Electricity law and regulation in Croatia

1.1.1 After eight years of extensive entry negotiations, on 1 July 2013 Croatia became the 28th EU member state. Croatia’s accession to the EU brings many political, institutional and economic changes to its internal structure, as well as to regional relations.

1.1.2 The process of energy market reform started in 2001, when a number of energy related laws were passed by the Croatian parliament to implement the First Energy Package. At the end of 2004, the Second Energy Package was implemented through the adoption of new energy related laws by the Croatian parliament: namely the Energy Act (Zakon o energiji) was amended and the new Electricity Market Act (Zakon o tržištu električne energije), the Act on the Regulation of Energy Activities (Zakon o regulaciji energetskih djelatnosti) and the Production, Distribution and Supply of Heat Energy Act (Zakon o proizvodnji, distribuciji i opskrbi toplinskom energijom) were introduced. As a result, Croatia has established a bilateral wholesale competitive market and has adopted a regulated third party access regime. Trade is a regulated market activity and there are several local and international players on the market, mostly supplying to and trading electricity with private suppliers.

1.1.3 As part of the process of harmonisation of the Croatian legal framework with the Third Energy Package, on 22 February 2013 a new Electricity Market Act was adopted and, immediately after that, the new Gas Market Act.

1.1.4 Due to the process of harmonisation with EU rules, the new Energy Efficiency Act and the new Heat Energy Market Act were adopted. In addition, changes in bylaws concerning Feed-in Tariffs (FIT) and licensing of electricity market participants occurred as well.

1.2.1 Although the laws required to enable unbundling have been adopted, vertical unbundling has started slowly. As part of the harmonisation of the energy legislation with the acquis communautaire in accordance with the provisions of the Third Energy Package, the electricity transmission company, which was held in state ownership under the name of HEP-OPS, became functionally independent of the other members of the HEP Group under the name HOPS Ltd. Thus the transmission system operator (TSO) became the owner of the infrastructure and is subject to a number of additional requirements imposed by the Third Energy Package in order to ensure its independence. For the distribution system, the ownership unbundling (OU)model is being pursued.

1.2.2 The horizontal unbundling has been partially achieved but only within the HEP Group. In other words, the holding company HEP d.d. is state-owned and is the owner of the infrastructure, while its respective affiliates manage the infrastructure (e.g. HEP-DSO, HEP Generation, which operate hydro and thermal plants, and HEP Renewables, which is in charge of the development and operation of renewable energy source (RES) plants).

1.2.3 The Croatian electricity market operator and the transmission and distribution companies are all indirectly owned by state-owned companies:

• the Croatian Electricity Market Operator (HROTE) is responsible for the organisation of the electricity market;
• transmission activities; including maintenance, development, construction and operation of the transmission system are the responsibility of the TSO, Hrvatski operator prijenosnog sustava d.o.o. (HOPS); and
• HEP operator distribucijskog sustava d.o.o. (HEP-ODS), is the single distribution system operator (DSO) and is responsible for the operation, maintenance, development and construction of the Croatian distribution system.

1.3.1 Although the Croatian electricity market is formally open, the market activities of generation, supply and trade are mainly carried out by state-owned companies.

1.3.2 There are 28 companies active in the generation sector. Although the majority of these (approximately 80%) are privately owned, their market share is dwarfed by the generation capacities of state-owned companies, which dominate the sector. The increase in the number of private generators is mainly attributable to generators of electricity from RES which remain small, though this may change due to available support systems and environmental legislation.

1.3.3 There are 18 companies covering the supply business. Three of these companies are state-owned and hold the majority of the market share. In 2014, companies forming part of the state-owned HEP Group held a total of 85.75% of the market share. The privately owned supply companies with the highest market share in 2014 were: GEN-I (approximately 6.07%), RWE Energy (former Energija 2 Sustavi with approximately 4.52%) and Proenergy (approximately 2.32%). In the period September 2013 to September 2014, non state-owned companies more than doubled their market share to approximately 14%.

1.3.4 The electricity trading sector in Croatia has 14 active companies including Dalekovod, Petrol, Danske Commodities and MVM Partner. All of these companies are privately owned.

1.4.1 Croatian total (gross) consumption of electricity in 2013 was 17.3TWh, which represents a decreasing trend which began in 2010 when total consumption was 17.9TWh.

