Company History

The First 60 Years of Electrification in Hungary (1884-1945)

his_01We can look back on the history of electrification in Hungary with great pride, as only two years after the of the first public electric plant of the world was commissioned in New York, a general-purpose electric work was established in 1884 in Temesvár, a city in the Austro-Hungarian Monarchy (today Timişoara, Romania). In present-day Hungary, the electrification of the town of Mátészalka began in 1888, simultaneously with that of Paris. The beginning of the operation of the Hungarian electricity industry is also counted from that time.

Electrification was rapidly spreading in Hungary at the end of the 19th century. The most significant step was the public electrification of Budapest in 1893, followed by similar developments in other big cities.

Before World War I, local initiatives also resulted in rapid development, and electricity use increased at a considerable rate. Forty electric power plants were established until 1900. The average unit size was only around 1 MW at that time. Most of these plants used coal as fuel, but some hydroelectric power plants were constructed as well.

Budapest, the major cities and most of the townships had their own public electric plants, while the rest of the power plants and distribution companies were privately owned. The plants operated in insular mode, and the quality of electricity varied in each service district. Cooperation between power plants was practically impossible. The unified national regulation was ushered in with the Law on Electric Energy which was adopted in 1931. The first set of rules on technical safety were introduced also in the 1930s. In the meantime, the National Alliance of Electric Power Plants protected the common interests of the industry.

The typical unit size was 30 MW machines, like the generators of the Kelenföld Thermal Power Plant which was then considered a modern plant. The number of Hungarian cities and townships with electric facilities was 999 in 1935, and by 1945 this number reached 1255.

Electricity consumption fell to its lowest level in 1945. The employees of the electrical facilities repaired the public and industrial power plants in a relatively short time, though the electricity networks had been seriously damaged during the war. Coal production also resumed when the mines were reopened.

Integration of the Power System, Establishment of MVM

his_02Following the total nationalisation in 1948, about 300 public electrical installations were under the control of the State Electricity Company (Állami Villamossági Rt.).A central management agency for large and medium-sized power plants, the Industrial Centre for Power Plants, was established in 1949. The six regional power supply companies that operate even today were established in 1951. The Power Plant Trust was established in 1954.

In the years of the socialist industrialisation, great efforts were needed to meet the increasing demand for electricity. Especially because of the forced temps of the very same industrialisation, demand was growing faster than power plant capacities, resulting in curtailments imposed on consumers. A sustained power system balance could be established only in 1954.

The Hungarian Power Companies Trust (MVMT) was established in 1963 on the model of the French organisation of electrical plants, and this organisation took over the companies of the Power Plant Trust as well as the six distribution companies. MVMT was charged with the technical and economic management of the entire Hungarian Power System.

MVMT operated in this form until the end of 1991. In 1992, it was reorganised into a two-tier structure of limited companies; the first tier was represented by MVM Rt., which was the owner and the system operator at the same time, while the second tier included the power plants and the power supply companies together with a company which was responsible for the operation and development of the grid.

After the fall of communism, in the early 1990s, the energy policy in Hungary focused on cost-saving while maintaining the security of supply, and involving private capital to establish new power plant capacities. Power plants were reconstructed to meet environmental demands, and to maintain and develop the existing energy infrastructure. The establishment of a contractual scheme implementing the “single buyer” model appeared to be a good solution to make these investments attractive and to even out the different cost levels on an institutional basis.

After the new Electric Energy Law was adopted in 1994 and large-scale privatisation was carried out at the end of 1995, new operational procedures were implemented again. As a result of privatisation, LTAs (long-term capacity reservation and power purchase agreements), aimed at minimising long-term business risks, were concluded. That moment essentially opened a new era in the history of the industry.

Established in July 1994, the Hungarian Energy Office (HEO) played a great role in the regulation of the energy sector. The HEO is a national public administration agency with its own responsibilities and competence, controlled by the Government and overseen by the Ministry of Economy and Transport. Its regulations form the basis of the processes associated with the power system.

Another change was brought about by the gradual adoption of Directive 96/92/EC of the European Parliament and of the Council, which was required for the accession to the European Union. The EU directive made the market opening mandatory. The new Electricity Act of 2001 partially opened the electricity market, thus “eligible” consumers were allowed to freely purchase electricity to a certain extent, but the public utility market was not yet present.

his_03The political will to establish a single European energy market was becoming increasingly prevalent in the EU. For that very reason, simultaneously with issuing Directive 2003/54/EC, the European Parliament and the Council repealed Directive 96/92/EC. The new regulation dismissed the “single buyer” model, and it only allowed access to the network in a regulated form. It also ceased to apply the alternative solutions in the previous regulation and only allowed those ones that facilitated the liberalisation of the electricity market as efficiently as possible.

