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©ICIS HEREN - EU to pay for termination of Hungarian PPAs

2010-04-06

The European Commission has approved an aid scheme to compensate Hungarian power generators for the early termination of long-term power purchase agreements (PPAs) after the liberalisation of the market. Three generators are in line to benefit from compensation for the cost of terminating their PPAs – Budapesti, owned by EDF, GDF SUEZ subsidiary Dunamenti and Panon, a subsidiary of Dalkia. The 1998 Commission resolution found that PPAs amounted to illegal state aid. This is incompatible with the EU internal market and, in June 2008, Hungary was required to terminate these agreements and recover the aid granted since the country joined the EU (see EDEM 4 June 2008). The compensation will cover the shortfall in investment cost repayment over the assets` lifetime, including a reasonable profit margin. But in practice, the sum of compensation will be deducted from the aid to paid back. Originally, around two-thirds of the power generated in Hungary was sold under PPAs to MVM, the state-owned power wholesaler. Between 1995 and 2001 MVM established fixed-price contracts with 10 generators for fixed volumes of power in order to increase investment in the country’s electricity sector. As this provided the generators with a guaranteed return without a commercial risk, the Commission ruled PPAs contravened EU principles of competition, as new entrants into the market would be disadvantaged. (THE ICIS HEREN REPORTS - EDEM 14.081 / 28 April 2010)

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