1.12.2017   

EN

Official Journal of the European Union

L 317/45


COMMISSION DECISION (EU) 2017/2112

of 6 March 2017

on the measure/aid scheme/State aid SA.38454 — 2015/C (ex 2015/N) which Hungary is planning to implement for supporting the development of two new nuclear reactors at Paks II nuclear power station

(notified under document C(2017) 1486)

(Only the English version is authentic)

(Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments (1) and having regard to their comments,

Whereas:

1.   PROCEDURE

(1)

On the basis of press articles and informal contacts with the Hungarian authorities, on 13 March 2014, the Commission started a preliminary investigation into possible State aid involved in the construction of Paks II nuclear power plant (‘Paks II’) under the case number SA.38454 (2014/CP).

(2)

After several exchanges of information and formal meetings, the Hungarian authorities notified the measure for legal certainty on 22 May 2015 stating that the project involved no State aid within the meaning of Article 107 of the Treaty on the Functioning of the European Union (‘TFEU’).

(3)

By letter dated 22 May 2015, Hungary notified the Commission a measure to provide financial contribution for the development of two new nuclear reactors in the Paks site.

(4)

By letter dated 23 November 2015, the Commission informed Hungary that it had decided to initiate the procedure laid down in Article 108(2) TFEU in respect of the measure (the Opening Decision). This Commission Decision was published in the Official Journal of the European Union (2). The Commission invited interested parties to submit their comments.

(5)

Hungary sent its comments on the Opening Decision on 29 January 2016.

(6)

The Commission received comments from interested parties. It forwarded them to Hungary, which was given the opportunity to react. Its comments were received by letter dated 7 April 2016.

(7)

Further information was submitted by Hungary on 21 April, 27 May, 9 June, 16 June, 28 July 2016, 16 January 2017 and 20 February 2017.

(8)

On 12 September 2016 the Hungarian authorities provided a language waiver and agreed that the decision will be adopted in English as the authentic language.

2.   DETAILED DESCRIPTION OF THE MEASURE

2.1.   DESCRIPTION OF THE PROJECT

(9)

The measure consists of the development of two new nuclear reactors (units 5 and 6) in Hungary, whose construction is fully financed by the Hungarian State for the benefit of the entity Paks II (MVM Paks II Nuclear Power Plant Development Private Company Limited by Shares) that will own and operate the new reactors.

(10)

The Russian Federation and Hungary concluded an intergovernmental agreement (IGA) on a nuclear programme on 14 January 2014 (3). Based on the IGA, both countries shall cooperate in the maintenance and further development of the current Paks nuclear power plant (Paks NPP). This includes the design, construction, commissioning and decommissioning of two new power units 5 and 6 with VVER (water-cooled water moderated) type reactors with installed capacity of each power unit of at least 1 000 MW (4) in addition to the existing power units 1-4. The operation of units 5 and 6 is intended to compensate for the loss in capacity when units 1-4 (2 000 MW altogether) retire. Hungary submitted that units 1-4 will be in operation until the end of 2032, 2034, 2036 and 2037 respectively, without envisaged prospect of further lifetime extension.

(11)

Pursuant to the IGA (5) both Russia and Hungary would designate one experienced State-owned and State-controlled organisation which would be financially and technically responsible for fulfilling its obligations as contractor/owner in relation to the Project.

(12)

Russia has appointed Joint-Stock Company Nizhny Novgorod Engineering Company Atomenergoproekt (JSC NIAEP) to construct the new reactors (units 5 and 6) and Hungary has appointed MVM Paks II Nuclear Power Plant Development Private Company Limited by Shares (1) (‘Paks II’) to own and operate the two reactors.

(13)

Whilst the IGA sets out the general rights and obligations of nuclear cooperation between the two countries, the detailed implementation of the IGA is to be specified in separate agreements called the ‘Implementation Agreements’ (6) as follows:

(a)

the engineering, procurement and construction contract for the construction of the two new VVER 1200 (V491) units 5 and 6 at the Paks site is to be called the ‘EPC Contract’;

(b)

the contract stipulating the terms and conditions for the cooperation on operation and maintenance of the new reactors is to be called the ‘O&M contract’;

(c)

the agreement on the terms for fuel supply and management of spent fuel.

(14)

JSC NIAEP and Paks II concluded the EPC Contract on 9 December 2014, which stipulates that the two new units 5 and 6 are meant to start operation in 2025 and 2026 respectively.

(15)

Separately, Russia undertook to provide Hungary with a state loan to finance the development of Paks II. This loan is governed by a Financing Intergovernmental Agreement (the Financing IGA) (7) and provides a revolving credit facility of EUR 10 billion which is limited to the sole use of the design, construction and commissioning of power units 5 and 6 at Paks II. Hungary will use this revolving credit facility to directly finance the investments in Paks II necessary for the designing, construction and commissioning of the new power units 5 and 6, as set out by the Financing IGA. Further to the Financing IGA, Hungary will provide an additional amount of up to EUR 2,5 billion from its own budget to finance the investment at Paks II.

(16)

Other than the investment support outlined in recital 15, Hungary does not intend to grant any other financial support to Paks II once power units 5 and 6 have been constructed. The new units will operate under market conditions without any fixed amount of revenues or guaranteed price. Hungary considers that at this stage raising any debt directly by Paks II will not be necessary.

2.2.   OBJECTIVE OF THE MEASURE

(17)

As explained in the Opening Decision, Paks NPP is the only nuclear power plant operating in Hungary. It belongs to the 100 % State-owned electricity trader and power producer Magyar Villamos Művek Zártkörűen Működő Részvénytársaság (‘the MVM Group’) (8). Its four units have a total installed capacity of 2 000 MW, each one of which is currently equipped with Russian technology (VVER-440/V213). The units will be gradually phased out by 2037 (see recital 10).

(18)

Electricity generation from nuclear sources plays a strategic role in Hungary’s energy mix, as approximately 50 % of the overall domestically generated electricity comes from the existing four reactors at Paks NPP (9).

(19)

Based on the following objectives:

maintaining a sensible share of national resources, and

reducing Hungarian dependence on imports whilst remaining consistent with national climate policy,

the Government requested MVM Group to investigate the alternatives to the expansion of electricity production in nuclear power plants. A Feasibility Study was prepared by MVM Group that explored the implementation and financing of a new nuclear power plant that could be integrated into the electricity system and that could be operated in an economical, safe and environmentally friendly way. Based on this Feasibility Study presented in 2008 by the MVM Group, the Government proposed the project to the Hungarian Parliament, which consented to the start of preparatory work for the implementation of new nuclear power plant units at the Paks site (10). This was supported by calculations which showed that the retirement of 6 000 MW from the 8-9 000 MW gross installed capacity was forecast by 2025 as a result of the shutdown of the obsolete power plants. These plants were due to be partly replaced by the expansion of the Paks NPP.

