14-07-2021
In the past few years several hundred megawatts of installed solar capacities have been developed by SolServices Ltd. in Hungary. The implementation of one of the largest (2x48MW) of these investments, is planned to be launched soon in the northern part of the Great Plain region, while the developer also intends to sell part of these projects. “In the future we intend to implement new technologies in Hungary, as well as exploring new business fields”, said dr. Gábor Farkas, Managing Director of the company.
What is the current stage of the solar projects of Sol Services Ltd.?
In the past three years we have developed photovoltaic capacities of over 700MW in Hungary, through which we have become one of the most significant investors in the domestic market. Now that we have managed to obtain the last permits from the authorities, we have reached a milestone where we must decide which developments to pursue as our own investment, and where to involve external partners. The market justifies the work we have completed, as well as the need for solar parks of large installed capacities. We can compare these projects to real estate development, where the investor usually makes similar decisions after a project has obtained all the permits required to start the construction works.
In the past few years we have managed to establish a considerable knowledge-base for developers by simply going through the permit process of large-scale solar parks together with the authorities and the local non-governmental organisations, as there had been no previous experience in this field.
As the legal successor of DNN Solar Partners Ltd., SolServices Ltd. has been carrying out photovoltaic power plant development activities of large capacities close to 50MW since 2017. The solar boom started in Hungary in 2016, when the characteristic project size was of an installed capacity of 0.5MW. SolServices Ltd. was the first in Hungary to start developing solar parks of a multiple of this size.
When will the first solar park, constructed by your company, start commercial operation?
We expect the first solar park constructed as our own project to be ready to connect to the public grid in June, 2022. We are currently in the preparatory phase of the building process, including site preparation and reinforcing the access roads.
As a result of this investment we will construct one of the largest solar parks of the country. The significance of this investment – two neighbouring projects of which represent a combined capacity of 2x48MW – can be well demonstrated by the fact that after the construction of the project it will be able to generate enough electricity to secure the entire annual electricity supply of 42% of the residential electricity demand of the region. Its positive impact from the perspective of climate protection is significant. Thanks to using environmentally-friendly technologies, we will protect the atmosphere from approximately 39 thousand tonnes of carbon emissions per year, which is equivalent to the CO2 sequestration capacity of 274 hectares of forest.
Furthermore, this will be the first new-generation, nature-friendly large-scale solar park in the country, and it was an express goal even in the design phase to support the growth of ecological diversity, and to provide a real habitat for the flora and fauna of the region.
What are the considerations for potentially selling parts of the project?
Whether we implement a permitted project ourselves or sell it requires a complex deliberation process and the decision of the owners, as decisions are not set in stone years ahead. First of all, we have to check under what conditions and in what schedule the external financing, required side by side with the indispensable self-funding, can be obtained. When weighing the alternatives, it is an important consideration that solar parks can be constructed quickly, and therefore both their own funds and the external financing must be provided on schedule.
Another consideration when making a decision whether to implement or sell the project is the fact that the construction works must be completed within the originally provided deadline, because on the regulated energy market, permits are issued with a definite validity period. In line with this, yet another consideration is that our power plant portfolio is quite diversified, which limits our ability to manage parallel construction works at more sites, and on top of that there are limited construction sector capacities, as the difficulties in the building industry affect this field as well and therefore capacities are highly restricted here.
Furthermore, it is important to note that decisions also have to fit in a strategy efficiently reacting to the continuously changing economic environment.
While at the time of the establishment of our company in 2017 our aim was to construct significant capacities, as a result of a continuous change in the circumstances we now believe in a much more organic and diversified portfolio, based on our wide-ranging in-house professional experience and expert specialist team. This has a fundamental value for us, and we wish to rely on this in the long term and establish a service business line. Naturally, the construction and operation of our own power plants will be an important element of our activities in the future, too, but this is no longer a priority among the business objectives of SolServices.
This kind of approach will soon take a physical form as well, because you have recently launched a special initiative to prepare a sectoral white paper.
Yes. Environmental awareness has been a key consideration for us from the beginning, and we lay great emphasis on the protection of the environment and the implementation of solar parks in an ecologically friendly way. Our aim is that not only electricity becomes green, but that we also take care to fully connect the facility we develop to the local ecological cycle. This is why we launched this initiative to prepare guidelines (i.e. a White Paper) as a joint effort of 12 key sectoral stakeholders, to lay down the basic concept of developing new-generation solar parks.
This fills a niche in Hungary. The fact that a solar park is a kind of environmental protection investment has already come up in the thinking of developers, but the goal of integrating the power plant sites into nature and the related comprehensive approach have not appeared before on the domestic market in a systematic way. The special guidelines will offer a summary of international principles, results and best practices, a kind of collection of recommendations to the developers, investors and operators of solar parks. Solar projects can be optimised along these lines to meet several kinds of expectations at the same time: to maximise energy production while in the meantime re-connecting the investment area to the ecological cycle, thereby ensuring value for our development ideas by integrating the basic principles of ecological farming.
We are very pleased that professional associations, energy and green industry stakeholders, national parks, the country’s beekeepers’ association and our competitors offered collaboration to promote this objective, and thanks to our combined work we will be able to publish the white paper in the near future.
Fortunately, today this approach can already be found in the regulatory framework, namely, in prioritising agricultural photovoltaic solutions in the permit process for using arable land for other purposes than agriculture. This is a new approach on the side of the lawmakers, but there are encouraging results in the operation of such solar parks abroad. Under appropriate conditions, this can be a realistic alternative in the case of future photovoltaic developments in Hungary.
