Diseño y dimensionado

Electric energy, as a product, has some special characteristics, as it cannot be stored. Consequently, balancing the production side with the consumption side is an

important task, which, in Hungary, is done by MAVIR Zrt.50 The transmission of

electric energy is a rather unique and costly activity, which the transmission operator and the network license holders are required to perform. For any given area, there is only one network license holder – but there are six in the country altogether –, which

50

143

operates the electricity distribution network, that is, consumers can only draw electricity from the grid of the territorially competent company.

A categorization of the line items on our electricity bills practical for discussion purposes is as follows (Gáspár – Závecz, 2011):

1. Product price: this is the price we pay for the amount of electric energy we

draw from the system. Is a single line on the bill (volume charges / electric energy retail), given as the product of the amount charged, i.e. consumed (kWh) and the unit price (Ft/kWh). Thus this is the one and only row that contains the compensation for the product itself, for the consumption – all the other items are just „bonuses‖. The price already includes the guaranteed purchase (KÁT) charge, used for the promotion of renewable energies; electricity retailers collect it from the consumers and then transfer the resulting amount to MAVIR Zrt. Electricity retailers rely on the MAVIR’s forecasts, legislation and their own estimates in determining the amount to be received from the expected KÁT, and its price. The allocation of the expected green power production for the given month – which is the sum total of the schedules submitted by the renewable producers – to the balance groups is performed by MAVIR, based on their expected monthly consumer needs (universal service plus free market plus residential plus corporate sales). The green energy so purchased is used by the balance group representatives to supply their consumers, and they collect the amount of the KÁT subsidy they have to pay from the consumers through the price of electricity. An important note is that it is only the part of green power plants’ guaranteed purchase price in excess of the normal market price of electricity that we have to treat as a subsidy, it is this part that puts an additional burden on consumers. Each year, the Hungarian Energy Office prepares their annual KÁT report, in which they publish the amount of subsidy per unit of green energy. I will take the annual sum total of green KÁT subsidies and divide it by the total yearly volume of electricity consumption to arrive at the amount of green KÁT subsidy per kWh of energy consumption.

2. Use-of-System charges: these cover the costs of delivering the energy to the

144

of the electricity grid, of the entire system that we pay for through these items. These charges are laid down in laws, are payable in proportion to the volume of electricity consumption, and their per kWh unit price is determined in Decree No. 119 of 2007 (29 December) of the Minister of Economy and Transport. The line items, each with their own name, found on the electricity bill compensate for the various phases/tasks of delivering the energy from the power plant to the consumer; accordingly, they can be divided into several elements51:

Transmission-system operation charge: covers the costs associated

with the operation of the high-voltage transmission system, the physical losses of the network and the control of the nationwide power network.

Charge for ancillary services: the costs of services necessary for the

safe operation of the electricity network, uniformly provided to all users (including residential consumers).

Distribution energy charge: covers the costs associated with the

operation and the upkeep of the distribution network and with the services aimed at ensuring uninterrupted supply.

Distribution loss charge: during the transmission of electric power,

according to the laws of physics, one has to incur certain losses, which is why power plants have to produce more energy than what is actually consumed and paid for by the consumers. The resulting difference is the total amount of network losses, which all consumers have to pay for, in proportion to the amount of energy they consume.

Distribution time schedule balancing fee: in case of a weather-

induced change in consumption or any other deviation from the schedule, the transmission system operator restores the balance between consumption and generation – the costs of which are covered by this fee.

51

145

Distribution basic charge: different groups of end users pay differing

so-called basic charges, irrespective of their actual energy consumption; this charge, therefore, needs to be distinguished from per-unit charges, and must be shown on the bill in a separate line, as well.

Distribution capacity charge: must be paid for each connection point

at the place of consumption, based on the contracted capacity of each connection point.

The amount of these Use-of-System charges is determined by the Hungarian Energy Office on a yearly basis, based on date from the network license holders. The concrete amounts of these charges also depend on the voltage at which the given consumer is supplied. The lower the voltage, the larger the amount of transformation costs incurred and thus the higher the use-of-system charge. The vast majority of residential consumers are supplied at low voltage, which is the most expensive one.

3. Other, tax-like items: within which we need to distinguish between the

energy tax and liquid assets.

The energy tax was introduced and is regulated by Act No. LXXXVI of 2003. Its purpose is to incorporate external environmental damages into energy prices and to promote energy savings. Currently, its value is 0.295 Ft/kWh. No energy tax is payable on residential consumption (Act No. LXXXVIII. of 2003, 3.§/b).

