While the government’s intentions to reduce social burdens by freezing district heating prices is understandable, details of the plan are sketchy and some aspects may cause serious problems when put into practice, head of MKET Gábor Bercsi told reporters.

The cabinet reached a decision at the start of March prohibiting any price hikes until October.

The group found that the regulated consumer costs will cause producers losses of HUF 10-15 billion this year, something that has to be integrated into practices later or has to be compensated in some way, Bercsi said. Without this happening, there is a good chance that there will not be enough heat available since the losses will drive producers to shut down, he added.

MKET is also worried about the new subsidy system that the government is set to introduce on October 15. Earlier, the subsidies were allocated based on the volume of electricity generated. This will be changed to the amount of heat produced. Earlier, state secretary in charge of climate and energy affairs János Bencsik said the revision was justified by the fact that in the past, cogeneration producers where the heat was never utilized also received subsidization. On the other hand, MKET expressed concerns that making the amount of heat produced the basis of the support scheme would be unique to Hungary and would therefore entail several regulatory uncertainties.

To address the issues, MKET commissioned Boston Consulting Group to aid in developing a proposal package that the group believes would simultaneously uphold the government’s social targets while also alleviating the difficulties mounting before the producers.

The package highlights six areas based on 50 variables. Among the key recommendations, MKET would like to see a subsidy structure where support is tailored to the needs of each producer. Bercsi conceded that such an arrangement would be difficult given that there are many producers, but stressed that it would be the best and fairest solution.

MKET also urged the government to hasten the introduction of the so-called cogeneration certificate, currently scheduled for 2013. The certificate would be issued for CHP companies to confirm the technology they use and recognize the inherent social benefits. Companies in possession of the certificate would be eligible to receive subsidization, the amount of which would be reviewed annually.

The group’s proposal argues that the system should be introduced sooner, this October in fact, so as to be able to skip the regulatory revisions that would lead to the 2013 introduction according to the current plans. Besides avoiding the hassle of several steps in changing the regulatory environment, the certificate system is a well-established model in Europe, making its adoption to Hungary easier.