With Hungary having become a member of the European Union on May 1, 2004, tension was increasing between the EU regulation and the previously established dual market model.

Free capacities which have accumulated due to decreasing electricity demand by public utilities were sold by the public utility wholesaler (MVM Zrt.) in public auctions. Full market opening and the liberalisation of the electricity market were implemented after the most recent Electricity Act was adopted in 2007. In the electricity sector, in accordance with the relevant EU directive, all industrial and household consumers are free to choose their energy trader as of January 1, 2008. The Act declares that the previous public utility service was replaced by universal electricity supply and the sale of electricity in the free market. Another substantial change is that the fee paid for electricity comprises several components: The consumer has to pay for the energy to the energy trader and for system use to the network licensee. The Companies Act which came into force on July 1, 2006 introduced the concept of “recognised corporate group”, which was previously unknown in the Hungarian legal system. On the basis of this legal framework, MVM Zrt., which remained state-owned, and its subsidiaries were transformed into a recognised corporate group on June 1, 2007. This entity ensures more efficient operation than a holding, reaches the group optimum and also serves the strategic objectives that increase business value. With its current operation, the MVM Group considers its most important task to meet the requirements set for companies listed on the stock exchange.

Establishment and Development of the Power Plant Fleet Since 1945

his_04The most important step in the development of the electricity industry was the interconnection of several power plants which had been operating on a stand-alone basis (insular operation) until then. Thus, simultaneously with the establishment of the National Electricity Dispatch Centre (which today forms part of the MVM Group under the name of MAVIR Zrt.), cooperation between five power plants started via 120 and 60 kV transmission lines in 1949. The Hungarian Power System came into existence at this point.

In the following 20 years other power plants, first coal-fired ones (Mátravidéki Thermal Power Plant, Bánhida Thermal Power Plant and Gyöngyös Thermal Power Plant), later a hydrocarbon-fired power plant (Dunamenti Thermal Power Plant) were established as a result of the rapid development of technology and the steady increase of consumer demand.

In the first half of the 1950s, due to forced industrialisation, the frequency had to be decreased, and often consumption curtailments had to be imposed to avoid disturbance in power balance. From the 1960s, regulation with economic instruments became generally accepted, which was also facilitated by the increasingly widespread application of accessory equipment offered by modern technology.

Right after the establishment of the integrated system, energy production and power plant construction had to be based on the machinery of domestic manufacturing. The Mátravidéki Thermal Power Plant was the first plant equipped with machines of 30, then of 50 MW capacity manufactured in Hungary. The first 100 MW unit was established at the Bánhida Thermal Power Plant. The greatest achievement of the domestic energetic manufacturing industry was the Gyöngyös Thermal Power Plant at the end of the 1960s, where modern air condensation cooling towers planned by Hungarian scientists Heller and Forgó were constructed When it became possible to purchase hydrocarbon fuel, hydrocarbon-fired generators were installed at the Dunamenti Thermal Power Plant. The 215 MW units used there and at the Tisza Thermal Power Plants represented the ideal size of machinery for the Hungarian energy system.

The Paks Nuclear Power Plant Project was started in 1970, but it was halted between 1971 and 1974. At the same time, the resources which became available during this period allowed the start-up of the large units of the Tisza Thermal Power Plant. The Hungarian government approved the 1,760 MW Paks Nuclear Power Plant Project on 17 June 1976. The construction of the power plant began in 1977 with the participation of many Hungarian and Soviet specialists. The individual units were commissioned and declared operational between 1982 and 1988. With its capacity increased to 2,000 MW today, the power plant is one of the safest nuclear facilities in the world.

According to the new concept of power plant construction developed in the 1990s, the power system primarily needed modern and flexible units. Combined cycle gas turbine units were constructed at the Dunamenti Power Plant and at the Kelenföld Site of the Budapest Power Plant. Joining the West-European Union for the Co-ordination of Production and Transmission of Electricity (UCPTE, now UCTE) made it necessary for Hungary to establish three simple cycle back-up gas turbine units each with a capacity of about 120 KW. In accordance with the operational procedures laid down by the Electricity Act which came into force in 1994, the subsequent establishment of power plants was decided in power plant capacity tenders issued by MVM Rt.

