New Croatian Energy Strategy and Electric Power Market

Author: Marija Mušec, partner of the law firm Bardek, Lisac, Mušec, Skoko doo in cooperation with CMS Reich-Rohrwig Hainz Rechtsanwälte GmbH

In May 2019, the Croatian government proposed a new national energy strategy until 2030, including an outline until 2050. The proposal is currently under public review.

The energy strategy provides for three scenarios:

  • S0, a scenario without any new adjustment of measures or modification of the regulatory framework;
  • S1, a scenario of rapid energy transition in Croatia and the EU;
  • S2, an energy transition scenario at medium pace in Croatia.

The future of electric power in Croatia

a) Electricity consumption:

Croatia’s overall energy consumption is believed to have peaked in 2010: it has slowly declined since then and by 2050 it is expected to continue to decline. This reduction is partly due to the shrinking population, but also to the fact that more efficient technologies are being incorporated into everyday consumer products, energy efficiency of buildings and industry. Over the next ten years, global energy consumption is expected to decrease by 1% in S2 and 5% in S1. Global energy consumption is expected to be significantly reduced by 2050, by 17% in H2 and 26% in H1.

Changes are also expected in the composition of overall energy consumption. Renewable energy sources are expected to increase their share of global consumption by 10% by 2030 in H2 (from 21.8% in 2017 to 31.5% in 2030), and an additional 15% by 2050 ( from 31.5% in 2030 to 46.3% in 2050). The medium-term forecast for S1 remains the same (31.5% in 2030), but in the long term, it projects a much larger share of renewable energy sources in overall consumption – rising to 56.2% in 2050 .

b) Electricity production:

In the period from 2017 to 2030, S2 forecasts an increase from 11,983.5 GWh to 16,637.9 GWh. S1 for the same period forecasts an increase from 11,983.5 GWh to 17,495.2 GWh. In the period from 2030 to 2050, S2 forecasts an increase to 25,546.7 GWh and S1, to 29,537.8 GWh.

The composition of production is also expected to change as the share of renewable energy sources increases. In S2, by 2030, wind energy should represent 21.3% of the power produced (an increase from 0.9% in 2010), solar energy 6.1% (an increase from 0% in 2010), geothermal energy 0.8% (from 0%) and hydroelectric power production will decrease its share in overall production to 44% (compared to 62% in 2010). By 2050, renewable energy sources will represent 79% of total energy produced. All non-renewable energy sources are expected to decrease their production. This includes the production of thermoelectric energy, public cogeneration and industrial cogeneration. The combined share of these energy sources will increase from 37.1% in 2010, to 27.8% in 2030 and to 21% in 2050.

S1 predicts a more drastic change. By 2030, renewable energies will represent 75.1% and by 2050, 87.7% of total energy produced.

Electric power market

The new strategy aims to strengthen the energy market and fully integrate it into the European and international energy market.

Regulatory activities should be geared towards simplifying market access and towards equal and non-discriminatory access to network infrastructure. The flexibility of the electricity market should be increased. The interconnection of the network with neighboring states, in particular EU Member States, is an important factor in achieving these goals, as the interconnection ensures that the daily volatility of the local market does not endanger the supply of electricity. electricity. Regulatory services should be made easily accessible by market players according to market criteria, providing them with a tool enabling them to react quickly to imbalances in the electric energy market.

Advanced electricity meters are expected to increase the flexibility of the retail electricity market and the participation of end users in it.

The future of renewable energy systems in Croatia

The strategy envisions a steady decrease in recurring incentives in Croatia, as the bankability and financial viability of these projects increases. The end goal is to reach a point where incentives will no longer be necessary for the financial viability of renewable energy projects. To support the financial viability of renewable energy projects, the Strategy suggests:

  1. Simplify administrative procedures and eliminate administrative barriers;
  2. Strengthening the stability of the legal framework and commercial conditions, including those of projects already completed;
  3. Discharge renewable energy projects from part of the taxes and levies;
  4. Organize and develop the necessary infrastructures;
  5. Ensure coherent activity and coordinate the different policy areas;
  6. Create guidelines and recommendations for widespread implementation, apply best practices, establish technical regulations, standards and technologies when implementing renewable energy projects in urban areas.
  7. We expect that the procedures for issuing building permits will be simplified in order to be more efficient in terms of costs and time. The government, government agencies and local and regional governments are expected to contribute to the development of projects by preparing the studies and documentation necessary for investors to launch their businesses.

The exemption of renewable energy projects from part of the taxes and levies will replace the incentives that are expected to be phased out over the Strategy period.

Although the Strategy mentions the need to increase the flexibility of the electric power market, it is silent on regulatory measures. Simplifying market and grid access is necessary, but seems insufficient to achieve the declared objective of strengthening the energy market and its full integration into the European and international energy market. The establishment of business power purchase agreements (CPPA) seems to mark an additional step towards the development of the energy market. Unfortunately, the Strategy does not meet the need for such agreements.

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