How Can Companies Consolidate Turbulent Energy Costs for 2022 and Beyond

Energy Trade

László Kenyeres, partner, Wolf Theiss Budapest (left) and Ádám Lukonits, associate, Wolf Theiss Budapest

These are undoubtedly challenging times for businesses in Hungary and across the whole European continent.

Energy prices have skyrocketed due to macroeconomic and geopolitical events; the coal crises in Asia, the coronavirus pandemic, and a large number of speculative decisions from early last year are still having a negative impact on the energy market. It has never been more important to optimize energy costs than now.

Not surprisingly, photovoltaic power generation has been rising for some time. It can be implemented as a self-investment at the place of consumption (on-site) or elsewhere in the country using the public infrastructure (off-site). It can be on a rooftop, ground-mounted, or some other similar installation. It requires a one-off investment by the company suffering from the volatile market prices, while it has the advantage of being a very cheap, easy-to-maintain and operate technology. An alternative option is to use another investor’s power plant instead of investing in your own, in which case the company only has to purchase the electricity generated. Regardless of which model is applied, one thing is common: the company will have access to predictable, green electricity for a fixed or at least reasonably calculable price in the long term.

However, alongside the positives, there are some negatives to note. Recent legislative changes made it quite challenging to secure an appropriate connection to the public grid, which is inevitable for almost every new solar investment (other than on-site power plants that do not use the public grid). Currently, those who wish to use the spare connection capacities available in the public network (i.e., not to bear the costs of upgrading the public network for access but to use already installed excess capacities) can do so following a multi-stage tender procedure with several cash deposits to be paid upfront in the aggregate amount of around EUR 10,000/MVA net installed capacity, provided that they are declared the winner of the tender at the end. But first and foremost, there must be spare capacity in the network. According to the Hungarian system operator, there is none, and that is unlikely to change until at least 2026.

Another significant change is the requirement to develop a non-weather-dependent balancing capacity of 30% of the nominal capacity of each new weather-dependent power plant. Apart from household-scale power plants below 50 kVA, all new photovoltaic plants applying for grid connection are required to install some form of flexibility capacity to ensure the balance of the domestic electricity system. This could be battery storage, gas engines or other conventional technology, or consumer-side regulation.

Such tightening of grid connection rules could, therefore, significantly impact companies seeking a way out of the high energy prices. However, there are several other ways to cut energy costs. Companies can enter into a corporate PPA, a long-term power purchase agreement between an operating renewable energy producer and the company, allowing the latter to purchase green electricity without the need to make any capital investment or to have a direct physical connection to the plant.

Another solution companies can benefit from is to form an energy community with other stakeholders, such as industrial facilities, municipalities, residential districts and market professionals (i.e., producers, traders, aggregators). In an energy community, they share their resources to generate, store and consume electricity, balance overproduction and overconsumption, and provide flexibility services to the network operator, thereby creating additional revenue.

The structuring, financing and implementation of photovoltaic investments, keeping up-to-date with the constant legal changes, the thoughtful negotiation of PPA contracts, and the precise regulation of the relations between the members of an energy community all require experienced legal support. We, therefore, recommend that if you or your company has energy optimization ambitions, you contact the leading legal advisors in the market.

This article was first published in the Budapest Business Journal print issue of October 7, 2022.

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