(20)

In 2011 the National Energy Strategy for the period up to 2030 was implemented (11). That strategy focusses on a Nuclear-Coal-Green scenario for Hungary. The Hungarian Transmission System Operator (the ‘TSO’), MAVIR, projects that there will be a need for at least 5,3 GW of new generation capacity in Hungary by 2026, and somewhat more than 7 GW by 2031 as a result of future demand and the retirement of existing generation capacity in Hungary (12). MAVIR also forecasts that almost all of the current coal generation fleet will have retired between 2025 and 2030, and that the installed capacity of Hungary’s gas-fleet will have declined by approximately 1 GW, as shown in Table 1 submitted by Hungary on 16 January 2017. Hungary explained that MAVIR’s study does not take into account any imports, or new installed capacities in the projection of the required 7 GW of new capacity.

Table 1

Expected phase-outs of domestic installed capacities by 2031

MW

 

Existing

Phase-out

Nuclear

2 000

 

Coal

1 292

1 222

Natural gas

3 084

960

Oil

410

 

Intermittent renewables/weather-dependent

455

100

Other renewables

259

123

Other non-renewables

844

836

Sum

8 344

3 241

Source: Hungarian authorities (Mavir)

(21)

Hungary and Russia signed the IGA with the objective of developing new capacities at the Paks site. Hungary explained that by keeping nuclear generation in the fuel mix, it could address the need to replace phased-out capacity, to develop new capacities and to meet Hungary’s target as regards Union climate objectives (especially those related to the anticipated decrease of CO2 emissions).

2.3.   DESCRIPTION OF THE NEW UNITS — THE TECHNOLOGY TO BE DEPLOYED

(22)

The new units 5 and 6 at Paks II NPP will be equipped with VVER 1 200 (V491) technology and will be more advanced Generation III+ reactors. Hungary explains that the technical specifications of the units to be deployed at Paks II will give rise to notable advantages over the current Paks NPP units such as increased efficiency, and more economic operation in addition to enhanced safety features.

(23)

Apart from the significantly higher installed capacity of VVER 1 200 (V491), there is also a material difference in the envisaged operating lifetime (60 years for VVER 1 200 units as opposed to 30 years for the existing units of Paks NPP) and wider manoeuvrability, which allows for the capacity of each unit to be adjusted according to demand on the grid within a certain range.

(24)

The reduction in the amount of fuel required by the new units also reflects technological improvements in recent years. Instead of the existing 12-month fuel cycle, the new units can operate on an 18-month cycle. This means that the new units will require fewer shut-downs per year for fuel reloading and the plant will be able to operate for longer on average each year and not lose production time.

(25)

The technical specifications also indicate that the power density, which will be provided by the new fuel assemblies, will be significantly higher than the existing fuel assemblies. This in turn means that a higher output can be achieved per unit mass of fuel material, which may improve the economics of the plant.

2.4.   THE BENEFICIARY

(26)

As explained in Section 2.3 of the Opening Decision, the beneficiary of the measure is the company Paks II, currently owned by the Hungarian State. The shareholder rights are exercised by the Prime Minister’s Office. Paks II will own and operate the reactors units 5 and 6 that are paid for by the Hungarian State.

(27)

Recital 19 of the Opening Decision explains how the shares of Paks II held originally by the MVM Group were transferred to the Hungarian State (13). According to the information submitted by Hungary on 30 January 2016, the purchase price of the transfer was HUF 10,156 billion, which equals approximately EUR 33 million.

2.5.   FINANCING STRUCTURE OF THE PROJECT AND RIGHTS AND OBLIGATIONS UNDER THE EPC CONTRACT

2.5.1.   FINANCING INTERGOVERNMENTAL AGREEMENT (THE ‘FINANCING IGA’)

(28)

Within the framework of the IGA (14), Russia provided Hungary with a state loan in the form of a revolving credit facility of EUR 10 billion to finance the development of nuclear power units 5 and 6 in Paks. The interest rate of the loan ranges between 3,95 % and 4,95 % (15). The loan is earmarked for the design, construction and commissioning of those new power units.

(29)

Pursuant to the Financing IGA, the loan must be used by Hungary to finance 80 % of the value of the EPC contract for the execution of works and services and delivery of equipment, while the balance of 20 % of the EPC contract shall be paid by Hungary (see recital 15). The loan must be used by Hungary by 2025.

(30)

The loan must be repaid by Hungary within 21 years as of 15 March or 15 September following the date of commissioning of both of the new nuclear power units 5 and 6, but not later than 15 March 2026 (16).

(31)

Payments under the Financing IGA may be made only once a request by the Ministry for National Economy of Hungary and a notice of approval by the Ministry of Finance of Russia have been issued.

2.5.2.   THE EPC CONTRACT

(32)

According to the EPC contract, JSC NIAEP must deliver the two reactors as set out in the detailed technical specifications by the agreed dates and for the agreed lump sum price (EUR […] (*1) billion). Every cost previously undefined is deemed to be included in this price […] (17).

(33)

The contract provides for liquidated damages (18) to be paid in specific circumstances, […].

(34)

[…]

(35)

[…]

2.5.3.   RELATIONSHIP BETWEEN THE STATE AND THE BENEFICIARY

(36)

Initially, Hungary had envisaged that Paks II would remain a 100 % subsidiary of MVM Hungarian Electricity Ltd, which itself is owned by the Hungarian State and municipalities. Since November 2014, Paks II is no longer a subsidiary of MVM Hungarian Electricity Ltd or part of the MVM Group but is a 100 % directly State-owned company that currently has no legal relationship with the MVM Group.

(37)

As regards the activity of Paks II, in particular the sale of electricity, Hungary stated that no separate power purchase agreement with a separate supplier is in place or is envisaged at this stage. The Hungarian authorities envisage that the electricity generated by Paks II would be sold on the market and to electricity consumers in accordance with typical market practice base-load power sales agreements. According to the Hungarian authorities, Paks II, as a base-load generator for an anticipated long period of operation, would be a price taker similar to existing nuclear power generators in Europe.

