Market coupling brings stability to Hungarian prompt
By Petra Witowski in London
The coupling of the Czech, Hungarian and Slovakian day-ahead power
markets is expected to bring more price stability to the Hungarian market in
2013 after spot prices fell in the second half of 2012 on high hydro
supplies, although the Hungarian day-ahead market was regularly the most
expensive among power markets assessed by Platts last. (See related chart: Hungarian day-ahead baseload (Eur/MWh): January 1 - December 31, 2012).
Hungarian day-ahead baseload power prices averaged Eur52.55/MWh in 2012,
down nearly 6% from the average price on the Hungarian power exchange in 2011
at Eur55.81/MWh. Platts began assessing the Hungarian power market in
At the start of 2012, low hydro availability in the Balkans meant
greater reliance on power exports from Hungary and consequently higher
cross-border capacity costs.
There was a brief price surge as the regional system tightened further
following Bulgaria's decision to invoke a force majeure on its electricity
exports for one week after a coal miners' strike disrupted plant supplies.
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Prices rose again in the summer despite healthy hydro supplies as a
short heatwave boosted demand, with prices trading at a strong premium to
Germany due to a lack of renewables generation.
But the launch of the Czech, Hungarian and Slovakian market coupling
initiative in September brought price stability to the market.
In 2012, the forward power market declined on bearish market sentiment
but remained at a strong premium to its neighbors.
In the forward market, the Hungarian Cal 13 contract averaged Eur56/MWh,
around 8 euros above its Czech counterpart and 7 euros above Germany, as
widening spreads earlier in the year caused concern among market participants.
After the severe cold spell at the beginning of the year, traders felt
the large price premiums over Germany were justified.
As conditions started to normalize, many had expected the spreads to
tighten. But the following months proved this was not the case.
Gross electricity consumption in Hungary was expected to drop by 1.3% in
2012 on warmer-than-average weather, according to power grid operator MAVIR.
Growth in 2013 was "possible," according to MAVIR CEO Zsolt Bertalan,
although much would depend on the weather and how economic activity developed.
Hungary's government also approved raising an existing 8% extra tax on
energy companies' pre-tax profits -- popularly called the "Robin Hood" tax --
to 31% at the start of 2013.
This means that the total corporate income tax burden on energy
companies may reach 50% when including the regular 19% corporate tax rate.
The measure is expected to earn Forint 40 billion ($180 million) for the
central budget in 2013 as part of austerity proposals totaling up to Forint
850 billion, aimed at keeping Hungary's 2013 budget deficit below 3% of GDP.
The coupling of the Czech, Slovakian and Hungarian power markets was
launched successfully September 11 as day-ahead power prices converged and
capacities were optimally allocated between the three markets.
Since the launch, Czech, Slovakian and Hungarian spot prices have
stabilized, narrowing the gap between Czech and Hungarian day-ahead power
Market sources said spreads were narrowing in Hungary because most of
the days were coupled, and in Slovakia because of the reduced risk of
decoupling with the Czech market as a result of cross-border restrictions.
While most traders agreed that the market had proven itself to be able
to adapt to the new situation, some said there was little fundamental change
expected in the first months and market participants were "hedging themselves
better than last year".
The market coupling project was seen as an important milestone in the
race to integrate power markets across the EU region by 2014, with Poland and
Romania expected to join in the near future.
Very little renewables generation and a small domestic market mean that
Hungary is very dependent on flows from the Balkans, Austria and Slovakia.
Hungary has very little of its own hydro capacity, although in Serbia it
forms a large part of the overall generation mix, with installed capacity
estimated at around 2,500 MW, while total hydro capacity in neighboring
Romania is seen in the region of 6,400 MW, according to state-owned hydro
Romania has also experienced rapid growth in the wind energy sector with
latest figures showing an installed wind generation capacity of 1,140 MW
following rapid growth in 2011 when installed capacity more than doubled.
High hydro levels and growing wind generation in the Balkan region not
only boosted cross-border capacity flows but also stabilized prices across
the region. But unplanned cross-border electricity flows are slowing progress
on integrating central eastern European energy markets.
Europe's central east region, including Austria, Czech Republic,
Germany, Hungary, Poland, Slovakia and Slovenia, was particularly badly
The massive rise in installed intermittent renewable electricity
capacity coupled with delays in the grid reinforcements needed is the main
cause of unplanned flows, a Council of European Energy Regulators' and ACER
According to MAVIR, the proportion of imports within total Hungarian
power consumption, which increased from about 16% last year to almost 20% in
2012, should remain around the 20% level in the coming period.
Having completed some large-scale power line construction projects in
recent years, including a new 400 kV line spanning northwest Hungary between
Martonvasar and Gyor, Mavir's 2013 network investments would mostly involve
building or renovating substations, and preparing new cross-border
connections with Slovakia.