Overview

Hungary passed a new law in June 2020 that makes the 2050 net-zero emission objective a legal requirement. This is part of a larger shift in energy and climate policies in the country. In line with net zero ambitions, Hungary targets a low-carbon electricity mix of 90% by 2030, with new nuclear and renewables to play a major role.

Hungary’s National Energy Strategy for 2030 has also been amended to incorporate a vision for 2040 that focuses on clean, smart, and inexpensive energy while increasing energy independence and security and decarbonizing energy production. Hungary plans to increase the share of renewable energy sources to at least 21 % within gross final energy consumption.

The major drivers toward the 2050 target include renewable and nuclear electricity, as well as electrification of end-use sectors. Hungary anticipates significant investments in the electricity sector, including the construction of a new nuclear power plant. Although renewable energy generation has expanded tremendously, the sector’s growth has been slowed down recently by the lack of adequate number of grid connection points. The implementation of a new support mechanism for renewable energy could help re-establish development. Measures that restrict wind power development, on the other hand, are likely to harm the industry.

As Hungary’s economy has become less carbon-intensive, its greenhouse gas emissions have decreased. Nonetheless, the country could set more ambitious emission reduction objectives for 2030, because the new climate law’s target of decreasing emissions 40% below 1990 levels will necessitate significantly bigger emission cuts in the following decades to reach net-zero in 2050.

Russia provides most of Hungary’s natural gas (75 percent), oil (60-80 percent), and nuclear fuel (100 percent). 

Market overview, sub-sectors, and trade data.

Power Generation 

Source: Hungarian Energy and Public Utility Regulatory Authority 2022

Source: https://www.statista.com/statistics/1235432/hungary-distribution-of-electricity-production-by-source/

According to preliminary estimates from the Hungarian Energy and Public Utility Regulatory Authority (MEKH), renewables contributed for 19.2 percent of Hungary’s energy generation in 2021.

Solar was the leading source of renewable energy, generating 3,793 GWh (gigawatt-hour), a 54.3% increase since 2020. It accounted for 10.6% of Hungary’s electricity generation and 55.2% of the country’s total renewable energy output.

Biomass and wind accounted for 2.5% of total renewable energy generation. In the heating and cooling sector there is a potential for the efficient use of biomass in both individual heating equipment and in district heating.

In 2021, gross electricity output was 35,805 GWh, up 2.5% from the previous year.

The Paks nuclear power plant produced 44.7% of the country’s domestically generated power, bringing the total percentage of carbon-neutral sources to 63.8%.

Fossil fuels made up 35.1% of the total.

Leading Sub-Sectors

Electricity

The electricity generated by power plants is sold to traders and universal service providers, who resell it on the wholesale market or supply it directly to the clients. Transmission and distribution networks transport electricity from sources to users. Transmission and distribution are handled by separate entities that are not involved in the generation or supply of electricity.

In the 1990’s, most significant power plants, public utility suppliers, and distribution networks were privatized, a tendency which was turned following the government change in 2010.  Since 2010, Government of Hungary (GOH)-controlled, or GOH-allied companies have crowded out or bought up the foreign-owned utility companies and most distribution network owners. Domestic power plants currently sell most of their electricity generation through agreements with Hungarian Electricity Ltd. (MVM): framework contracts to universal service providers and bilateral contracts or public capacity auctions to traders. Before reaching ultimate customers or export markets, a considerable portion of traders’ main purchases pass through secondary trade inside the trading industry.

Electricity generated from renewable resources and garbage is classified as a unique type of trade. In the traditional feed-in-tariff (FiT) scheme, the transmission system operator (MAVIR Zrt.) must purchase this type of electricity from generators under the FiTplan (at a price specified in the respective legislation and in volumes and during a period defined by HEA). MAVIR Zrt. sells to traders the electricity purchased under FiT and the related balancing energy, as well as a portion of the organized electricity market. According to the new METAR renewable energy scheme introduced in 2017, solar plants above one MW capacity need to sell their electricity on the market, but they can apply for a so-called “green premium”, which is granted through a tendering process for a maximum period of 15 years.  According to the scheme if the electricity price at the Hungarian power exchange drops below the subsidized price level, the producer gets the difference in the form of green premium and if the market price is higher than the subsidized price, the producer pays the difference to electricity TSO MAVIR. 

Nuclear Energy

Since the Paks Nuclear Power Plant (NPP), currently known as Paks I, was put into service in the early 1980s comprising four 500 MW blocks and producing about 35% of Hungary’s electricity supply, nuclear energy has played a significant role in Hungary’s energy mix. Paks I is the country’s main electricity-generating facility. The original 30-year lifecycle of Paks I’s four 500 MW reactors were extended by 20 years in the 2010s. The GOH intends to delay the eventual decommissioning of Paks I until the 2040s or 2050s.

