Hungary making valuable contributions to regional energy security, IEA report says

A review of Hungary’s energy policies published today by the International Energy Agency (IEA) praises the Central European nation for its contributions to regional energy security and recommended that it do more to attract energy investments and improve energy efficiency in the years ahead.

“Hungary is well placed to improve regional energy security by catalysing the development of closely integrated markets for electricity and natural gas,” IEA Executive Director Nobuo Tanaka said today in Budapest. Presenting the new study, Energy Policies of IEA Countries – Hungary 2011 Review, he added that “the IEA acknowledges the responsibility Hungary has shown in improving regional energy security and encourages it to carry on this work.”

Natural gas provides an unusually high share of energy supply in Hungary and most gas comes from Russia through one route. Following the supply disruption in 2006, the government has taken several important steps to manage risks to natural gas supply. It has enhanced storage capacity (including strategic storage), is considering various options to diversify supply routes and is developing cross-border connections with neighbouring countries. Its gas-fired electricity capacity can to a large extent be switched to use oil. The IEA applauds Hungary’s general approach to gas security.

Investments in energy infrastructure should be encouraged

Electricity demand within Hungary is expected to grow, while generating capacity is rapidly ageing. Investments are needed for grid improvements and generating capacity, both for increasing capacity (especially for low-carbon electricity) and replacing ageing plants.

Experience from IEA member countries shows that for attracting investment, laws and rules should be stable, predictable and transparent and they should be independently and objectively administered by credible and well-resourced regulatory institutions. In contrast, frequent changes in regulations, increased government intervention on price setting and new taxes create regulatory risks that discourage investment. “The IEA encourages the government to ensure predictable and attractive framework conditions for investing in energy infrastructure,” Mr. Tanaka stated.

The government is planning the construction of additional nuclear power units to replace the plant currently in operation after its expected shutdown in the 2030s and thus to maintain nuclear power in the mix for the long term. “Hungary shows pragmatism when considering low-carbon forms of power generation, including nuclear and renewable energy,” noted Mr. Tanaka. “The extent to which nuclear power capacity will be expanded should be clarified without unnecessary delay, as it will have broad implications for the viability of other current and future base-load technologies,” he added.

Large potential remains for improving energy efficiency

Energy Policies of IEA Countries – Hungary 2011 Review underlines that although per-capita energy consumption in Hungary is well below the OECD average, considerable potential remains for improving energy efficiency across all sectors. Realising this potential would help the country reduce energy imports and save money. The large existing building stock and the district heating system offer particularly significant opportunities and should be priority areas for improving energy efficiency. Hungary should also use consumer prices for electricity, gas and district heat to encourage efficient use. “Prices that fully reflect cost would also encourage new companies to enter the Hungarian market and invest in infrastructure development. The government should abolish subsidies for energy use and replace them with direct support to those in need,” Mr. Tanaka concluded.

Download Energy Policies of IEA Countries – Hungary 2011 Review for free here.