Power policy

Hungary held its first renewables tender in 2019, supporting large-scale projects of over 1 megawatt again, after it suspended its feed-in tariff (KAT) for new renewables projects above 0.5 megawatts at the end of 2016. A new support program (Metar) was introduced in 2017, allowing new renewable projects of 0.5-1 megawatt to receive a feed-in premium and sell on the wholesale market. Projects between 50kW and 0.5MW are still eligible for the KAT feed-in tariff, but PV applications for this category ended in May 2018.

Wind power is not eligible for the Metar feed-in premium, and restrictions on building locations make support for wind very unlikely, although it is officially allowed to participate in tenders.

The government has also introduced net metering for plants below 40kW

Hungary reached 10% renewable electricity consumption in 2019, just short of its 2020 target of 11% renewable electricity. However, the renewable energy share in final energy consumption, which also includes heating, cooling and transport, reached 13% in 2019 and met the 2020 target, despite declining from a 16% share in 2013.

Hungary’s renewable electricity and final energy consumption targets for 2030 are both set at 21%, notably below the overall EU target of 32%.

Power prices and costs

Hungary has relatively low retail power prices compared to its neighbors. Residential tariffs in 2020 averaged 102 euros/MWh, only half of the EU average of 210. Over 90% of households are on government-regulated tariffs.

Tariffs fell substantially in 2013 when the government imposed a 20% reduction in regulated residential electricity prices at the expense of power companies. Prices are still below cost, forcing utilities to cover the difference. The European Commission has repeatedly asked the government to enforce fully the energy directives and to adjust tariffs to reflect costs. For instance, in July 2018, the EC took Hungary to court over the exclusion of certain costs in electricity tariffs.

Wholesale electricity prices in Hungary are slightly above the average European level, at around 50 euros per MWh in 2019. In 2020, as demand dropped during the Covid-19 pandemic, prices dropped to around 39 euros/MWh. However, as global gas prices have spiked in 2021, Hungarian wholesale markets averaged almost 90 euros during the year’s three first quarters.

Power market

Nuclear plants generate one-half of Hungary's electricity; gas and coal combine to provide one-third. Renewables, mainly biomass and wind, deliver the rest. Hungary is highly dependent on energy imports, mainly from Russia – a trend that the EU wants to limit. As a result, the European Commission gave approval for two new nuclear reactors at the Paks site, with a total capacity of 1.2 gigawatts, potentially limiting the opportunity for renewables.

Solar PV is expected to continue its recent growth supported by the Metar tenders, as Hungary aims to increase its share of renewable electricity from 10% in 2019 to 21% in 2030. An increasing amount of electricity is traded according to market principles, and the volume of electricity sold on the wholesale market grew sevenfold from 2019 to 2020.

Both generation and retail markets are highly concentrated. State-owned MVM’s market share in generation grew from about 40% in 2010 to around 60% in 2020. Hungary has among the lowest number of electricity suppliers in the EU – only three, despite a population of almost 10 million.

Doing business and barriers

Progress on increasing renewables has been somewhat limited by its focus on nuclear. Hungary plans to build a new 1.2-gigawatt nuclear plant to replace aging reactors, but the project has been delayed in several stages.

The Metar renewables program hit a bump in the road in May 2018, as the government unexpectedly introduced a deadline for projects below 0.5MW that sought the feed-in tariff option, causing many small-scale PV projects to miss the application window. Policy uncertainty under a historically interventionist government could resurface as a deterrent for investors.

The introduction of the Metar renewables program led to substantial growth in solar investment, with about $1.6 billion invested between 2018 and July 2020. The most active investors in Hungary's renewables market are Enlight Renewable Energy, Erste Group Bank, and Greentech Hungary, all of which financed megawatt-scale solar portfolios in 2018 and 2019.

EV market

Electric vehicles, including plug-in hybrids, made up 5% of new sales in 2020, compared to just 2% the year before. The split between hybrids and battery electric cars was approximately half and half. The total fleet of plug-in hybrid and battery electric passenger vehicles is estimated at around 12,000 cars in 2020.

EV policy

Hungary introduced a grant scheme for electric vehicle purchases in 2020, with a budget of around $18 million. The support is capped at around $7,700 per vehicle. The scheme received additional budget of around $9 million in 2021, which is enough to provide grants for an additional 1,200 battery electric cars. In addition, around 1,300 environmentally friendly local buses are expected to enter service by 2029 supported by the government’s Green Bus Programme.

Fully electric or partially rechargeable and zero-emission cars are exempt from car tax, and partially from company car tax and registration tax. However, the normal VAT rate still applies.

EU standards limit average emissions across a manufacturer's entire vehicle production. For passenger vehicles, these are 130 gCO2/km between 2012 and 2019, and 95 gCO2/km in 2020 and 2021. Both targets will be introduced gradually. In 2020, a manufacturer’s 5% most polluting cars are excluded, while in 2021 all vehicles sold are taken into account.

Local governments receive full funding for building new e-charging infrastructure that is supposed to make up a network of charging stations every 80 kilometers in the country. Companies can receive support to install chargers for employee parking spaces. The cost of an electric recharging point may be deducted from the pre-tax profit.

Buildings market

Natural gas dominates the Hungarian heating mix, as 55% of heat consumed in homes came from this fuel in 2019. The share of natural gas in the residential heating mix has slightly increased since 2015, when it made up 47% of residential heat. The share of biomass for heating homes has on the other hand declined, from around 35% in 2015, to 27% in 2019.

District heating has annually delivered 8-9% of residential heat since 2015, but the industry and service sectors are also high consumers of district heating. Heat pumps still made up less than 1% of residential heat consumption in 2019, but the use of heat pumps has almost tripled over 2015 to 2019.

Buildings policy

Hungary's NECp aims for final heating and cooling energy consumption of 29% renewables in 2030. The Green District Heating Programme will contribute somewhat to this target, given the target of reducing district heating’s reliance on natural gas from 70% in 2020 to 50% in 2030.

Grants are available for heat pumps together with rooftop solar panels, from November 2021. There is also the “Warmth of Homes Program”, supporting energy efficiency retrofits. The scheme includes both grants and loans through a residential soft loan scheme provided by MFB, Hungarian Development Bank and Green Investment System and Green Economy Financing. Under this scheme, zero-interest rate loans are available.

The EU Directive on Energy Performance in Buildings has been implemented. Standards became mandatory for all new buildings from 2021.