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Investing in Tomorrow: The Promise of Energy Communities in Hungary

Analysis

László Kenyeres, Partner, Wolf Theiss Budapest and Dóri Budai, Associate, Wolf Theiss Budapest

In a significant stride towards a sustainable and community-driven energy future, Hungary has recently registered its first energy community, marking a crucial milestone in the nation’s energy landscape.

As the European Union embraced the concept of energy communities in 2019, member states, including Hungary, began integrating this innovative approach into their local legislation. This development paves the way for a dynamic shift in the Hungarian electricity system, offering extraordinary opportunities for stakeholders, particularly investors keen on sustainable ventures.

An energy community is defined as a cooperative society or nonprofit business association that primarily provides environmental, economic, or social community benefits to its members. The core activities include the generation, storage, and consumption of electricity, distribution flexibility services, electricity sharing, aggregation, and offering electro-mobility services. A notable subset is the concept of renewable energy communities, focusing on electricity production from renewable sources.

The European Union introduced the concept of energy communities to facilitate cost-effective, localized energy production and consumption while supporting the development of decentralized energy structures. The advantages are manifold: renewable energy production eases the strain on the national grid during peak times, and communities can circumvent network usage fees.

The recent registration of the first Hungarian energy community represents a pioneering step towards realizing energy communities in Hungary. This initiative is a model for future energy communities, emphasizing the commitment to a greener future and tangible changes in energy production and consumption practices.

The emergence of energy communities in Hungary brings forth a host of advantages for market participants, each finding unique value in this transformative energy landscape. For local municipalities, embracing energy communities translates into enhanced energy resilience and sustainability at a reasonable cost. By actively participating in or supporting these initiatives, municipalities can contribute to local economic development and ensure a stable and affordable energy supply for their communities.

Direct and Tangible Benefits

Individual citizens within energy communities experience direct and tangible benefits. Beyond cost savings on energy bills, community members actively engage in sustainable practices, fostering a sense of environmental responsibility. Furthermore, local citizens often enjoy social and economic perks, such as strengthened community ties, job creation through energy projects, and increased property values.

Energy aggregators and traders benefit from the predictability and reliability offered by energy communities. The localized nature of energy production reduces transmission losses and ensures more stable energy markets with new market participants to cooperate with the said more professional actors. Aggregators can also tap into a diversified portfolio of renewable sources, optimizing energy trading strategies.

For investors, the appeal lies in the potential for long-term, meaningful contributions to both environmental and social well-being while circumventing the constraints posed by the state of the national grid and the constant developments needed to cope with large-scale projects, thereby making it hard to reach short-term benefits.

However, challenges persist, especially concerning the legal and technical framework for energy communities. Current Hungarian legislation and metering infrastructure present obstacles to the collective distribution of solar-generated electricity within housing complexes or neighborhoods. Recent policy changes impacting solar panel incentives in Hungary raise further concerns. Smart metering and other intelligent technologies are also at the beginning of deployment.

Therefore, regulatory adjustments and a more supportive technical environment are anticipated, for which professional legal and technical support will be crucial.

This article was first published in the Budapest Business Journal print issue of December 15, 2023.

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