1. How does the Hungarian regulatory framework govern renewable energy projects, and what are the latest amendments or proposals that could impact such projects?
Renewable energy projects are not regulated separately, the respective rules are embedded in the regulation of the given sector. For example, solar and wind projects have their rules within the frame of the electricity regulation, geothermal investors can look up the relevant provisions in the mining law. Note that investors will face turbulent legislative changes in the Hungarian energy sector, especially in respect of renewables. Therefore, renewable investors should pay meticulous attention to the actual legislative framework when considering an investment in Hungary.
One of the latest and most important legislative changes concerns the Hungarian FDI regulation. According to the new rules, the Hungarian state shall have a pre-emptive right in case of transactions related to photovoltaic generators (provided that the given transaction falls under the scope of the FDI regulation and meets the relevant thresholds).
Legislative barriers practically preventing the erection of wind parks have been amended: the prohibition to establish wind parks in the 12km vicinity of areas designated for construction (mostly residential areas) was decreased to 700 metres.
As a new legal instrument, so-called ‘facilitated regions’ can be demarcated by the competent minister in the future where shorter administrative deadlines will apply to foster the establishment of power plants using RES.
2. Are there any incentives or subsidies available for renewable energy investments in Hungary, and what is the process to qualify for them?
Yes. For new renewable energy projects aiming at electricity generation, the METÁR subsidy scheme is available, currently in the form of a green premium type subsidy allocated in the frame of a tender. The tender is technology neutral with one bidding round: the applicants shall make a bid for the initial subsidised price. Generators participating in METÁR shall sell the electricity produced in the market at prices they can achieve and shall receive a premium (the subsidy) on top of the reference market price. At the METÁR tenders, companies having a registered seat in the EU, EEA or Hungary and Hungarian municipalities are entitled to participate and power plants complying with the applicable technical requirements can be subsidised.
The possibility to activate a certain amount of balancing energy within a certain timeframe is of utmost importance because of the rapidly growing share of RES-produced electricity in the Hungarian energy mix. For this purpose, a brand-new subsidy available for energy storage was introduced recently, providing investment and income compensation, as well. A CfD-type structure was established for the income compensation where the subsidy will be calculated based on the difference between the net revenue claimed by the electricity storage investors in the tendering process (the strike price) and the reference net revenue that can be achieved by selling the services on the electricity market (the estimated market price). If the strike price is higher than the reference price, the investor would receive compensation from the TSO. Eligible entities are companies registered in Hungary or companies registered in an EEA member state having a branch office in Hungary with a Hungarian tax number and that obtained a grid connection right in respect of the project site. The energy storage facility shall be established in Hungary. An important new incentive is that tax relief has been introduced for electricity storage investments (with certain pre-requisites, needless to say).
3. What legal considerations must be taken into account when a foreign entity is looking to enter the Hungarian energy market?
It depends on the specific segment of the future investment, for example, whether the targeted segment is energy trading (retail and/or wholesale), electricity generation, storage or aggregation, whether we are talking about solar or wind projects, what the phase of development is, etc. As a common first step, investors must consider whether the intended transaction/investment falls under national security or FDI screening. Direct and indirect acquisitions might be subject to ministerial permit under both regimes, however, the in-scope target entities as well as the applicable thresholds are different. As a next step, if the target is an operating entity, the given sectoral legislation shall be considered transaction-wise since specific approval of the energy regulator might be required for the acquisition of shares in or assets of an energy licence holder company.
4. In your experience, what are the key legal issues in negotiating power purchase agreements (PPAs) or other energy-related contracts in Hungary?
The implementation of the newest structures developed by the market (such as synthetic and sleeved PPAs) and incorporation of the more recent market players (such as aggregators, energy communities and prosumers) into complex legal relationships. Tailor-making of an ‘ordinary’ energy contract to the parties’ specific needs and expectations can also be a challenging exercise in the current market environment so that the product (being special on its own) and its pricing methodology can be in line with the parties’ business needs.
The character of the energy market has been rapidly changing in Hungary in recent years (starting from the growing share of RES-based production and the resulting system-balance challenges, through the more active participation of consumers on the market and the appearance of energy storage till the spreading of smart and remote control solutions) requiring lawyers to draw-up and negotiate legal solutions that mirror the parties’ economic aim and fit into the sectoral legislation (including the codes of the TSO and DSOs) at the same time.
5. What trends do you foresee in the energy sector in Hungary, particularly regarding the transition to renewable energy, and how should companies prepare for these changes?
If someone takes a closer look at Hungary’s National Energy and Climate Plan and the goals set for 2030 (12,000 MW in-built solar capacity), it can be seen that the market boom experienced on the Hungarian solar market is not close to its end, at all. Opening the door before wind projects is a clear sign of the legislator’s will to enhance wind investments in the country. Electricity storage projects are more and more frequent in the country supported by the new subsidies. In parallel, investors of smart grid solutions must also pay attention to the Hungarian market, not only because of the available funds but the simple necessity of technological developments in order to integrate the actions of different market players. Geothermal investors can benefit from a simplified regulation and even if hydrogen might play a crucial role on a longer run, special emphasis is put on green hydrogen projects in Hungary’s hydrogen strategy.
Disclaimer: This interview serves information purposes, only, and shall not qualify as legal advice. Information contained therein is not complete, and cannot serve as a basis for the articulation of legal standpoints and making business decisions. Circumstances not assessed and not mentioned here can lead to different statements and outcome. Neither Oppenheim Law Firm nor the author can be held liable for the content of this interview and for the fact that such statements are not necessarily correct in individual cases. Oppenheim Law Firm and the author exclude all liability for the consequences of any conduct based on the content set forth in this interview.
For more information contact
Dávid Hanis
Partner, attorney-at-law
David.hanis@oppenheimlegal.com
