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Renewables in Hungary’s district heating sector and their roadblocks

In Hungary’s district heating (DH) sector, the share of renewable sources could potentially increase from the current 23 per cent to 60 per cent by 2030. This is according to the forecast of the National Energy and Climate Plan of Hungary (NECP) that outlines the country’s intentions on addressing energy efficiency, the development of renewable energy sources and greenhouse gas (GHG) emissions reduction across all sectors in order to meet its global and EU-wide climate commitments.

Having steered a course for the significant expansion of renewables in the country’s district heating, the Hungarian government has also started to provide support with non-refundable aid through the Green District Heating Programme. The aid is directed toward the replacement of natural gas-based heating with renewable heat generation, as well as the construction of new biomass and geothermal capacities.

What stands in the way of RES rise in Hungary’s district heating?

The growth of renewables in Hungary’s DH sector is considered to be driven primarily by biomass and geothermal, two sources of renewable energy that are already heating a considerable number of homes and buildings in Hungary. The available data from 2017 shows that geothermal produced about 4 per cent of energy for heating in the country while biomass generated up to 18 per cent.

With new and ambitious national DH sector decarbonisation targets, together with the government’s financial support, these figures are likely to go up which also means that the sector has a good opportunity to transform into a promising segment for investments.

Regional Centre for Energy Policy Research (REKK) estimates that to meet its DH decarbonisation goals by 2030, Hungary would need to increase the share of renewables in the sector by 100 megawatts of thermal capacity per year. The Centre also suggests that while both geothermal and biomass carry a great economic potential for Hungary, the existing regulatory framework creates barriers that discourage potential investments in the expansion of geothermal and biomass.

Alfa Diallo, Research Associate at REKK tells CEENERGYNEWS that the most important barrier for Hungary’s district heating sector at present “is the low, and not transparently regulated production prices with yearly price regulation cycles and the limited financeability as only investments grants are available, and the process is cumbersome”. According to him, these regulatory obstacles render Hungarian DH sector “not as attractive for investors”. 

Obstacles of other sorts

Apart from regulatory barriers that hinder investments in the expansion of both, geothermal and biomass in Hungary’s district heating, there are also technology-specific and other challenges that mark each source of energy.

When it comes to geothermal energy-based technology, Mr Diallo notes that it is “significantly more expensive than biomass-based” and more limited in terms of where it can be built since geothermal energy is accessible only in certain areas.

Firstly, “Geothermal investments, especially in the early phase (drilling) are significantly riskier, its application is heavily dependent on the actual temperature which makes the financing of such investments more difficult,” underlines Mr Diallo and adds that due to its costliness, all “new geothermal investments in Hungary were completed based on extensive state subsidy”.

He suggests that with all of these factors considered, even without any of the existing regulatory barriers, “geothermal energy [alone] could not substitute the biomass-based capacity increase” as it is projected in the Hungarian NECP. 

Gaps in data – a concern for sustainability

Biomass, one of Hungary’s three leading renewable energy sources, standing next to solar and wind faces an ambiguity of its own which puts its sustainability status under a question mark.

This is because there is “a significant gap between biomass sources on the supply side and the official figure of primary solid biomass use in the energy balance of Hungary”, notes Gabriella Szajkó, the Senior Research Associate at REKK.

“On the supply side, official statistics are available for biomass fuels sourced from forests covered by the Forestry Law and for the net imports of fuelwood”, she says, observing that “Uncaptured biomass sources on the supply side can comprise felling outside of the scope of the Forestry Law.”

“Moreover, there is remarkable uncertainty related to forest data: besides illegal production, there are important methodological issues in data gathering, reporting, monitoring and verification”, adds Ms Szajkó.

According to her, the revision of the demand side data “resulted in a sudden increase in the reported amount of biomass consumed by households”, concluding that such discrepancy “leaves significant room for speculations about the possible uncertainties rooted in the biomass energy figures”.

What these inconsistencies could mean for further growth of otherwise well-functioning biomass-based heat generation plants and the promising biomass sector in Hungary remains to be seen. However, REKK experts caution that they could cost the sector the loss of potential investments and ultimately, hampered expansion of a key renewable energy source in the country’s DH sector.

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