Proyecto técnico.

In my dissertation, I have examined promotion mechanisms encouraging renewable electric energy production. Both the literature, as well as the general practices and experiences of European Union member states, support the primacy and success of price-based motivators. Accordingly, Hungarian regulators’ decision in favor of a feed-in tariff system appears to be well-founded and is to be supported.

The significance of renewable energy sources, both in terms of community goals and as far as Hungary’s own action plan is concerned, is set to increase in the future. Compared to traditional energy production methods, green energy is more closely in line with the requirements of sustainable development. The factors above suggest that special attention is to be paid to this area and to related regulatory issues.

The feed-in tariff system that has been in place in Hungary for ten years may not be considered a typical implementation of the scheme, for a number of reasons. First, the term of the guaranteed purchase agreement is not fixed, but is subject to case-by- case decisions of the energy office. Secondly, the feed-in tariffs themselves are not differentiated by technology: this leads to results similar to those encountered in a green certificate system, which also offer the same premia to all actors. A third, uniquely Hungarian, feature is that wind power plants may only be constructed up to the capacities approved in the quota established by the regulator: there is no automatic eligibility for participation in the KÁT.

These factors clearly played a role in the process that allowed Hungary to meet its renewables targets for 2010 relatively cheaply, and that subsidy amounts have not yet presented a significant burden to the end consumers of electric energy, who ultimately are the ones financing renewables. At the same time, this has also meant that it was primarily wind power plants and multi-fuel biomass capacities (larger in capacity, but lower in efficiency) that have seen a rise in numbers; the ones that are considered more mature and less expensive among renewable technologies.

In the ten years that the KÁT system has been in place, Hungary has reached a 6-7% share of renewables in electric energy production. The relatively undifferentiated nature of the system means that this was accomplished at a reasonably low cost and

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without encountering the types of regulatory failure experienced by other European nations.

Hungary’s own regulatory problems have come to light in the last two years. Meeting the EU requirements for 2020, and meeting even higher commitments agreed to for Hungary’s renewables sector amount to doubling, with base year 2010, the country’s green capacities. If we also figure into this the substitution of multi-fuel power plants which are gradually being excluded from the renewables category, then the goal becomes nearly tripling the capacities by 2020. Through the KÁT system, Hungary has already made full use of cheaper energy production modes, which are also easier to implement. The tariffs currently in place are not high enough to lead to the construction of new biomass power plants and solar power plants; and additional wind capacities cannot be constructed, either, without distributing additional quotas. Thus, if Hungary is to meet the 2020 targets, the KÁT system must be transformed. The process was launched, with great momentum, in 2010; Hungary’s national renewables action plan was published, followed by the regulatory concept paper, which suggested a new regulatory system, METÁR, would be implemented as soon as possible. With a view towards the anticipated new promotion scheme, and in light of published tariff proposals, investments in the renewables sector were halted, and developers waited for the new regulations to be published. Two years later, they are still waiting. By 2011, Hungary’s share of renewables dropped by nearly 1%, to 6.3%, meaning the country is already behind schedule towards meeting 2020 targets. My research has focused on challenges faced by the renewables sector in the future and has formulated related recommendations for regulators. My first hypothesis has shown that in the case of technologies characterized by a flatter marginal cost curve, an incorrectly determined feed-in tariff could result in a significant plan vs. actual variance in terms of newly installed capacities. Per my recommendation, risks associated with erroneous decisions could be avoided by introducing quantity quotas, monitoring the market, using international benchmarks and through an active dialogue with the industry. Countries which have experienced so-called PV bubbles also have several lessons to offer: their experiences show when a tariff is considered too high and also show how related problems can be overcome. Because the 2020

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targets include 63 MW of solar power capacity – significantly higher than the 0 MW today – it is worthwhile to consider the following recommendation:

Solar power plants represent a technology demonstrating rapid development and require little time to construct. Should Hungarian regulators be planning to raise current feed-in tariffs – which are currently too low to encourage the proliferation of this technology – it would be important to ensure their understanding of the market is up-to-date. It would also be important to determine yearly quotas, as far as newly built capacities are concerned, to avoid a potential PV bubble. This may

be done either by announcing tenders or by distributing quotas, as it was done with wind power.

Concurrently with the increasing share of renewable energy, the subsidy volume for green power plants is also increasing, as is their need for such support – the price of which is ultimately borne by consumers. Presently, the Hungarian government appears committed to keeping household utility costs unchanged; one possible reason for this may be the general public’s lower tolerance for financial burdens in light of the economic crisis. Nonetheless, this presents an obstacle to the further proliferation of renewable energy. That was why I found it important, through the validation of my second hypothesis, to demonstrate that the current Hungarian practice provides less support for green energy and spends more on other generation methods based on fossil fuels.

KÁT support for green power plants has only increased to 23.3 billion HUF in 2011 from 18.4 billion HUF in 2008, an increase of 27%, while the amount of green energy produced went up from 1,771 GWh to 2,236 GWh, an increase of 26%. In other words, renewable energy production did not get significantly more expensive (thanks to feed-in prices being index-linked to inflation). As the results of my calculations show, subsidizing green energy, for the time being, does not place a significant additional burden on end consumers; it is also clear that, both individually and on a government level, almost twice that much is spent on supporting cogeneration and coal-fired power generation. This is what my second recommendation pertains to:

By gradually phasing out, or doing away with “coal cents” and with cogeneration structural reform fees, and by regrouping funding to encourage renewables, the