Power policy

Hungary held its first renewables tender in 2019 under its METAR Scheme, 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. The METAR tenders have allocated almost 1 gigawatt of renewable energy capacity, mainly solar PV, over 2019-2022.

Another new support program 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 50 kilowatts and 0.5 megawatts 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 40 kilowatts.

Hungary reached 12% renewable electricity consumption in 2020, slightly overshooting its 2020 target of 11% renewable electricity. Solar power generation increased fivefold over 2018 to 2021 and reached 9% of Hungarian power generation. The share of renewables in generation and consumption differ as Hungary is a net-importer of power.

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 2021 averaged €101/MWh, only half of the EU average of 228. 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 network costs in electricity tariffs. In July 2020, the court concluded that Hungary had not correctly implemented the EU “Third Energy Package” with regards to network tariffs.

Wholesale electricity prices in Hungary were slightly above the average EU level at around €50/MWh until 2020, but as prices rose in all EU countries in 2021 the Hungarian average price of around €90/MWh remained below the average. In 2020, as demand dropped during the Covid-19 pandemic, prices dropped to around €39/MWh. However, as global gas prices have spiked in 2021, Hungarian wholesale markets started rising.

Power market

Nuclear plants generate half of Hungary's electricity; gas and coal combine to provide one-third. Renewables, mainly biomass and wind, deliver the rest.

Hungary is a net importer of electricity, importing around 30% of annual power consumption over 2010-2020. Hungary is highly dependent on Russian energy imports – which 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 12% in 2020 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 May 2018, as the government unexpectedly introduced a deadline for projects below 0.5 megawatts 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 almost $1 billion invested between 2018 and July 2022. The most active investors in Hungary's renewables market are Enlight Renewable Energy, Erste Group Bank, and Greentech Hungary.

EV market

Electric vehicles, including plug-in hybrids, made up 4% of new sales in 2021, 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 20,000 cars in 2021, making up 0.5% of the passenger vehicle fleet.

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 $7,000 per vehicle (HUF 2,500). 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 2022, the budget for the support scheme was around $8 million (HUF 3 billion). Only cars costing less than $40,000 (HUF 15 million) are eligible for grants.

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 almost 65% of heat consumed in homes came from this fuel in 2020. The share of natural gas in the residential heating mix has slightly increased since 2015, when it made up around 50% of residential heat. Around 20% of Hungary’s energy consumption in the heating and cooling sector came from renewable energy in 2020.

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 2020, but the use of heat pumps has more than doubled over 2016 to 2020.

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.