Something New Under The Sun
In the 2015 renewable energy progress report, the EU Commission noted that it was at the time (based on data from 2013), not certain that Hungary could meet its 2020 renewable energy targets. In order to follow the steepening trajectory of the EU’s 2020 renewable targets, Hungary – along with most other EU member states – will have to embrace all possible tools to facilitate the increase of renewables production on a national (and finally on an EU) level.
Dániel Arányi, Associate, Weil, Gotshal & Manges
So, welcome METÁR! It is not an exaggeration to say that the energy market has been waiting for the changes in the renewable energy support schemes in Hungary with great anticipation since the first concept of METÁR (in Hungarian: Megújuló és alternatív Energiaforrásokból előállí- tott hő- és villamosenergia-átvételi TÁmogatási Rendszer) was aired in 2011.
The reform of the mandatory off-take (in Hungarian: “kötelező átvétel”, in short “KÁT”) regime in 2014 and early this year already signaled a move towards a more intense market involvement in Hungary’s renewables scheme. METÁR, when it enters into force following the approval of the EU Commission, will break away entirely from the feed-in tariff as a general rule and will follow the feed-in premium concept, in line with the recommendation of the EU Commission’s guidelines on state aid for energy 2014-2020. Under this concept, the renewable energy generators directly sell their production on the market and the aid is granted as a premium above the reference market price defined by the TSO, MAVIR, based on HUPX day-ahead prices.
The EU Commission’s guidelines also call for competitive allocation mechanisms. METÁR’s other material move towards market integration of renewables is that renewable energy producers with at least 1 MW capacity and all wind power plants will have to compete in tenders conducted by the Hungarian Energy and Public Utility Regulatory Authority (MEKH), where the generators requesting the smallest premiums win. However, it must be noted that only a well-designed and properly implemented tendering system can result in creating the most cost-efficient conditions for delivering renewables. The limitations of the tenders (such as minimum and maximum volumes for each renewable generation technology, territorial restrictions and maximum bidding prices) to be defined in a ministerial decree, will play an important role in ensuring that the tendering system does not miss its target.
One of the major considerations of tendering renewable capacities is whether the winning projects will actually be completed. Therefore, an adequate follow-up mechanism and the application of appropriate sanctions may be well justified. According to the most recent draft decree of the Ministry of National Development, the completion of the renewable capacities will be secured by a completion guarantee; if the delay exceeds one year, the project will lose its eligibility for the premium and the bidder will be excluded from tendering for another three years.
METÁR may be a state-of-the-art tool to achieve Hungary’s renewable goals. This, however, inevitably depends on the implementation of the system, including the prospective ministerial decrees as well as the regulations and practice of the MEKH in interpreting and applying the legal framework. A prominent negative example is the latest controversial ministerial decree introducing new, overly strict technical barriers to wind farm installations, which seems to be counterproductive considering that, according to the Hungarian National Renewable Action Plan, wind shall play a significant role in Hungary’s renewable energy mix, with a total wind capacity of 750MW by 2020. Another interlinked decisive factor will be whether METÁR will be able to establish the regulatory certainty necessary to lure private investment in the renewables sector in Hungary.
Although self-generation receives less of the limelight, it would be worthwhile to rethink the role of household sized micro power plants. Besides the obvious benefit of generation at the site of consumption, self-generation may prove to be a valuable and compatible tool to centralized generation facilities to reach renewable and security of supply targets.
A 2016 summary of the MEKH states that self-generation capacities double every year in Hungary, almost exclusively as a result of the installation of rooftop photovoltaic systems. Self-generation can only thrive and grow in the long run if the producing consumers or “prosumers” take a more active market role according to the latest position paper of the Council of European Energy Regulators (CEER). This, however, also entails that the market take prosumers into account at network planning, and that the adequate regulatory background creates a level playing field for self-generation, including the burdens such as cost-reflective network tariffs as well as the benefits, such as renewables subsidies.
METÁR is indeed a large step forward, and may well contribute to Hungary achieving its renewables objectives. One should, however, not forget that on the one hand, the devil lies in the details, and on the other hand we should take all opportunities that could supplement the general renewables support scheme, such as, for example, self-generation.
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