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Croatia Renewable Energy Trends in 2023 (Faster, Higher, Stronger)

Strategic documents exist but are not sufficient

Based on the adopted strategic documents, it can be concluded that Croatia is committed to achieving carbon neutrality in the electricity production sector by 2050. This includes moving away from fossil fuels (decommissioning of thermal-electric power plant Plomin II in 2033), accelerating the development of renewable energy sources, and replacing the old block of The Krško Nuclear Power Plant in cooperation with the Republic of Slovenia (decommissioning planned by 2043) with a new block (1200 MWe power output).

The total electricity production in Croatia amounted to about 16,800 GWh in 2023, of which almost 70% was produced from renewable energy sources with over 74% of decarbonized electricity. With this degree of decarbonization, Croatia ranks among the top five successful countries in the EU. It’s essential to emphasize that renewable energy is mostly produced in hydroelectric power plants (built decades ago), and also the fact that nuclear energy from the Krško power plant contributes to a high level of decarbonization. Considering that the total electricity consumption in 2023 was around 18,500 GWh, more than 90% of the total needs were met from national sources, primarily thanks to abundant rainfall and hydroelectric production (the rest was imported energy).

In 2023, solar power plants in Croatia, with their approximately 460 MWp installed capacity at the end of the year, generated almost 300 GWh of electricity. For comparison, the total electricity consumption in all public buildings in the city of Zagreb amounts to about 160 GWh per year. The share of energy from solar power plants in total production in 2024 could reach up to 5% if the current trend of accelerated construction of these facilities continues. This is genuinely good news after years of stalled investments primarily caused by an incomplete legislative framework that has paralyzed the development and construction of renewable energy facilities since 2021. However, the installed capacity of solar power plants in 2023, with around 460 MWp, is far from what could and should have been done. By 2030, Croatia foresees around 800 MWp of installed capacity of solar power plants in its strategies, so the question is whether the set goals are reachable at the current pace of new solar capacity integration. Croatia was one of the worst countries in the European Union in 2023, with 118 W of installed capacity of solar power plants per inhabitant. Just for example, Austria or Germany (countries with much fewer sunny days annually) had 2 and 4 times more, respectively, according to the Photovoltaic Barometer in 2022. Compared with other renewable sources, Croatia’s installed wind energy capacity is almost three times greater than that of solar power plants. At the end of last year, the installed capacity of all wind farms amounted to just under 1,200 MW, capable of producing around 2,700 GWh of clean and renewable energy on an annual basis (about 15% of total annual electricity needs). As good as this may sound, Croatia is falling short in this sector compared to its needs and potential (more than 2.000 MW).

Can we do better in the PV sector?

Of the total installed 460 MWp of solar power plants, just over 70 MWp (about 15%) are in our households, while in the business sector, about 390 MWp (85%) are present. It is important to note that in the business sector, just over 215 MWp is primarily used for own needs (the so-called “self-consumer” status), while the remaining 175 MWp has been built for the purpose of supplying electricity to the distribution network (the so-called “producer” status) with the aim of trading energy on the markets.

Today, despite much clearer regulations, established supply chains, and a relatively satisfactory situation with the workforce in the renewable sector, there are several obstacles to building larger capacities of primarily integrated solutions (plants for covering own needs or “self-consumption”) in the household and business sectors

1. Limiting the price of electricity

Since September 2022, the Government of the Republic of Croatia has introduced a regulation that limits the price of electricity. This has resulted in halting investments in the renewable energy sector due to their (un)profitability. The regulated electricity price periods of return on investment extend to over 10 years for an average household planning a solar power plant for its needs, i.e., the installation of a power plant with a capacity of about 10 kWp. The regulation is still in force, so the decision to invest for some clients in the private and public sectors is postponed until further notice. Considering the upcoming parliamentary elections and the highly probable situation that the regulation will not be repealed by the end of this calendar year, a good part of the investments will continue waiting for their realization.

