used for heating purposes rather than electricity generation.

2.1.7 Approximately 330MW of wind generation capacity has been awarded through licences. Most of the projects licensed in, or before, 2006 are already in commercial operation. Almost half of the operating wind power generation capacity belongs to one Spanish investor; the rest is operated by smaller, predominantly Hungarian, operators.

2.1.8 Although there is increasing demand for solar energy, this mostly concerns household-size power and/or heat production units which do not need regulator licensing. Larger scale PV plants (stand-alone or as part of an industrial project) with higher electric capacities currently exist only in the form of pilot projects.

Energy mix

2.1.9 Hungary’s electricity generation capacity is approximately 8,300MW. The share of the resources used in 2013 was as follows: 50.7% nuclear, 22% gas, 16.6% lignite, 2.8% coal, 0.18% oil and 7.7% renewables. 5 Data of the Hungarian Power System, 2013 – MAVIR website.

2.1.10 In 2013, imported electricity (excluding transit) in Hungary accounted for approximately 28% of the total domestic consumption, amounting to 11,877.7GWh.

Technology

2.1.11 The balancing constraints on the Hungarian grid hinder the growth of less programmable electricity generation technologies, particularly wind generation. Due to Hungary’s geography (most of the country is flat), the most effective electricity system balancing tools, such as hydroelectric and pump storage generating stations, are not available. As a result, the TSO has to book capacity at conventional (gas fired) generating stations which may be fired-up rapidly as peaking power plants to balance the intermittent operation of wind parks. This has led to a moratorium on the licensing of further wind generation capacities. However, it is estimated that a further 410MW of wind electricity generation capacity could be connected to the grid. Future capacities will be awarded through an open tender procedure.

Investments

2.1.12 Economic conditions and regulatory uncertainties currently impose significant burdens on energy (particularly electricity) investments. Whilst renewable developments are awaiting the adoption of the new support regime (see paragraph 3.5), developers of conventional electricity generation facilities are cautious about special levies and unpredictable future fossil fuel (particularly natural gas) prices in Hungary.

2.1.13 Nonetheless, the number of household-size micro generating stations, such as solar PV on rooftops, are rising due to generous government support, mainly from EU funds.

2.2 Transmission

Structure of transmission sector

2.2.1 The transmission grid consists of 220kV lines and above (see paragraph 4.3).

2.2.2 MAVIR, a subsidiary of the state-owned MVM, owns and operates the transmission system. Pursuant to the Electricity Act and related secondary legislation, access to the transmission grid is granted to third parties (including traders, DSOs and end-users) at regulated tariffs on a non-discriminatory basis.

2.2.3 MAVIR is also the administrator for the wholesale market. Market access conditions require all market participants to join a so-called “balance circle”. A “balance circle” is an accounting unit of generators, traders and end-users in which the agreed quantities of off-take and feed-in balance out. Generators and traders may set up their own balance circles or may join an existing one. Each balance circle must have a balance circle leader (usually a trader or generator) who is responsible for settling the balancing charges with MAVIR. MAVIR is responsible for balancing generation and demand over the entire transmission system and procures balancing actions from market participants, including MVM, to match supply and demand.

Cross-border issues

2.2.4 MAVIR is responsible for the management of cross-border transmission capacities. One of the major problems is that, although Hungary has interconnectors with all neighbouring countries (except for Slovenia), cross-border capacities are constrained and some have been contracted for several years in advance. This makes it difficult to add more capacity to existing infrastructure.

2.2.5 The Electricity Act stipulates that MAVIR must grant access to market participants on a transparent and non-discriminatory basis, the detailed rules of which are set out in the relevant secondary legislation and the Operational Code of the Hungarian Grid (Grid Code). In accordance with the Grid Code, MAVIR conducts regular auctions of available cross-border transfer capacity. Capacity is auctioned for one year, month, week or day. MAVIR holds an auction for each cross-border point to allocate the offered capacity and the derived income is set off against its operational costs for the following year. A holder of capacity rights for any given day must declare its expected demand seven days ahead.

2.2.6 Before allocating capacity rights, MAVIR requests a declaration of the origin of the electricity and a certificate of environmental compliance from the relevant generating stations. MAVIR publishes capacity allocation data, including any refusal of capacity (together with reasons for the refusal). After a capacity usage right expires, MAVIR calculates the actual average utilisation of capacity according to the submitted schedule. If there is a greater discrepancy between the scheduled and actual utilisation than is allowed by regulations, and the excess was not cancelled in time (i.e. 7 days before the actual usage), then the generating station must pay a followup capacity fee (effectively a fine) for the unused capacity.

