On 14 August 2023 the Hungarian Government issued Gov. Decree 382/2023 ("Decree") establishing the legal framework for the implementation and functioning of the new Contracts for Difference ("CfD") support scheme for electricity storage operators ("Storage CfD Scheme"). Based on the public consultation documents ("Consultation Documents") presented earlier, the Storage CfD Scheme – together with an additional CAPEX support scheme – aims to encourage the development of 885 MWh new electricity storage capacities by the end of 2026.
A key element in Hungary's green transition
Hungary set ambitious green energy targets in the relevant key public policy papers (most notably The National Energy and Climate Plan and Hungary's Recovery and Resilience Plan). Hungary is expected to meet its climate protection goals primarily by boosting PV generation with expectations of achieving an installed solar capacity of 6,500 MW by 2030 and 12,000 MW by 2040. As of the second quarter of 2023, the gross amount of inbuilt solar generation capacities has exceeded 4,700 MW (up from 668 MW registered in 2018). In addition to solar, Hungarian stakeholders expect the lift of administrative prohibitions concerning the installation of new wind turbines, the details of which the government plans to publish by the end of 2023.
The "solar boom" of recent years has caused significant price volatilities on the Hungarian wholesale electricity market. This has resulted in a steep rise in balancing costs for commercial and industrial consumers. Utility-scale electricity storage would play a paramount role in reducing the market turbulences caused by weather-dependent generators. However, in the absence of targeted support schemes, investment in storage units has remained very low. By the second quarter of 2023, the gross amount of licensed electricity storage capacities has reached only about 37 MWh. The aim of the Storage CfD Scheme is to boost much-needed investments in new storage units which are essential complementary elements of the rapidly growing weather-dependent renewable energy generation.
The Storage CfD Scheme at a glance
The Storage CfD Scheme was based on the existing "METÁR green premium" support scheme which is currently available for new renewable energy generation units. Future participants in the Storage CfD Scheme will be required to sell electricity on the free market; however, subject to the outcome of regular open tenders, a certain surplus (premium) may be awarded to the winning storage operators as a state subsidy to ensure return on investment. The Storage CfD Scheme will require participants to pay money back if the established reference prices are higher than the strike price established as a result of the tender.
Similar to the METÁR and the previous feed-in-tariff (KÁT) renewable support schemes, a specific fund is being introduced by way of legislation to finance the Storage CfD Scheme. Thus, the costs of the Storage CfD Scheme will be financed by other balance group operators (electricity traders) in the ratio of electricity sold to end-users in their balance group outside the scope of universal service provision. The financial burden of such a fund is ultimately shouldered by free market end users (i.e. primarily by industrial and commercial users). It is important to note that these additional costs may be compensated by the overall decrease of balancing costs when the storage units achieve a higher market penetration.
The Storage CfD Scheme will be accompanied by a separate investment support scheme of HUF 62 bn (ca. EUR 160 mn) to be made available to the developers of storage units. Developers may apply for funds under this latter support scheme for the CAPEX of new storage projects with a maximum aid intensity of 30% and a maximum subsidy amount of HUF 135 000 (approx. EUR 350)/kW.
Eligibility criteria are yet to be clarified
According to the Decree, the operator of almost any future storage unit could participate in the Storage CfD Scheme. More precisely, the Decree defines eligible electricity storage units as electrical energy storage equipment or facilities designed for physical or chemical technology-based storage, that convert, store, or feed into the electrical energy system, with reduced technical losses, a portion of electrical energy generated either by a power plant connected to the public network at the same connection point, or taken from the public network, or – if there is no feed-in capability – that make it available for consumption behind the connection point. This means that the Storage CfD Scheme will not only be available to storage units feeding power into the public grid but also to those providing storage services to a single consumer behind the connection point.
The Decree does not define any minimum or maximum capacity limits, an envisaged tender date, a subsidy period, limits to the applicable strike prices, orsubsidy amounts as eligibility criteria. These details will be provided in future delegated acts as well as in the tender documentation.
Nevertheless, based on the previously published Consultation Documents, interested parties may expect that the first tender will be held in the fourth quarter of 2023. The general subsidy term will be 10 years; the benchmark reference calculations will be revised biannually. Also, according to the Consultation Documents, the minimum and maximum amounts of the CfD premium will be EUR 16/kW and EUR 160/kW, respectively. Participants in the Storage CfD Scheme tenders must provide tender securities of EUR 3.5/kW and an additional EUR 17.5/kW in case of awarded tenders, in the form of bank guarantees.
The new Storage CfD Scheme, together with the accompanying CAPEX scheme is expected deliver a much-needed boost to investments in new electricity storage units on the Hungarian market. A material increase in the penetration of utility-scale storage facilities will be of key importance to keeping the overall balancing costs of the Hungarian electricity system within reasonable boundaries. Nevertheless, this is only one element of the mammoth task of creating a sustainable and cost-efficient electricity market in Hungary. Stakeholders remain eager to learn about the long-awaited new regulatory framework concerning other key areas such as grid infrastructure developments, the installation of wind turbines and the regulation of the emerging hydrogen industry. Together, these pieces of the big picture will help shape the future green energy industry in Hungary.
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