Hungarian railway companies turn to diesel in despair of electricity price

Hungarian railway companies that were almost completely operating on electricity have had to return to diesel traction, due to the dramatic increase of energy prices. In a country where more than 90 per cent of rail freight was carried out with electric traction, this is a major setback, says the Hungarian railway association Hungrail, and therefore it has submitted a list of proposals to the Ministry of Technology and Industry.

“One of the competitive advantages of rail freight was that the companies were able to offer their services based on medium and long-term contracts. Recently, this has completely disappeared. For rail to be seen as a predictable and planable mode of transport again, a first round of proposals was submitted”, Hungrail explains.

Predictability

Because of the high electricity prices, it is important that railway companies can procure electricity on the basis of daily or longer-term purchases. Hungrail therefore proposes that the procurement of traction energy is possible for at least a quarterly period. In the case of favorable prices, the conditions for longer-term procurement should be met, it says.

In line with this, the infrastructure operator should make the traction energy prices known to the contracting railway companies at least 30 days before the given quarter, so that the companies do not find out afterwards what traction energy price they paid to perform their task.

Most favourable price

Hungrail also proposes that infrastructure managers work together with the ministry, which exercises ownership rights, to obtain electricity at the most favorable price available on the market.

And, a framework for independent energy procurement should be developed and established by the beginning of 2024, so that, in contrast to the current situation, railway companies can manage the risks arising from energy procurement and, where appropriate, purchase the amount of electricity needed to run a train at a more favorable price. In order to streamline all of this, Hungrail offers to set up a working group with the ministries involved.

Dramatic price increase

The energy prices for rail in Hungary have seen a tenfold increase, according to Hungrail. The impact of this increase is more dramatic than in other European countries due to the procurement procedure in Hungary. Railway companies and operators have had to adjust their pricing multiple times, and some are reported to have cancelled services that had become unprofitable.

But also in other European countries the impact on rail is high. According to a survey of the Community of European Railway and Infrastructure Companies (CER) on electricity prices, railway companies are paying up to 420€ per megawatt hour (MWh) in 2022. On average, the electricity price has at least tripled compared to 2021. Railway companies currently struggle to plan for 2023 as many energy contracts need to be re-negotiated and the price is now forecast in some cases to exceed 500€/MWh.

EU proposals

On a EUropean level too, proposals have been made in support of the railway industry. CER has just put forward a number of proposals to all EU Ministers. Firstly, railways must be included in a strategic toolkit for saving energy. Member States should pursue a holistic approach in introducing demand reduction targets and promote the energy-efficiency-first principle in prioritising the sector for energy consumption.

The European Commission proposal on capping the price of low-cost electricity such as wind, solar, and nuclear is a good step, but the €180/MWh ceiling is considerably higher than the electricity price before the crisis, according to the CER. The price cap should therefore be lowered. Finally, Member States should take into consideration rail’s high exposure in the electricity market when allocating the surplus revenues resulting from the application of the cap.

Free webinar on Hungary

Do you want to hear more about Hungary and the high energy prices? Today, Friday 30 September, we organise a free webinar about the Rail Freight Potential of Hungary. It starts at 1pm. The speakers are:

• Ádám Tálosi , member of the board at East West Gate
• Thomas Palecek, RTSB
• Akos Ersek, UIRR
• Bíró Koppány Ajtony, mlszksz