2.3 Distribution

Structure of distribution sector

2.3.1 The distribution networks are owned and operated by six privately owned DSOs:

No.

DSO

Owner

1.

ÉDÁSZ 

100% E.ON

2.

DÉDÁSZ

100% E.ON

3.

TITÁSZ 

100% E.ON

4.

DÉMÁSZ

100% EDF

5.

ÉMÁSZ

54.3% RWE; 25% EnBW; 12% MVM; 18.7% others

6.

ELMŰ 

55.3% RWE; 25% EnBW; 15.6% MVM; 4.1% others

2.3.2 The main distribution lines are 120kV and secondary distribution lines range from 35kV to 220kV.

2.3.3 Like the TSO, under the Electricity Act and relevant secondary legislation, the DSOs are also under a legal obligation to grant access to the distribution network to third parties on a transparent and non-discriminatory basis.

2.3.4 Distribution tariffs are subject to regulation. Tariffs are prepared and distributed by the Hungarian Energy and Public Utility Regulatory Authority (HEO) in accordance with legislation, which details the calculation methodology (taking into account the principle of efficiency at the lowest cost, appropriate incentives for system operators, return on investment, etc.).

2.4 Supply

Structure of supply sector

2.4.1 As of 1 January 2008, the market (retail and end-user supply) was liberalised in accordance with the Electricity Act.

2.4.2 In parallel with the liberalisation of the electricity market, the Electricity Act also implemented the concept of a universal service to provide better security of supply for households and other minor consumers (i.e. end-users with a connection capacity below 3 x 63A). Universal service providers must offer packages with certain regulator approved tariffs (which are set on the basis of actual costs) to eligible end-users and are obliged to enter into such supply contracts at the request of an end-user.

2.4.3 Upon the Electricity Act coming into force, the DSOs (or their affiliates) were obliged to become universal service providers within the geographical territory specified in their licence. The basic aim of the Electricity Act is to provide access to universal services throughout the country (i.e. at least one universal service provider must be licensed in each area), so there is the possibility for more than one universal service provider to hold a licence for a particular area.

2.4.4 Outside of the universal service sector, there are currently more than eighty licensed traders selling electricity to end-users at market-based prices. Contracts between traders and end-users are not regulated, so the parties are free to determine the term, price and other provisions of such agreements.

2.4.5 Generators may sell their electricity to whomever they wish (even directly to end-users on freely negotiated bilateral contract terms).

Competition

2.4.6 The Hungarian Competition Office (Competition Office) has the authority to impose sanctions for anti-competitive practices in the electricity sector under the Competition Act 6 Act LVII of 1996 on Anti-competitive behaviours and the prohibition or market abuse, of Hungary, as amended. . However, identifying incumbents with significant market power on any of the electricity markets and imposing relevant special measures is solely within the power of the regulator, the HEO (as further described in paragraph 3.1.5). The HEO must take the opinion of the Competition Office into account. Competition Office approval is required for any concentration (acquisition, joint venture or merger) of undertakings in the electricity sector if the combined net sales revenue, in the previous financial year, of the undertakings involved exceeds the Competition Act thresholds.

2.4.7 When applying for merger approval, the impact of such merger on competition must be assessed. Generally, the Competition Office must grant authorisation if the merger does not create or intensify a dominant position as to prevent the development, maintenance or expansion of effective competition in the given market or a significant part thereof.

2.4.8 However, the HEO has jurisdiction over mergers in the electricity sector, subject to consultation with the Competition Office. The HEO must approve any merger involving a licence holder (such as a generator, distributor or trader, subject to some exceptions). Additionally, prior approval from the HEO is required for any acquisition of a significant or controlling interest in a licensed enterprise (i.e. exceeding 25% of the votes, and each further 25%). It may refuse to grant approval or impose conditions if a transaction poses a threat to competition or security of supply.

2.5 Energy exchange / trading

Structure of trading market

2.5.1 The operation of the wholesale electricity sector was liberalised under the Electricity Act, dismantling the former public utility sector. Licensed traders are entitled to purchase electricity from generators, other traders or abroad. They are entitled to sell electricity to end-users, to other traders or abroad. Whereas earlier electricity traders were generally subsidiaries established by the DSOs to be present on the open segment of the market, since liberalisation of the market and the set up of the Hungarian Power Exchange (HUPX), the number of traders has increased.

