Renewable Energies in Hungary — Legislative Framework Regulation

Renewable Energies in Hungary - Legislative Framework, Regulation, Support- Tamás Tóth Hungarian Energy Office

EU Fundamentals – Expectations to Hungary • White Paper on Renewable Sources of Energy (1998): – • RES-E Directive (2001): – • Set minimum market share of fuels (bio-diesel, alcohols, and hydrogen) from renewable sources. Target for 2010 is 5. 75 %. Biomass Actionplan (2005) – • Increase the share of Electricity from Renewable Energy Sources (RES-E) in the electricity consumption up to 21% by 2010 (EU-25 total) RF (Renewable Fuels) Directive (2003): – • Double the share of Renewable Energy Sources (RES) in the primary energy portfolio by 2010 (6%>>12%) Priority of biomass on the utilization of RES RE Roadmap by 2020 (2006)and Strategy Goals of the EU (7 -8. march 2007) – – Increase the share of RES up to 20% in the primary energy portfolio by 2020 Share of biofuels 10% by 2020 >>> Hungary is supposed to fulfill the directives: – – – Double the present share of 3. 6 % of renewable sources in the primary energy consumption. Increase the share of RES-E up to 3. 6 % in the electricity consumption. Bio-fuels: share expressed in energy content in the fuel market in Hungary shall be 5, 75% by end 2010

RES Support Scheme in Hungary Support Scheme Tax exemption Investment subsidy Production support ? KIOP KEOP (2004 -2006) (2007 -2013) Bio fuels Heat generation Obligatory taking over of RES-E and feed-in-tariff RES-E generation Green Certificate

Investment Subsidies for RES in Hungary KIOP (Operative Programme for Environmental Protection and Infrastructure) 1. Period: 2004 -2006 2. Financed by EU Funds 3. 3 main fields: environmental protection, energetics and transport 4. For Renewable Energies: 12 million EUR • Supported projects: 18 • Planned total RES-E generation / year: 442 TJ • Installed capacity: 19, 4 MW • Saved CO 2: 2 million tons (for a whole life cycle) KEOP (Operative Programme for Environment and Energy) 1. Period: 2007 -2013 2. Financed by EU Funds 3. 2 main fields for Energetics: Energy savings and Renewables 4. For Renewable Energies (RES-E and heat generation): 200 million EUR 5. Supported projects: biomass, biogas, geothermal, small scale wind turbines 6. For Biofuels: 53 million USD • Supported projects: biofuel factories middle- and large scale capacities

Production Support for RES-E generation in Hungary I. Period (2001 -2007) • Legal framework: – – Act No CX (2001) on Electricity, its Amendment (Act No LXXIX, 2005) and associated Government Decrees of Execution (180/2002 [VIII. 23] and 246/2005 [XI. 10]) Decree No 78/2005 (X. 7) of Ministry of Economy and Public Transportation, amending Decree No 56/2002 (XII. 29) on Rules of pricing and obligatory taking over of RES-E

Production Support for RES-E generation in Hungary I. Period (2001 -2007) 1. 2. 3. 4. 5. Subsidized renewables: • wind • PV • geothermal • hydro (up to 5 MW) • biomass (purely fireing, in a case of co-fireing the share of biomass have to be over 10%) Subsidies: obligatory taking over and feed-in-tariff for RES-E (only for the licensed period and amount) Hungarian Energy Office (HEO) sets the amount of RES-E and the period of the obligatory taking over in the license • Individually project inquiry • Period and amount depend on the submitted business plan (depend on the return period of the investment) Feed-in-tariff is set by the Act (VET): average tariff 9 EURcent/k. Wh*k (k= last year inflation rate) • By wind, PV at all day periods the same tariff • By the others depend on the electricity demand at day periods the tariffs are different, but the averege tariff is the same Possibility of introducing green certificates

Functioning of the Hungarian RES-E Support Scheme (I. Period) The functioning of Support scheme based on regulated public market the feed-in-tariff model (2001 -2007) Trader Free Market Generator obligatory taking over period and the amount of yearly feeded RES-E is set in the license by the HEO Wholesale Trader Generator can sell RES-E on a free market (on market conditions) Public Supplier Public Wholesale Trader or Public Suppliers are obliged to take over RES-E at subsidized price = Electricity (k. Wh)

