Publications / Hungarian Energy Market Report
REKK Hungarian Energy Market Report 2014 Q3Published: 1 of September, 2014
Natural gas prices in Europe:What does the summer price drop allow? | Why is the domestic electricity market expensive? | Developments on the integrated European electricity market | Constraints on the Hungarian renewable-based district heating production

Table of contents

Natural gas prices in Europe:What does the summer price drop allow?

Western European spot markets sufferes rarely experienced price drop during the spring of 2014: NBP, the trend setting exchange platform for continental markets, have seen a price decrease of 40% within just a few months. As a consequence the profitability of British gas fired power plants significantly increased: in December last year the profitability index of coal fired power plants, the clean dark spread, was 33 €/MWh above the profitability index (clean spark spread) of the natural gas fired power plants, meanwhile the enormous competitive advantage diminished to 5 €/MWh by July this summer. How long can this decreasing trend go on at the continental markets and what does it allow? Is it sufficient to save the natural gas fired power plants from economic contraction and turn their operations into a profitable enterprise again?

Why is the domestic electricity market expensive?The reasons behind the different domestic and German electricity prices

The electricity prices that have characterised the domestic wholesale market since the start of the deregulation surpass the price level of the neighbouring - Slovakian and Czech - markets and the German wholesale prices that are used for reference. The difference in 2007 reached 14 €/MWh, then it disappeared in the first few years of the economic downturn, and in the last two years it fluctuated between 3 and 10 €/MWh. In our analysis, we are looking for an explanation for the difference between the day-ahead hourly electricity prices – from now on referred to as spread – on the Hungarian (HUPX) and the German (EEX) power exchanges.

Developments along the road to an integrated European electricity market

One of the principal goals of the European Union is to implement an integrated European electricity market. Despite the fact that the unification of the day-ahead market coupling by the original deadline of the end of 2014 is unlikely to be met, significant integration activities have taken place on the European electricity markets recently. This study summarises recent developments and anticipates future developments in achieving day-ahead market coupling. The main advantage of market coupling is that it provides an opportunity for employing the so-called implicit auction, where the electricity and the capacity rights are sold to the market participants together as tied products.

Constrains on the Hungarian renewable­-based district heating production

A frequently emphasised aim of the domestic energy policy is increasing the market share of renewable energy based heating and district heating generation. The National Energy Strategy considers renewable-based heat generation as one of the most efficient method for decreasing the dependence on natural gas and for increasing supply security, with a particular emphasis on using biomass-based and geothermal energy sources. By 2020, the National Renewable Energy Usage Action Plan (NREAP) intends to increase the share of renewable energy sources in the total domestic heat consumption from the present 13.6% to 18.9%, this way contributing to decreasing the dominance of natural gas based heat production.