The liberalisation of the European electricity industry and the regulation in Hungary after 2007, which is also evolving in this direction, has created a market also for power plant construction. The establishment of additional power generating facilities in the future will no longer require a letter of intent issued by MVM to buy the generated power, and investors will establish power plants at their own market risk.

The future expansion of the generation portfolio of the MVM Group will be carried out by observing the priorities of the national energy policy, on the basis of energy demand in the competitive market, subject to electricity trading opportunities and in accordance with the requirements of the security of supply and environmental protection.

Development of International Power Systems

his_05The development of the integrated Hungarian Power System cannot be separated from the establishment of international transmission line interconnections. In the 1950s, connections were established with Czechoslovakia, then with Yugoslavia.

International cooperation and an increase in electricity imports made it necessary to construct 220 kV transmission lines. In 1962, cooperation also began with the Soviet Union at this voltage level. The Union of the Power Systems of the COMECON Countries and its dispatch centre, CDU, in Prague were established at this time. The first 400 kV transmission line between the Soviet Union and Hungary was constructed in 1967, and the first 750 kV transmission line in Europe was commissioned in 1978.

An electricity exchange was established between the Hungarian and the Austrian energy systems with a dual 220 kV transmission line commissioned in 1968. Transfer between the two systems was extremely simplified by an automatic switch-over device invented in Hungary. At the beginning of the 1990s, a direct-current station was commissioned at the easternmost point of the Austrian grid. Joining to the Western European system, UCPTE, however, rendered this facility redundant.

In 1988, nearly one-third of the peak load in the Hungarian system was covered by imports from the Soviet Union. Through the tight network connections to the east, we even became exposed to the insufficient capacity reserves and frequency fluctuation of the Soviet system. By the 1990s, however, our imports dropped to a fraction of what they used to be.

MVM Rt. carried out a large-scale grid development programme in the 1990s, the main objective of which was, in addition to supporting the increasingly intensive trading activity of the company, to achieve the n-1 principle, which provides the required back-up capacities. The subsequent developments were primarily aimed at ensuring that the grid could function also under the conditions of the liberalised electricity market. At the same time, increasing the transmission capacities made it possible for all market players to use greater trading opportunities. The Hungarian high-voltage electric power transmission network had been part of the international cooperation previously, and the further developments increased its capability to strengthen transit interconnections.

The network development strategy of MAVIR Zrt. is especially important for the preparation of medium- and long-term development plans for the Hungarian Power System and for the establishment of the optimum conditions. The aim of this network development by MAVIR Zrt. is to ensure the security of supply and to secure that the operation conforms to the EU norms. The transmission grid has been modernised so that the whole electricity market could operate efficiently. It also plays a significant part in the functioning of the European Power System, ensuring that all partners can use services of the same quality under identical conditions, and providing discrimination-free access.

Development of System Operation

Before the establishment of MAVIR system operation was performed by the National Electricity Dispatch Centre, created in November 1949. Since the establishment of the integrated power system, the fundamental objective of the Dispatch Centre has been to ensure the most economical operation of the power plants. To this end, increment proportional load distribution was introduced.

his_06It was the first to implement a modern computerised process control system for the power system in 1978 among the countries which belong to the union of the Eastern European member systems of the industry (CDU). This could also automate frequency and exchange capacity regulation.

It is also due to the introduction of the automatic curtailment of electric load that in contrast with other countries, the system has never broken down in the Hungarian grid. As a result of the level of technical development, the annual consumption curtailment remained below 0.2 per mil.

The dissolution of the CDU and joining the UCPTE made it necessary to have a very tight operation, an appropriate back-up capacity and frequency regulation in accordance with the regulations of the UCPTE.

As of 1 January 2006, with the establishment of the integrated Transmission System Operator (TSO), the Operations Directorate of Országos Villamostávvezetéki Rt. (OVIT Rt.) and the Network Directorate of Magyar Villamos Művek Rt. (MVM Rt.) were transferred to the System Operator.

Performing system operation, MAVIR ZRt. currently operates according to the ITO model which guarantees its independence as prescribed in the relevant EU directive, the legal framework of which was laid down by the Hungarian Parliament in an amendment of the relevant Act passed at the end of 2009. MAVIR is responsible for maintaining the power balance of the national power system and balancing any deviations by the balance groups from the plans.

