Spanish Iberdrola leads the way -- Market doubles in Hungary

Installed wind capacity in Hungary doubled in 2008, rising 62 MW to 127 MW. This year, projects being built by Spain's Iberdrola Renovables should allow the country to shortly double its capacity once again. Iberdrola's first wind facility in Hungary, a 50 MW wind farm in Kisigmand in northern Hungary will be operational before long, while the company says it is also building an additional 108 MW in the country, all to be online in 2009.

Despite Iberdrola's progress, the Hungarian Wind Energy Association (HWEA) highlights some sizable obstacles in the market. Not the least of these is a 330 MW cap on wind power installations instituted in 2006 amid fears the grid would be unable to support large amounts of wind power. The cap was a legacy of a tender process which had attracted 1600 MW of bids, an indication of the potential interest in investing in Hungary's wind business should the market open up again. Iberdrola believes the Hungarian wind market has "potential to further develop and integrate more wind energy than the capacity currently authorised."

Projects in development

While the cap has put a damper on short term development of Hungary's wind energy resource, the government has indicated it may lift the capacity limit in the near future. Some companies are poised for just that possibility. The renewables arm of German utility RWE, RWE Innogy, last year bought 300 MW of wind projects in western Hungary from Germany's Aufwind Schmack.

Germany's Plambeck is also among companies developing wind farms in the country, although none are ripe for building as yet "Our wind farm projects in Hungary are all in a very early stage and we hope to begin construction in the next three to four years," says Rainer Heinsohn of Plambeck. Iberdrola itself has an additional 96 MW in an advanced state of development.

Hungary's renewables support mechanism gives wind producers priority access to the grid and a guaranteed purchase price adjusted annually for inflation, with the average rate currently standing at HUF 28.13/kWh (EUR 0.097/kWh). Iberdrola says the fixed purchase price is a sufficient basis for investing in wind projects in the country. At the same time, HWEA notes that a few projects have seen purchase prices set on the free market, although these came in relatively low at HUF 15-17/kWh (EUR 0.052-EUR 0.059/kWh). HWEA notes, however, that these projects were constructed with financial support from the European Union.

Wind producers in Hungary have been subject to a penalty system since the start of 2008 if their production forecasts were off target, although it has been adjusted to be less onerous than its original version. Currently, the penalty stands at HUF 5/kWh (EUR 0.017/kWh) if predictions for production made one day ahead deviate by more than 50% from the forecast.