A. WHOLESALE ELECTRICITY TRADING
1. Background information
An important step in the gradual liberalisation of the Hungarian electricity market was the implementation of the Second Electricity Directive by Act LXXXVI of 2007 on electricity (a villamos energiáról szóló törvény – the Electricity Act 2007) and several pieces of secondary legislation.
The Hungarian TSO (átviteli rendszerirányító) is MAVIR ZRt. The TSO is a fully owned subsidiary of MVM Zrt., a state-owned vertically integrated undertaking. The TSO operates the grid and is also the operator of the balancing market and the auxiliary system services market.
The distribution systems are operated by six regional DSOs (elosztó hálózati engedélyes), the majority of them subsidiaries of the vertically integrated undertaking E.ON.
The production is dominated by MVM Zrt. (Paksi Atomerőmű Zrt.), followed by GDF SUEZ (Dunamenti Erőmű Zrt.), AES (AES Borsodi Energetikai Kft., AES-Tisza Erőmű Kft.), RWE (Mátrai Erőmű Zrt.), Alpiq (Alpiq Csepeli Erőmű Kft.) and EDF (Budapesti Erőmű ZRt.).
Magyar Energia Hivatal is the Hungarian NRA.
The Commercial Code (Kereskedelmi Szabályzat) and the Operational Code (Üzemi Szabályzat) of the TSO, as approved by the Hungarian NRA, are instrumental for electricity trading.
2. Licensing requirements
2.1. General aspects
Almost uniquely for the region Hungary has a separate licensing regime for wholesale and retail trading.
Under the Electricity Act 2007, all companies trading on the wholesale market in Hungary and cross-border must hold a valid limited electricity trading licence, while to supply electricity to final customers, an Electricity Trader must hold a valid full-scale trading licence. The limited trading licence does not entitle the Electricity Trader to supply electricity directly to final customers.
The limited electricity licence cannot be transferred.
2.2. Conditions for licensing
There is no need to set up a company or branch in Hungary to be licensed as an Electricity Trader, as long as the applicant is incorporated in an EU member state or any of the EEA countries, provided it lawfully pursues electricity trading in that state, complying with the requirements set out in the relevant domestic laws.
The licence is issued by the Hungarian NRA.
2.3. Fees
- One-time payment of an application fee of HUF 6,000,000.1
2.4. Timetable for obtaining the licence
The statutory term for granting a licence is three months as of the submission of a complete application.
3. Trading requirements
Electricity can be traded either OTC based on the bilateral negotiated contracts or on the power exchange. A balancing market operated by the TSO is also available.
The Hungarian electricity wholesale market is now liberalised and pricing is based on negotiation, without any regulated tariffs.
3.1. OTC trading
There are no specific requirements for trading in electricity OTC based on bilateral negotiated contracts. Framework agreements, such as those provided by the EFET, can be and in practice are, regularly used in Hungary as standardised model agreements.
3.2. Power exchange trading
HUPX Magyar Szervezett Villamosenergia-piac Zrt (HUPX) has been licensed as the power exchange operator. Currently HUPX enjoys a monopoly for operating a power exchange in Hungary.
HUPX operates an electronic platform offering spot trading by closed auction organised on a day ahead basis. The products that can be traded on HUPX are standard contracts for the physical delivery of electricity within the Hungarian transmission system. Clearing and settlement of the transactions concluded on HUPX is performed by the European Commodity Clearing AG, the clearing house of all EPEX Spot markets.
To become a member of the HUPX and trade on this exchange, an Electricity Trader needs to sign a membership agreement accompanied by a set of technical and identification documents.
3.3. Balancing market
The balancing market is operated by the TSO. Participation is mandatory for all Electricity Traders, either directly (by concluding an agreement with the TSO) or by becoming a member of a balancing group and assigning the balancing obligation to a balancing party.
Non-domestic Electricity Traders tend to manage their balancing obligation and enter directly into a balancing agreement with the TSO.