Today, MAVIR:

  • ensures the reliable, efficient and secure control of the Hungarian Power System and provides the required back-up capacities for the power plants and the grid;
  • oversees and augments the network assets and carries out refurbishment, maintenance and development works required for satisfactory and dependable supply;
  • ensures the uninterrupted operation and further extension of the electricity market and access on equal terms for system users;
  • summarises the data received from the participants of electricity supply, prepares a schedule every day, determines the required back-up capacities and the capacities reserved for regulation;
  • provides information to the market players to avoid entering into unfeasible contracts;
  • coordinates the operation of the Hungarian Power System with the neighbouring systems;
  • coordinates international technical cooperation, prepares the Network Development Strategy by looking into the future and puts forward proposals for the development of the power plant fleet.

Distribution Network and Power Supply Companies

In the process of electricity supply, the last phase after generation and transmission is distribution and sale. That is what the power supply companies do.

In Hungary, the number of electrified cities, towns and villages was 999 in 1935 and 1,255 in 1945. The village which was the last to be electrified in 1963 was Aporliget, situated close to the town of Mátészalka which had been the first to be electrified.

Initially the distribution networks used different technologies (direct current, alternating current with various periods and a very high number of voltage levels), but later they were transformed to have standard parameters.

The medium-voltage distribution typically relied on cable networks in the towns and cities, while in the provinces the overhead line networks were widespread. A 120 kV main distribution network was established, which transmitted the electricity from the basic network to the centres of the supply areas.

After World War Two, the electricity distribution network became integrated all over the country and optimally available for both large industrial and small municipal consumers after. An important technical and organisational step was the establishment of a three-tier operational organisation in the 1960s. It dissolved the obsolete district repair units and organised the levels of branch offices, operations directorates and power supply centres. The Hungarian Power Companies Trust was established in 1963. This Trust included eight power plant companies (Bakony, Budapest, Dunamenti, Mátra, Paks, Pécs, Tisza and Vértes), six regional power supply companies (ÉDÁSZ, DÉDÁSZ, DÉMÁSZ, ÉMÁSZ, TITÁSZ and ELMŰ) and the company operating the basic network (OVIT). This operational structure existed until 1991. As of 1992, in preparation for privatisation, MVMT was reorganised into a two-tier structure, thus separate power plant and power supply companies were established.

The power supply companies most often performed the required network construction works themselves, because no external capacity could be provided for this. They also had to help out with the construction works of the substations regularly and even participated in the electrical installation works of the nuclear power plant.

In the mid-1990s, power supply companies provided electricity to about 4.5 million household consumers in Hungary. The total number of consumers exceeded 5 million.

All companies have switched over to a modern software-based accounting and invoicing system. Serving the consumers makes it necessary to have modern computerised process control even in the distribution networks. Process control systems, which also allow the quick elimination of breakdowns, have been installed at the district dispatch service centres of the power supply companies.

The privatisation of the power supply companies in 1995 was a new phase in their development as well, for the power supply companies have become, without exception, the property of large foreign professional investors active in the electricity industry. These investors started to reorganise the operation of their new subsidiaries on the model of their parent company in a short time.

Expanding scope of activities

Building on its existing strengths and assets, the MVM Group entered new business sectors from 2011. Based on a Government decision, the group operates the Electronic Government Backbone and its backhaul network. The assets needed to operate the highly secure government network are owned and operated by MVM NET Ltd., a new legal entity created to fully comply with ownership unbundling regulations included in the European Union’s Third Energy Package.

The continuity of gas supply and the diversification of supply routes are key requirements for the energy security of Hungary and the region. Based on the Hungarian Government’s decision, Hungarian Gas Transit Ltd., member of MVM Group has been responsible for constructing and operating the Hungarian section of the natural gas interconnection pipeline The Group is also evaluating options to participate in the construction of additional new natural gas supply routes.

Since 2013 Hungarian Natural Gas Trade Ltd. and Hungarian Natural Gas Storage Ltd. within MVM Group and under full national ownership have secured natural gas supplies for Hungary.

In April 2014 MVM purchased a minority (49.83%) stake in gas distributor Főgáz. As a result of the transaction MVM is now present in all key areas of the natural gas business, from infrastructure through trading to providing universal service.