In the third renewable energy support tender (METÁR) the regulator lowered the upper limit of the large-scale category from 50MW to 20MW again. How do you evaluate this measure, considering solar energy generation costs and the outlook for Hungarian solar capacity increase?
We are continuously monitoring the experiences of METÁR tenders, and currently examining the possibility and conditions of taking part in the third tender, still open until the end of July. At the same time, we hope that there will be opportunities in the future, too, for larger projects to take part in the next tenders. Large-scale solutions are not necessarily bad. On the contrary, I am convinced that fitting in large-scale solar parks is beneficial for the electricity system. Naturally, this should be done after taking into account the security of the system and the security of supply as primary considerations. We do not agree with covering the whole Carpathian Basin with solar cells, but larger scale solar parks could be integrated into the Hungarian system by taking care of keeping the balance at the system level. Mainly by the proper use of nature-friendly or agrivoltaic solutions, as mentioned above.
As far as production costs are concerned, project developers must take into account the consequences of the coronavirus pandemic, too. The trend we can see is that while earlier the price of solar components plummeted steeply for long years, there has been a turn as a consequence of the pandemic, nowadays the key suppliers may modify the list price and the delivery terms even within hours. We look forward to seeing how the global market circumstances, together with the jump in balancing energy prices, influence the bid prices submitted for the METÁR tender.
Based on the previous two tenders we can establish that bidders require less and less support, which means that we are not far from the stage when solar developments can become feasible on the Hungarian market without any kind of state subsidy for deployment and operation. However, there is a considerable regulatory obstacle, which would be worth revising so merchant-based solar projects could multiply in Hungary, too.
The so-called Robin Hood tax of 31% was introduced in 2008 within the framework of the act designed to make district heating suppliers more competitive, and it really burdens – with very few exceptions – the energy suppliers. Whoever sells electricity outside of the feed-in tariffs system(FIT) or the renewable energy support scheme (METÁR) is subject to this tax. Although most of the bidders taking part in the METÁR tender submitted bids offering a price under the market reference price, this cannot be repeated outside the framework of the tender, because the impact of the Robin Hood tax on the results makes it impossible for the developers to design a project with a feasible business plan. We would consider it reasonable to review the regulations.
There is another key question affecting the business environment. One of the most important factors of a solar development is whether there is a suitable grid connection point available at the given site. For many years grid connection points could be obtained against an administration fee, and an independent “industry” was built on this: many market participants only obtained these opportunities to sell them at extra profit to the real investors. The legal environment has fortunately been changed and we are currently waiting for the enforcement decrees, which could result in a clearer market, meaning that the available grid connection points could be obtained by the project developers that actually intend to carry on with the permit process, as well as the construction and long-term operation of the power plants.
Another regulatory deficiency is the fact that the real estate register is not fully prepared for solar developments, because it is still not clear whether solar power plants qualify as movable or immovable properties. This is a particularly important problem in the case of green-field projects, because the project development team usually operates as an economic entity, while according to the current regulations in Hungary economic entities cannot acquire real estate qualifying as agricultural land. This means that developers are not able to implement the investment on their own land, but they have to carry out the construction on a third party property, because on the basis of the effective laws the site remains listed as agricultural land until the developer receives the commissioning licence for the completed project. It is only on the basis of the commissioning licence that the competent Land Registry Authority is entitled to re-classify the investment site to the category of “other industrial site”, which can then be acquired by legal entities as well. Carrying out the construction on a third-party property always adds to project risks and it raises serious concerns on the side of banks as well, that is, how far the land owner as a lienee is responsible for the project risks.
I think if we get an answer to these questions, the investment boom that started at the end of 2016 will not end, the capacity additions can continue and new solar generation records can be achieved, which is all the more necessary, because Hungary has set the objective to reach 6000MW solar capacity by 2030. However, it is important that the sector follows these ambitious targets while fully respecting system security and stability in the meantime.
What kind of development plans do you have for the future? Are you planning to build energy storage facilities or implement other new technologies in Hungary?
In the future we would like to lay the emphasis on the application of new technologies, while also proceeding with classical project development, either within the framework of the METÁR scheme, or – should the conditions change accordingly – within free market conditions (on a merchant basis).
At SolServices Ltd. a team with complex development experience has been established, and it followed through the projects of the past three years. We are looking forward to finding new opportunities, and the utilisation of brownfield sites is a priority for us, in line with the lawmakers’ intentions relating to the quantity and quality of arable land, also appearing among the conditions of the METÁR tender.
During the past few years we have spent a lot of energy on taking into account the aspects of the protection of arable land, and as a result now we indeed have a large-scale project where we don’t even reach an average of 1.65 golden crown per hectare. However, we would like to proceed further in this direction and therefore we continuously monitor opportunities that involve both classical industrial sites and other kinds of sites requiring special expertise, for instance using industrial lakes for the deployment of solar power plants. We would like to implement this kind of sectoral approach in Hungary.
We are in the process of analysing alternative technologies, including energy storage, with special regard to the rise in balancing energy prices. We are also examining the question of how the operation of solar cells can be made more efficient, with special regard to large-scale solar parks that are often comprised of 150-170 thousand solar panels. Our cooperation in research and development is dedicated to developing the detection of weak points in the system and underperforming panels.
We study the opportunities inherent in energy communities, as the legal framework for establishing such already exists in Hungary. Thanks to this, it will become possible to separate the place of production and consumption even in the case of prosumers (who both produce and consume the electricity), as it will become possible to place solar panels not only on family houses but in other ways, as a member of a community.
Full text of this interview is available at portfolio.hu website in Hungarian. Published: 14 July 2021.
(Photo: portfolio.hu)