The other group comprises the liquid assets as set forth in Act No. LXXXVI of 2007 on electric energy, which are intended to serve certain dedicated purposes as a form of social solidarity; their value is determined annually, in the budget act. Currently, there are three such items:

a) coal industry restructuring subsidy („coal cent”): proceeds from this item support the operation of Vértesi Erőmű Zrt (approx. Vértes Power Plant Co.). Its purpose is to cover, out of social and employment considerations, those costs of coal mining that are not

146

covered by the income from selling the electricity they generate. This subsidy, (theoretically) degressive with time, is meant to allow for the not-so-competitive coal-based electricity generation to gradually prepare for competing in the marketplace. Currently it amounts to 0.19 Ft/kWh.

b) subsidy for preferential rates: covers the discount from the original price of electricity granted to the employees and pensioners of the electric energy industry. The exact conditions of eligibility are laid down in Decree No. 116 of 2007 of the Minister of Economy and Transport; its current value is 0.07 Ft/kWh.

c) restructuring fees of cogeneration products: this „new‖ item, introduced on 1 July 2011, covers the price subsidization of district heat supply. Its introduction became a necessity because as of July 2011, cogeneration power plants (generating electric and heat energy at the same time, hence highly efficient, running on natural gas) got excluded from the KÁT system, which had allowed them to sell their electricity production at a tariff above the market price. This change forced the majority of such power plants to increase their heat price, which this new fee – given to district heat plants as a heat subsidy – is meant to mitigate. Out of the three, this item is the most significant, its current value being 1.2 Ft/kWh. As a matter of fact, this fee is meant to „replace‖ the subsidy that was previously provided to cogeneration power plants within the framework of the KÁT. As we have already seen in the analysis of the Hungarian KÁT system, before 2011, some two-thirds of the entire KÁT budget were used to subsidize cogeneration production. Liquid assets are exempt from it, but the 27% value added tax needs to be paid on each and every other item on the electricity bill.

Between the final electricity bills of residential vs. industrial consumers, there are two basic differences. One of them is industrial consumers’ (usually) lower use-of- system charges, influenced by whether they are supplied at low/medium/high

147

voltage; and while residential consumers are almost exclusively supplied at low voltage, industrial consumers are more often served at medium voltage.

The other difference is that residential consumption is exempt from the energy tax, the current value of which is 0.295 Ft/kWh. It is the sale of electric energy, natural gas and coal to end consumers that is taxed, except for residential consumption. The tax also needs to be paid on the amount sold of electricity from renewable energy sources, except for the amounts that the producers use themselves. Proceeds from the tax go to the central government budget, therefore it does not constitute a dedicated production subsidy that could or should be quantified in our analysis.

Universal service prices for residential consumers are public; each year, they are laid down in a law, based on the resolution by the MEH. The prices valid from 1 January 2012 are comprised of the following charges/fees, as stipulated in Resolution No. 858/2011 of the MEH and in Decree No. 83/2011 of the Minister of National Development.

The final price of 46.89 Ft/kWh payable by residential consumers for the part of their

yearly consumption below 1320 kWh comprises the following items52:

Power prices (Ft/kWh, net): 19.69 Ft/kWh

Use-of-System charges, liquid assets: 17.54 Ft/kWh

VAT 9.66 Ft/kWh

Total: 46.89 Ft/kWh

As we can see, out of the price of 46.89 Ft/kWh53, it is only 19.69 Ft/kWh that is the

price of electric energy itself, as a product. Next, I will divide the second row into two parts, by separating the value of (quantifiable) liquid assets (0.19 Ft/kWh for the coal cent, 0.07 Ft/kWh for the preferential rates, 1.2 Ft/kWh for cogeneration, i.e. 1.46 Ft/kWh in total), such that use-of-system charges are now in a separate row.

52 _{The source of the data is the universal service price list published by E.ON, available at} http://www.eon-energiaszolgaltato.com/index_eiroda.php?menu=2110201. There may be slight differences in the tariffs of the different network license holders.

53

For the part of their annual consumption in excess of 1320 kWh, they need to pay a somewhat higher price (50,13 Ft/kWh). Thus the average price can be calculated as the average of these prices weighted by the respective consumption amounts. For the sake of simplicity, I will now use the lowest price level, which the vast majority of consumers belong to anyway.

148

Power prices (Ft/kWh, net): 19.69 Ft/kWh

Use-of-System charges: 16.08 Ft/kWh

Liquid assets: 1.46 Ft/kWh

VAT 9.66 Ft/kWh

Total: 46.89 Ft/kWh

The individual elements represent the following shares in the price of electricity:

Figure 30: Components of the residential price of electricity in Hungary

Source: author‟s own illustration based on Universal Service Tariffs

Accordingly, electricity itself only accounts for some 42% of the universal service price paid by residential consumers. Use-of-system charges amount to a further one- third, liquid assets represent 3%, whereas the 27% VAT has a 21% share.

I will now allocate the items included in end consumers’ electricity bills to the volume of energy production they are meant to subsidize, and hence calculate the absolute and the per unit amount of subsidy spent on promoting the individual generation methods. The resulting amounts are paid by residential and industrial consumers likewise, yet they represent different shares of the total amounts billed because of the differing levels of use-of-system charges.

42% 34% 3% 21% Price of electricity Use-of-system charges Liquid assets VAT

149