(38)

Paks II will be the owner of the Paks II nuclear power plant and, during the construction phase of the two reactors, it will be fully equity financed by the Hungarian State. The Hungarian authorities consider that raising any debt directly by Paks II will not be necessary at this stage.

(39)

Hungary will not transfer the funds required to transfer the purchase price for the Paks II nuclear power plant onto the accounts of Paks II. The largest part of those funds will be held by the Bank for Development and Foreign Economic Affairs of Russia (Vnesheconombank). For each milestone event that is considered fulfilled, Paks II will file a request to Vnesheconombank to pay 80 % of the amount due directly to JSC NIAEP. It will also file a request to the Government Debt Management Agency of Hungary to pay the remaining 20 %.

(40)

The rest of the financial requirements of Paks II during the construction phase will be ensured through equity from the Hungarian State budget. The initial amount earmarked during the construction phase will be up to EUR […] billion (difference between the amount of EUR 12,5 billion set for the nuclear project in the IGA and the actual purchase price of the Paks II NPP amounting to EUR […] billion). This is considered by Hungary to represent a cap on the State resources that can be drawn for the construction of the Paks II nuclear power plant, at least without further assessment. In the event that the equity requirements exceed such an amount, however, Hungary claims it will invest more if its assessment at the time concludes that it is economically reasonable for it to do so.

(41)

Hungary claims that a sensitivity analysis on possible extra costs incurred by Paks II during the construction phase concluded that its costs would have to be multiplied by 10 for the expected IRR to decrease by 1 %. Therefore, Hungary expects the impact of costs increases to be minor.

2.6.   THE HUNGARIAN ELECTRICITY MARKET

2.6.1.   DESCRIPTION OF THE HUNGARIAN ELECTRICITY MARKET

(42)

The current structure of the Hungarian electricity market was formed around 1995, when the majority of large power plants and public utility suppliers as well as distribution companies were privatised. The State retains a dominant position in the sector through the State-owned vertically integrated energy company MVM Group.

(43)

The Study of MAVIR referred to in recital 20 explains that the total domestic consumption increased by 2,7 % since 2014 reaching a total domestic consumption of 43,75 TWh in 2015. Out of this consumption, domestic production amounted to 30,06 TWh, equalling 68,72 % of the total electricity consumption (see Figure 1). Imports amounted to 13,69 TWh corresponding to 31,28 % of the total consumption. As generator, the State-owned MVM Group has a significant market presence, due to its main generation asset, Paks NPP which provided 52,67 % of domestically generated electricity in 2015, as Figure 1 shows. Mátra Power Plant is a lignite fired power plant which is owned primarily by RWE Power AG (50,92 %) whereas the MVM Group also owns 26,15 % of its shares. The additional bigger (többi nagyerőmű) and smaller (kiserőművek) power plants play a modest role in the overall generation structure of the Hungarian market. In addition, MVM Group’s vertically integrated wholesaling arm, MVM Partner, holds a dominant position in the wholesale electricity market (19).

Figure 1

Composition of total electricity consumption in Hungary in 2015

Image 1

Source:

Medium and long-term development of generation assets of the Hungarian electricity system (Mavir, 2016) (20).

Figure 2

Gross domestic electricity production in Hungary in 2015

Image 2

Source:

Medium- and long-term development of generation assets of the Hungarian electricity system (Mavir, 2016).

(44)

In Hungary, the most common transactions of wholesale are concluded via bilateral power purchase agreements (PPAs) where generators agree to sell a minimum pre-defined volume to wholesale traders and where traders are obliged to purchase a minimum volume. The PPAs are mostly concluded under the standards set out by the European Federation of Energy Traders.

(45)

The Hungarian Power Exchange Company Ltd (HUPX) started operating in July 2010 as a subsidiary company of the TSO, MAVIR. It offers day-ahead trades as well as physical future trades. Day-ahead trade starts at 11 am every day on the basis of offers and bids to be placed for each hour for the following day. Trading closes at 11:40 am at the latest. Physical future trades can be made for 4 front weeks, 3 front months, 4 front quarters and 3 front years. There are designated trading days for such transactions where offers and bids are made within a certain time interval. Since March 2016 on the HUPX Intra-day Market, both 15 minute products and 1 hour blocks are tradable. In addition to the organised day-ahead and intra-day markets, HUPX has cooperation agreements with two broker companies providing a service of submitting over-the-counter (OTC) deals for exchange clearing for common clients.

(46)

In addition to the day-ahead auctions not organised by HUPX, electricity is also traded on exchanges based in the EU or OTC platforms as well as via direct bilateral deals (see recital 44).

(47)

As seen from Figure 1 in recital 43, Hungary is a net electricity importer with imports accounting for circa 30 % of Hungarian electricity consumption. As Figure 3 shows, wholesale electricity price has been the highest in Hungary in the interconnected region neighbouring the country (i.e. excluding Poland or Slovenia).

Figure 3

Monthly average day-ahead baseload prices in the CEE region (including Hungary) and Germany (2010-2016)

Image 3

Source:

European Commission.

(48)

The short term projection of base-load prices in the region suggests the same trend, i.e. that Hungarian base-load prices will be the highest in the region (see Figure 4).

Figure 4

Regional base-load futures prices for January-June 2017

Image 4

Source:

European Commission (based on the data published by the Central European Power Exchange) (https://www.pxe.cz/Kurzovni-Listek/Oficialni-KL/).

(49)

The country is well interconnected with neighbouring countries — interconnection capacity for electricity was 30 % in 2014, above the 2020 target (21). In 2014 the Czech-Slovak-Hungarian-Romanian market coupling became operational, resulting in an increase in the liquidity of HUPX and a decrease in price volatility. Figure 5 summarises the data of electricity exchange with neighbouring countries in 2014.

Figure 5

Electricity exchange between Hungary and neighbouring countries

Image 5

Source:

Data of the Hungarian Electricity System (Mavir, 2014).

