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Wind energy needs a lift

With investors having been waiting for the next wind energy capacity tender for quite a while now, questions are being raised as to how Hungary will fulfill its EU obligation to increase the proportion of renewables in its energy mix above 14% from the current 6% by 2020. In the meantime, wind energy investments could easily be gone with the wind.

“I can see them spinning from my window,” notes Klára Horváth, mayor of Bábolna, a western Hungarian town where seven wind turbines were installed in 2010. The turbines have a total capacity of 15 megawatts (MW) and with them the number of wind turbines in Komárom-Esztergom county was increased to 69.

The Győr-based Pannon Szélerőmű Kft completed its wind power plant investment on the outskirts of Bábolna last September. “They were not the first ones interested in such investments in our area,” Horváth told the Budapest Business Journal. “We were in advanced talks with a German wind energy company at the beginning of 2000, but then they took their investment elsewhere. Pannon Szélerőmű appeared around 2006 and after a lengthy administrative process over land issues, the investment finally kicked off and was completed by mid-2010.”

According to the mayor, citizens at first showed quite strong opposition to the planned wind farm, but eventually they realized the importance of the investment. The town has also benefited from the project. Revenue from the local business tax paid by wind farm owner Pannon Szélerőmű accounts for a significant portion of the local government’s budget. The company has also supported sports and culture-related investments in the town, in exchange for the smooth administration process the local government granted it.

Change of winds

Bábolna is one of the country’s many locations where wind energy investments have been realized over the last decade or so, contributing not only to the renewable energy concept at a national level, but also to the improvement of towns and villages through local business tax, as well as the creation of workplaces in the development phase.

However, the spread of such developments has lost momentum lately. While 2010 alone saw the delivery of 76 wind turbines at eight locations, further expansion greatly depends on the government’s renewable energy policy. And the signs are not too promising. Apart from the current debate on the planned amendments to the KÁT system (which regulates the volume of sustainably produced energy that distributors have to buy – see article on page 8), the energy sector has been waiting for the announcement of a new wind capacity tender for years.

The Hungarian Energy Office (MEH) last announced a tender in 2006, when it allocated 330 MW of wind park capacity. Although a new tender was announced in 2009, for a further 410 MW quota, this tender was later cancelled by MEH, citing formal deficiencies. The cancellation greatly upset the sector. Before the office suspended it, 68 bids had been submitted for a total capacity of 1,118 MW.

According to the Hungarian Wind Energy Association (MSzET), the implementation of the 410 MW wind energy capacity could have generated investments of nearly HUF 200 billion.

“Projects by the bidders were already in an advanced phase when MEH withdrew the tender in July 2010,” Gábor Csákány, managing director of NRG Systems and also a board member of MSzET, told the BBJ. “Currently, there are some 3,000 MW wind energy projects under preparation in Hungary, the vast majority of which are now waiting for a new tender.”

The market standstill has also harmed suppliers and the construction industry. According to MSzET, these companies could have received tens of billions of forints in orders. The vast majority of the investments would have been financed through Hungarian banks, so the cancellation of the tender has an indirect negative effect on the banking system as well.

Untapped potential

Market players and industry professionals say that the Hungarian wind energy sector has the potential for a total capacity of at least 1,000 MW. However, even together with the cancelled 410 MW capacity, the government’s action plan consists of only 740 MW until 2020.

“It is quite clear that wind energy is not given a leading role within the renewable energy sector,” says Katalin Varga, project leader at civil organization Energiaklub. “The government’s intentions are even more incomprehensible in light of Hungary’s pledge to raise the proportion of renewable energy sources within ten years.”

László Hoffmann, managing director of Pannon Szélerőmű and chairman of the Hungarian Wind Energy Industry Association, attributes the government’s decision on scrapping the tender to political reasons. “Wind energy makes up only 0.3% of Hungary’s energy capacity. But it is a clear and genuinely renewable energy source that the country should utilize much better,” he said. It is one of the very few energy sources where the price of the produced energy will definitely decrease after investment costs are recouped.

“After the return-on-investment period of about 12 to 13 years, electricity coming from wind energy will cost consumers less. Wind energy producers receive a state subsidy only for the return-on-investment period, after that, they sell it at normal market prices,” Hoffmann said. “In the case of many other energy sources, changes in the price of the raw material will always influence the final price.”

Optimistic voices

However, there are more optimistic players on the market, too. Iberdrola Renovables Magyarország Kft, the Hungarian subsidiary of the Spanish market leading wind park operator, has recently secured a 50% share of Hungary’s wind power market with the completion of three additional wind farms in western Hungary.

“Hungary is a strategic market for Iberdrola Renovables, which is clearly indicated by the present market share of the company: 124 MW is in commercial operation in Kisigmánd (Komárom-Esztergom County), and an additional 34 MW in Ikervár (Vas County) will start operations in April,” Eva Brand, country manager of Iberdrola Renovables Magyarország told the BBJ.

The company’s wind power plants in Hungary now produce 158 MW of Hungary’s 330 MW installed wind power capacity, and it is developing another 100 MW in Hungary.

Of course, as an investor, Iberdrola also wants clear conditions. “Having long-term stability and a stable outlook are the most important aspects for us to make investment decisions,” Brand said. “We are at the government’s disposal to provide them any help based on our experience, supporting its goal of reaching the target number of 14.65% for renewable energy by 2020.”