Money flow of the RES-E Support Scheme (I. Period) KÁP TSO (MAVIR) KÁP fee KÁP Fund Consumer 1. 2. Wholesale Trader (MVM) Public Supplier Generator = compensation for RES-E purchasing KÁP =money to make amendments to suppliers for RES-E support, paid from a fund wich is handled by the Hungarian TSO (MAVIR) KÁP-fee =part of the system operation fee, paid by all consumers

Internet: www. eh. gov. hu HUNGARIAN ENERGY OFFICE Results of the I. Period (2001 -2007) 9

Results of the I. Period (2001 -2007) Return period of investment Type of RES-E generation Year New biomass 8 -9 Wind <7 Waste 10 Biogas 11 PV 40 -50 Geothermal 1 -10

Main problems of the I. Period Technical problems 1. some RES (e. g. wind) means growing volatility of generation, which cannot be sufficient regulated (the TSO has not any fast running-up and this fact limits the permissible maximum gradient (MW/min) of the load regulation >> limited wind capacity can be installed (330 MW by 2010) Regulation problems 1. Long-term contracts: obligatory purcase of RES-E based on long term contracts between RESE generators and Public Wholesale Trader or Public Suppliers >>may create stranded cost, if support scheme is changing 2. Feed-in-tariff: the price of RES-E is specified by the Act (fixed increasing prices) >> no possibility of technical distinction 3. Quota: administrative quota allocation >> may result non transparent allocation procedure (investors who submit an application for HE license are facing with the risk losing planning costs if application is not accepted, or the license is not eventually given for the planned amount of RES-E or for the planned capacity) Financing difficulties 1. The feed-in-tariff of RES-E is financed through the public market (paid by consumers in the system operation fee). The paid amount of the KÁP increased year by year, but the KÁP-fee remaind approx. the same (KÁP-fee was set by the ministry it fall under political influence) >> deficit of KÁP fund increased year by year

Production Support for RES-E generation in Hungary II. Period (2008 - ) • Legal framework: – Act No LXXXVI (2005) on Electricity, and associated Government Decrees of Execution (under preparation) – Statutory orders (under preparation): • over rules of obligatory taking over and feed-in-tariffs of Renewables and Waste

Production Support for RES-E generation in Hungary II. Period (2008 - ) 1. 2. 3. 4. Subsidized renewables (only for new entrants, for old players the old competences remaind): • all renewables • except: – RES-E from firewood (or higher section of wood) – Heat production from RES Subsidies: • Obligatory taking over and feed-in-tariff (only for the licensed period and amount) • Chanche to make different feed-in-tariffs (but maximal average price remained in the Act) • For wind (over the licensed 330 MW limit) tender (subject: support period or price? ? ) Hungarian Energy Office (HEO) sets the amount of RES-E and the period of the obligatory taking over in resoultion • Period and amount depend on the return period of the investment Possibility of introducing green certificates in the future

The functioning of the feed-in-tariff model (II. Period) Generator 1 Generator 2 Feed-in tariff set by statutory order, obligatory taking over period and amount of yearly feeded RES-E set by HEO resolution Market player according to the Act (VET) Feed-in tariff set by statutory order, obligatory taking over period and amount of yearly feeded RES-E set by HEO resolution Generator 1 Generator 2 Market player 1 TSO (MAVIR) Market player 2 Market playerk Feed-in tariff set by statutory order, obligatory taking over period and amount of yearly feeded RES-E set by HEO resolution Generatorn+1 Based on principles in the ministerial decree the allocation process is set in the business code (fluctuation obligatory taking over at fluctuating price, like German and Austrian examples)

The functioning of the feed-in-tariff model (II. Period) Money flow of the RES-E Support Scheme (II. Period) Payments to Generators Payments by the Traders TSO (MAVIR) tasks (based on German and Austrian examples) 1. 2. 3. 4. Payments from/to separate account (as set by ministerial decree). Aim is transparency, financial separation from other activites. Price formula/calculation of energy taken by traders, suitable to cover all payments (credits may only drawn to be liquid, and not to be operational) KÁP fee will be leave off due to lack of function The mechanism based on German and Austrian precedents that was accepted by the EU

Future regulation Expected RES-E share of Hungary (according to RES-E strategy) Characteristic of future RES-E Decree 1. 2. 3. 4. 5. Feed-in-tariff: different tariffs (over 20 MW only market price) Efficiency: increase the efficiency of power plant (biomass 30 -40%) Technical regulation: regulated power plants (balancing costs) Co-fireing: min. 50% RES Guarantee of Origin (controll function)

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