Winds of Change: Possible Turning Point for Hungary’s Wind Energy Sector
Ádám Lukonits, Associate, Wolf Theiss Budapest, Virág Lőcsei, Associate, Wolf Theiss Budapest
No new wind farms have been built in Hungary for almost a decade. However, the need for wind energy is undoubted. Could the EU’s Recovery and Resilience Facility finally put the wind in the sails of the Hungarian wind energy market?
From the outset, the construction of wind farms was only possible based on a tender issued by the Hungarian Energy and Public Utility Regulatory Authority (“MEKH”). If there were potential for new wind generation capacity to be connected to the grid, MEKH would issue a call for a tender, to which investors could apply. The network operators then concluded a grid connection contract with the winning bidders in compliance with the technical documentation of the bid, the revised connection plan, and the operational code of the network operator. After that, the winning bidder built the planned wind farm.
Although the laws allowed for it, only one publicly-supported tender took place, way back in 2006. After that, despite the recurring obstacles to the realization of projects, the installation of wind power plants increased steadily until 2010. However, on July 15, 2010, in a first sign of a change for the worse, the then ongoing tender was withdrawn; no new tender has been launched since.
In 2016, various legislative amendments essentially prohibited the installation of wind farms in Hungary. They imposed technical conditions that most of the technologies on the market could not meet or, if they could, only at a significantly reduced ROI. Under the amendments, wind power plants above 50 kVA may not be located on or within 12 kilometers of residential areas. Since Hungary is densely populated, this essentially means that there is no place in Hungary today that meets this requirement. Moreover, these amendments gave the government, instead of MEKH, the power to determine the number of official permits issued for constructing and commissioning wind farms and the associated capacity. The latest legislative norm on this topic set the capacity of wind farms that can be approved at 0 MW and has not been changed since.
There is no doubt that wind capacity expansion is necessary. Based on market surveys, most industry players would be willing to install wind turbines even without state subsidies, and the country has untapped natural potential for wind energy. Now, Hungary’s Recovery and Resilience Plan has seemingly given a reason for optimism as it outlines a total of HUF 2.3 trillion (about EUR 6 billion) for strategic development projects, with the energy sector being the center, which may well attract the attention of wind energy supporters, as facilitating onshore wind investments is one of the reforms listed in the plan.
In essence, this national plan aims to reform the current regulatory framework to remove unnecessary limitations, in particular concerning the distance from residential areas, the height of wind turbines, and their power-generating capacity. It is also expected that, by creating designated target areas in parts of the country where wind energy density and wind speeds are favorable, investors would be able to obtain a specific simplified authorization procedure for installing wind farms with shorter procedural deadlines. No further information is available at this stage, but the government is expected to present concrete draft legislation soon to obtain the RRF funds.
Given the above, the need to implement the announced changes and to create the right regulatory environment is now greater than ever. The Hungarian electricity system faces severe challenges due to the recent boom of weather-dependent power plants because proper grid developments have not followed it. This lopsided approach has inevitably led to imbalances and balancing problems. However, a well-designed energy strategy, regulatory environment and support system, and the development of mutually supportive solar, wind, geothermal, natural gas, and other systems are essential to maintaining security of supply and reducing Hungary’s energy imports and also to cope with the “dark doldrums” (Dunkelflaute, in German) increasingly brought about by the proliferation of solar and wind energy systems. It will, therefore, be worth monitoring what concrete measures are finally adopted.
This article was first published in the Budapest Business Journal print issue of June 2, 2023.
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