Boglárka Zsibrita

Recently an increasing number of market players operating under the mandatory off-take regime (KÁT) have taken the opportunity to sell their renewable energy in the free market and thus, due to the current favourable market situation, sell their electricity at a much higher price than the subsidised price paid by the state. This flexibility, however, has disappeared overnight.

Life in the energy market until 25 May

The legislative changes introduced from 1 January 2022 allowed KÁT electricity producers to “switch between balancing groups”, i.e. to opt in and out of the KÁT regime. The legislation allowed leaving the KÁT regime for a minimum period of 12 months and did not impose any barriers to re-entering the KÁT regime after opting out. Accordingly, the system operator MAVIR approved the termination of one balancing group membership agreement after another, and allowed connection to another market balancing group and thus the sale of the electricity generated in the free market. A large number of market participants with a KÁT licence have taken advantage of this possibility, while others were planning to submit the necessary applications to MAVIR so that they could join another balancing group as of the next balance sheet date, i.e., 1 July. Some of these opt-outs were preceded by considerable preparatory work, as most of these investments were financed by banks. The banks have imposed strict requirements applicable to the termination of KÁT balancing group membership agreements, and also to the market-based electricity traders that KÁT producers are allowed to conclude long-term electricity sales agreements with.

A new world arrived on 26 May

Under a legislative amendment published on 25 May, KÁT producers have lost the free opt-in and opt-out opportunity overnight. From now on, a KÁT producer will be entitled to join another market balancing group instead of the KÁT balancing group only when it applies for settlement under the rules of premium-type subsidies set out in the METÁR Decree instead of the rules applicable to subsidies in the mandatory off-take framework. This means that the producer lost the additional income it had been able to obtain in the free market and is now only entitled to receive the premium applied under the METÁR regime. In other words, the profitability of producers is drastically reduced.

The other major change is that once a producer opts out of the KÁT regime, it will not be able to opt back in; the switch has become one-way.

What happens next?

As the market has been deeply surprised by the change in legislation, many questions have arisen following its entry into force, mainly due to the lack of transitional or clarifying provisions. The opt-out application had to be approved by MAVIR 30 days before the planned opt-out to ensure that the producers’ switch of balancing groups could be safely implemented without endangering the electricity grid system. Therefore, those who notified their intention to opt-out in May will be able to switch to another balancing group from 1 July. There are many market players whose application has already been approved but whose opt-out will only take effect from 1 June or 1 July. However, the text of the new legislation does not provide any guidance as to what rules apply to these players and whether they have the right to opt out or not, as their opt-out would now take place after the entry into force of the ban.

In a first step, a leaflet issued by MAVIR was used to address the lack of information caused by the text of the legislation. According to the procedure explained in the leaflet, producers opting out as of 1 June will be governed by the rules in force before 26 May, i.e., they are free to join another balancing group without the prerequisite to conclude a premium subsidy agreement, and will also be allowed to opt back into the KÁT balancing group, subject to the 12-month rule.

The situation is less fortunate for producers who leave or would have left on or after 1 July, as the leaflet states that opting out and opting back into the KÁT balancing group will be governed by the “prohibitive” rules in force from 26 May, which means that they can join another balancing group instead of the KÁT balancing group only on condition that they sign a premium subsidy agreement, plus they will not be able to re-join the KÁT balancing group. If a producer opting out as of 1 July has already notified MAVIR of its intention to leave, but does not actually want to opt out in view of the above legislative change, it must definitely inform MAVIR about the withdrawal of its intention to leave. Producers who still wish to opt out despite the changes must notify MAVIR immediately of their request to conclude a premium subsidy agreement in order to comply with the amendment in force.

MAVIR’s leaflet makes it clear that in the future, those leaving the KÁT regime will only be allowed to switch balancing groups on condition that in parallel with the notification of their intention to leave they take steps to enter into a premium subsidy agreement. The premium subsidy agreement must be concluded by the 10th day of the month preceding the month of the day following the opt-out.

Many players are now likely to decide to stay in the regime because of the change in the settlement system despite all the time, money and energy they have invested in preparing to leave - the value of which has now been wiped out overnight.