Hungary’s goals for dramatically expanding its manufacturing capacities present a challenge for a country that has also set its energy sector formidable environmental objectives. In 2020, it became one of the first nations worldwide to pass legislation committing it to carbon neutrality by 2050, plus it aims for 90% of its electricity to come from low-carbon sources by 2030.
On top of that, Hungary is focused on continuing to offer some of the European Union’s lowest electricity and gas tariffs, while also boosting its energy independence: according to the International Energy Agency, it relies on imported oil and gas for around 59% of its energy needs at the moment, with its domestic production being generated from natural gas, oil, coal, expanding amounts of renewables such as biomass and solar, as well as nuclear power, which is seen as a crucial component of Hungary’s current and future energy mix if it is to meet its goals.
“Due to the ambitious national decarbonization targets, massive industrialization and the extensive electrification of the country, we expect a continuous increase in demand for a great volume of base-load carbon-free electricity in the upcoming decades, which cannot be supplied by intermittent sources exclusively if we want to secure energy independency,” explains László Fazekas, chief financial officer of the state-owned MVM Group, Hungary’s largest vertically integrated energy and utility enterprise that has a predominant role in implementing the nation’s energy strategies.
MVM’s activities cover the entire energy value chain and, to give an indication of the importance of the group, it employs more than 18,000 people and generates around $8 billion in revenues a year, making it Hungary’s second-biggest business overall and the 10th largest in Central Europe. It has a presence in 23 countries and over 11 million customers, mainly in Hungary but also in other European nations, particularly the Czech Republic.
Fazekas describes MVM as an asset-heavy utility: “We have the largest power generation portfolio in Hungary, with more than 3.9 gigawatts installed capacity, which in 2021 contributed over 20 terrawatt hours of electricity, 60% of domestic power generation.” Central to this portfolio is the country’s only nuclear power plant, the 2-gigawatt Paks facility. MVM also operates the 0.9 gigawatt coal-fired Mátra power plant, a 300-megawatt fleet of renewable energy that is rapidly expanding and 700 megawatts of gas-fired units, which are essential for providing flexibility to the electricity system.
“Beyond power generation, the other major part of our assets is extensive energy infrastructure, including massive grid infrastructure as we have a monopoly in Hungary’s transmission system, natural gas pipeline infrastructure and over 4.4 billion cubic meters of gas storage facilities — that is about 65% of Hungary’s total capacity, which is the sixth-highest in the EU,” states Fazekas.
He goes on to summarize MVM’s core asset-light activities: “Our subsidiaries include Hungary’s largest power and gas wholesalers, we are market leader in the open-market retail sector, all Hungarian households are supplied with power and gas by MVM and we have a downstream presence in many countries in the region. We are also strong in alternative mobility in terms of e-mobility and compressed natural gas in both Hungary and the Czech Republic, and in small-scale behind-the-meter solutions.”
As the backbone of the Hungarian energy sector, it fell to MVM to ensure supplies remained secure, stable and affordable during 2022, a year of energy tensions across Europe and skyrocketing, volatile global prices for gas and electricity. To mitigate the negative impacts of the crisis, the government implemented a seven-step action plan with the active participation of MVM Group.
“Our main focus was preparing for winter’s supply of natural gas and we filled Hungary’s gas storage facilities. We also increased domestic power generation, which meant intensifying production at Mátra for a temporary period, and we started to be more active in the gas upstream segment. We regard this as a strategic investment and see some promising opportunities in this area in the region,” he reveals.
The results of that investment started bearing fruit in February when, after positive drilling and production tests, MVM and its partner, a subsidiary of US-based Aspect Holdings, fired up a new unconventional field in the southeast of the country. Hungary hopes to raise annual domestic gas output from 1.5 billion cubic meters to 2 billion.
