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): – Double the share of Renewable Energy Sources (RES) in the primary energy portfolio by 2010

(6%>>12%)• RES-E Directive (2001):

– 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): – Set minimum market share of fuels (bio-diesel, alcohols, and hydrogen) from renewable sources.

Target for 2010 is 5.75 %.• Biomass Actionplan (2005)

– 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

KIOP(2004-2006)

Support Scheme

Investment subsidy

KEOP(2007-2013)

Production support

Obligatory taking over of RES-E

and feed-in-tariff

Green Certificate

Bio fuels Heat generation RES-E generation

?

Tax exemption

Investment Subsidies for RES in Hungary

KIOP (Operative Programme for Environmental Protection and Infrastructure)1. Period: 2004-20062. Financed by EU Funds 3. 3 main fields: environmental protection, energetics and transport4. For Renewable Energies: 12 million EUR

• Supported projects: 18 • Planned total RES-E generation / year: 442 TJ• Installed capacity: 19,4 MW• Saved CO2: 2 million tons (for a whole life cycle)

KEOP (Operative Programme for Environment and Energy)1. Period: 2007-20132. Financed by EU Funds3. 2 main fields for Energetics: Energy savings and Renewables4. For Renewable Energies (RES-E and heat generation): 200 million EUR5. Supported projects: biomass, biogas, geothermal, small scale wind turbines6. 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. 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%)2. Subsidies: obligatory taking over and feed-in-tariff for RES-E (only for the licensed

period and amount)3. 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)4. Feed-in-tariff is set by the Act (VET): average tariff 9 EURcent/kWh*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 same5. Possibility of introducing green certificates

Generator Wholesale Trader Public Supplier

Support scheme based on regulated public market

Trader

Functioning of the Hungarian RES-E Support Scheme

(I. Period)

= Electricity (kWh)

The functioning of The functioning of the feed-in-tariff model the feed-in-tariff model

(2001-2007)(2001-2007)

Public Wholesale Trader or Public Suppliers are

obliged to take over RES-E at subsidized price

obligatory taking over period and the amount of yearly feeded RES-E is set in the

license by the HEO

Free Market

Generator can sell RES-E on a free market (on market conditions)

KÁPKÁP

Consumer

Public SupplierWholesale Trader(MVM)

TSO (MAVIR)

= compensation for RES-E purchasing

KÁPK

ÁP

fee

KÁP Fund

1. KÁP =money to make amendments to suppliers for RES-E support, paid from a fund wich is handled by the Hungarian TSO (MAVIR)

2. KÁP-fee =part of the system operation fee, paid by all consumers

Money flow of the RES-E Support Scheme (I. Period)

Generator

9

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NG

AR

IAN

EN

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EInternet: www.eh.gov.hu

Results of the I. Period (2001-2007)

2 029,0

2 567,4

3062,63179

724,0

1184,5

47,1 101,4 135,8 136

1 574,4 1547

60,7

40,7

64,3

121,4 120,7

52,152,1

21,4

3,63,62,91,4

0,0

500,0

1 000,0

1 500,0

2 000,0

2 500,0

3 000,0

3 500,0

2004 2005 2006 2007 predicted

pu

rch

ased

ele

ctri

city

un

der

ob

ligat

ory

tak

ing

over

(G

Wh

)

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

KÁ

P (

M E

UR

)

CHP generation (GWh) Renewable generation (GWh)

Waste + Pressure drop (GWh) CHP KÁP (M EUR)

Renewable KÁP (M EUR) Waste + Pressure drop KÁP (M EUR)

0,6%

2,2%

4,3%

3,8%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

3,5%

4,0%

4,5%

5,0%

2003 2004 2005 2006

Proportion of RES-E generation to Domestic Consumption

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

-9,64

-15,71

-47,86

-28,57

-50,00

-40,00

-30,00

-20,00

-10,00

0,00

mill

ion

EU

R

2003 2004 2005 2006

Annual (cumulated) KÁP balance

Technical problems1. 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 RES-E 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 difficulties1. 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. 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

2. Subsidies: • Obligatory taking over • 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??) 3. 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

4. Possibility of introducing green certificates in the future

TSO (MAVIR)

Generator1

Generator2

Generator1

Generator2

Generatorn

Generatorn+1

Feed-in tariff set by statutory order, obligatory taking over period and amount of yearly feeded RES-E set by HEO resolution

Feed-in tariff set by statutory order, obligatory taking over period and amount of yearly feeded RES-E set by HEO resolution

Feed-in tariff set by statutory order, obligatory taking over period and amount of yearly feeded RES-E set by HEO resolution

Market playerk

Market player1

Market player2

Market player according to the Act (VET)

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)The functioning of the feed-in-tariff model (II. Period)

TSO (MAVIR)

TSO (MAVIR) tasks (based on German and Austrian examples)

1. Payments from/to separate account (as set by ministerial decree). Aim is transparency, financial separation from other activites.

2. 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)

3. KÁP fee will be leave off due to lack of function4. The mechanism based on German and Austrian precedents that was

accepted by the EU

Payments to Generators Payments by the Traders

Money flow of the RES-E Support Scheme (II. Period)

The functioning of the feed-in-tariff model (II. Period)The functioning of the feed-in-tariff model (II. Period)

3,71%4,39%

6,72%8,02%

9,37%10,36%

11,36%12,38%

13,44%14,50%

15,20%15,90%

16,60%17,31%

18,02%

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

14,00%

16,00%

18,00%

20,00%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

expected RES-E share

Expected RES-E share of Hungary (according to RES-E strategy)

Future regulationFuture regulation

Characteristic of future RES-E Decree

1. Feed-in-tariff: different tariffs (over 20 MW only market price)2. Efficiency: increase the efficiency of power plant (biomass 30-40%)3. Technical regulation: regulated power plants (balancing costs)4. Co-fireing: min. 50% RES5. Guarantee of Origin (controll function)

Thank You for your Attention!