Economy 4 October 2022, 12:58pm

Hungary can greatly cut gas consumption, will speed up solar panel approvals - Palkovics

Portfolio

The administrative procedures for residential and SME solar power plants installed for own use will be accelerated, and the licensing deadline for large industrial consumers will also be shortened, said László Palkovics, Hungary's Minister of Technology and Industry, at the Portfolio Energy Investment Forum conference on Tuesday. The minister also talked about the government's wind energy strategy, the reduction of gas consumption and the energy policy measures expected in the coming years. In this context, Palkovics estimated that Russian gas imports could be reduced to zero in Hungary by 2050.

László Palkovics, Minister of Technology and Industry, gave an opening presentation on the country's energy transition strategy.

Security of supply is perhaps the most serious issue of all the components of the energy crisis,

but the other two - affordability and sustainability - cannot be neglected either, he said.

As regards the concept of the country's energy strategy, he pointed out that the political product of the universal service has been turned into an economic product, with 4.5 million households in the hands of MVM for the supply of gas and electricity. Much can be built on this. A number of measures point in the direction of decarbonisation, how we are going to disconnect from gas, he said, adding thta:

BY 2050, WE WILL SEE A SIGNIFICANT REDUCTION IN GAS USE AS A RESULT OF A COMBINATION OF GOVERNMENT ACTIONS.

What is the government's duty now?

Among the tasks, László Palkovics highlighted the review of the National Energy Strategy, which has three key strategic objectives: (i) to significantly reduce the share of natural gas in the energy mix; (ii) to increase the share of alternative energy sources; and (iii) to serve the growing demand for electricity and flexibility.

1. Cutting natural gas consumption

"Currently, 35% of Hungary's final energy consumption is natural gas, or 44% to be precise, because natural gas is also used in district heating and electricity generation. We want to gradually reduce this, the aim is to have only the amount of gas in the energy mix needed to start the rotating balancing capacity in 2050," the minister said.

BASED ON PRELIMINARY CALCULATIONS, DOMESTIC GAS CONSUMPTION IS EXPECTED TO FALL FROM 11.1 BILLION CUBIC METRES IN 2021 TO 10.2 BILLION CUBIC METRES IN 2025, 9.2 BILLION CUBIC METRES IN 2030 AND 3.9 BILLION CUBIC METRES IN 2050, BUT THIS DOES NOT NECESSARILY MEAN GAS COMING FROM ONE DIRECTION.

Gas consumption can be lowered mainly by reducing consumption in the residential, public service and industrial segments. There is less concern in industry because it is being done by the industrial companies themselves, while the steel industry and fertiliser and cement production require the introduction of a different fuel. What is more difficult is the supply to the public.

2. Increasing the share of alternative energy sources

In his presentation, Palkovics said that imports could be significantly reduced by 2030 and the share of gas imports could be slashed to 40% by 2050.

BY 2050, RUSSIAN GAS IMPORTS COULD BE REDUCED TO ZERO IF CONDITIONS REMAIN UNCHANGED,

said Palkovics. It is worth adding that currently Hungary has a long-term 15-year contract for Russian gas until 2036, and the Minister of Economic Development just yesterday announced significant information on the rescheduling of the payment:

3. Serving growing demand for electricity and flexibility

In this context, the minister said that the organisation of the market should be reviewed, production capacity expanded and the network developed. The aim is to reduce the Hungarian economy's dependence on imported electricity to 18% in 2050, according to preliminary hypotheses, while domestic solar energy production could cover 31% of electricity generation by then.

A comprehensive set of measures at different time scales in the gas and electricity transitions

"In the immediate short term - in 2023 - demand-curbing measures should be applied. In the short term - between 2023 and 2025 - measures related to energy efficiency and electrification should be launched," the minister said. MVM will enter the energy efficiency market, it has a number of companies now, and consolidation will be carried out, he added. Then, in the medium term - between 2025 and 2030 - the focus will be on demand reduction and the introduction of alternative gases. Together these will serve the three strategic objectives mentioned earlier.

THE PREPARATION AND IMPLEMENTATION OF THE NECESSARY MEASURES TO REPLACE NATURAL GAS SHOULD START AS SOON AS POSSIBLE.

Cutting the demand for natural gas is a priority, and changes in consumer habits have caused residential gas consumption to rise from 2.5 billion cubic metres in 2013-2014 to over 4 billion cubic metres in 2021.

We can expect consumption to drop by at least 800 million cubic metres, on the back of the reform of the overheads reduction system,

said Palkovics. Add to this the government's savings measures, and the decrease mentioned above does not yet include the consumption reductions that can be achieved through the restructuring of the district heating system.

There is great potential in the transformation of the district heating system, and we would like to see the effect of the changes already in the next heating season,

added Palkovics.

How much will all this cost?

Reducing demand for gas, adding alternative solutions and transforming the electricity system will involve an investment of nearly €10 billion, of which €6.5 billion would be financed by EU funds. The rest will be financed by the market.

Next steps and government decisions

The minister also outlined the following government actions and the measures already decided by the government:

The National Energy Strategy will be reviewed and they want the updated strategy to be adopted by the end of this year.
The potential for domestic gas production is being explored, believing that the annual production of 1.5 billion cubic metres can be increased to 2 billion cubic metres without opening new fields.
The extension of the operating life of Paks I: originally the four units were to be decommissioned between 2032-2037 and replaced by Paks II, but now a 20-year extension is planned for Paks I. There are many other international examples of similar cases.
The phasing out of the Mátra power plant was also started earlier, but is now being modified to increase coal-based production (lignite) and extend its operational capacity until the end of 2029.
Solar energy: its share is growing faster than expected. A 6 GW capacity was planned to be achieved by 2030, but there will be 8.5 GW in 2025. This is not just a promise, as the calculation is based on connection contracts. This capacity can be managed by the system and an assessment of the intention to install 3.8 GW is currently underway.

There are some decisions before the government that have already been discussed by the energy security task force, but not yet approved by the government. The most important ones are:

Storage capacities will be accelerated, support for battery storage capacities will be announced.
In the case of captive power plants, licensing will be fast-tracked - this applies to residential consumers as well as SMEs and industrial consumers. The processing time is to be accelerated to 3 days from 30 days and there is a strong incentive for captive generation itself to keep energy demand off the grid.
For residential consumers - and small household-sized power plants - balance accounting will be abolished from 1 January 2024 for new generators (in line with the EU regulation), while for subsidised projects gross settlement will be mandatory from the beginning of 2023. The settlement system will not change for those who are on the grid, though, but the government wants to encourage new entrants to use the energy for their own energy needs. There will be incentives to install storage to improve self-sufficiency. For large industrial consumers, the licensing period will also be shortened.
In wind energy, a new deployment option is being explored. There are areas where they can operate efficiently even with low wind capacity, and there will soon be regulations for this. Wind power is also playing an important role in non-fossil-based power generation in Europe, while the installed capacity in Hungary is 330 MW and the rules have not allowed new installations for years.

There has been no strategy yet on the potential of biomass, but a plan is already underway to make better use of it. The same is true for biogas. Geothermal district heating could play a bigger role in district heating.
The processing of the hydrogen strategy, adopted in 2021, has started and is being accelerated.

At the end of his presentation, Palkovics stressed that the comfort of gas coming through pipelines is no longer there and we need to prepare accordingly.

Cover photo: Ákos Kaiser, Portfolio