Solar farm capacity in Hungary could double in a few years

The first publication phase of the new grid connection capacity allocation procedure, which was introduced last year and is now coming to an end, will allow around 40% of new power and storage investments with grid connection requests to be connected to the grid, both in terms of number of units and capacity, compared to the initial figures. Of the initial total of 4,924 MW of connection requests, investors have committed 2,065 MW of new capacity. Of the 3,800 MW initially submitted, 60% of the investments will be in industrial-scale solar power plants with a total capacity of 1,588 MW, with the remaining share being made up predominantly of commercial energy storage.

Higher-cost connection projects have been able to withdraw

The transmission system operator Mavir, which managed the process with the network licensee (distribution) companies, expected that some of the submitted demand might be cancelled, even if they did not have a specific expectation of this.

Connections at different network nodes will entail different levels of connection charges to be paid by investors, depending on the network improvements needed to enable connections at each location and nationally. The company has calculated the aggregate and unit connection costs associated with the nearly 5,000 MW of applications received in the first round, and then the more than 2,000 MW of planned investments that accepted the terms offered, and the results suggest that essentially the applications for sites with more expensive connection fees have been cancelled, József Béres, Mavir's deputy CEO for transmission, told Portfolio. He said this also indicates that investors have made rational decisions based entirely on business considerations.

In this way, the capacity allocation procedure seems to meet the objectives of

ensuring that only truly serious investments are connected to the grid,

and that the growth of domestic solar capacity and related grid developments should be achieved at the lowest possible cost. To this end, the publication procedure required an assessment of the pace at which the planned new plants could be connected to the grid, the grid upgrades and connection charges that would be required, and their coordination.

In order to integrate significant new generating capacity, a system needs to be developed; not only the direct connection needs to be physically secured, but also the indirect investments in the entire national backbone network. The task can be broadly compared to the connection of a new factory to the road network and its planning, which essentially has to take into account the whole road network in Hungary. "Accordingly, Mavir, together with the network licensees,

had to carry out calculations and modelling for the entire Hungarian electricity system,

taking into account, among other things, generation and consumption needs and, on this basis, the expected evolution of generation and consumption," said József Béres.

Previously accommodated demand has driven capacity expansion

At the first publication on 2 May 2022, Mavir and the distribution system operators stated that there was no free, allocable grid connection capacity for new power plants in the electricity system at the moment and that no new weather-dependent or any other power plant or storage capacity requiring grid connection capacity can be accepted without additional indirect grid upgrades. However, under an individual procedure, investors could submit their connection requests between 2 and 22 May 2022. In this way, investors have applied to grid licensees for connection of 3,800 MW of industrial solar capacity and 1,100 MW of other new generating capacity, including several 100 MW of energy storage capacity.

In response to these requests, the network companies sent out preliminary technical and financial terms and conditions (MGTs) to investors in May-June 2023, including the technical and financial terms of connection, the proposed date and the price of connection, among other things. Investors were then asked to indicate whether or not they accepted the terms and conditions offered in the MGTs, which effectively meant that they were given a chance to withdraw. As a result of processing and summarising these declarations, it was then possible to establish that, out of an initial total of 4,924 MW of connection requests, investors have committed 2,065 MW of new capacity. They have received the final MGTs, which contain revised connection conditions based on the lost demand.

So, in addition to the newly announced demand, grid companies also had to take into account that in May 2022, a total of around 3000 MW (1000 MW household + 2000 MW industrial) of PV capacity was already connected to the grid. Furthermore, a total of approximately another 5,000 MW of connection requests had already been submitted before the publication procedure to companies that had received an MGT before the new procedure and a significant number of them had also signed a connection contract or at least fulfilled the financial security required for a connection contract under the so-called transitional rules.

This was a decisive factor when, in May 2022, the grid companies set the free connection capacity at 0 MVA, as further improvements were and are needed to integrate additional power plant connections into the system.

At the same time, the connection requests that have already been accepted have allowed for a steady increase in solar capacity in Hungary, even in the period when no new connection permits have been issued. Since May 2022, the installed capacity of industrial-scale solar plants alone has increased by more than 1000 MW, and the capacity of household-scale solar systems has increased by a similar amount, so that around 2000 MW of new PV capacity has been connected to the grid since the first publication procedure was launched.

+6000 MW by the end of 2028

The volume of applications submitted and accepted prior to the publication procedure initially exceeded 20,000 MW, before the so-called transitional rules were applied to filter the stock to 5,000 MW in October 2021 for Mavir and in March 2022 for distributors, by imposing a guarantee obligation.

Investors were then required by a government decree in December last year to confirm their intention to connect, to provide additional financial security and to declare the planned date of connection, so that network companies could also meet these demands as accurately as possible. The declared year of connection was either confirmed by the network licensees or, for the applicants specified in the Decree, a new connection year was fixed in accordance with the network conditions.

Based on these permits, the additional 4000 MW of new capacity in the pipeline can be fully connected to the grid by the end of 2027, and then, according to the "application" order, the new power plants that have been granted and accepted MGT in the new publication procedure by the end of 2028 - emphasized Zsolt Lengyel, head of the system-level planning department of Mavir.

Demand for development and application fees both decline

Preliminary MGTs also included proposed later connection dates, but the drop-outs have reduced the need for development, which means that these can be completed earlier than previously planned. Network upgrades have also been required in response to requests received prior to the publication process, and this has been added to the overall development backlog generated by the new requests identified in the publication process. Upgrades have a significant lead time, with high voltage network upgrades having lead times of 3-5 years, but network licensees are also starting to invest earlier to meet new demands by planning ahead.

"At each stage of the process, Mavir and the distributors recalculated the development needs and the connection fees to be paid whenever there was a change in the information available so that the overall picture was constantly updated and became more accurate. As a result, the connection fee has been reduced by about 40% on average compared to the initial situation," adds József Béres. This is in line with the objective of the procedure to keep the connection fee as low as possible and only to the minimum necessary, which is a major positive for investors.

According to Mavir's Deputy CEO for Transmission, this is a well-thought-out and transparent professional process, but it seems that

more education is needed on the investor side.

Although Mavir has organised a number of market consultation forums on the subject and is continuously adding more content on its website, the company believes that there is still room for improvement in the flow of information. Therefore, they intend to organise more such forums in the future, where investors will be able to ask questions about the disclosure process, as has been the case so far.

By 11 September, we will know if there is free network capacity

The company has learned a lot from the first publication procedure, and in the next procedure it intends to incorporate all the new experience gained, with minor technical modifications, said József Béres, citing modelling and the positioning of other non-weather-dependent capacities as examples. This means earlier, limited connection, with exclusion of solar generation from peak periods, which is also essential for further integration of weather-dependent renewables by improving system balance. (Although the connection process mostly involves industrial solar plants, which make up the largest share, this also provides the opportunity for new storage and other generating capacity - just as the investments that have now received final MGT are not always for solar plant construction.)

An important date for the second publication procedure is 11 September 2023, according to the relevant government decree in force, by which time network companies must publish the next detailed information on current spare capacity and the technical and expected economic conditions for connection. The related calculations and modelling are already ongoing. Currently, distribution companies are forecasting the demand for consumer-side and small household power plants (HMKEs) (which, together with so-called back-wattage plants that do not feed into the grid, can be connected outside the publication procedure), which will be used to calculate where and how much spare capacity is available on the distribution and transmission network.

Cover photo: Lilian Henglein & David Steets via Getty Images