Geothermal Energy in Hungary
Hungary’s geological structure provides excellent conditions for an extensive utilization of
geothermic energy. So far it has solely been used for thermal baths and for heating purposes.
There are, however, also plans for geothermal power stations, which would exploit geothermal
energy for the production of electricity.
“Hungary’s Renewable Energy Utilisation Action Plan, 2010-2020” intends to increase the portion
of renewable energy sources in the country´s energy supply until 2020 up to 14.65% and
envisions an increase in capacity also in the area of geothermal energy. Concerning direct heat
use the action plan intends to triple the capacity, through the expansion of geothermal district
heating plants, central heating for public facilities, council flats and market gardens. Additionally,
the building or reconstruction of thermal baths is planned. With regard to electricity production
the action plan anticipates the construction of geothermal power plants with a total capacity of 57
MW.
Legal Framework
The legal framework for the use of geothermal energy can be summarized as follows:
Statutory basis
Like other natural resources, geothermal energy in its original form is a property of the state. The
right to exploration, extraction and utilisation can be granted through official permission or a
licence contract.
The boundary between the scopes of application of the two procedures is drawn at a depth of
2500m: Up until this depth geothermal energy can be extracted simply by means of an official
permission. For the exploitation of geothermal energy in a depth exceeding 2500m, a more
complex licencing procedure was put in place in 2010. In Hungary, thermal water suitable for
heating purposes can usually be found already in a depth of 1000-2000m. The licencing
procedure therefore mainly concerns projects for geothermal power stations, which require
greater heat – over 120°C – for the generation of electricity.1
The permission is granted by the Nature Conservation Authority if the power generation is
pursued by the extraction of thermal water and by the Mining Authority if no thermal water is
extracted during the process. One example of the second method is the EGS technology, which
1
In contrast to Hungary there is no concession process for drillings in a certain depth in Germany. For geothermal
power plants mainly mining regulations have to be considered. Drillings over 100m can only be executed within
the specifications of a mining operating plan. Further state laws, such as water laws, building regulations and
construction planning regulations have to be observed. Additionally, depending on the size of the facility, an
environmental impact study might be obligatory.
is based on the circulation of a fluid through an artificially fractured rock. The permission
procedure is subject to an administrative fee and can take one year or more.
Licencing procedures, on the other hand, are announced by the Ministry of Economic
Development for regions that appear suitable for the exploitation of geothermal energy. The
duration of licences is limited to 35 years, with a one-time possibility of extension for half of the
above mentioned period. The exploration period – including possible extensions – is restricted to
8 years.
The geothermal energy that lies deeper than 2500m can furthermore only be exploited from a
certain part of the Earth’s crust, the so-called “geothermal protection lot”. This institution
should ensure the sustainable extraction of geothermal energy. The borders of this protection lot
are determined according to the radius of operation of the planned extraction in which the
temperature decreases less than 1°C over a period of 25 years. The designation of this lot can
only be requested by the licensee within five months as of the acceptance of the final report of the
exploration. The holder of the licence is obligated to start the extraction within three years as of
the designation of the protection lot. Inside the protected area no other geothermal project can be
authorised without the explicit consent of the licensee.
Fees
A part of the value of the extracted geothermal energy is due to the state in the form of a “mining
fee”. For the energy gained under a mining permit (i. e., from a depth of less than 2500m) a fee
of 2% is legally fixed. In the case of a licence, the percentage is determined by the minister
according to the special features of the particular project. If more than 50% of the geothermal
energy is utilized, no mining fee has to be paid for the part that exceeds the 50%.
The fee is levied upon the statutorily defined value of the exploited energy. In the case of
geothermal energy this is dependent on the way in which energy is exploited. This can happen
through the extraction of an energy carrier (typically thermal water) or through the
circulation of a thermally conductive material (as in the case of the EGS-technology). As this
latter method is more sustainable, it is also privileged by law: The value of energy won through
the extraction of thermal water is set at 2000 HUF/GJ compared to 400 HUF/GJ with the EGStechnology. When determining the actual value, the energy amounting to 30 °C shall not be taken
into account.
In the case of the extraction of thermal water, the company has to pay an additional water
3
supply fee amounting to 4.50 HUF/ m of extracted water. This fee, however, does not have to
be paid for water which is re-injected into the aquifer. The costs arising from the construction or
modernisation of a re-injection pump can also be deducted from the fee. There is currently no
legal obligation to re-inject the water extracted from aquifers, however.
The described regulation provides an incentive to companies that are interested in the direct heat
use of geothermal energy to re-inject the thermal water into the aquifer after the energy
extraction. Companies that are working on geothermal power plants, on the other hand, have an
incentive to either build a system that is based upon the circulation of a thermally
conductive material (e.g. EGS-system) or – if they build a system based on the extraction of the
energy carrier – to use the thermal water not only for power generation but, in a second step,
also for heating purposes. In the case of an EGS-system, the mining fee is levied on a lower
basis; with a combined exploitation, more than 50% of the geothermal energy can be used
without paying any additional fee.
Power tariffs
During the payback period the operator of the geothermal power plant has the right to feed the
electricity into the grid at a preferential price. The tariff can be requested at the time of the
application for the occupancy permit of the power plant. The Energy Agency determines the
duration of the tariff on the grounds of general benchmarks, based on the payback period of
similar projects with state of the art technology and reasonable site selection. They also
determine the annual feed-in of electricity during the payback period on the grounds of the
capacity of the energy plant. At the end of the remuneration period or after the input of the full
amount of electricity accepted under the preferential tariff, the energy plant can sell electricity only
at market price.