2.6.2.   DESCRIPTION OF THE ENVISAGED EVOLUTION OF THE HUNGARIAN ELECTRICITY MARKET

(50)

On the basis of the study referred to in recital 20 issued by MAVIR (22), almost all of the coal generation fleet will have retired between 2025 and 2030 and the installed capacity of Hungary’s gas-fleet will have declined by 1 GW. When compared to its estimates of peak demand growth, available generation capacity from domestic power producers is expected to fall below peak load by 2021. As a result, the TSO estimates that the Hungarian market will require at least 5,3 GW of additional new electricity generation capacity by 2026 and somewhat more than 7 GW by the end of the forecast period in 2031. This is depicted in Figure 6 below which shows that a significant amount of installed capacity beyond the growing Peak Load will be required. Hungary explained in its submission dated 16 January 2017 that it is required to ensure a certain level of remaining capacity reflecting the industry standard practices of ENTSO-E TSOs. The remaining capacity is the difference between the domestic reliable available capacity plus the national generating capacity plus peak load and the system services reserve. Remaining capacity is the part of the national generating capacity left in the system to cover any programmed exports, unexpected load variation, system services reserve and unplanned outages at a reference point.

Figure 6

Additional capacity requirement in the Hungarian electricity sector

Image 6

Source:

Medium- and long-term development of generation assets of the Hungarian electricity system (Mavir, 2016).

(51)

Hungary sets out that despite claims about the relatively large requirement for new generation capacity, the data from Platts Powervision suggests that relatively little new capacity is actually being built, as shown in Table 2. Hungary also contends that according to Platt’s data, a 44 MW waste-to-energy plant is the only power station which is currently under construction in Hungary. Hungary further explains, that while there are investor plans to build larger (gas-fired) plants, none of those projects can be considered confirmed, as investors have not yet incurred substantial irrecoverable expenses such as construction costs, which would demonstrate commitment to actually undertake the project.

Table 2

New capacities to be built in the Hungarian electricity sector

Plant

Plant Type

Primary Fuel

Nameplate MW

Online Year

Status

Dunaujvaros Chp

Waste

Biomass

44

2016

Under Constr

Szeged Ccgt

CC/Cogen

Natural Gas

460

2017

Advan Develop

Szeged Ccgt

CC/Cogen

Natural Gas

460

2017

Advan Develop

Csepel III

CC/Cogen

Natural Gas

430

2018

Advan Develop

Tolna

Wind

Wind

260

2018

Early Develop

Gyor Region

Wind

Wind

300

2019

Early Develop

Szazhalombatta — Dunai Refinery

CC

Natural Gas

860

2020

Advan Develop

Almasfuzito

Coal

Coal Generic

435

2020

Proposed

Source: Platts Powervision, data accurate as of September 2015.

2.7.   GROUNDS FOR INITIATING THE PROCEDURE

(52)

In May 2015, Hungary notified the Commission its plans to invest in the construction of the two new nuclear reactors at the Paks site for legal certainty and claimed that the measure involved no State aid, as the State is acting as a market investor seeking a reasonable profit. In the Opening Decision, the Commission expressed concerns that the measure would entail State aid within the meaning of Article 107 TFEU, based on the information available at that stage. In particular, the Commission expressed serious doubts as to whether the measure entailed a selective advantage to Paks II, as Hungary did not object to the existence of the other elements of State aid during the notification phase.

(53)

The grounds for doubts derived from the result of the Market Economy Investor Principle (‘MEIP’) test, which assesses whether a market investor would have invested in the project under the same terms and conditions as the public investor at the time the decision to make the public investment was taken (23). The MEIP test is also recognised by case law (24).

(54)

In formal terms, the MEIP test sought to justify whether the expected internal rate of return (‘IRR’) of the investment would be higher than a purely market-based benchmark of the weighted average cost of capital (‘WACC’) for the project subject to the investment (25). While Hungary estimated the IRR of the project to be larger than a purely market-based benchmark WACC, the Commission raised doubts as to whether the WACC was to be considered higher.

(55)

In light of doubts as regards the existence of State aid, the Commission further examined whether any possible State aid measures could be considered to be compatible with the internal market. However, given that the Hungarian authorities considered the measure to be free of State aid, the Hungarian authorities had not submitted, in the preliminary phase, any reasons as to why the measure would be compatible with the internal market. The Commission also expressed doubts that the measure did not fall within the scope of the Communication from the Commission — Guidelines on State aid for environmental protection and energy 2014-2020 (26), since those Guidelines do not cover measures in the field of nuclear energy and radioactive waste. Although the Commission concluded that no other Guidelines were applicable for the assessment of the notified measure, the Commission also concluded that it may declare a measure directly compatible under Article 107(3)(c) TFEU, if the measure aims to achieve an objective of common interest, if it is necessary and proportionate and where the positive effects of achieving the common objective outweigh the negative effects on competition and trade.

(56)

The Commission expressed doubts as to whether the measure could be considered to be proportionate, that is to say, whether the measure was limited to the minimum level of investment support necessary to enable the successful construction of the additional electricity generating units for the attainment of the common objective pursued. The beneficiary would receive generation assets without facing any particular risk linked to refinancing costs which other market operators would face. The Commission was not provided with any evidence as to how Hungary would prevent such overcompensation.

(57)

The Commission emphasised that the Hungarian electricity generation market is characterised by a relatively high market concentration, with the existing Paks NPP providing some 50 % of domestic generation. In the absence of new capacities, electricity generation by Paks NPP and Paks II would be likely to provide an even greater portion of the supply market, which may have a distortive effect on the Hungarian electricity market. Hungary did not provide detailed evidence to the Commission as to how it would ensure the continuous independent operation of the existing and new generating assets.

(58)

Finally, the Commission noted that due to the particularities of the Hungarian electricity market, the operation of Paks II may also cause a wholesale market liquidity risk by limiting the number of supply offers available in the market. Depending on the way the electricity produced by the new reactors is sold on the market, liquidity could be significantly affected, barriers to entry could be raised and competition could be reduced at various levels of the market. Hungary did not provide a detailed explanation as to how electricity would be traded by Paks II and how market liquidity would be ensured.

(59)

Therefore, the Commission expressed doubts that the measure could comprise State aid within the meaning of Article 107(1) TFEU.

(60)

In the absence of sufficient evidence, the Commission was also unable to reach any conclusions on the compatibility of any such measure, with the internal market under Article 107(3)(c). In addition, based on the doubts raised in the Opening Decision and given the lack of compatibility arguments from Hungary at that time, the Commission explored a series of competition distortion concerns and possibilities that Paks II might be overcompensated.

(61)

As regards the doubts on proportionality expressed in recital 56 above, the Commission examined whether Paks II could, as a result of the aid, reinvest any profits that are not paid to the State in the form of dividends in order to develop or purchase additional generation assets and thus, strengthen its position on the market.

