Exploring Trade-offs in the Hungarian Renewable Energy Market

While there are several research projects on the Hungarian renewables market, until now only partial aspects of the RES-related trade-offs of the Hungarian energy market have been recognized. Due to the size and the diversity of the industry, the research has focused on one particular problem set (e.g., technology, value chain, strategy, regulatory) and only has a glimpse of some of the trade-offs. To develop the comprehensive list of the relevant RES trade-offs in Hungary we aimed to reach a common understanding across the industry actors. Hence, we used concept mapping as a mixed method and relied on the inputs of 42 respondents, who were stakeholders in the energy value chains. In the iterative process, 40 statements became part of the ‘reduced list of statements’ that consisted of the actions and the trade-offs. The statements were then evaluated by the participants. With hierarchical cluster analysis the five-cluster solution was identified as the best fit and then their labeling was discussed by the respondents. The 5 labeled and ranked clusters were: 1) Low level strategy (regulations, pricing, complexity management) (3,35/5) 2) High-level strategy (regulatory, tariff system, cooperations) (3,29/5) 3) Infrastructure development (technology, PR) (3,19/5) 4) Network optimization (network operation, resource management) (3,11/5) 5) Social aspects (stakeholder impact) (2,20/5) The linear correlation coefficients between the various subgroups were very high. Comparisons were made of industry experience (‘Juniors’, 'Mid-level', ‘Seniors’), type of affiliation (‘State controlled’, ‘Not state controlled’) and qualification (‘Economics and Management’, ‘JD’). Overall the respondent group had a strong agreement on the importance of the factors with a same trend in all cases. With the ladder graphs in almost all cases some potential disagreements could be identified. The suggested utilization of the results: 1) Inputs for relevant stakeholders to prioritize between RES technologies (e.g., National Energy Strategy). 2) Guide for in-house strategy and decision-making, a practical 'check list' for industry experts when RES-related complex technical-, legal- and economic problems are analyzed. 3) A formalized, in-depth discussion framework on the challenges (and trade-offs) of the Hungarian RES market for further research. With the case study methodology we found that: 1) the national public utility service provider (former ENKSZ / current NKM) is not even five years old but already has a ‘long’ and thought-provoking history. 2) NKM was created with strong state support and by increasing market concentration. Economies of scale and lack of competition allows NKM to start to change its strategy from cost leadership to product differentiation including the support of RES technologies and electric vehicles. 3) the strategic focus shift of NKM towards ‘customer intimacy’ and even ‘product leadership’ could promote RES solutions or ease many of the pressing trade-offs. 3 From the customer’s point of view the change in value discipline could be beneficial. However, the state’s expectation for affordable energy (‘operational excellence’) is present, which is potentially strategic and a supply chain risk is present. Finally, on the basis of this dissertation we suggest the further research directions i) the RES trade-offs on the high and low strategy levels, ii) the application of concept mapping for relevant energy industry issues and iii) to explore the increased state-ownership effect on RES development. This research focused on Hungary, the Hungarian renewable energy market and the inherent policy trade-offs related to the dynamically changing desirable energy mix of this country. Our respondents are among the primary influencers of decisions in the Hungarian energy sector; they do know the causal links and the whys behind the actions. Consequently, this study has very high internal validity (the extent to which we can infer that a relationship between two variables is causal), the representations given show valid causal linkages. Additionally, we can argue - in the spirit of Donald T. Campbell’s Proximal Similarity Model, which is just a different name for external validity (generalizability to other settings) - that the Hungarian situation is not unique, the neighboring countries, particularly the Czech Republic, Poland and Slovakia (the Visegrád Group), are very much in the same boat with Hungary. These countries face similar challenges regarding energy strategy (e.g., finding the proper RES technology within their energy mix), network development and optimization (e.g., cross border capacities, balancing north-south power loads) and social issues (e.g., controversies of the coal industry). So, the results presented here have external validity and are, to a varying extent, applicable to these countries.