While contributing to Hungary’s energy security is a top priority for the group, becoming net zero for carbon by 2050 is similarly important and its electrical and thermal energy generation activities are already over 78% carbon neutral. “MVM’s sustainability efforts are fully in line with the decarbonization goals of the EU and Hungary. Our decarbonization strategy has four pillars: on the one hand, direct emissions reduction through phasing out coal, more clean energy generation and fostering energy efficiency. And on the other, transitioning from coal to gas with combined-cycle gas turbine projects. We’re also looking at gas alternatives like hydrogen, biomethane and biogas, plus we’re taking voluntary carbon reduction measures and participating in other sustainability programs,” Fazekas says.
The main element of MVM’s decarbonization strategy is to phase out lignite use at Mátra, Hungary’s last remaining coal-fired power plant, and a substantial transformation project is underway that is converting the site to gas, biomass and solar power. The group’s program to expand the life of its Paks nuclear plant is another key to securing both adequate clean power supplies and greater energy independence in the future. The plant consists of four blocks, which were set to expire between 2032 and 2037 — however, in 2022 MVM began preparatory work to extend their lifetimes by 10 to 20 years.
In addition, the country is planning to construct a second nuclear plant near to the current Paks site. As Fazekas is keen to stress, “This project is fully owned and sponsored by the state but, due to EU competition law, it is entirely independent from MVM. It is very clearly stated in Hungary’s energy strategy that we would like to preserve nuclear power generation in our energy mix and I believe that both the lifetime extension of Paks I nuclear power plant and the new Paks II project are vital for energy sovereignty.”
The country’s energy strategy also calls for the share of renewables in its mix to rise from around 14% to 21% by 2030, with solar expected to account for the majority of that increase, and MVM is playing a considerable part in keeping the country ahead of schedule to meet this ambition. “Renewables have been MVM’s fastest-growing generation sector and we plan to continue to build our portfolio to reach at least 800 megawatts by 2025-2026. In the long term, we would like to attain a 25% market share in the renewable segment. Besides solar photovoltaic facilities, we are also preparing biomass and geothermal projects, and we are going to revisit the possibilities of installing further wind-power capacity,” he comments.
Hungary’s accelerated installation of intermittent renewable capacity requires wider investment from MVM in the nation’s energy networks, Fazekas adds: “A core goal for the next five to eight years is to strengthen our power grid in terms of both transmission and distribution systems to integrate more renewables. Extensive digital transformation is one of the key pillars of MVM’s strategy. We are focused on asset digitalization to foster renewables and on the development of smart-energy solutions.”
The power giant is also investing in expanding its footprint within Central Europe. It already has a significant presence in the region, particularly as an energy wholesaler, while its energy exchange subsidiary HUPX is the most liquid power exchange in Central Eastern Europe and provides reference prices for the Balkan countries as well.
Fazekas notes that: “MVM’s aim is for 25% of our earnings before interest, taxes, depreciation and amortization to be coming from international activities by 2025. We have some primary target markets — like the Czech Republic, Romania, Serbia and Croatia — and our largest acquisitions have been in downstream operations. A very important milestone for us was 2020’s purchase of Innogy Česká Republika, the largest gas and a growing power retailer in the Czech Republic. That brought us 1.1 million new gas customers and 0.4 million new power customers. Last year, we also acquired two leading Serbian energy engineering, procurement and construction companies.”
Parallel to this geographical expansion, in recent years MVM has invested in diversifying its portfolio into sectors outside but supplementary to energy, such as telecommunications, financial, security and insurance services. “Our base of over 11 million customers represents huge value for additional services and so we’re working to become a complex solution provider for those households and businesses with regard to needs they have that are connected to energy supply,” he explains.
Despite this diversification, energy will remain the heart of the group’s business, Fazekas insists: “Our vision is to become a top regional utility company with a strong focus on clean energy and end-to-end customer solutions, which means we are concentrating our efforts on decarbonization, renewables, flexibility capacities, power infrastructure development and international acquisitions. These are the central elements of MVM’s strategy for the coming years.”