(62)

As regards the doubts on proportionality expressed in recital 56, the Commission also investigated Hungary’s intended dividends policy, in particular whether it would request dividends (at its discretion depending on the profit achieved by Paks II) or rather leave profits with Paks II. The Commission was concerned that Paks II could use its profits to reinvest by developing or purchasing additional generation assets and further distort competition.

(63)

As set out in recital 57, due to the relatively high concentration level of the Hungarian electricity generation market and with the current nuclear power station Paks NPP (MVM Group) providing some 50 % of domestic generation, the Commission had concerns whether Paks NPP and Paks II would be held separately and could be considered independent and unconnected. The fact that Paks II is currently legally independent from the MVM Group was insufficient for the Commission as it did not receive any information during the notification phase as to whether the Paks NPP and Paks II would continue to operate fully separated legally and structurally. Such clarifications appeared necessary in order to minimise the risk of a further increase of market concentration.

(64)

Furthermore, as explained in Section 2.6, the most common transactions in the Hungarian wholesale power sector are concluded by way of bilateral PPA’s and that the Hungarian Power Exchange (‘HUPX’) has not yet triggered an adequate level of liquidity. As the Hungarian notification did not refer to the expected methods of electricity sales of electricity from Paks II, the Commission investigated the effect of Paks II on Hungary’s current liquidity levels within the wholesale power sector.

(65)

Considering the market liquidity doubts presented in recital 58, the Commission wanted to ensure that a wide range of supply offers are available on the market, particularly in light of MVM Partner’s dominant position on the electricity wholesale market (27). The Commission was concerned that liquidity levels could be significantly affected and that the costs of downstream rivals may be raised by restricting their competitive access to an important input (input foreclosure). This could happen if the electricity produced by Paks II was sold primarily by way of long term contracts to only certain suppliers, thus converting Paks II’s market power in the generation market to the retail market.

(66)

The Commission, therefore, sought additional information in relation to Paks II’s power output trading strategy, with special attention as to whether it would be at arms-length terms by offering its electricity on the exchange or any other transparent trading platform.

3.   THE POSITION OF THE HUNGARIAN GOVERNMENT

3.1.   HUNGARY’S POSITION ON THE EXISTENCE OF AID

3.1.1.   ECONOMIC ADVANTAGE

(67)

Hungary claims in the notification that the investment does not constitute State aid within the meaning of Article 107 TFEU as it does not confer an economic advantage to Paks II. Hungary supports this claim by indicating that the Paks II investment complies with the MEIP test (see recitals 53 and 54).

(68)

In particular, Hungary claims that the MEIP test is satisfied in two ways (28). Firstly, the WACC of the project is found to be lower than its IRR. Secondly, it is argued that the levelised cost of electricity (‘LCOE’) is sufficiently low to make nuclear competitive with respect to other generation technologies and to offer reasonable returns under prevailing electricity prices (29).

(69)

The following studies and supporting documentation were submitted by Hungary to support its view:

(a)

The Market Economic Investor Principle substantiating analysis (‘MEIP Study’, 18 February 2015),

(b)

Economic analysis for the Paks II nuclear power project (‘Economic Study’, 8 October 2015) (30),

(c)

Letters to the Deputy Director-General for State aid reflecting on the preliminary analysis of the Commission (Clarifying Letters)

First letter (‘First clarifying letter’, 16 October 2015),

Second letter (‘Second clarifying letter’, 29 October 2015),

(d)

Submissions reflecting on the Opening Decision (Response to the Opening Decision)

Letter to the Deputy Director-General for State aid following the publication of the Opening Decision by the Commission on 3 December 2015 (‘Letter acknowledging the Opening Decision’),

Submission by Hungary to the Commission on 29 January 2016 (‘Submission reflecting to the Opening Decision’),

(e)

The Government of Hungary’s response to third party comments on the State aid Opening Decision on 7 April 2016 (‘Response to Third Party Comments’),

(f)

Response to the request for information dated 18 March 2016 on 21 April 2016 (‘Further Clarifications’).

(70)

Furthermore, the Hungarian Government also submitted a financial model that was used to compute the IRR figures for the project. Two versions of the model were submitted to the Commission:

(a)

Original version on 16 March 2015 (‘Preliminary Financial Model’)

(b)

Final version on 16 October 2015 (‘Financial Model’).

(71)

Except for the ‘Further Clarifications’, the documents listed in recital 69 address the topic of WACC and IRR computation, albeit with various levels of detail. The IRR of the project is computed by using the Financial Model (31). The LCOE approach is discussed in the Economic Study and in the ‘Further Clarifications’ (see recital 69).

(72)

In terms of analysis by Hungary, the documents listed in recital 69(c)-(f) include various updates of the figures submitted in the MEIP study, and subsequently in the Economic Study. In particular, some updates are dated after the signing date of the EPC contract on 9 December 2014, i.e. the initial investment decision.

(73)

The Opening Decision provides a detailed evaluation of Hungary’s position on each key issue as reflected in its submissions up to the date of the Opening Decision (32). The remainder of this section provides an overview of Hungary’s position on the key issues raised following the publication of the Opening Decision. In particular, the application of the WACC and IRR, as well as the LCOE will be presented separately.

3.1.1.1.    Hungary’s position on the WACC

(74)

In its Response to the Opening Decision, Hungary reiterated its estimated range of between 6,2-7,7 % for the WACC as in its previous submissions. It also reiterated on its earlier arguments set forward in the Clarifying Letters and noted that the Commission did not assess these arguments in the Opening Decision.

3.1.1.2.    Hungary’s position on the IRR

(75)

This section reviews Hungary’s position in relation to the calculation of the IRR which used the Financial Model to compute future free cash flows for the project and determine the its IRR. The main elements of the Financial Model are:

(1)

various long-term electricity price forecasts, and

(2)

various operational assumptions for the nuclear power plant.

(A)   Electricity price forecasts

(76)

The price forecasts used by the Hungarian Government were reviewed in the Opening Decision. In its Response to the Opening Decision, Hungary criticised the Commission for using just one price forecast curve (based on the International Energy Agency’s World Energy Outlook 2014 (IEA WEO 2014) publication to calculate the IRR of the project (33). In particular, it pointed out that all of the price forecasts submitted in the Economic Study should be used to assess the IRR.

(B)   Operational assumptions

(77)

The operational assumptions for the Financial Model and the IRR calculations were provided by Paks II’s technical team. Although originally no details were provided to justify those operational assumptions, Hungary subsequently submitted background information on those assumptions in its responses to information requests by the Commission. A key submission in this regard is the Further Clarifications submitted in response to a Request for Information following the Opening Decision and the third party comments.

