Publications / Hungarian Energy Market Report
REKK Hungarian Energy Market Report 2010 Q2Published: 1 of June, 2010
Medium Term Gas Market Outlook | Analysis of wind power generation in Hungary | The recycled CER cabaret | Tariff burden and receivables in the water utility sector

Table of contents

Medium Term Gas Market Outlook

As we approach 1 July, in Hungary great efforts are made to prepare the contracts for the new gas year. The big question for Hungarian consumers is in what manner and to what extent can they benefit this year and in the next 2-3 years from the favourable developments of the Western European gas markets, what are the obstacles and conditions for these attractive changes to also take root in Hungary. After reviewing the main factors shaping the Western-European market, we will address this question. The global natural gas market, including the European market undergoes fundamental changes these days. One of the signs for the change is that in the European gas market, traditionally based on long term, oil indexed contracts (TOP), spot prices have substantially and persistently fell below the contractual prices. This trend is foreseen to last in the medium term (2-3 years), placing considerable pressure on the price of TOP contracts, too. As a result, Gazprom has become willing to tie 15% of its prices to the spot market for its large partners. Recent developments may signal an enduring structural change in European gas pricing, and the long-lasting decoupling of the price of natural gas from the price of oil. This is true even when GECF (Gas Exporting Countries Forum), consisting of the largest natural gas producers, makes cartel-like efforts to sustain oil indexed natural gas pricing.

Analysis of wind power generation in Hungary

At the end of 2009 Hungary had 201 MW of completed wind power capacity out of the currently permitted 330 MW, which is expected to increase further, since the Energy Office of Hungary issued permits to build another 410 MW of wind power capacity. Permits are still being distributed at this time. If all these wind capacities actually get built, then within a few years up to 740 MW of wind capacity may function within the Hungarian system, equivalent to almost 8% of all domestic power generating capacity. Since the generation of wind power plants can substantially change during the day, or within hours, it is essential to analyse the impact the proliferation of these power plants will make on the Hungarian electricity system, with special attention to the volume of regulating power the system operator demands. In our study we take a look at the data of wind power generation in the first quarter of 2010, evaluating the degree to which the production of these plants can be forecasted. Furthermore, we show how the uncertainties originating from the fluctuation of wind power generation can be reduced.

The recycled CER cabaret

Hungary immediately became the maverick of international emission markets when in the middle of March she played a bold trick on the market. The Government of Hungary brought to the market emissions credits which had previously been surrendered by installations in Hungary in order to cover their emissions. These credits have therefore fulfilled their task, thus they should have been cancelled. But the Government of Hungary found a way to make these already used credits valid once again. The scheme worked, and the Japanese Government was willing to buy the emission credits. The international scandal popped only when some of these credits returned to the EU market as a result of subsequent transactions. Since this is explicitly banned by the EU Emissions Trading System (ETS), when the credits were sold, the Hungarian Government also stipulated that the recycled emission credits cannot return to the EU. Once this happened nonetheless, the largest European emission exchanges kept suspending their operations. In order to understand what exactly happened and why, first we need to acquaint ourselves with some of the basic relations.

Tariff burden and receivables in the water utility sector

REKK has completed a comprehensive analysis of the water utility sector focusing on tariffs, the tariff burden falling on customers, and receivables. The research has been ordered by the Hungarian Water Utility Association (MAVIZ). Even though we carried out a sta- tistical analysis on the data of water and wastewater service companies, results may be of interest to the participants of other public utility sectors as well, since the relationship established among tariff burden, net income, the level of consumption and receivables are likely to be present in other markets as well. The analysis is based on data from 62 medium and large-sized utility companies, which together provide about 85% of domestic water utility services