Renewable energy targets
In June 2016 the government announced that Hungary's first small-scale geothermal power plant will be constructed in Tura. KS ORKA Renewables Pte Ltd of Singapore has acquired a 51% stake in the project company and aims to utilise some of the industry's most experienced geothermal experts and power project developers. KS ORKA is a joint venture formed by Icelandic company Hugar Orka ehf and Zhejiang Kaishan Compressor Co, Ltd, which is listed on China's Shenzhen Stock Exchange.
The Tura power plant project is a key step in the development of Hungary's green energy scheme and will hopefully be followed by similar projects.
Under the EU Directive on the Promotion of the Use of Energy from Renewable Sources (2009/28/EC), each EU member state must reach a binding target of renewable energy use by 2020. For Hungary, 13% of its gross energy use must come from renewable sources by 2020.
In 2014 9.61% of Hungary's gross energy use came from renewable sources – namely:
- biomass (55%);
- wind energy (23%);
- biogas (9%);
- hydropower (7%);
- solar energy (2%); and
- other sources (4%).
The government is supporting a range of renewable energy projects to achieve its 2020 targets. The prioritisation of various projects, such as the Tura power plant, will ensure the fast tracking of licensing procedures. Further, the e-mobility sector is being supported through a specific action plan (known as the Jedlik Plan) and will benefit from a supportive regulatory environment and the construction of physical e-mobility facility infrastructure.
Alongside sector and project-specific incentives, the overall system of incentives for renewable energy in Hungary, as in many other countries, is the mandatory feed-in tariff (FIT) system (for further details please see "FIT system: an overview"). The purpose of the FIT system is to subsidise electricity that is produced from renewable, waste and co-generated energy. The FIT system was first introduced in Hungary in 2003 and has since been revised and fine-tuned several times. The most recent change to the FIT system was introduced in April 2016 and further changes are expected following the introduction of the mandatory takeover system for heat and electricity produced from renewable and alternative resources (commonly referred to as the METAR system).
MAVIR Hungarian Independent Transmission Operator Company Ltd operates the FIT system. On January 1 2008 MAVIR established the mandatory feed-in balance group (known as the FIT Balance Group), which it has since operated as the balance group representative. MAVIR's department of renewable and co-generation energy sources operates the FIT Balance Group and determines and allocates the amount of electricity to be purchased by the licensees and users importing electrical energy. MAVIR will purchase the electricity generated by sellers at a regulated price and sell the total amount of the electricity fed into the system on the regulated electricity market (the Hungarian Power Exchange). All balance group representatives must pay a proportionate amount to subsidise the FIT system. The basis of this payment is the electricity sold to end users in the representative's balance group. FIT payees need not purchase electricity, but they must participate in the system through their proportionate payments.
The feed-in tariff and takeover terms under the FIT system are stipulated by law. The base tariff listed in the regulations is indexed annually to the inflation rate published by the Hungarian National Statistic Office. The FIT system prices vary depending on:
- the source of energy (ie, renewable, waste or co-generated); and
- power plant capacity, in the case of renewables.
Different prices apply for peak, off-peak and low-peak periods. Although the Hungarian FIT prices are unlikely to match Japan's, which are some of the highest globally, they satisfy EU standards and can serve as a reasonable incentive for renewable energy investments.
The Tura power plant project is the first step towards achieving Hungary's green energy scheme. KS ORKA intends to implement other projects, amounting to up to 50 megawatts in green power production and 100 megawatts in heat production before 2020. It is hoped that other investors will follow suit with additional major projects.
For further information on this topic please contact Viktória Szilágyi at Nagy és Trócsányi by telephone (+36 1 487 8700) or email ([email protected]). The Nagy és Trócsányi website can be accessed at www.nt.hu.