Solar Surging Ahead, but Still Overshadowed by Other Renewables

If, a few years ago, you had asked a Hungarian energy expert to name the single most important renewable energy source in the country, they would have, without a doubt, pointed at biomass. In fact by volume, biomass is still the energy source that contributes most to the country’s RES-based electricity generation. According to statistics from the Hungarian Energy and Public Utility Regulatory Office (MEKH) from 2016, the most recent available, it is responsible for 57% (47% from solid biomass, with another 10% from biogas).

However, in the past two years, solar power has seen a steep surge and, if this growth pace keeps up, the country is likely to see record capacities this year.  

This sharp increase in solar power generation is the result of both global and national processes. The technology behind solar PVs – both in terms of output and production – has improved enormously, pushing prices down. Consequently, installation in many cases is now worth it at a market level, meaning ever more businesses and also households can afford to opt for it. It is also a good investment alternative to, say, property, often offering a similar or even better return on investment.  

The decentralization of the grid has also promoted the expansion of solar PVs, with technology now allowing for balancing mechanisms for two-way energy flows. In Hungary, probably the biggest boost to the recent and future upsurge in solar power was due to a change in legislation. A renewable support scheme came into effect in 2017, designed to be more in line with today’s energy market. The most significant change was that the previous KÁT system of feed-in tariffs was replaced by one that relies mostly on tenders.  

Ádám Szolnoki

High Tariffs

The imminent elimination of the generous tariffs caused a huge rush for solar power plant permits (approximately 2,500, totaling between them 2.1 gigawatts) submitted by the end of 2016. The date of project completion, originally set for yearend 2019, has since been extend until 2020. According to statistics from the Hungarian Independent Transmission Operator Company Ltd. (MAVIR), by the end of this June, the output of solar power plants operating under the feed in tariff scheme was at 190 megawatts, compared to 85 mw at the end of 2017.

“This is still a relatively low figure, considering we are halfway through,” said Ádám Szolnoki, president of the Hungarian Photovoltaic Industry Association (MANAP). If this growing trend continues, by the end of this year the Hungarian solar market could see about 300-400 MW deployed capacity. It will also mean that roughly 30-50% or even more of the submitted projects will be completed, which is more or less in line with previous industry estimates.  

The current tariff under the METÁR/KÁT scheme is the same as in the old KÁT tariff scheme. At HUF 32/kWh it is substantially higher than market prices. However, only new power plants of up to 500 kW output will receive this price – as a result, the allocated budget for this year has been exhausted and this scheme was suspended. Power plants between 500 kW and one MW need to sell electricity on the market but will receive the difference between the market and feed in tariff price as a premium.  

“This helps producers ease into the new system of selling electricity on the market,” Szolnoki explains.

‘Gold Rush’

“Such a dramatic rise will not serve the needs of the market; a gradual increase would be more beneficial,” says András Mezősi, senior researcher at the Regional Center for Energy Policy Research (REKK). From a business development viewpoint, it is hard to plan ahead with sudden policy changes: “At such a pace, companies need to take on staff to implement these projects, but when the framework expires, they need to let go of them.”

This spike is the result of the slow policy response to the changes of the industry; prices have been kept high and, in fact, still are, only the duration of the support scheme has been shortened, the expert says.

“Investors don’t look further than ten years; if they see their investment return during that time, it does not matter if the support scheme lasts 25 years. This has caused this ‘gold-rush’ that may end up being harmful for the market: the price will be paid by industry players.”

As for other renewable energy sources, wind power projects have been becalmed in the past few years. Due to the intermittent nature of their energy source, they were regarded as unpredictable by energy legislators. This may change, though, as the new Secretary of State for Energy, Péter Kaderják, has recently said he will look at what role wind can have in the Hungarian energy mix.  

The introduction of the so-called “brown premium” paid for existing biomass power plants is helping biomass projects run with more certainty.  

Apart from a few pilot projects in electricity generation, geothermal energy is used predominantly in heating. To increase its proportion compared to fossil fuels, a more predictable policy would be needed. Currently, prices are set on a yearly basis, which does not make for an investor-friendly environment, Mezősi noted.