Despite challenges in securing a license and restrictions on the Russian bank financing the project, Hungary is committed to continuing nuclear energy production and in 2014 the Paks II project contracted with Russia’s Rosatom, a turnkey $13 billion contract that will add two 1200 MW blocks.  Currently, the GOH states that Paks II will be finished between 2030-32, although many observers doubt the plant will be function by then given the already lengthy delays

Hungarian officials have expressed interest in constructing at least one small modular reactor (SMR) on top of the already planned extension of the Paks nuclear plant. The earliest date for an SMR procurement in Hungary is 2029-2030. An SMR can produce up to 300 megawatts of power. The Hungarian Energy minister has not ruled out buying the modular reactor from Russia.  Hungary’s estimated energy consumption in 2030 is expected to be 60 terawatt-hours (TWh).

Natural gas

Traders and universal service providers sell imported and domestically produced natural gas to domestic users. Six regional distributor corporations – owned by three market players – oversee the natural gas distribution systems.

The retail market has been characterized by a dual structure since its inception in 2004; prices are set by the market in the free market segment. Natural gas is available at a regulated (maximized) price to households consuming energy at or below a GOH-determined average consumption level. As of August 1, 2022, households consuming energy above the average level will pay higher rates, which are still below the actual market pricing.

Customers (businesses or municipalities) not eligible for the fixed utility price scheme purchase natural gas from the competitive market or entered the free market after their eligibility for universal service expired (customers with medium and low consumption and district heating generators).

Hungary signed a new 15-year gas contract with Gazprom in September 2021; the price of the gas purchased from Gazprom follows European market pricing.  Hungary has pipeline connections to six of its seven neighbors but has not succeeded in obtaining molecules from outside of Russia in significant amounts.

Hungary uses 10 billion cubic meters of natural gas annually, nearly 85% of which comes from Russia.

LNG Terminal Krk

After receiving a $110 million subsidy from the EU to co-finance the project with the Croatian government, the Krk LNG Terminal (or FSRU) began operating in January 2021. In April 2022, the terminal’s 2.6 bcma initial capacity was increased to 2.9 bcma to help Europe lessen its reliance on Russian energy. Croatia made plans to increase the terminal’s capacity to 6.1 bcma public in June 2022. Two gas dealers with ties to Hungary, MET and MVM, have reserved 1.4 billion cubic meters of capacity at the port.

On September 4, 2020, a six-year purchase contract with Shell was concluded for 250 million cubic meters of natural gas annually, between 2021 and 2027. This is the first long-term LNG purchase agreement with a Western energy company in Hungary’s history. Earlier MVM Hungarian Electricity Works Zrt.’s natural gas trading company has tied down an annual capacity of one billion cubic meters for the period of 2021 to 2027 at the LNG terminal in Krk, Croatia. Natural gas plays important role in Hungary’s energy supply, and Hungary has decided to increase the role of LNG in it. Due to the interconnectors that Hungary constructed, the natural gas networks of six out of seven of the country’s neighbors are now connected to that of Hungary. Dependable relations have been developed with both eastern and western energy companies, and this cooperation will be maintained in future, as it is in Hungary’s interests for natural gas to arrive in the country from as many sources and routes as many routes as possible.

District Heating

In Hungary, there are about 650 thousand apartments in 95 towns supplied by district heat. Approximately 80% of the thermal energy sold by district heating suppliers is consumed by households (for heating and hot water consumption). District heating services are local public utility services.

The participants of the sector are district heat suppliers, district heat generators (generally acting as traders) and district heat traders (those who do not generate heat but purchase it and sell it to suppliers).

In general, one district heat supplier operates in each town. There are, however, several towns with more than one district heat supplier holding an operating license, and there are companies that provide district heating supply in more than one town. Those suppliers engaging in district heat generation as well (either via cogeneration and/or using furnaces) hold a generating license in the town supplied by the service.

Most district heat suppliers owned by municipalities – in some cases, the district heat generator (a heating power plant holding an electricity generation license) has acquired shares in the service provider. The operation of the district heat supplier is also facilitated for private companies through concession agreements in a few towns.

A regulated price is applicable to the supply of households and public institutions, while the price for the rest of the consumers is dependent on bilateral agreements.

Russian dependence and oil supplies

Hungary imports crude oil primarily from Russia (USD 1,6B), Austria (USD 627M), Romania (USD153M), Bulgaria (USD75M) and Poland (USD 51M).  More than 65% of Hungary’s crude oil comes from Russia via the Druzhba pipeline.  In May 2022, pipeline crude shipments got an exemption from the EU-wide oil embargo against Russia, meaning that Russian crude shipments are expected to keep flowing to Hungary, Slovakia, and Czech Republic after December 2022.  The MOL refinery in Budapest has an annual capacity of 8 million tons, of which 7 million were used in 2021 and can handle up to 35% of non-Russian crude.

Resources:

Hungarian Energy and Public Utility Regulatory Authority

Renewables Now

Hungarian Central Statistical Office

U.S. Embassy - U.S. Commercial Service 
Eva Bosze, Commercial Specialist 
Budapest, Hungary 
Tel:  +36 (1) 475-4234 
Email: eva.bosze@trade.gov