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Hungarian central bank aims to improve financing conditions for RES production

The Central Bank of Hungary (MNB) published a study and discussion paper focusing on the challenges and opportunities for the financing of the Hungarian renewable energy sector. Starting from this year, MNB introduced preferential capital requirements for green corporate financing to improve the financial environment of RES production.

In the framework of its Green Program, MNB set the goal of improving the domestic green financing environment and promoting climate-friendly corporate financing. The starting point of the recently published study is Hungary’s national energy strategy which envisages an ambitious expansion of the country’s renewable energy capacity.

Hungary aspires to boost its current 3 gigawatts (GW) of renewable energy capacity to over 7 GW and by 2030 and up to 13 GW by 2040, largely due to newly installed photovoltaic solar power plants. The Central Bank of Hungary estimates that the capacity expansion of this magnitude all in all will translate to at least 2,000 billion forints (5,6 billion euros) in investment and 1,500 billion forints (4,2 billion euros) in debt financing by 2040. This is without the financing needed for the construction of energy storage capacities and the cost of network development, which also require significant investment.

Due to the transition risk related to climate change, MNB highlighted the importance that commercial banks shift their balance sheets towards environmentally sustainable industries, such as the renewable energy industry, as compared to the brown ones, which are more exposed to increasingly stricter environmental regulations. For the energy sector, this means a larger weight on green assets and support of green energy lending. However, to preserve financial stability, this transformation must take place with the least possible micro-prudential risk (credit, interest rate, liquidity, etc.), MNB underlined in its press release.

After a comparative presentation of the Hungarian renewable energy support schemes (KÁT, METÁR), the central bank study explores and illustrates the current investment and financing landscape with statistical data. The paper also presents the financing and investment constraints identified during the MNB’s consultations with stakeholders, commercial banks and market participants, and analyses the bankability challenges arising from the current support system.

In response to these constraints, the Hungarian central bank is also examining potential policy interventions. From 2021, MNB introduces a preferential capital requirement for project finance and investment loans in the corporate or municipal segments of bank lending that finance renewable energy investments.

In the future, the Central Bank of Hungary also intends to facilitate the financing of other green, sustainable activities and industries, especially in the fields of sustainable agriculture, the circular economy, energy efficiency investments and green transport and logistics.

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