2. Dependence on co-financing

One of the significant challenges in implementing projects for the construction of integrated solar power plants is the general attitude of the private and public sectors that investments in RES are always subsidized through EU or other non-refundable funds. The lack of a clear policy and a multi-year subsidy program, their unpredictability, and relatively small allocations often delay the realization of prepared projects since private and public sector clients always rely on these subsidies in their investment decisions. On the other hand, it is common for subsidizing to directly disrupt the market conditions and increase the cost of investment due to the development of high-demand periods on the market (periods when funds are available) and due to the fact that contractors know that investors will cover part of the construction costs with “someone else’s” money and are bound by the grant agreement to deliver a project in the specified time period (bounded by construction deadlines, forcing subsidy recipients to contract at any cost). Having all this in mind, it is clear that there is a necessity to promote a model of a continuously open subsidy program with lower co-financing amounts (around 20% to 35%), to allow application eligibility based solely on obtained electro-energy consent (electro-energy connection permit rather than the development of the main project), and to encourage the use of alternative procurement models such as the Power Purchase Agreement (PPA) as eligible financing model. Additionally, investors often face the problem of outdated roofs on which the construction of solar power plants is not advisable without prior roof construction reinforcements or without the exchange of roof covering layers. These problems often lead to abandoning the investment due to the complexity and high costs of roof renovations. These costs (such as roof repair/reconstruction costs) and the costs of connection to the grid as well as construction of battery storage should be primarily subsidized when it comes to investments in solar power plants rather than purely subsidizing the costs of installing solar power plant equipment.

3. Prolonged permitting process

The process of obtaining the necessary consent for connection to the distribution network or commissioning of built power plants often takes longer than regulations dictate. Also, the relatively high costs of connection to the distribution and transmission network represent an additional obstacle to investments and significantly increase project costs (in some cases, connection costs amount to up to 20% of the total capital cost of the investment). Taking this into account, it would make sense to secure co-financing of the capital cost of connection through EU programs or other non-refundable sources (today not existing).

REGEAs role?

In the upcoming years, the primary activity should continue to be the development of solar power plant projects on existing building roofs. These are the fastest and most cost-effective renewable energy investments today. Unfortunately, many entrepreneurs or public buildings (such as hospitals, etc.) do not have enough roof surfaces, and their production processes require large amounts of energy they cannot produce at their locations. REGEA provides consulting services for such clients on developing Power Purchase Agreements (PPA). Using PPAs, clients from the private or public sector can arrange the supply of energy from renewable energy plants (wind, sun, etc.) realized anywhere in Croatia or the common electricity market area of the EU. For this kind of client, the PPA contract could be a key instrument that enables business sustainability (primarily in terms of energy costs and proof of the origin of electricity for ETS or ESG policy implementers).

The advantages of the PPA type of electricity procurement are fixing energy prices (or sharing market risks through the Contract for Differences (CFD) mechanism), reducing energy costs, sustainability, and social responsibility. The PPA contract can enable customers to fix electricity prices for extended periods (e.g., 5, 10, or 15 years), reducing exposure to market price fluctuations, which undoubtedly helps in long-term budget planning and stabilises part of energy costs. Through negotiations with renewable energy producers, customers can get more favourable energy prices than they would in the traditional energy market. This can significantly reduce overall energy costs for companies that consume large amounts of energy (in some cases, from 10% to 20%, depending on the type of PPA). Ultimately, PPA enables companies to participate in sustainability and social responsibility. By contracting PPA, i.e., long-term electricity supply contracts, clients from the private or public sector contribute to developing new capacities of renewable energy sources and reducing the carbon footprint.

Instead of a conclusion, it can be stated that there is a high awareness of the advantages of renewable energy technology, i.e., solar power plants in the Croatian market – among citizens, entrepreneurs, and in the public sector. Now, it is up to the legislator to remove the last obstacles and enable wider usage of free solar energy on every roof.

 

 

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