(C)   The IRR of the project

(78)

In the Response to the Opening Decision, Hungary reiterated the results of its earlier computations of between 8,6-12,0 % for the IRR of the project.

(79)

Hungary’s Response to the Opening Decision criticised the Commission’s assessment of the impact of a delay on the project’s IRR (a decrease of 0,9 % for a delay of 5 years). The figure was calculated by assuming delays during the operational period. However, Hungary argued that a delay in the construction period could increase the IRR of the project where there would be a delay in incurring costs also.

3.1.1.3.    Hungary’s position on the LCOE

(80)

This section reviews Hungary’s position on the LCOE for Paks II (34).

(A)   The Economic Study

(81)

Hungary argued in the Economic Study that the LCOE of Paks II is sufficiently low to make it competitive with other generation technologies. In particular, the study presented three estimates of the LCOE in respect of a nuclear project in Hungary. The first estimate of EUR 70/MWh, was based on a discount rate of 7 % (the upper limit of the estimated WACC presented in the same Economic Study) and was taken from a joint OECD/IEA/NEA 2015 publication ‘Projected Costs of Generating Electricity’ (‘OECD/IEA/NEA 2015 study’) (35). The second LCOE estimate of EUR 50-63/MWh was based on a study by Aszodi et al. (2014) which uses a discounted rate based on the interest rate of the Russian loan, falling within the 4-5 % range (36). The third LCOE estimate of EUR 58-120/MWh (2013 real prices) was calculated by way of a benchmark analysis based on figures published by various international agencies which offers a potential range for the LCOE (37). The study concluded that the LCOE for a Hungarian nuclear power plant falls within the range of between EUR 50,5-57,4/MWh (2013 real prices) l where the two end values were calculated by taking an interest rate equal to the two end-points of the WACC range (6,2 % and 7,0 %) reported in the same Economic study (38). When compared to the future electricity prices from the same Economic Study, the Hungarian nuclear power plant project can be argued to be profitable, and as such, Hungary argues that a private investor would feel it reasonable to undertake the project.

(B)   Further clarifications

(82)

In Response to the question by the Commission on how the LCOE range of between EUR 50,5-57,4/MWh in the final conclusion of the Economic Study can be reconciled with the range of between USD 89-94/MWh set out in the OECD/IEA/NEA study, Hungary explained in the ‘Further Clarifications’ that the difference was due to very different assumptions being used in the Economic Study and the OECD/IEA/NEA study, e.g. the difference in the assumed capacity factor (85 % vs 92 %) for nuclear power plants and in the commissioning dates (2020 vs 2025).

3.2.   HUNGARY’S POSITION ON THE POSSIBLE COMPATIBILITY OF THE MEASURE WITH THE INTERNAL MARKET

(83)

Although in its response to the Opening Decision Hungary emphasised that the measure did not involve State aid, it submitted comments to address concerns raised by the Commission with regard to the possible compatibility of the measure with the internal market, expressed in the Opening Decision in the event that the Commission came to the conclusion that State aid did exist.

3.2.1.   POSITION ON THE OBJECTIVE OF COMMON INTEREST

(84)

In its response to the Opening Decision, Hungary set out several policy considerations which it deemed relevant to define the objective of common interest based on the following:

(a)

Hungary’s energy policy;

(b)

Euratom Treaty (39) objectives;

(c)

Gap in future installed capacity;

(d)

Diversification of energy sources;

(e)

Decarbonisation;

(f)

Job creation;

(g)

Affordability.

(85)

Hungary emphasised that, on the basis of Article 194(2) TFEU, each Member State has the sovereign right to choose its energy mix and it refers to its National Energy Strategy 2030 (see recital 20) which identifies a nuclear-coal-renewable path as mid-term energy strategy of the country.

(86)

Hungary also refers to Article 2(c) of the Euratom Treaty which states that the Euratom Community shall facilitate investment and ensure the establishment of the basic installations necessary for the development of nuclear energy in the Euratom Community. Hungary emphasises that the provisions of the Euratom Treaty, which bind each signing Member State, are to be understood as a common objective of the Union.

(87)

In addition, Hungary explains that there is a projected growth of approximately 4 % in electricity demand expected by the TSO by the year 2030 principally due to the proposed electrification of Hungary’s transport, industry and heating systems. The same study of the TSO concludes that many of Hungary’s existing older coal and gas plants are becoming obsolete and are expected to shut down by 2030. The study also found that very few newly installed capacities are expected to come on stream within the same timeframe. This will lead to a forecasted 32 % decrease in the existing capacity and Hungary argues that the construction of Paks II will be a well targeted response to this envisaged gap in future generation capacity.

(88)

Furthermore, Hungary emphasises that its dependency on imported gas is higher than the EU 28 average. More than 95 % of the gas utilised in Hungary is imported and principally from Russia. It argues that without nuclear in the energy mix, Hungary’s dependence on oil or gas would significantly increase. This would be particularly the case following the phasing out of the existing operating units of the Paks NPP where other additional electricity generating units would have to use such fuels to bridge the future gap in overall national installed capacity described in recital 50. Consequently, Hungary considers that the measure would contribute to the diversity of fuel sources in the energy mix and the security of the country’s energy supply.

(89)

Hungary argues that the project will contribute to the Union’s 2020 objectives of a reduction of greenhouse gases as nuclear fission is considered as a low carbon source of energy. The Hungarian authorities argue that the country’s topographic and geographic location does not allow for the deploying of offshore wind or hydropower plants. The remaining renewable electricity generation options are from onshore wind, solar and biomass, however the deployment of such technologies would not be sufficient to cover the envisaged gap in future capacity mentioned in recital 50 before where no additional generation from nuclear is foreseen. Consequently Hungary argues that the project is pursuing the objective of decarbonisation.

(90)

The Hungarian authorities allege that the project (both during and after the construction) will lead to significant job creation. This would be particularly important given the geographical location of the Paks II nuclear power plant, which lies in a NUTS II-region, with a GDP of less than 45 % of that of the EU average per capita. As such, Hungary considers that the implementation of the project would pursue an objective of growth and significant job creation in multiple sectors.

(91)

Finally, Hungary argues that the investment in new nuclear generation capacity will directly translate into lower industrial and consumer electricity prices, which is in accordance with an EU-wide objective of affordability of services. Hungary also states that the fact that no support shall be granted to Paks II during its operation supports the argument of affordability.