Tariffs are set by law. In the case of geothermal power plants with a capacity lower than 20 MW –
the type typically planned in Hungary – the peak time tariff today amounts to 35.91 HUF/kWh.2
Economic viability of geothermal power plants in Hungary
The Regional Centre for Energy Policy Research of the Corvinus University of Budapest carried
out a feasibility study about geothermal energy plants in Hungary in 2009. The analysis came to
the conclusion that without secondary heat use, only plants with a capacity of at least 3.3 MW are
economically viable. To reach such a capacity one typically has to drill to a depth of around
4500m, which requires an initial investment of about 5.5 million EUR. For the profitability of
smaller geothermal energy plants it is necessary that the remaining energy after the electricity
production is used for heating purposes. As heat cannot be transported over great distances,
such projects are only possible at sites where large heat consumers are already available.
The analysis emphasises also that the biggest risk of geothermal projects lies in the result of the
first drilling. If it is unsuccessful, the chances of a profitable operation shrink considerably.
2
In Germany on the other hand the operators of the electricity grid were obliged to give preference to electricity
produced from renewable energy, at minimum prices set by law for a 20-year period. Due to an amendment to the
law in 2014 operators of new geothermal plants now have to market their electricity directly.
Investments into geothermic energy can be funded from EU sources. In the funding period from
2014-2020 around 2.555 million EUR (10 times the amount in the previous period) will be
provided for the funding of projects in renewable energy and energy efficiency. Due to the new
funding programme, a renewed increase of investments is expected.
Investment possibilities for geothermal energy in Hungary
As far as actual projects are concerned, the listed joint-stock company PannErgy Nyrt. is the
most active in the field of geothermal heating. In 2013, together with the municipality of Miskolc –
in the north-eastern part of Hungary – the company founded a project company which put a
geothermal heating system in place, which is already supplying a significant part of the town with
heat. The system consists of two approximately 1500-2300m deep extraction wells south of
Miskolc, as well as a pipeline from these wells to a local district heating plant and to three
pumping plants, re-injecting the water. The system gains a heat capacity of 50-60 MW from
thermal water of the temperature between 95-105°C. PannErgy is planning to involve further
consumers, such as market gardens, as secondary markets.
PannErgy is operating a similar geothermal heating plant in Szentlörinc, in South-Hungary.
Another one of their heating systems in Berekfürdö, in the lowlands, is also producing electrical
energy (with a capacity of about 0.3 MW) by burning the methane content of the thermal water. A
further heating project in Győr, in the northwestern part of Hungary, with a total capacity of 220
MW, is in the last phase of construction. As part of this project not only the municipal heating
provider but also the Audi-plant has signed a long-term contract for heat supply with the
responsible PannErgy subsidiary.
In Szeged, a town in the Great Plains, a geothermic heating system providing more than 30
public institutions with heat was put into operation in the spring of 2014. The system was planned
by the Hungarian-owned Brunnen Hőtechnika Kft., which participated in the development of
other geothermic public utility systems as well. The geothermic heating systems in Hódmezővásárhely, Orosháza, Mórahalom and other cities were developed by Aquaplus Kft., another
Hungarian company.
The first geothermal energy generation project in Hungary started in 2005 under the auspices of
MOL Nyrt., the partly government-owned Hungarian oil company. With the involvement of two
American investors, MOL examined two old oil wells in Western Hungary for their geothermal
energy potential. The participants were hoping to establish a small power station with a capacity
of 5 MW on the wells, and to expand this later to a capacity of 65 MW. The results of a first
investigation, however, did not fulfil these hopes: They led to the conclusion that the water supply
of the wells would only suffice to build a plant with a capacity of 0.7-1 MW, which would not be
economically feasible.
At the moment the Austrian-owned SWR Bauconsulting Kft., together with the municipality of
Bonyhad – in Southern Hungary – is operating a project company that is planning a geothermal
power plant. After involving further investors the company intends to drill a well of 2300m and
extract thermal water with a temperature of 125°C, firstly for electricity production, in a second
step for heating purposes and finally for utilisation in greenhouses. Until 2020 the SWR
Bauconsulting Kft. is planning further power plants – again with the participation of municipalities
– with a total capacity of 50 MW, using 10 MW thereof for electricity production.
The first licencing tenders were announced in August 2013 for three regions of the Hungarian
lowlands (Jászberény, Ferencszállás and Kecskemét). The last two procedures did not yield any
result because no bids were submitted. The licence concerning the region of Jászberény was
granted to CEGE Zrt., a joint venture of MOL Nyrt. and Green Rock Energy International Ltd., an
Australian mining corporation. CEGE Zrt. plans to drill a 3000m deep pair of wells and to utilize
the thermal water extracted from there for heating and, if possible, for power generation
purposes. The planned electric capacity of the power plant is 1.6-2.6 MW.
Another licencing tender was announced in June 2014 with regard to the region of Battonya, also
on the Great Plains. The licence was granted to EGS Hungary Konsortium, which was
established by EU-Fire Kft. and the Icelandic-owned Mannvit Kft. The project, which had already
obtained EU-subsidies in the amount of 39.3 Million EUR, concerns the construction of the first
power plant in Hungary based on EGS-technology. The power plant, which is planned to reach a
capacity of 12 MW of electricity and 60 MW of heat by means of over 4000m deep wells, is going
to be finished by the end of 2018. It is expected to be the biggest EGS power plant in the world at
that time.
Further licensing tenders are being prepared by the mining authority for other regions.
The first geothermal energy plants in Hungary are expected to start operating within the next few
years.
Author:
Dr. Zoltán Novák, Senior Associate at Taylor Wessing Budapest
T.: +36 1 327 04 07, E: [email protected]