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Hungary’s cogeneration plants could miss out under new electricity feed-in-tariff system

18 Jul 2011 17:59:37 | edem

Hungary's ministry of national development aims to unveil a revamped renewable electricity feed-in-tariff (FIT) system by 1 January 2012, although it remains unclear whether combined heat and power (CHP) plants will be eligible for the subsidies.

Hungarian market participants are concerned about a potential shortage of power supply over the upcoming winter after a cut to cogeneration subsidies earlier this month.

Hungary cut its subsidies to CHP plants from 1 July forcing smaller generators to sell on the open market (see EDEM 6 July 2011), as opposed to under bilateral agreements.

The Hungarian government has allowed a work-around for CHP plants under 50MW, including direct off-take agreements with the grid operator MAVIR, but the fate of larger plants is still uncertain.

Market participants had hoped that the government would come up with a way to subsidise larger CHP plants. Without this the plants could run into financial and therefore operational difficulties, which could put the Hungarian system, already potentially a source of power for nuclear-stripped Germany, under strain.

Cogeneration plants that use renewable sources will continue to receive subsidies for both power and heat production, the ministry said in an e-mail to ICIS Heren on Monday. "The Government will focus on small systems based on local features and regional cooperation for the use of biomass," it added.

ICIS Heren understands, however, that it is unlikely that larger cogeneration plants will be included in the new FIT system. "Biomass in Hungary was used primarily in old, obsolete coal or earth coal-fuelled power plants, and this use furnished half of the domestic renewable energy generation. This practise was not sustainable," the ministry said.

Furthermore, the ministry pointed out that support was initially provided to CHP plants with outstanding efficiency, which would have contributed to the reduction of the country's dependence on imported gas.

"Unfortunately, as a result, small and medium-sized cogeneration power plants were built in such a large number that the subsidy process was reversed," the e-mail read.

The ministry also countered claims that the CHP sector would go bankrupt without state aid.

"These types of power plants can generate larger profits on a unit of energy carrier by the joint sale of electricity and heat power, meaning that a unit of energy carrier can earn higher specific profit relative to costs," it maintained.

According to some estimations, the lack of state aid could impact some 1.4GW of generation during the winter. SR

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