Geothermal Energy in Hungary
March 09, 2016
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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.
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 licensing 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 licensing procedure therefore mainly concern 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 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.
Licensing 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 5 months as of the acceptance of the final report of the exploration. The holder of the licence is obligated to start the extraction within 3 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 EGS-technology. 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 supply fee amounting to 4.50 HUF/ m3 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 heating 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]
The Regional Centre for Energy Policy Research of the Corvinus University of Budapest in 2009 carried out a feasibility study about geothermal energy plants in Hungary. The analysis came to the conclusion that without secondary heating 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 m EUR. For the profitability of smaller geothermal energy plants it is necessary that the remaining energy after the electricity production be 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.
Investments into geothermic energy can be funded from EU sources. In the funding period from 2014-2020 around 2.555 Mio 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.
As far as actual projects are concerned, the listed joint-stock company PannErgy Nyrt. is the most active on the field of geothermal heating. In 2013 it, together with the municipality of Miskolc – in the north-eastern part of Hungary – 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 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 heating 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 licensing 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 3000 m 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 licensing 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 4000 m 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.
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.
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.
Zoltán S. Novák is attorney-at-law in the Budapest office of the law firm Taylor Wessing. After obtaining an arts degree, he graduated from law school in 2009. Following studies in Germany, Belgium and the Netherlands, he earned his PhD in 2011. Since joining Taylor Wessing in 2010, he has advised international clients on major projects in the field of trade, infrastructure and energy. Besides Hungary, he has practiced law in Germany and the US.
Image: Széchenyi thermal baths, Budapest, Hungary. By: Marc Ryckaert, CC-BY licence.
“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 licensing 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 licensing procedure therefore mainly concern 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 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.
Licensing 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 5 months as of the acceptance of the final report of the exploration. The holder of the licence is obligated to start the extraction within 3 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 EGS-technology. 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 supply fee amounting to 4.50 HUF/ m3 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 heating 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 in 2009 carried out a feasibility study about geothermal energy plants in Hungary. The analysis came to the conclusion that without secondary heating 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 m EUR. For the profitability of smaller geothermal energy plants it is necessary that the remaining energy after the electricity production be 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.
Investments into geothermic energy can be funded from EU sources. In the funding period from 2014-2020 around 2.555 Mio 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 on the field of geothermal heating. In 2013 it, together with the municipality of Miskolc – in the north-eastern part of Hungary – 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 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 heating 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 licensing 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 3000 m 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 licensing 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 4000 m 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.
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.
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.
Zoltán S. Novák is attorney-at-law in the Budapest office of the law firm Taylor Wessing. After obtaining an arts degree, he graduated from law school in 2009. Following studies in Germany, Belgium and the Netherlands, he earned his PhD in 2011. Since joining Taylor Wessing in 2010, he has advised international clients on major projects in the field of trade, infrastructure and energy. Besides Hungary, he has practiced law in Germany and the US.
Image: Széchenyi thermal baths, Budapest, Hungary. By: Marc Ryckaert, CC-BY licence.
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