László Kenyeres, partner, Wolf Theiss Budapest (left); Ádám Lukonits, Partner, Wolf Theiss Budapest
The Hungarian Energy and Utilities Regulatory Authority (MEKH) has announced the third METÁR tender to encourage green investments in Hungary. Applications can be submitted between July 1 and July 30 in two categories: (i) small, from 0.3 MW to 1 MW, and (ii) large, from 1 MW to 20 MW of nominal capacity, below the limit 50 MW higher used in the second call for tenders. Although open to various technologies, the legal environment continues to favor solar investments.
It has been clear for some time that the production of marketable green energy could be within reach in Hungary. With the previous METÁR call for tenders, the bid prices continued to fall: they were between 0.04 and 0.05 EUR / kWh, against the feed-in tariff of 0.10 EUR / kWh used in the system of the K lateT late and the average offer price of 0.06 EUR / kWh offered. during the first METÁR round.
Therefore, it is only a matter of time before the offered prices reach the actual market price level. When this happens, there will theoretically be no need for the green premium (i.e. the support given by the state to compensate power producers for the difference between their offered prices and the actual prices. of the market). This, added to the decreasing investment costs of photovoltaic projects, means that Hungary is an attractive location for solar investment. However, investors should be aware of some important pitfalls.
The rules for tendering change frequently, sometimes from round to round. In March 2021, the NFM decree n ° 62/2016 (XII 28), which constitutes the legal basis for all METÁR calls for tenders, was amended. First, it was stated that the tenders will be grouped according to their nominal capacity and that the different categories will be subject to different tendering rules; thus, the respective bidders will only compete in their own category. Second, the definition of ultimate beneficial ownership (UBO) has become more stringent. Third, the MEKH is now authorized to determine certain specifications of the project sites (for example, the value of the golden crown, the nature of the land use and the branch of cultivation). In addition, there have been some minor changes regarding the evaluation committee and the disqualification of bidders, among others.
The third METÁR call for tenders also made notable changes compared to the last round. As noted above, the upper limit of the larger category has been lowered to 20 MW. The maximum quantity of electricity that can be subsidized for candidates coming under the same UBO has decreased in the large category and is now 80 GWh / year instead of the 175 GWh / year used in the last round.
There is also a new aggregation rule: the nominal capacity of photovoltaic installations participating in the current call for tenders will only be aggregated if they share the same connection point within a radius of 1 km; therefore, applications submitted during previous METÁR calls for tenders are not taken into account here. In addition, the previous rate of 20% on the amount of the guarantee released from the performance bond if applicants receive a final and binding building permit and a grid connection agreement can now be increased to 50% if the investors prove sufficient project funding.
In light of the above, up-to-date and ongoing legal support is highly recommended for investors wishing to enter the Hungarian market. Due to the new UBO rules, bidders will need more sophisticated corporate structures and joint venture arrangements. MEKH’s right to determine the characteristics of the project site makes the project preparation phase more important, as applicants will have to select the location before the authority announces the respective specifications.
Thus, a certain refinement of land contracts (including exit clauses if the site proves unsuitable for the project) is also necessary. And for those who wish to implement their projects on a purely market basis, it is essential to know that some well-known constraints, like the income tax of 31% (Robin Hood tax) and the high prices of the balancing energy, are still in place. .
This article first appeared in the print issue of the Budapest Business Journal on June 4, 2021.