The paper analyses the Hungarian system of district heating, which accounts for 15 per cent of total heat consumption. Both national and European Union s strategy documents aim at achieving sustainable, secure and affordable energy. Hungarian district heating is gauged here on these criteria through a sectoral, bottom-up model with perfect competition. Various policy options are brought in and their impacts assessed on heat production prices and the ratio of renewable based heat production. The results show that investment support and RES heat-bonus options may have positive effects on these output variables in a cost-effective way, but subsidizing consumer district-heating prices and combined heat-and-power (CHP) generation do not yield an optimal solution. Comparing these results with the current Hungarian support system, it emerges that the latter options are applied, through discounted VAT and CHP subsidy. Only a small effort goes on RES DH investment support, and renewable heat-bonus schemes are almost completely absent.

The study is available at the website of the Economic Review