Earth heat – is a hot topic

Hungary’s Recovery and Resistance Plan, put into social debate by the government, Chapter REPowerEU (the “Draft”) also contains ideas for geothermal energy in order to ensure the share of geothermal energy in the country’s energy mix, especially in district heating.

The “Reform 12 – in the Draft Development of the Geothermal Regulatory Framework” intends to improve the legal framework primarily from a research / mining point of view, based on the experience gained in the meantime, while the Draft “Investment 11: In the utilization of ground heat” part intends to provide variable intensity support to reduce the risk of drilling for geothermal production, on the one hand, and a preferential credit line for ground-based equipment and power plant construction for the utilization of earth heat, on the other.

The neuralgic point is that although the Draft supports the investments, it does not take into account that after the completion of the investment, the district heat producer can sell its product at an official price, operating under regulated market conditions, where, in today’s circumstances, there is a return that is not even modest, with a profit factor of 4.5% on the gross asset required by law, so this is not an attractive area for investors at all today.

The current situation in the energy market, which is not very rosy anyway, has a benefit that it would now be worthwhile, even for fiscal reasons, to encourage the extraction of geothermal energy more strongly than before, as it could take some of the natural gas’ place, which 4 times more expensive in district heat production than before. The question can therefore also be asked which is the more fiscally rational decision, with a better focus on energy sovereignty: to maintain support for expensive, foreign exchange-accounted and uncertain import natural gas use, or would it be better to spend on domestic, weather-independent, decarbonisation-friendly geothermal heat, that can be produced significantly cheaper than heat from natural gas and in HUF, through district heating regulation?

Obviously, this issue is poetic, as the Draft also states that the increase in geothermal energy „is in line with the National Energy and Climate Plan, which set a target of 50% of the share of natural gas reduction in district heating production.” However, in this case, it is not enough to support the implementation of the investments at some level, because this does not provide the investor with sufficient benefits. In short, in a regulated district heating market, a market-like return must be ensured for this area to be attractive, however, in addition to current natural gas prices, this would be much more worthwhile for the state than ever before, as the total cost of geothermal energy has been a tenth in the last heating period, the total cost of district heating from natural gas. And there is no need to think about big things about changing the regulation either, as it would be enough to change the statutory profit factor specifically for geothermal district heat producers, for example, that the profit factor is variable per year and exceeds the weighted average yield on long-term government securities (10 and 15 years) denominated in EUR at a given balance sheet date with the normal business risk premium (6 percentage points). This would result in the benefits available on the regulated market already being attractive, but no extra profit could be made.

I also dare to risk that ensuring a return at market level in this regulated market is only necessary but not sufficient to allow investment to start because it has not yet been mentioned, how many additional conditions (drill, availability of specialist) also depends on the implementation of the investments. However, we can safely say that if a geothermal investment is not able to benefit the investor from the outset through official district heating prices, that investment will not be realized, even though it is, that, at the moment, the earth heat that can increase our energy sovereignty is also the cheapest, a lucky combination that could easily achieve a win-win situation in terms of business interest and the public good. The value of energy sovereignty is invaluable, it is worth all the money in the first place, and if, in addition, we even generate fiscal savings with the help of geothermal energy, we cannot put the little it costs in a better place.

The NIS2 Directive on cybersecurity

On 23 May 2023, Act XXIII of 2023 on cybersecurity certification and cybersecurity supervision entered into force, based on the NIS2 Directive, which was published by the EU on 27 December 2022. The aim of the legislation, which implements the Directive – for the time being only partially – is to require companies to comply with high IT security standards and to establish a system of authorities to certify and monitor this compliance. Full implementation of the Directive is due by 17 October 2024.

The issue is particularly topical as cyber-attacks by cybercriminals have become more frequent, sophisticated and lucrative, most strikingly in the wake of the recent widespread and successful ransomware attacks that have affected several of our own clients. In addition, the coronavirus pandemic has accelerated digitalisation in almost all sectors, but simultaneously, this has brought new threats, more security incidents and new dependencies. In addition, the Russia-Ukraine conflict is also taking place in cyberspace, which has also highlighted many vulnerabilities within the EU.

If a company fails to comply with the directive, the maximum fine that can be imposed is EUR 10,000,000 or up to 2% of the company’s global annual turnover, whichever is higher. It is important to underline that under the directive, even the management can be held liable and, in serious cases, managers can be temporarily prohibited from future management activities if the organisation concerned does not comply with the cybersecurity requirements of NIS2.

Who is concerned by NIS2?

Primarily, medium and large enterprises are affected, more specifically organisations with at least 50 employees or an annual net turnover of 10 million euros.

Regardless of their size, businesses in the following priority sectors in particular must comply with NIS2 requirements:

  • energy (electricity, district heating and cooling, oil, gas, hydrogen)
  • transport
  • banking and financial services and the infrastructure providers for these services
  • health care
  • drinking water services
  • Wastewater management
  • digital infrastructure providers (e.g., internet service providers, DNS providers, cloud providers)

What to do?

Compliance with NIS2 can be certified and audited by organisations accredited by the competent authority and verified by said authority. However, whether for certification or for an audit, it is advisable to prepare in-house, in particular by:

  • Implementing an information security management system (ISMS) or reviewing the existing system based on a risk analysis.
  • Implementing proactive security measures (incident prevention, incident management).
  • Implementing an incident management protocol to mitigate the impact of an incident should it occur.
  • Introduction of business continuity management (BCM) or review of existing systems (e.g., management of backup systems and disaster recovery and crisis management).
  • Appointing an Information Technology Security Officer (ITPO).
  • Identification of possible GDPR interfaces in the event of an incident involving personal data and completion of data management documentation (e.g., processes) as necessary.
  • Implementing measures to ensure supply chain security (including aspects related to the security of relationships between individual organizations and their direct suppliers or service providers).

Earth heat – is a hot topic

Hungary's Recovery and Resistance Plan, put into social debate by the government, Chapter REPowerEU (the “Draft”) also contains ideas for geothermal energy in order to ensure the share of geothermal energy in the country's energy mix, especially in district heating....

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