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Is it worth it for everyone? – The conditions of financial modelling for Energy Communities in Hungary

The European Union is placing increasing emphasis on supporting Energy Communities (ECs), and the number of such initiatives in Hungary is growing. Energy communities based on the cooperation of electricity market actors play an important role in stabilizing local electricity networks and optimizing consumption.

According to the EU's official definition, an energy community is a community based on voluntary participation that may be involved in energy production, consumption, supply, storage, aggregation or the provision of other energy services. The primary purpose of an energy community is not to generate profits but to provide environmental, economic and social benefits to its members (European Parliament and European Council, 2019).

In practice, an EC is a community in which members - who can be producers (e.g. solar panels, wind turbines), consumers (e.g. homes, businesses) and energy storage system owners - are interconnected. The energy community relies on a software as a tool for allocating the energy produced and consumed among the different actors and for accounting purposes (National Research, Development and Innovation Agency, 2022).

In Hungary, 9 energy communities have been registered as non-profit organizations at the time of publication of this article (MEKH, 2025). This article aims to demonstrate which factors should be considered when calculating the financial return of an EC in Hungary.


Basis for financial forecasting

According to the EU definition, the dual purpose of the EC (a non-profit organization) is:

  1. to ensure that all participating entities are at least as well off as if they were buying or selling electricity on the market, and

  2. to ensure that the operation of the EC as a whole reaches the break-even point (i.e. that the EC covers its own operating costs by selling electricity to its members and by using the assets it owns (e.g. energy storage).

The investment in assets owned by the EC (CAPEX costs) also needs to be included in the financial plan. Experience has shown that financing these assets from own resources can prevent the EC from breaking even for many years, but in practice, CAPEX items are often financed by some form of non-reimbursable grant.

The theoretical financial functioning of the EC can be most easily modelled on the basis of historical data, with a quarter-hourly breakdown, as this is the best way to capture the impact of intraday exchange price fluctuations (if there is an entity in the energy community that buys electricity from its trader at spot prices or under a dynamic pricing scheme).

The cash flow is based on energy flow; therefore, the following questions need to be answered to create the forecast:

  • What is the basic energy flow and accounting logic? If the EC or one of the participating entities has an energy storage system, what is the logic for the discharging of the energy? Which entity has priority?

  • For what proportion of the actors is accurate historical consumption and/or production data available on a quarter-hour basis? What is the penetration of smart metering (and time series settlement) for the households concerned?

  • Does the energy flow between EC entities occur via public or private cables? Is it necessary for the individual entities and the EC as a whole to pay system charges to the DSOs responsible for the territory?

  • Are there any entities in the EC, which are entitled to Universal Service? If so, will their accounting change after the creation of the EC (e.g. feed-in of small-scale household power plants - gross settlement)?

  • What is the logic of the EC for selling electricity to its members? Will all entities sell electricity according to their current contractual arrangements? Or will all entities sell electricity in a uniform way?

  • Does the KÁT system apply to members?

Once the basic parameters have been defined, the financial model can be built, which requires the determination of the cash flow at the EC level and at the level of each member.


The EC’s revenue and expenditure

The EC's main source of revenue is the charge for the electricity sold to each member. It is apparent that to achieve the dual purpose described above, the EC cannot raise the price to the contractual prices of the individual entities, but can generate benefits in a number of ways so that the individual participating entities are no worse off than in the case with no EC:

  • The EC may buy the excess energy produced by each entity at a low price (e.g. public network feed-in at a unit price) and sell it to other entities at each entity's contractual price (e.g. fixed contract price or spot price if sufficiently high),

  • If there is an entity that buys electricity from its trader at spot prices or under dynamic pricing arrangements and the EC has electricity storage (or operates an entity's storage system), the EC can buy the electricity produced by each entity, store it and sell it at peak times (arbitrage option).

The main costs are for the operation and maintenance of the equipment owned by the EC, human resources and the IT system - these items can amount to tens of millions of HUF per year even for a small EC consisting of a few entities. The other main cost items are the energy tariffs paid by the EC to the entities and the system usage fees paid to the distribution system operator. According to the regulations, the EC cannot operate profitably, but in the modelling, theoretical profits may be concentrated here, which can be used later for price reductions or other future tasks.


Outlook

In addition to energy flows and financial flows, there are a number of other issues that can arise during the creation of an EC. Community members need to agree on what the balancing group contracts should look like, as well as which entity will be responsible for the scheduling and the consequences of any deviation. It is important to clarify whether the deviation from the schedule will be the responsibility of the entity that caused the deviation or of the EC as a whole.

Despite the lack of best practices in the Hungarian EC market that could help the spread of energy communities, it is encouraging that 7 EC initiatives have already been registered by MEKH in the last year.

The spread of energy communities not only has a positive impact for the participants but also provides a significant benefit for distributors by helping to stabilize local networks. A well-functioning energy community has no "losers", as all generating members make at least as much profit as they would if they were selling on the market, and none of the participants buys electricity at a higher price than they would under a "business as usual" contract.



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