3.2.2.   POSITION ON THE NECESSITY OF THE MEASURE

(92)

Hungary explains in light of the growing generation gap which Hungary faces, that a significant amount of investment in generation capacity is required, with the quantum of such investment required being greater than the projects which are currently under construction or in development.

(93)

For these reasons Hungary had engaged Nera Economic Consulting to analyse the development of the Hungarian and neighbouring countries’ electricity markets and the appropriate market definition for the Paks II project when it becomes operational (the ‘NERA Study’). This study suggests that building the new units 5 and 6 at Paks II could be commercially preferable to other types of energy generation investments based on Hungary’s market conditions, such as a similar capacity provided by open cycle gas turbines (‘OCGT’s’) and CCGT’s. Hungary concludes that there is thus no possible counterfactual that meets the policy objectives.

3.2.3.   POSITION ON THE PROPORTIONALITY OF THE MEASURE

(94)

Hungary reiterates that it expects to receive full compensation from the investment in the Paks II nuclear power plant from both capital appreciation and dividends.

(95)

In addition, in its submission of 28 July 2016, while maintaining that the project would not involve State aid and that it was in line with the MEIP, Hungary provided additional information in response to the concerns raised in Section 3.3.6 of the Opening Decision regarding proportionality should the Commission find that State aid would arise in the notified project.

(96)

According to its submission Hungary states that Paks II shall use all of the profits deriving from the activity of units 5 and 6 of Paks II only for the following purposes:

(a)

The Paks II project, which is defined as the development, financing, construction, commissioning, operation and maintenance, refurbishment, waste management and decommissioning of two new nuclear power units with VVER reactors 5 and 6 in Paks, Hungary). Profits shall not be used to fund investments in activities that are not within the scope of the above defined project.

(b)

The payment of the profits to the Hungarian State (for example by way of dividends).

(97)

Hungary also confirmed that Paks II shall refrain from (re)investing in the extension of Paks II’s own capacity or lifetime and the installation of additional generation capacities, other than those of reactors 5 and 6 of Paks II. Should such new investment be made, Hungary shall notify it to the Commission for a separate State aid approval

3.2.4.   POSITION ON THE EFFECT OF THE MEASURE ON THE INTERNAL MARKET

(98)

The Hungarian authorities put forward that where any distortive effects occurred, these would be limited in duration to the period of overlap between the phasing out of the existing reactors at Paks NPP and the coming into operation of the two new reactors of Paks II. Hungary considers it unreasonable to assume that Paks NPP’s lifetime could exceed 50 years, therefore the overlapping period would be very short.

(99)

Furthermore, in Hungary’s view the overlap period is needed and reasonable bearing in mind the need that Paks II is operational at the time Paks NPP will approach the end of its extended lifetime, and that Paks II’s development and commissioning may be subject to delays due to the technical complexity that the commissioning of a new nuclear power plant involves and to external factors outside the control of parties (e.g. change in legislation, safety requirements, regulatory environment). Hungary also submitted that some units equipped with VVER Generation III and III+ technology faced or are envisaged to face delays compared to the planned construction time of Paks II, as expressed in Table 3 below.

Table 3

Accumulated construction delays of VVER Generation III and III+ units

Site (country)

Delays (years)

Status

Kudankulam — 1 (India)

+5,8

completed

Kudankulam — 2 (India)

+7,0

ongoing

Novovoronezh II.-1 (Russia)

+1,5

completed

Novovoronezh II.-2 (Russia)

+2,5

ongoing

Leningrad II.-1 (Russia)

+2,0

ongoing

Leningrad II.-2 (Russia)

+2,5

ongoing

Source:

Hungarian authorities.

(100)

In addition, Hungary highlights that Paks NPP and the two new reactors of Paks II are owned and operated by separate entities and that the MVM Group is not related in any way to the Paks II project or to Paks II. It also maintains that, if a concentration between Paks II and the MVM Group were to be considered, such a concentration would be subject to the merger control rules.

(101)

Hungary argues that the fact that the two companies are both State owned does not prima facie call into question their commercial autonomy. On the contrary, the companies can be proven to be independent of one another where each company has independent decision-making powers.

(102)

Hungary contends that the MVM Group and Paks II are independent and unconnected on the following grounds:

(a)

They are managed by different government departments (the MVM Group by the Ministry of National Development through the Hungarian National Asset Management Inc. and Paks II by the Prime Minister’s Office);

(b)

There are no shared or common directorships on the governing board of each company;

(c)

There are existing safeguards to ensure that commercially sensitive and confidential information are not exchanged between the companies;

(d)

The decision making powers of each company are separate and distinct from one another.

(103)

Hungary criticises the Commission’s findings in the Opening Decision regarding the calculation of MVM Group’s market share in the Hungarian electricity supply market. Hungary argues that the market share was not examined in comparison with other producers present in the Hungarian market and that the market share of the MVM Group was calculated in view of domestically generated electricity only, excluding imports.

(104)

On the basis of the NERA Study Hungary alleges that any possible distortions of competition must be interpreted in a market context that is larger than the State of Hungary. The NERA Study takes into account the following inputs in its market assessment:

(a)

Existing generation capacities and technical capabilities (e.g. efficiencies, start-up costs);

(b)

Committed expansions in generation capacity (e.g. plant under construction and new renewables);

(c)

Committed retirements of existing units (e.g. due to the LCPD);

(d)

Interconnector capacities;

(e)

Generator fuel, CO2 and variable operating and maintenance costs;

(f)

Fixed operating and maintenance costs that would be avoided if a unit shuts;

(g)

The costs of new entry.

(105)

The basis of the argument why the market to be assessed is larger than Hungary is that imports of electricity from neighbouring countries accounted for 31,4 % of Hungarian electricity consumption in 2014. Hungary also argues that this high level of interconnection with neighbouring countries will increase further as a result of new interconnectors which will become operational between 2016 and 2021 between Slovakia (2 × 400 kV and 1 × 400 kV) and Slovenia (1 × 400 kV). In the submission of Hungary dated 16 January 2017, Hungary provided more details on the upcoming projects of cross-border transmission lines, according to which another interconnector of 2 × 400 kV will be built with Slovakia by 2029 and a 1 × 400 kV one with Romania by 2030. The expected total interconnection capacities for imports and exports are shown in Tables 4 and 5.