2.5.2 Trading is mostly undertaken through bilateral contracts, with an increasing reliance on spot trading platforms, such as HUPX.

HUPX

2.5.3 In July 2011, HUPX was established and currently has over 45 registered members. Since commencing operations, HUPX has contributed significantly to the stabilisation and decrease of electricity prices.

Data on traded volumes

2.5.4 HUPX operates day-ahead and physical futures markets, and is also engaged in OTC clearing. In aggregate, the volume of electricity traded on HUPX in 2013 was 16.2TWh, which is approximately 38.2% of total domestic consumption. 7 Data of the Hungarian Power System, 2013 – MAVIR website.

Cooperation with other exchanges

2.5.5 In September 2012, the relevant power exchanges were connected and market coupling was successfully launched to handle the allocation of the daily cross-border electricity and transmission capacities in, and between, the Czech, Slovak and Hungarian market areas. Market coupling is also called “implicit auctioning” and allows optimal allocation of electricity and cross-border capacity rights. The main advantage of the mechanism is the higher efficiency of utilisation of cross-border capacities and, consequently, the electricity flows from the cheaper areas to the more expensive ones, contributing to the levelling out of prices. This, along with the fact that the three coupled markets together represent a higher scale of volume, leads to better security of supply, higher liquidity and less price volatility.

2.5.6 In April 2014, the key electricity players in Austria, the Czech Republic, Germany, Hungary, Poland, Slovakia and Slovenia have signed, together with the EU Agency for Cooperation of Energy Regulators (ACER), a memorandum of understanding. The memorandum of understanding is aimed to couple the participating countries’ markets. The project consists of flow-based capacity calculation and implicit capacity allocation based on the Price Coupling of Regions (PCR)solution to be implemented in one single step. In addition to existing structures, a common project structure and a detailed project plan are now to be established. This will be supported and monitored by the national regulatory authorities and ACER. 8 ACER website – press release.

3. Regulation

3.1 Authorities

3.1.1 The Hungarian electricity rules are primarily regulated by the Electricity Act and its secondary legislation, which implement the Third Energy Package.

Parliament and government

3.1.2 Parliament set out the electricity sector’s regulatory framework in the Electricity Act. The government and competent minister have developed detailed regulatory rules through executive decrees.

The minister

3.1.3 The competent minister (currently the Minister of National Development) specifies the financial and technical criteria for connection to the transmission system, the minimum fuel reserves for generating stations with capacities of more than 50MW, the data supply rules and the general technical and safety requirements in the electricity sector.

3.1.4 The minister designates the organisation responsible for technical safety supervision.

HEO

3.1.5 The HEO is the competent national regulatory authority of the electricity sector and is responsible for the day-to-day supervision of the electricity market (it also has similar roles in the natural gas market and district heating sector). The HEO has nationwide jurisdiction, powers and competence. It acts under the supervision of the competent minister and is ultimately controlled by the government. The HEO’s president and vice-president are appointed (and dismissed) by the prime minister, on the proposal of the competent minister. The six year term of appointment exceeds the four year government term and thereby grants some degree of independence. The HEO also specifies the administrative fees payable to the HEO.

3.1.6 The HEO, amongst others, is responsible for supervising the electricity industry in accordance with the Electricity Act and its secondary legislation, the promotion of efficient and sustainable market competition, the enforcement of the principle of efficiency at the lowest cost, maintaining security of supply, promoting the enforcement of energy policies, the protection of end-users, the prevention of concerted actions and other anti-competitive practices and supporting market integration.

3.2 Key legislation

3.2.1 The basic law of the Hungarian electricity sector is the Electricity Act, supplemented by Government Decree No. 273/2007 on the Implementation of the Electricity Act (Implementation Decree). In addition to the detailed regulation of the industry, these pieces of legislation provide for the implementation of the Third Energy Package.

3.2.2 Additionally, a large amount of governmental and ministerial legislation provides for the in-depth regulation of the pricing methodologies, technical standards and building requirements of electric facilities and conditions for mandatory off-take of electricity generated from RES.

3.2.3 The legislation is supported by a framework of industry instruments, such as the Grid Code, the Trading Code and the Distribution Code (Electricity Supply Codes), which are prepared by MAVIR and approved by the HEO. These codes specify the detailed rules of the day-to-day operation of the electricity system, cross-border electricity transmission and the relationship between network licensees and system users within the wholesale and retail sectors. The Electricity Supply Codes also set out the detailed technical requirements and standards to be observed by licensees.

