Hungary 1999 Review INTERNATIONAL ENERGY AGENCY

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Hungary 1999 Review INTERNATIONAL ENERGY AGENCY INTERNATIONAL ENERGY AGENCY Energy Policies Ener of IEA g y P Countries olicies of Hun g ar y 1999 Review Hungary 1999 Review INTERNATIONAL ENERGY AGENCY Energy Policies of IEA Countries Hungary 1999 Review TABLE OF CONTENTS 1 SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS ...... 7 2 ORGANISATION OF THE REVIEW .............................. 13 3 ENERGY MARKET AND ENERGY POLICY ........................ 15 4 ENERGY DEMAND AND EFFICIENCY ........................... 27 5 CLIMATE CHANGE AND THE ENVIRONMENT ................... 39 6 COAL ......................................................... 47 7 NATURAL GAS ................................................ 53 8 OIL ........................................................... 77 9 ELECTRICITY ................................................... 91 10 NUCLEAR ..................................................... 125 11 TECHNOLOGY, RESEARCH AND DEVELOPMENT ................ 131 A ANNEX: ENERGY BALANCES AND KEY STATISTICAL DATA ....... 135 B IEA “SHARED GOALS” ......................................... 139 C GLOSSARY AND LIST OF ABBREVIATIONS ...................... 141 List of Tables and Figures .............................................. 5 3 Tables and Figures TABLES 1 Total Average Price Changes for Electricity and Gas, 1995 to 1999 . 24 2 Energy Efficiency Funding Mechanisms in Hungary .................. 42 3 Air Pollutant Emissions in Hungary, 1980 to 1996 ................... 43 4 Principal Coal Mines in Hungary ................................... 50 5 Natural Gas Storage Capacities in Hungary, End 1997 .............. 62 6 Total Number of Customers Connected to the Hungarian Natural Gas Grid ............................................................. 62 7 Size Distribution of Generating Units in Hungary ..................... 95 FIGURES 1 Total Primary Energy Supply by Fuel, 1970 to 2010 .................. 17 2 Coal, Oil and Natural Gas in Hungary, 1970 to 2010 ............... 18 3 Energy Trade of Hungary .......................................... 20 4 Energy Intensity per Unit of GDP in Hungary and IEA Europe, 1970 to 2000 ............................................................ 28 5 Energy Intensity per Capita in Hungary and IEA Europe, 1970 to 2000 . 28 6 Total Final Consumption of Energy by Sector, 1970 to 2010 .......... 29 7 Fuel Use in Industry in Hungary and the IEA ......................... 30 8 Fuel Use in the Residential and Commercial Sector, 1989 to 2010 ..... 31 9 Electricity Consumption per GDP, 1960 to 1997 ..................... 32 10 Transport Energy Consumption per GDP, 1960 to 1997 .............. 33 11 Stationary Fossil Fuel Use per GDP, 1960 to 1997 ................... 34 12 District Heating Prices in Hungary, 1989 to 1996 .................... 36 13 Heat Supply from Public Power Plants, 1987 and 1997 ............... 37 14 Carbon Dioxide Emissions from Fuel Combustion in Hungary and IEA Europe, 1980 to 2000 ............................................ 40 15 Coal Consumption by Sector, 1970 to 2010 ......................... 47 16 Principal Coal Deposits and Mining Regions in Hungary .............. 48 17 Natural Gas Sales of MOL in the Hungarian Market in 1997 . .... 55 18 Natural Gas Demand by Sector, 1973 to 1997 ...................... 56 19 Monthly Gas Demand and Supply in 1997 .......................... 57 20 Hungarian Gas Production and Imports, 1973 to 1997 ............... 58 21 The Hungarian Natural Gas Transportation Infrastructure, 1997 ....... 60 22 Main Gas Distribution and Supply Areas in Hungary ................. 63 23 Privatisation of MOL .............................................. 65 24 Ownership Structure of the Six Regional Gas Distribution Companies . 66 25 Functional Model of the Hungarian Gas Industry ..................... 69 26 Gas Prices in Hungary, 1980 to 1997 .............................. 71 27 Oil Consumption by Sector, 1973 to 2010 .......................... 78 28 Sales of Oil Products in Hungary, 1973 to 1997 ..................... 79 29 Oil and Gas Exploration Concession Areas .......................... 80 5 30 Oil Infrastructure in Hungary ....................................... 82 31 Refineries in Central and Eastern Europe ............................ 84 32 Market Shares of Oil-product Retailers in Hungary ................... 86 33 Fuel Retail Prices and Taxes, 1997 .................................. 88 34 Electricity Distributors and Retailers in Hungary ...................... 92 35 Average Thermal Efficiency in Hungary’s Power System ............... 94 36 Electricity Demand by Consuming Sector, 1973 to 2010 .............. 97 37 Electricity Generation by Fuel, 1973 to 2010 ........................ 97 38 The Hungarian Transmission Network and Main Power Plants . 