Table 4

ENTSO-E Projections of Installed Interconnection Capacities for Import in Hungary

 

Austria

Slovakia

Romania

Croatia

Serbia

Ukraine (*2)

Slovenia (*3)

Total

2015

600

800

1 000

1 200

1 000

450

0

5 050

2016

720

1 040

1 080

1 360

920

450

400

5 970

2017

840

1 280

1 160

1 520

840

450

800

6 890

2018

960

1 520

1 240

1 680

760

450

1 200

7 810

2019

1 080

1 760

1 320

1 840

680

450

1 600

8 730

2020

1 200

2 000

1 400

2 000

600

450

2 000

9 650

2021

1 200

2 000

1 400

2 000

600

450

2 000

9 650

 

 

 

 

 

 

 

 

2030

1 200

2 000

1 400

2 000

600

450

2 000

9 650

Source: NERA Study.

Table 5

ENTSO-E Projections of Installed Interconnection Capacities for Export in Hungary

 

Austria

Slovakia

Romania

Croatia

Serbia

Ukraine (*4)

Slovenia (*5)

Total

2015

600

800

1 000

1 200

1 000

450

0

5 050

2016

640

1 040

1 060

1 360

920

450

340

5 810

2017

680

1 280

1 120

1 520

840

450

680

6 570

2018

720

1 520

1 180

1 680

760

450

1 020

7 330

2019

760

1 760

1 240

1 840

680

450

1 360

8 090

2020

800

2 000

1 300

2 000

600

450

1 700

8 850

2021

800

2 000

1 300

2 000

600

450

1 700

8 850

 

 

 

 

 

 

 

 

2030

800

2 000

1 300

2 000

600

450

1 700

8 850

Source: NERA Study.

(106)

The study also identifies a successful energy supply market coupling with Slovakia, the Czech Republic and Romania and refers to ENTSO-E’s proposals published in October 2015 which defined Hungary as a part of a single Central and Eastern Europe coordinated capacity region with several countries with which it does not yet have coupling arrangements, including Austria, Germany and Poland (40). Hungary argues that, relative to other Member States, Hungary is already a highly integrated electricity market within the European Union, with interconnection capacity standing at approximately 75 per cent of total installed domestic generation capacity, i.e., roughly 8 times higher than the EU target for Member States by 2020 and 5 times higher than the EU target for Member States by 2030. In Hungary’s view, this is a sufficient reason to consider possible distortions of competition at a larger scale.

(107)

As regards the deployment or new technologies both in the factual scenario and in the absence of Paks II, the NERA Study envisages CCGTs or OCGTs as entrant technologies whereas it presumes that the entry and exit of other technologies, such as renewables, coal and nuclear is unlikely purely on an economic basis for the following reasons:

(a)

The current and historical entry decisions of renewable plant depend crucially on government subsidy programmes, rather than market prices. Accordingly, models that simulate market fundamentals are not able to determine whether renewable plant would enter or exit in practice.

(b)

Due to climate change concerns, the installation of unabated new build coal and lignite plants in the EU is now highly contentious, with many projects subject to challenge through agency or court processes. It is therefore unclear to what extent new build projects are any longer feasible in the EU.

(c)

The development of new build nuclear power plant in the EU is also dependent on an energy strategy that includes nuclear power and requires significant government and regulatory interface in the planning and permitting process. For nuclear power plant, planning and development is a significantly larger undertaking than for gas CCGTs and OCGTs and the outcomes are much more dependent on national policies and regulatory discretion. It is therefore assumed that no new nuclear power plant is constructed other than those in countries that already have pro-nuclear energy policies and only for active projects that are already under-construction and/or have EPC contracts in place.

(108)

The NERA Study shows that in the factual scenario (construction of Paks II), the following conclusions can be drawn:

(a)

Electricity demand in Hungary is expected to grow significantly until 2040;

(b)

Hungary is currently in a supply deficit and must import significant amounts of electricity. This deficit widens further between 2015 and 2025;

(c)

Despite Paks II coming online in 2025, Hungary remains in a net import position throughout the overlap period with the currently operating units of Paks NPP, and then again begins to become more and more import dependent thereafter;

(d)

Renewable resources in Hungary increase in the initial years of the factual scenario based on ENTSO-E projections, hitting the 2020 renewables target of 10,9 % of electricity consumed that Hungary adopted in its National Renewable Energy Plan.

Figure 7

Projected output per technology and national demand until 2040 (factual scenario)

Image 7

Source:

NERA Study.

(109)

As explained above in recital 93, the NERA Study reiterates that in the absence of the construction of Paks II, the similar capacity commercially preferable to other types of energy generation investments based on Hungary’s market conditions would be provided by OCGT’s and CCGT’s. The NERA Study suggests that despite replacing most of the capacity of the Paks II plant with new gas capacity in Hungary, Hungary remains heavily dependent on electricity imports throughout the modelling period in the gas counterfactual scenario (see Figure 8).

Figure 8

Projected output per technology and national demand until 2040 (counterfactual scenario)

Image 8

Source:

NERA Study.

(110)

Furthermore, Hungary contends that because of the strong convergence between market prices in neighbouring countries and Hungary, competitors are likely to be able to hedge their risks by trading electricity in neighbouring markets, without the need to trade Hungarian electricity directly. Hungary claims, based on the modelling in the NERA study, that the base-load electricity price in the regional market would remain the same in the counterfactual scenario (see Figure 9).

Figure 9

Difference in Hungarian Base load Prices between base case and the counterfactual

Image 9

Source:

NERA Study.

(111)

Hungary emphasises that it has assessed Paks II’s possible effects in a wider market context. It argues on the basis of the NERA Study that, as Slovakia is the smallest of the neighbouring markets with which Hungary is currently market-coupled, the possible effects of Paks II would be the most perceptible in this country. It argues that Paks II’s market presence in this coupled market would remain at the level of approximately 20 % until 2040.

(112)

The NERA Study also considers a possible wider coupled market (Hungary + Slovakia + Romania) arguing that these are the immediate neighbouring markets with which Hungary is currently market-coupled. On the basis of this, Hungary argues that even the combined market shares of MVM Group and Paks II (of between 10 and 20 %) in the coupled market of Hungary + Slovakia + Romania would be well below the threshold which would signify the possibility of dominance (see Figure 10).

Figure 10

Combined market shares of MVM Group and Paks II by production (MWh) on the markets of Hungary + Slovakia + Romania