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Updating EU’s Climate and Energy Policies: Hungary

“The green and digital transition is progressing only slowly.” This is how the European Commission defined Hungary’s policies in June 2023, only two weeks ahead of the scheduled update of the National Energy and Climate Plan. Indeed, Hungary has pressed a lot on energy security issues, rather than decarbonisation, in its original Plan for 2020. However, the high energy prices, the war in the neighbouring country of Ukraine and one of the highest inflation rates in Europe have also revived Hungary’s ambitions, pushing the country to make further reforms in the energy sector.

The creation of an Energy Ministry in December 2022, under the leadership of Csaba Lantos was a clear example of the new direction taken, to address not only what the Prime Minister’s Office highlighted as the most pressing issues, energy security and the price of energy, but also to assign a greater role to wind energy (and other renewables) in order to reduce energy imports.

Solar energy to drive Hungary’s growth

Seven months later, some progress was recorded but there is still a long way to go, according to the Commission.

In 2020, Hungary’s renewable energy target by 20203 was 20 per cent (against an EU’s objective of 32 per cent – and we have to take into account that, as of 2023, that target has been increased to 42.5 per cent), mainly supported by photovoltaics, e-mobility and the modernisation of district heating. According to forecasts for 2020, the installed capacity of electricity generated from renewable sources would exceed 4,600 megawatts (MW) by 2030, with more than 4,000 MW attributable to photovoltaic panels.

Hungary
Source: SolarPower Europe.

Indeed, according to SolarPower Europe, this objective has been already surpassed in 2022. However, the potential for solar energy is projected at 21 gigawatts (GW) and much more could be done. In particular, the Brussels-based association is highlighting three key challenges: first, the prosumer business case was severely hit by the phaseout of the net-metering scheme and the regulation of electricity prices was also harmful to the attractiveness of residential solar. However, as highlighted by Minister Lantos in an interview with CEENERGYNEWS, “the development of the electricity network could not keep up with this pace, which is why we had to put the brakes on temporarily.” The second challenge underlined by SolarPower Europe regards auctions which have brought disappointing results so far, mainly because of stringent deadlines and excessively low prices. Finally, new larger PV plants have been unable to connect to the grid, due to grid congestion concerns, something also recognised by the European Commission.

“We set some more ambitious targets compared to the current NECP in the following fields (until 2030),” Viktor Horváth, Deputy State Secretary for energy transition in the Ministry for Energy, tells CEENERGYNEWS. “Decreasing the greenhouse gas (GHG) emissions by 50 per cent, renewable energy target should be 29 per cent and the final energy consumption should not be higher than 750 petajoules (PJ), compared to around 800 PJ that was in 2021.”

Regarding other renewable energy sources, Minister Csaba Lantos mentioned that “in addition to the rapidly expanding solar energy, we are also opening up to wind, geothermal energy and biogas.”

Security of supply: a priority already in 2020

Already in 2020, due to its geographical characteristics and the lack of access to diversified energy sources (like for example, liquified natural gas – LNG), Hungary has focused on the security of supply. Concerning the electricity sector, the role of nuclear and renewables was emphasised.

In this regard, cross-border capacities already exceeded 47 per cent of national gross installed capacities, a percentage higher than the EU target thanks to a number of cross-border capacities which have been built in recent years. When it comes to natural gas, the further increase of the security of supply was considered a national objective, which can be implemented through route and source diversification.

Commission’s report: Hungary still heavily relies on fossil fuels

Hungary
Source: EU Commission’s country report, Hungary, 2023.

However, this emphasis put on the security of supply brought the Commission to consider Hungary’s energy sector as still heavily reliant on Russia for fossil and nuclear fuels. In its Country Report of June 2023, the EU’s executive body noted that while many EU countries managed to reduce their dependency on Russian gas and oil products by the end of 2022, Hungary still relies on them to almost the same extent as before 2022. For example, the nuclear energy sector, which accounted for 45 per cent of electricity generated in 2021, relies heavily on Russian technology and nuclear fuel and on Russian financing for the new Paks 2 nuclear power plant.

Furthermore, Hungary’s economy has attracted a large number of investments (mainly in the automotive sector and in the production of batteries for electric vehicles). On one hand, it means that the competitiveness of the country has increased, on the other hand, GHG emissions in the transport sector increased while the generation of green energy decreased as it could not keep pace with the economy’s increasing use of energy.

To reach more ambitious targets, Mr Horváth says that they designed a three-pillar programme structure covering comprehensive measures.

“Decreasing the energy and mainly the natural gas consumption in all sectors,” he begins. “Then, building on alternative energy sources both regards diversifying and decreasing imports and relying more on those renewable sources where the country has a big potential, like biogas, hydrogen and utilisation of geothermal energy and strengthening the electricity system to be capable to integrate renewably produced electricity and to cover the increasing demand for electricity.”

Unlocking 5.8 billion euros from RRP

Since joining the EU in 2004, Hungary has received the equivalent of around 2 per cent of GDP annually from EU funds in net terms. In the coming years, 21.7 euros billion of cohesion policy funds in the 2021-27 financial cycle and 5.8 billion euros in grants under the recovery and resilience plan (RRP) have been allocated to Hungary.

The Plan includes significant measures to accelerate the twin green and digital transition, with 48.1 per cent of its allocation dedicated to climate-related measures.

According to the submitted Plan, a wide range of reforms and investments in sustainable transport, energy, water management and the circular economy are expected to make a significant contribution to the decarbonisation of Hungary’s economy. There are also reforms that will remove regulatory obstacles to installing wind turbines, investments to improve the electricity network, install storage facilities, finance solar panels for 35,000 households and so on.

Mr Horváth noted that according to their calculations, “although the investment costs will be slightly higher, this will be accompanied by much lower operational costs.”

Basically, everything that has been suggested to overcome current bottlenecks. However, the RRP is conditioned to the fulfilment of 27 milestones related to strengthening judicial independence and safeguarding the protection of the financial interests of the Union. As underlined by the EU, no payment under the plan is possible until these milestones are fully and correctly implemented.

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