The balancing market is regulated in detail by both the Electricity Act 2007 and the Commercial Code of the TSO.
The balancing party must deposit a financial guarantee with the TSO to ensure the safe settlement of the transactions. The basis of the financial guarantee is the amount paid to the TSO on average for the three preceding settlement periods.
4. Cross-border trading
The TSO determines the available transmission capacities at the interconnectors for the following 12 months and publishes them on its website.
Cross-border traded capacities have to be notified to the TSO in advance by submitting the nomination schedule. This is the responsibility of the balancing party.
Congestion management is ensured by auctioning the available capacities on the basis of the TSO agreement with the neighbouring countries. The auctions may be organised annually, monthly, weekly and daily.
5. Grid access
The Electricity Act 2007 provides third-party access to the grid. The conditions of access to the transmission and distribution networks cannot be discriminatory, abusive or restrictive. Access should be given without jeopardising the security of supply and the quality of the transmission and distribution services.
B. WHOLESALE GAS TRADING
1. Background information
The Hungarian natural gas sector has been fully liberalised since 1 July 2009, when Act XL of 2008 on natural gas supply (a földgázellátásról szóló törvény – the Gas Act 2009) entered into force. Former public utility suppliers have been replaced by universal service providers and prices have become market prices, based on the negotiation and agreement of the parties.
Földgázszállító Zrt., a fully owned subsidiary of the national oil company MOL Nyrt, acts as the TSO. There are 11 DSOs and two natural gas storage licence holders operating on the market.
The most significant market player is the E.ON group.
The Hungarian NRA is also the regulatory authority of the gas market.
2. Licensing requirements
2.1. General aspects
All companies trading gas on the Hungarian market and cross-border must hold a valid licence. As opposed to electricity, for gas there are no distinctions in terms of licensing between wholesale and retail trading.
The licence is issued for an indefinite period of time and cannot be transferred.
2.2. Conditions for licensing
- corporate seat or branch (or place of residence) in Hungary;
- access to funding guaranteeing proper performance of the licensed activities;
- technical capacity and qualified personnel;
- management and business plan;
- action plan for disruptions in supply, emergency supply and restrictions.
2.3. Fees and additional expenditure
- one-time payment of an application fee of HUF 4,000,0002;
- financial guarantee of 1/12 of the turnover generated from trading activities as per the financial statements of the preceding year (for the new applicants the guarantee is calculated on the basis of the forecasted turnover for the first year of business). The guarantee has a floor or HUF 20,000,0003 and a cap of HUF 500,000,0004, and it must be recorded as a provision in the accounts of the Gas Trader and maintained for the entire duration of the licence.
2.4. Timetable for obtaining a licence
The statutory term for granting a licence is three months as of the submission of a complete application.
3. Trading requirements
Currently there is no commodity exchange or gas hub in place in Hungary. Whole-sale gas trading is exclusively based on bilateral contracts. There is, however, a balancing market – the Daily Natural Gas and Capacity Trading Market (Napi Földgáz és Kapacitás Kereskedelmi Piac).
4. Cross-border trading
Interconnection capacities are allocated based on the contractual arrangements concluded by network users with the TSO. The capacities are determined based on the forecasts of the network user for the year ahead (ie 1 July of the current year to 30 June of the next year). The forecasts are due on 28 February of each year.
Network users are also entitled to resell any unused capacities.
Congestion management is based on auctions organised by the TSO on an annual, monthly and daily basis.
5. Grid access
Like for electricity, the Gas Act 2009 provides third-party access to the grid. The conditions of access to transmission and distribution networks cannot be discriminatory, abusive or restrictive. Access should be given without jeopardising the security of supply and the quality of the transmission and distribution services.
This service is provided by the TSO at regulated tariffs. The tariffs are set by the Minister of National Development based on the Hungarian NRA's recommendation.
Footnotes
1 EUR 21,800
2 EUR 14,550
3 EUR 72,700
4 EUR 1,818,200
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
