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Greening Your Strategy: Market Players’ Guide to Adapting to Changes in the Renewable Energy Sector

Inside View

Ádám Lukonits, Senior Associate, Wolf Theiss Budapest and Virág Lőcsei, Associate, Wolf Theiss Budapest

In the so-called second publication procedure, total public connection demand exceeded 10 GW, whereas the current average demand in Hungary is 5-6 GW.

As a result, the Hungarian Government issued a new decree[1], marking a significant step toward managing the increased grid capacity demand efficiently and fairly. But what do these fundamental changes (and the even stricter limitations) mean for stakeholders?

On the one hand, during the second publication procedure, network operators rejected applications for grid connections that could not be guaranteed before 2030, ensuring the predictability of developments. On the other hand, an order of preference has been implemented for those seeking to connect to the public grid before 2030. The list below reflects the order of preference for connection to the grid:

a) developers who failed to maintain previous capacity requests under the call for applications published at the end of 2022 but have resubmitted their request with unchanged technical content in the second publication procedure for medium-voltage grid connections;

b) wind farms capable of 400 kV transmission grid connections meeting specific project and site conditions; and

c) developers who also, as in example a), failed to make a declaration or pay the financial securities on time but have submitted a new application for high-voltage grid connections with the same technical content.

Moreover, developers receiving MGTs in the second publication procedure must provide an additional financial security of 5% of the benchmark investment amount, similar to the extra financial security introduced in December 2022.

While the government’s decree aims to manage grid capacity efficiently and promote green energy growth, it introduces significant hurdles for developers and creates a more challenging investment landscape. These changes are expected to decelerate new significant industrial developments while enhancing the attractiveness of new on-site investments. As Hungary’s energy market seems to be transitioning towards self-sufficiency and on-site energy production, the government is also seeking to support this shift with measures introduced earlier this year.

A new amendment to the Electricity Act [2] marks a significant shift in how property owners or tenants (i.e., users or consumers) can establish power plants and sell electricity to on-site businesses. When it comes to establishing private grids, the principal novelty is that users and consumers can now sell electricity generated through their own power plants using these private grids. Moreover, two viable options have emerged for renewable power plants to link with a private grid, facilitating the supply of users or consumers.

Option one refers to cases where a power plant is located next to the site. In such an instance, the power plant can be connected to the private grid via an interconnector point using a producer cable line. Notably, such a connection is limited to one specific site; therefore, more than one site cannot be connected to the same power plant. In this scenario, the power plant can sell the electricity to the neighboring consumer or feed-in to the public grid via the shared grid connection point.

The second option is when a power plant is located further away from the site. In this instance, the power plant may also connect to the private grid via a producer cable line, provided that the power plant meets specific criteria. These criteria include a minimum installed capacity of 5 MW, ensuring that the electricity produced by the power plant does not result in any change in the feed-in capacity of the shared grid connection point and securing appropriate compensation agreements with the property owners affected.

These amendments are expected to unlock new business opportunities for decentralized energy systems and to make installing power plants near large industrial consumers more attractive. Considering that the construction of large industrial power plants appears to be slowing down due to changes in the regulatory environment, significant construction capacity is also expected to become available.

This will likely incentivize large industrial users and malls to plan on-site projects, as the increased construction capacity may lead to lower construction prices. Legal guidance can ensure compliance and help adapt to this evolving market, ultimately contributing to clients’ success.

[1] Government Decree 54/2024. (III. 6.); [2] Act XCIX of 2023 of Hungary

This article was first published in the Budapest Business Journal print issue of May 31, 2024.

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