Hungary’s energy transition at risk due to missed EU milestones

No matter how funds are juggled across recovery, cohesion and domestic programmes to give an impression of progress, the money lost due to delays and non-compliance will leave a serious gap in the national economy, slowing the country’s energy transition. 

Recovery and resilience plan under strain 

In late 2022, the Commission approved Hungary’s recovery and resilience plan, making disbursement conditional on the government meeting 27 ‘super milestones’ linked to the rule of law. However, implementation has been sluggish and, despite some progress, significant work remains if the government is to convince the Commission it remains on track to deliver the necessary reforms.  

At a June 2025 meeting of the Recovery and Resilience Facility monitoring committee – which is tasked with overseeing implementation of the recovery and resilience plan – the government reported most measures under the plan were still being implemented, while also indicating the need for potential modifications of measures that have yet to be launched, creating uncertainty over whether they will indeed proceed. 

In October, the government’s draft proposal outlining amendments to the plan was circulated among the monitoring committee for comment and made available for public consultation on the government’s website. Yet the proposed changes indicate that – even if Hungary were to meet all 27 ‘super milestones’ and immediately become eligible for funding under the Recovery and Resilience Facility – it would still be impossible to accomplish a considerable number of the planned reforms and investments by the August 2026 deadline. 

Cohesion policy funds on the brink  

In April 2022, the Commission formally notified Hungary it had triggered the conditionality mechanism under the Rule of Law Conditionality Regulation. 

In December 2022, following lengthy but largely unproductive negotiations with the government, the Council of the European Union decided to suspend 55% of the budgets for Hungary’s three largest cohesion policy operational programmes – Environment and Energy Efficiency (KEHOP Plusz), Integrated Transport Development (IKOP Plusz), and Territorial and Settlement Development (TOP Plusz) – totalling approximately EUR 6.3 billion. 

By late 2024, EUR 1 billion had already been lost permanently. Unless conditions are met, another EUR 1 billion risks being squandered by the end of 2025. 

Uneven cuts to energy efficiency 

The modification proposal cuts the recovery and resilience plan’s total budget of around EUR 10.4 billion by 33%. These reductions would not be spread evenly across the plan. Almost the entire budget would be slashed for the components on water management, sustainable transport, the transition to a circular economy, and the plan’s REPowerEU chapter. Additionally, the green energy transition component would lose around 41% of its budget. 

Within the energy component, the cuts mainly affect smart grid development, residential photovoltaic systems, and energy efficiency investments in public buildings. While the first two areas have already been partly implemented and could, to some extent, continue on a commercial basis, energy efficiency upgrades have long suffered from chronic underfunding. Under the modification proposal, funding for this purpose would be reduced by HUF 103.48 billion (roughly EUR 265 million), including the withdrawal of planned allocations from both the energy and REPowerEU components.  

Households are the most neglected aspect of Hungary’s energy transition, particularly those affected by energy poverty. The Home Renovation Programme – designed to improve residential energy efficiency and alleviate energy poverty, originally included in the REPowerEU chapter with a budget of around EUR 577 million – has so far been implemented to just 12%. 

However, should Hungary ultimately lose all access to Recovery and Resilience Facility funding, the costs of the Home Renovation Program are expected to be covered instead by the Environment and Energy Efficiency operational programme, leave it with less funding available for other priorities. If that happens, more than EUR 500 million earmarked for household energy efficiency under the Recovery and Resilience Facility would effectively be lost for good. 

Alternative funding options fall short 

Allocations had been made to improve the energy performance of various building types under both the recovery and resilience plan and the Environment and Energy Efficiency operational programme, with added potential to support such investments, such as hospital refurbishments, through the Modernisation Fund. 

However, the funds lost due to non-compliance with the conditionality mechanism have created a major gap in the energy transition budget that will be hard to fill. The Modernisation Fund alone cannot be expected to replace all of the lost schemes. 

Though several domestic programmes, including Otthon Start and the Family Home Creation Discount (CSOK), have been launched with support from the state budget, these programmes do not specifically target energy efficiency renovations and are therefore unsuitable for filling the gap. 

Other schemes, including the Energy Efficiency Obligation Scheme (EKR) and programmes focused on energy efficiency renovations, such as the Home Renovation Program, are mostly market-based or require starting capital in the form of initial personal financing. As a result, they primarily benefit middle-to-upper income households and remain out of reach for lower-income households. Specific schemes tailored to the needs of the most vulnerable are badly needed, yet none appear to be on the horizon. 

Unfortunately, planning under the national social climate plan – a potential long-term tool to support energy-poor households affected by the energy transition – seems to have stalled after some initial progress in 2024 and early 2025. 

Saving money at the expense of transparency 

Around 75% of the original components of the recovery and resilience plan have been cut to free up funds for two newly established components: InvestEU and a capital injection to the Hungarian Development Bank (MFB). The MFB injection is intended to support investments in economic development, a competitive workforce, the green economy, and affordable social housing.  

However, there are serious transparency and oversight concerns over the planned investments, as the policies guiding them will not be monitored or approved by the Recovery and Resilience Facility monitoring committee. Instead, oversight will be designated to separate ‘professional committees’ whose composition is not controlled by the monitoring committee. 

At a meeting of the Recovery and Resilience Facility monitoring committee held on 2 December 2025, several members representing non-governmental organisations voiced these concerns, emphasising the need for timely and adequate follow-up information on the new components, which the government and Commission are still negotiating. 

While these oversight concerns are significant, the more fundamental and urgent problem remains: numerous measures previously planned for a resilient, socially just and climate-neutral economic transition – designed through public and expert consultations – will face significant budget cuts or outright cancellation. This threatens to derail the energy transition that the MFB injection seeks to support. 

The Hungarian public, as well as the country’s affected sectors and industries, have long awaited these measures, carefully preparing for a predictable regulatory and financing environment as a precondition for ambitious decarbonisation investments. The future of EU public financing for Hungary’s energy transition hangs in the balance.