PV developers in Hungary Look Out: Sudden Roadblocks Ahead!

Roadblock 1: Complex New Grid Connection Procedure

The first roadblock fell mid last year, when a grid connection tendering mechanism for renewable generation facilities was enacted to the Electricity Act. The proposed publication procedure and individual procedure were at the time rather vague and unclear, leaving the details to the Operational Code and the Distribution Code. Now, these codes are not pieces of legislation, but codes drafted primarily by Hungary’s only TSO (MAVIR) and the DSOs and then approved by the Hungarian regulator, MEKH. It is rather controversial if the TSO and the DSOs are best placed to define these rules and how that level of regulation fits in with the rule of law principle and related guarantees given the significance of the subject matter.

The new procedures published in the abovementioned codes early 2022 practically restricted grid applications for a specific very short time period recurring every six months and introduced severe penalties in the form of losing deposits provided during the procedure if the awarded grid connection is not utilized. Deposits also practically meant that the developers now have to pre-finance part of the grid connection cost way earlier than those actually arise.

Roadblock 2: Zero available grid connection capacity

Back in April 2022, Government Decree 146/2022 (IV.14.) was introduced, which stated that the network operators reject applications for connection to the high and medium voltage grid of solar and wind power plants exceeding the capacity limit published.

You may have guessed that the next roadblock came with the TSO and the DSOs announcing as the first step of the publication procedure that the available grid connection capacity for renewable installations is zero at all substations and nodes all across the country, with no exceptions. This practically meant a freeze for at least six months to all projects seeking grid connection, as well as a rather bleak prospect for the future given the time and expenditure required to develop the grid.

Roadblock 3: Add 30% Storage and Balancing Service Capability

Starting from March 2022, a series of amendments to the Operational Code and the Distribution Code entered into effect in short succession all amending the rules on the publication and individual procedure and the preconditions of grid connection, making the already complex grid connection tendering procedure even more difficult to decipher. Fun fact: before February 2022, the Operational Code chapter on connection procedure was 15 pages long, which has grown to 33 pages in the current 29th edition.

These amendments brought about that not only are now weather-dependent electricity generation facilities required to be registered balancing service (Automatic Frequency Restoration Reserve, or aFRR) capable, but must further commission a storage unit with at least the capacity of 30% of the nominal capacity of the power plant. This obviously has a serious impact on the capital expenditure requirements of a PV project, which might cause a lot of investors rethink their business plans for Hungary.

Roadblock 4: Extend the freeze

As a general rule, grid connection capacity publications would have to be made regularly, not more than 6 months apart. However, the newly introduced (effective as of 3 November 2022) Government Decree 433/2022 (XI.2.) postponed this date until 30 April 2023. Thereby the freeze on grid connection (see Roadblock 2 above) was extended from 6 months to an entire year.

Conclusions

In the current economic and environmental situation, where promotion of renewable energy sources would be expected, these changes are highly important. Recent changes in the grid connection rules will very likely cause stakeholders rethink their business plans and strategy for Hungary and carefully weigh and consider the new regulatory requirements. They say, problems bring about opportunities – we hope that this is true for renewables, especially PV in Hungary. A good sign is that the Hungarian Government already announced that substantial subsidies from the Recovery and Resilience Facility (RRF) are planned to be channelled to the development of the electricity grid in order to allow for the uptake of new weather-dependent renewable capacities in the near future.