The rules in Hungary for guarantees of origin (GO) changed at the beginning of this year to ensure the ascension of the Hungarian Energy and Public Utility Regulatory Authority (Hungarian Energy Authority) to the European Energy Certificate System, as a result of which Hungarian GOs will be accepted on international markets.
The GO market in the European Energy Certificate System has been growing steadily, with more than 800 million GOs (each representing one megawatt-hour of electricity) having been issued in 2021, in comparison to the approximately 400 million GOs issued in 2016. Although the prices of GOs widely differ based on many circumstances, the GO market in the European Energy Certificate System is estimated to be worth at least hundreds of millions of euros. The Hungarian renewable energy market may receive a significant boost by the direct access of domestic GOs to the European market, as such access may increase the profitability of renewable energy producers.
The European Energy Certificate System was established by the Association of Issuing Bodies, consisting of organizations authorized by the government to administer energy certificate systems. The purpose of this framework is to provide a standardized system of GOs issued in Europe and to create a regulated platform for trading GOs.
The Hungarian Energy Authority has been a member of the Association of Issuing Bodies since early 2021, however, it only joined the European Energy Certificate System on February 1, 2022. The international trade in Hungarian GOs is expected to commence on March 1, 2022.
GOs are marketable electronic certificates that evidence to final electricity consumers that a given unit of electricity has been produced from renewable energy sources. As the source of the actually used electricity received through the grid cannot be determined, the only way environmentally conscientious consumers can ensure that energy corresponding to their consumption has been supplied by the European network is by buying GOs from particular renewable energy producers.
At the request of a producer, the Hungarian Energy Authority may qualify a given power plant as being suitable for generating electricity from renewable sources or by high-efficiency cogeneration. After such a qualification, the qualified producer can apply for GOs to be issued, which will be done subject to the fulfillment of certain criteria. It should be noted that no qualification is required if the power plant has a license issued by the Hungarian Energy Authority or benefits from the KAT feed-in tariff or the METAR premium support scheme. If the power plant benefits from the feed-in tariff subsidy scheme, then the GO will be registered in favor of the Hungarian transmission system operator and the GOs will be sold at auction.
The main benefit of the Hungarian Energy Authority joining the European Energy Certificate System is that domestic GOs can be marketed on the European market via the so-called “Hub” operated by the Association of Issuing Bodies, which enables the registries of the members of the European Energy Certificate System to communicate electronically to transfer GOs directly. As Hungarian GOs will be exported across Europe, the new system should increase competition for the purchase of Hungarian GOs.
Another advantage is that foreign GOs in the European Energy Certificate System can also be purchased by Hungarian entities via the Hub, without having to file an application to the Hungarian Energy Authority for the recognition of the foreign GOs. Naturally, foreign GOs arriving from outside the European Energy Certificate System will still be subject to the authority recognizing them.
The authority expects that more domestic renewable electricity producers will enter the market and that the new trading system may require further changes regarding the regulation of GOs.
As companies look for sustainable solutions regarding their energy consumption, which is further strengthened by the European Union’s intention to adopt stricter sustainability reporting requirements, the demand for renewable energy sources and GOs will continue to increase.
By Gabor Czike, Partner, and Laszlo Jokay, Senior Associate, CMS
This Article was originally published in Issue 9.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