3.3 Regulatory framework

Competence of HEO

3.3.1 The regulatory framework of the Hungarian electricity sector is primarily enforced and administered by the HEO.

3.3.2 Acting within its competence under the Electricity Act, the HEO issues licences to enable the performance of regulated activities (electricity generation, trade, transmission, distribution, etc.), supervises compliance with statutory regulations, determines the general rules of access to the transmission system, determines system usage fees on the basis of the methodology laid down in ministerial decrees, defines minimum quality requirements and performs consumer protection duties.

3.3.3 As noted in paragraph 3.2.3, the HEO also approves the Hungarian Electricity Supply Codes prepared by MAVIR.

3.3.4 The HEO’s regulatory competence also includes the approval of certain corporate actions of the licensees. Under the Electricity Act, the HEO’s prior approval is needed for the decrease of a licensee’s registered capital, the transformation (merger or de-merger) of a licensee or the acquisition of direct or indirect ownership in a licensee above certain thresholds (i.e. 25%, 50% and 75%). However, such corporate actions do not require the HEO’s prior approval in the case of small generating stations (i.e. below 50MW), where a simple notification process usually applies (usually when acquiring at least a 5% stake).

3.3.5 Generators with a capacity of 50MW or more are subject to complex licensing requirements. Generators with a capacity between 0.5MW and 50MW (i.e. small generating stations) are required to obtain a “simplified license” from the HEO, which can be applied for under a simplified procedure.

3.3.6 Distribution of electricity is licensed by the HEO on the basis of the Electricity Act. An operating licence for electricity distribution is valid for a period of 25 years, which can be extended.

3.3.7 The HEO also licenses retail trading, which is valid for an indefinite period, as well as licences for operating electricity exchanges.

Permits and consents

3.3.8 A licence issued by the HEO is needed for the development of new generation capacity, as well as licences from the competent building authority and environmental permits. Environmental permits may require various impact studies to be carried out as part of the assessment.

3.4 Support schemes

3.4.1 In Hungary, eligible electricity generation projects may benefit from EU/state subsidies for development and corporate income tax credits. In addition, RES projects may take advantage of mandatory off-takes of the generated electricity and grid connection fee discounts as outlined below.

Development subsidies

3.4.2 RES and other energy projects may be eligible for subsidies from various EU funds. These must be in compliance with the Hungarian operative programmes and are co-ordinated by the Prime Minister’s Office. New developments may also benefit from state subsidies for the creation of new jobs. In addition, projects may be eligible under national programmes if such programmes comply with state aid rules.

Corporate income tax credit for developers

3.4.3 A corporate income tax credit, up to a maximum of 80% of the tax payable, may be available for developers. If the eligible investment costs remain below EUR 100m, it is not necessary to obtain prior approval from the Ministry for National Economy. However, the developer, as the taxpayer, must notify the ministry of the project’s commencement and completion. The credit may be utilised from the year the investment is put into operation or from the immediately following year. It must be fully utilised within nine years and, in any event, no later than the 14th tax year following initial notification to the ministry.

3.4.4 The eligibility for the tax credit and the maximum amount of aid depend on a number of conditions, of which the size of the project and place of investment play crucial roles. The various types of investments may be subject to a job creation requirement. For example, an investment of at least HUF 3b (approximately EUR 9.5m), or at least HUF 1b (approximately EUR 3.2m), carried out in certain areas is conditional on a strict job creation requirement of at least 150, or 75, people respectively. However, “free entrepreneurial zones” were introduced on 1 January 2013, where a minimum investment value of HUF 100m (approximately EUR 320,000) is sufficient and, so far, no job creation requirements have applied. Government Decree No. 27/2013 sets out these free entrepreneurial zones which include around 900 of Hungary’s least developed municipalities.

3.4.5 Please note that there are a lot of very detailed administrative rules regarding the utilisation of the tax credit. Before any notification is made, the tax credit conditions should be closely reviewed.

Mandatory off-take of electricity

3.4.6 In Hungary, a mandatory off-take regime supports investments in RES projects. Under this regime, a certain amount of electricity generated by renewable sources during a given period of time must be taken by MAVIR at regulated prices. The amounts are determined by the HEO and are stated in the RES generators’ individual operation licences. The price calculation methodology is determined by the minister and the actual off-take prices are circulated by the HEO annually, taking an indexation mechanism into account (including an efficiency factor). Electricity traders (except for universal service providers), power generating companies supplying electricity directly to end-users and electricity importers must purchase, from the TSO, a quantity of electricity generated by RES that amounts to a fixed percentage of their total electricity turnover/consumption.

