Hungary

1. Brief overview of the renewables sector 

Electricity generation from renewable sources is a developing sector in Hungary. According to the preliminary data, in 2018 the share of renewables in final electricity consumption was 8.5%, with biomass as the main type of renewable energy source (RES). In its National Action Plan, Hungary’s undertaking is to have 14.65% of its energy consumption from renewable sources by 2020 compared to the 13% share expected by the EU. This indicator was 13.3% in 2017.

Until 2015-2016, biomass was the most common form of RES for power generation. Even before the current electricity act came into force on 1 January 2008, and the introduction of a mandatory offtake regime for electricity produced from RES, some generators had already started considering switching the fuel source of their existing generating stations from coal / gas to waste / biomass and investing in other RES projects (e.g. Veolia’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 RES. From 2017-2018, the increase in electricity produced from RES has mainly come from the growth of the installed capacity of solar panels.

There are few waste-to-energy plants in Hungary, but the country’s capital, Budapest, has a communal waste burning power plant that has substantial capacity and generates steam for district heating and electricity. Recently, there have been calls for EU-funded projects for the development of district heating systems in rural towns. Waste-to-energy is one of several options, but there has been no news to date on the outcome of these projects.

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 these reserves are typically used for heating purposes rather than electricity generation. Nevertheless, according to preliminary data for 2018, 12GWh of electricity has been produced from geothermal sources. This might not seem a great amount, but it is a significant increase given that the same data showed 0GWh in 2016. As Hungary has excellent geological conditions for the efficient exploration of geothermal sources (e.g. appropriate temperature of geothermal heat, and heat resources are relatively close to the surface), the exploitation of geothermal sources will continue to develop.

Approximately 330MW of wind generation capacity has been installed so far. All the currently operational projects were licensed in, or before, 2006. Almost half of the operating wind power generation capacity belongs to one Spanish investor; the rest is operated by smaller operators.

There is increasing demand for solar energy, both on the household and industrial level. Some larger-scale PV plants (stand-alone or as part of an industrial project) are already in operation with a total national installed capacity of 680MW. According to the current government plans, capacity will increase to 4,000 MW by 2030. The number of household-size PV plants that do not require a licence has also been increasing steeply – their total installed capacity was 240MW at the end of 2017, amounting to over 99% of the household power plants. As it is apparent from the above, solar power is the leading source for household renewable electricity production.

Hungary’s renewables offtake regime was substantially amended at the end of 2016 and is currently in a transitional period. There are still some projects under the old regime which can be developed an operated, however, the market focus is now definitely on the new regime (the METÁR system). Under the METÁR system, the electricity generated from renewable sources is taken over from the generator in one of three ways

  1. at a pre-determined, mandatory feed-in tariff by the TSO (for smaller power generation units). 
  2. a premium subsidy can be awarded by the Hungarian Energy and Public Utility Regulatory Authority (HEPURA).
  3. a premium subsidy is granted by way of a tender procedure called for by the HEPURA. 

Following its introduction, several changes were made to the METÁR system. Since 26 April 2018, there has been no entitlement for a mandatory feed-in tariff to be granted and, after 1 May 2019, no premium subsidy may be awarded by the HEPURA without a tender. The market waited for a long time, for the first pilot tender procedure which has been called for granting premium subsidies at the beginning of September 2019. In the framework of the tender participants can apply for subsidies in the following categories:

  • power plants between 0.3 MW and 1 MW capacity (a total of HUF 333 million to be distributed). 
  • power plants between 1 MW and 20 MW capacity (a total of HUF 667 million to be distributed).

Bids and applications are to be submitted between 4 November 2019 and 2 December 2019, and results will be announced in early 2020. It is expected that after the first pilot tender HEPURA will launch tenders in each of the following years.

The mandatory feed-in tariff or the premium subsidy is granted for a period, determined by the HEPURA, that guarantees a return on investment, with a maximum duration of 25 years. For solar power plants the length of the offtake period under the METÁR system is a maximum of 14 years and 4 months.

2. Recent developments in the renewables sector

New offtake regime

The most important recent change in the renewables sector was the introduction of METÁR, the new offtake regime. It has applied to the generation of electricity from renewable sources since 1 January 2017. It introduced an offtake regime that offers mandatory feed-in tariffs and premium subsidies to newly-built power generation units using RES, or existing units that are to be refurbished if the refurbishment costs exceed 50% of the original investment.

The mandatory feed-in tariffs are applicable to production units that do not exceed 0.5MW in capacity. The tariffs are determined by legislation and are indexed annually. Further diversification of the tariffs is based on the time of day and type of RES (solar, wind or other). The TSO is obliged to take over the electricity produced by the production unit admitted to the mandatory feed-in tariff system up to the volume of electricity determined by the HEPURA and pay the mandatory feed-in tariff to the producer. However, no entitlement for a mandatory feed-in tariff may be granted after 26 April 2018.

Premium subsidies for production units between 0.5-1MW of capacity can be applied for from the HEPURA. However, no premium subsidy may be awarded by the HEPURA without a tender after 1 May 2019. Premium subsidies for production units above 1MW capacity are granted through a tender procedure called for by the HEPURA on the instruction of the Ministry of National Development. Legislation sets a maximum level for the aggregate amount of premium subsidies and is recalculated on an annual basis based on a formula. Generators receiving premium subsidies must sell their electricity individually on the market.

The premium subsidy is paid to the eligible generators by the TSO, based on the day ahead prices of the Hungarian Electricity Exchange and a subsidised price set out in the tender application of the producer or, in case of a subsidy granted without a tender, a formula set out in the legislation.

The new legislation specifies that the generators that applied for the necessary regulatory licences before 31 December 2016 are entitled to remain in the previous (very favourable) mandatory offtake system. This resulted in an enormous number of applications for solar power plant licences up to an aggregate amount of 2,000MW installed capacity. Some of the applicants are smaller family controlled firms that cannot effectively develop the licensed projects and they are now seeking investors and financiers for their licensed projects.

Changes to rules for the establishment of wind parks

At the end of 2016, close government control of potential future wind park projects was introduced and the development of these projects is now also hindered by restrictive construction provisions. The current regulatory environment effectively makes it close to impossible to obtain new wind park licences, and there is a question as to whether Hungary strategically will designate any specific role to wind in the energy mix in the next 10 years.

3. Forthcoming developments / opportunities in the renewables sector

Due to the low proportion of renewables in overall electricity generation, Hungary will need to focus on this sector in the coming years in order to be able to reach its undertaking of 14.65% from RES by 2020.

As a result of the recent restrictive legislative changes regarding wind energy, the areas of renewables most likely to develop are solar and geothermal. 

Although Hungary has very favourable geological conditions, there are relatively few geothermal projects, most likely due to the capital requirements of seismic and drilling activities. However, the legislative background for these projects is in place: geothermal concessions have been announced each year since 2013. Recently, promising attempts for the application of new geothermal technologies have appeared on the market, therefore it seems that it is worth paying special attention to future developments in this source of energy.

The introduction of the METÁR system saw a surge in solar power plants applications at the end of 2016, leading the HEPURA to grant multiple licences or issue resolutions setting out the mandatory offtake price for numerous PV projects. Although it is unlikely that all licensed solar projects will be put into operation, solar power seems to be the most promising segment of the renewable generation sector and the development of PV projects under the old regime is expected to be continued to the end of 2022 at the latest.

Picture of Peter Simon
Péter Simon
Partner
Budapest
Peter Deak
Péter Deák
Senior Associate
Budapest