98 39 Hungary’s International Interconnections ............................. 101 40 Hungary’s Transboundary Electricity Trade, 1997 .................... 102 41 Sectoral Shares of Electricity Consumption in the Supply Regions, 1997 . 104 42 Electricity Consumption per Inhabitant in the Supply Regions, 1980, 1990 and 1997 ........................................................ 105 43 Privatisation in the Hungarian Electricity Supply Industry, 1998 . 108 44 Functional Model of the Hungarian Electricity Supply Industry . 110 45 Establishment Procedure for New Generating Capacity ............... 113 46 Pricing Mechanism for Electricity and Heat Prices .................... 115 47 End-User Prices for Electricity, 1980 to 1998 ........................ 115 6 1 SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS Hungary, the most recent IEA Member country, joined the IEA on 3 June 1997. Following the collapse of the former Soviet Union (FSU) and the loosening of Hungary’s economic ties with the countries of the Council of Mutual Economic Assistance (COMECON),the country underwent a difficult period of transition from a state-controlled economy to a market economy. Industrial output and GDP dropped sharply and unemployment and inflation surged. Since 1996, the country has moved increasingly towards macro-economic stability, although the complete transformation and modernisation of its infrastructure will take significantly more time. Starting in 1991, Hungary restructured, liberalised and privatised its energy sector. Today, the country’s energy industry is majority privately-owned. The downstream oil market is competitive. The natural gas industry is now largely privatised, with foreign investment in gas distribution and supply. The Hungarian oil and gas company MOL retains a dominant position in natural gas production, imports and exports, pipeline transportation, and wholesale trading. Competition is to be phased in when the country accedes to the European Union, which is expected around 2003. At present, all gas prices are regulated by the Minister of Economic Affairs, based on recommendations made by the Hungarian Energy Office (MEH), the regulatory authority for gas and electricity. Security of gas supply is an important issue because the country has long had to rely on Russia (or the FSU and CIS) as the sole supplier, and because natural gas use amounts to almost 40% of Hungarian energy use, twice as much as in IEA Europe. Hungary has only been interconnected to the Western gas grid since October 1996, via Austria through the Gy´o´r-Baumgarten pipeline. Russian gas remains the cheapest option, but the new pipeline allows the exchange of “swap gas” as well as real deliveries, and the traded volumes are increasing. The task that lies ahead for Hungary is to adapt and prepare the gas market for competition while ensuring security of supply. Access to and pricing of essential services,and particularly gas transportation,must be made non-discriminatory. This is likely to require a greater and more independent role for the Hungarian Energy Office, including ultimate price-setting authority. Most of the options to guarantee security of supply, including gas deliveries from Western suppliers or strategic storage, come at extra cost. Thus, a mechanism should be designed to cover these costs in the competitive gas market. It is important to make this mechanism as market-compatible as possible, since competition itself may improve security of supply to some degree. 7 The Hungarian electricity supply industry was restructured in such a way that electricity generation is now largely separate from transmission. There are also separate distribution/retailing companies. Generation and distribution/supply are largely owned by foreign investors. At present,the modus operandi of the industry is based on long-term power purchase agreements. Price regulation covers most prices in the industry,and as in the gas industry,the ultimate price-setting authority lies with the Ministry of Economic Affairs. Competitive rules are to be phased in when Hungary accedes to the European Union. The progress made in the Hungarian power industry in the past half decade is considerable. Not only was the industry restructured and privatised, but it was also brought up to the technical standards of the Western European grid, and has been running in parallel with the latter since 1995. The electricity supply industry,more than the gas industry, has been reformed to a point which is only a few steps away from competition. These steps would require introducing non-discriminatory open access to the power grids, and adaptation of the regulatory mechanisms, as in the gas industry. These steps should be taken soon. Some further unbundling would be necessary, particularly with respect to system operation, but this unbundling
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