New Hungarian solar investments could be severely curbed by the new regulation

According to the decrees published in the Hungarian Official Gazette on Friday evening, the government has decided on several important regulatory changes regarding the connection of power plants to the grid. The basic news was that power plant investors with a connection request accepted before 2 May 2022 will have to confirm their investment intention in a declaration by 15 January 2023, and indicate the desired date of connection, which will also have to be confirmed by the payment of a financial security. In addition, the deadline for issuing the technical economic information documents to these investors has been postponed again by one and a half months and the obligation to provide a regulatory reserve has been lifted.

However, Decree No. 526/2022 (16.XII.), issued on the grounds of the state of danger, contains an additional, extremely important detail that is suspected to be distortive and which may give some operators a huge competitive advantage while the majority will go bankrupt - Dr. Attila Keresztes, founding managing director of Astrasun, reminded us.

According to the referenced government regulations, the applicant must also pay an additional financial security or provide a bank guarantee. The amount of this security is set at 5% of the installation cost of 1 MW of solar power plant, which is HUF 325 million as defined in the decree, i.e. the existing security of HUF 4 500 000/MWp is to be supplemented by an additional amount of HUF 16 250 000/MWp, giving the applicant only a few business days to comply.

All this regulation has come in the period of annual financial closures, in the context of which suddenly such a huge commitment cannot be handled - emphasizes Dr. Keresztes, who said that with such a short deadline, only the use of cash deposits is a sustainable solution for most operators.

The regulation also exempts certain market actors from this obligation, so that they do not have to comply with what the company director describes as extreme conditions that are almost insurmountable in practice. According to these, "the scope of the regulation does not extend to a system user holding a licence in principle for a power plant which has a significant impact on the operation of the electricity system". According to the Electricity Act, a power plant with a rated capacity of 500 MW or more, which has to apply to the Hungarian Energy and Public Utility Regulatory Authority (MEKH) for a general authorisation, is considered to be a power plant with a significant impact on the operation of the system.

Renewable energy plants in this size range are rare worldwide, and there are no such plants in Hungary, even at the plan level, which means that producers of renewable energy cannot be exempted from the obligation to provide additional financial security or bank guarantees.

According to Dr. Keresztes, the regulation will indeed "clean up" the market to the extent that there will be some who will go out of business - but this is not a natural way of cleaning up the market, nor is it competition neutral. The fact that green projects in Hungary receive an extra cost of nearly HUF 20 million/MW has made the conditions for the Hungarian renewable investment market less favourable, while in the European Union similar investments receive on average 40-70% non-repayable subsidies. True, market feed-in tariffs are regulated, but at a level of €180/MWh, compared with, for example, the Hungarian compulsory feed-in tariff of around €85/MWh. Not to mention the negative impact of the Robin Hood tax, a burden that exists nowhere else, he adds.

According to the CEO, in such market conditions it is difficult to see what could make the domestic renewable market take off. He said his company had already prepared for the expected difficult market conditions, and currently more than 90% of its development is no longer in the domestic market.

According to Dr. Keresztes, in order to increase Hungary's energy independence and the share of green energy, it would be useful to facilitate the licensing procedure and oblige grid licensees to cooperate and to obtain fast permits. In his personal experience, up to two years can go by in the authorisation process with hardly any substantive response from the electricity utility to the plans submitted, so while the delay in projects is particularly damaging to developers and investors and not in their interest, grid licensees seem to have no interest in the deployment of renewable systems other than their own investments. Another positive solution would be to provide the same kind of normative-based, non-reimbursable support for projects to boost renewable energy production and use in Hungary, as is the general practice in the EU, in order to speed up the process, says the Astrasun founding CEO.

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