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Best is yet to Come: New Incentives for BESS Projects on Horizon in Hungary

Analysis

László Kenyeres, Partner, Wolf Theiss Budapest (left) and Virág Lőcsei, Associate, Wolf Theiss Budapest

A recent legislative act in Hungary laid down the principles for the eagerly awaited battery energy storage systems (BESS) support scheme. The incentives follow well-known patterns similar to those already available for solar projects. However, is this enough to say that a transformative new approach to BESS investments is on hand, and what does this mean for interested stakeholders?

Based on Government Decree 382/2023 (VIII 14) of Hungary, the approach to electricity production and consumption from renewable energy sources has taken a new turn: BESS projects are now among those investments the government intends to support with financial incentives. The idea is to set up a contract for difference (CfD) based scheme that would reimburse investors or the Hungarian state, as applicable, for the difference between the prevailing market price and the strike price set under the subsidy, depending on how the market is performing (i.e., whether the market price is up or down compared to the strike price granted by the state budget).

A dedicated fund is expected to be established to finance the incentives, the details of which will be outlined in the forthcoming months. It seems at this point that, as with support schemes in the solar sector (the KÁT and Metár), expenses for the BESS incentives will be covered by the balance group operators in proportion to their electricity sales to end-users other than households and micro-businesses. In the end, however, it is more likely that these additional costs will be primarily borne by the participants in the free market, especially by industrial and commercial users.

Compensation would be available not only to those feeding electricity into the public grid but also to single-user providers irrespective of their feed-in capacity and will be determined through a tendering process, again, similar to solar project support. The compensation will be calculated based on the difference between the claimed net revenue in the tender process (the strike price) and the reference net revenue the operator earns by selling its services (the market price). If the claimed net revenue is lower than the reference net revenue, the transmission system operator, Mavir, would be obliged to pay the deficit to the investor. If the claimed net revenue exceeds the reference net revenue, the operator would receive compensation from the BESS owner. Other state support already granted, and the commissioning of waste recovery services will be considered reducing factors.

The detailed rules of the scheme (the calculation of the claimed net revenue and the reference net revenue, the eligibility criteria, and the accounting procedures) will be determined by the Hungarian Energy and Public Utility Regulatory Authority (Mekh) at the latest four weeks before the tender submission deadline. It appears that the compensation will be granted only up to 120 months after obtaining appropriate aFRR accreditation for the facility, with a cap to recover capital investments set at a minimum of EUR 16/kW and a maximum of EUR 160/kW per year. Mekh will revise the relevant benchmarks at least every two years, starting from 2027.

According to Mavir, the first tender is expected to be published in Q4 2023 and will remain open for about eight weeks, with a capacity of up to 400 MW available for investors. Due to recent changes to Mavir’s operational code, the transition of granted grid connections from photovoltaic power production to BESS projects will be allowed.

This new support scheme is expected to provide a necessary boost to electricity storage in Hungary. Facilities capable of storing electricity will play a significant role in shaping the future of the country’s energy landscape, given that they can ensure a consistent supply of electricity by storing excess energy when it is abundant and releasing it when needed, securing stability for the electricity grid. Market players interested in BESS projects must have up-to-date information and professional support when navigating these complex and early-stage environments. Legal guidance can ensure compliance and help adapt to this evolving market, ultimately contributing to the success of clients.

This article was first published in the Budapest Business Journal print issue of October 6, 2023.

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