3.4.7 The mandatory off-take prices are differentiated by the following:

  • the date when the project’s operational licence was issued (i.e. before or after the current Electricity Act came into force on 1 January 2008);
  • the type of renewable technology (e.g. wind, solar, biomass, hydropower);
  • the capacity of the plant; and
  • the time of electricity production (i.e. peak, off-peak or deep valley periods).

3.4.8 The mandatory off-take regime is not applicable to household-size generating stations with a connection capacity below 50kVA. The electricity generated by such generating stations must be taken by the electricity trader servicing the relevant connection point and will principally be set off against the electricity consumed by the household end-users.

Grid connection fee discount

3.4.9 With respect to grid connection, from a technical point of view, RES projects are not favoured over any other type of electricity generation methods and have to meet the same technical and administrative requirements as conventional generators.

3.4.10 However, financial regulations of grid connections are more favourable for RES projects. According to Decree No. 76/2011 9 Decree No. 76/2011 of the Minister of National Development on the Technical and financial conditions of connecting to the public purpose electricity grid. , if renewable energy in an electricity generating unit reaches at least 70% of the total volume of the fuel used, a 30% discount to the grid connection fee applies. If the renewable energy component is over 90%, a 50% discount to the grid connection fee applies. This discount qualifies as state aid and must be notified to the HEO, as it could reduce the mandatory off-take period specified by the HEO (which is subject to state aid clearance as well). Depending on project characteristics, an investor may refuse the grid connection discount to avoid having a reduced entitlement to sell electricity through the mandatory off-take regime.

3.5 Upcoming regulatory changes

3.5.1 The most relevant expected legal regulatory changes affect the support mechanism for RES electricity generation developments. In the short-term, the mandatory off-take regime is expected to be substituted by the new METÁR system. In the long-term, akin to some EU member states, a green certificate system may be introduced.

The planned METÁR system

3.5.2 The government intends to introduce a new regulatory and support scheme for RES projects. However, as at the end of 2014, the necessary legislative steps have not yet been made and the timetable is significantly delayed.

3.5.3 In September 2011, the Ministry of National Development published the outline for a new mandatory offtake regime for heat and electricity generated from renewable and alternative resources, the Megújuló energia támogatási rendszer regime (METÁR). It will replace the system described in paragraphs 3.4.6 – 3.4.8 above.

3.5.4 Once passed as a binding regulation, it is expected that METÁR will grant new incentives for biomass, biogas, wind and solar energy generation.

3.5.5 Based on published information, the METÁR regime is expected to provide support based on four principles. These are:

  1. electricity off-take prices differentiated based on applied technology and size;
  2. a green-heat bonus in addition to the off-take base price for co-generation technologies to incentivise “useful” heat generation;
  3. supplementary bonuses in addition to the off-take base price if certain conditions are met (such as extraordinary efficiency, innovative technology, etc.); and
  4. a brown tariff for cleared investments where the market price would not cover operational costs.

3.5.6 Under the METÁR system, off-take prices will also be defined by law or other regulation for the given technologies and capacity ranges.

3.5.7 As opposed to the current system where the HEO determines the term of mandatory off-take, under the METÁR regime, support would be provided for a uniform 15 year term for all market players. Following the expiry of this period, technologies that cannot compete on prevailing market conditions existing at that time may be supported through brown tariffs.

3.5.8 To make the new support system more transparent, different quotas are expected to be introduced for various technologies. The allocation of quotas among the applicants would be regulated by new laws.

Green certificates

3.5.9 Pursuant to the Electricity Act, the government may implement a green and co-generation certificate scheme upon the HEO’s recommendation. Under such a scheme, all end-users (or generators) would be obliged to purchase a certain amount of green certificates based on their overall consumption.

3.5.10 Currently, no further information is available as to if and when the government intends to introduce this green certificate system. As outlined above, the current focus appears to be on updating the mandatory off-take regime.

4. Country Statistics

Figure 1: Electricity production, consumption, imports and exports 10
Source
 

Electricity

kWh

Production

34,280,000,000

Imports

16,970,000,000

Exports 

9,000,000,000

Consumption

36,130,000,000