1.4.2 Investments in domestic generation and participation in connections to large infrastructure projects are becoming increasingly important, as the majority of the generating stations are approaching the end of their lifespan. The plan is that 65% of thermal power’s installed capacity (1100MW) will be out of service by 2020. New conventional (gas and coal fired) generating stations are planned with 2400MW of capacity to replace those that are at the end of their lifespan. The Croatian electricity market requires a certain amount of stable (base load) generating stations to be in operation to support any expansion of intermittent, renewable generating stations. Thus this expansion will enable the increased use of renewable-based capacity.

1.4.3 The fundamental objective of the Croatian energy strategy is harmonised with that of the EU: ensuring the security of energy supply at competitive prices determined on the open market. In order to achieve this objective, Croatia has adopted an energy strategy (Energy Strategy) which includes objectives to develop new generation capacity by 2020, in particular:

• 300MW in new large hydro plants;
• 35% of consumed electricity to be generated by 2020 out of generation from RES and large hydro plants;
• 2400MW of newly commissioned thermal plants to replace the 1100MW of thermal plants due to be decommissioned by 2020;
• 1200MW in new gas thermal plants and another 1200MW in coal thermal plants; and
• 300MW of new cogeneration units.

Structure of generation sector

2.1.1 The majority of electricity generation comes from state-owned companies which dominate the sector. On the other hand, private generators dominate the RES sector subject to FITs (as opposed to hydro plants over 10MW which although are RES, are not eligible for the FIT and are operated by a state-owned company). However, all these are smaller plants, the largest being a wind plant of 42MW.

2.1.2 More than half of the total installed capacity in manufacturing facilities within the Croatian power system is located in hydro power plants, which means that the possibility of annual electricity production is significantly dependent on the hydrological state of the given year. Hydro generating station capacities are usually below 50MW, but there are a few larger plants such as the Zakučac hydro plant (486MW), and Orlovac and Senj (each with an output of more than 200MW). Hydro plants over 10MW which although are RES, are not eligible for the FIT and are operated by a state-owned company.

2.1.3 Most thermal plants are state-owned. However, some are owned as JVs with private companies. For instance, the Plomin-B boiler unit of the Plomin thermal generating station, which is co-owned by HEP and RWE Power AG. The Plomin thermal plant, which consists of two boiler units (TE Plomin-A, built in 1969, and TE Plomin-B, built in 2000) is operated by HEP. The government intends to apply a similar arrangement to the reconstructed Plomin-A, which is meant to increase its capacity from the existing 125MW to 500MW (and as a result is now considered as a new project and referred to as Plomin C). The government’s lack of decisiveness in choosing the fuel for the plant (gas or coal) has led to major delays in the development of Plomin C. However, the government intends that the development of Plomin C shall be co-owned in a similar manner to block B, with a JV partner yet to be identified.

The main generating stations are the Sisak condensing thermal generating station (TPP Sisak) which is comprised of two main units fuelled by oil or natural gas (or the two combined), with a total output of more than 800MW, and the aforementioned Plomin thermal plant with the total output of blocks A and B at 330MW. The first block of TPP Sisak is undergoing decommissioning. In 2009, the construction of a gas combined-cycle cogenerating unit C 230MW/e + 50MW/t began with the EPC contract awarded to the Russian Technopromexport and construction of the new plant is due to be completed in 2014. The second block of TPP Sisak B is to be decommissioned between 2017 and 2019.

2.1.4 Since 2007, much progress has been made in the development of renewable energy. A legal framework for generating power (electric and heat) from RES was implemented for the first time in Croatia. The main rationale behind incentivising the renewable energy sector is that producers of renewable energy may obtain so-called “Eligible Generator Status” and thus become eligible to receive a FIT which consists of a fixed part determined by the tariff system and a variable part which may amount to up to 15% of the fixed part, depending on the local content requirement. Eligible Generator Status brings the following benefits:

1. generated electricity is sold to HROTE - guaranteed off-take;
2. such a generator is incentivised by receiving a fixed FIT for any electricity sold (the FIT is only subject to indexation); and
3. these terms apply for a period of 14 years.

2.1.5 By 14 November 2014, there were 1035 RES projects within the FIT system with 368,043MW of installed capacity. Among these there were 15 wind power plants with 297,250MW of installed capacity, 991 solar power plants with 31,678MW, 5 cogeneration plants with 13,293MW, and the remaining installed capacity was divided between 5 hydro power plants, 12 biogas power plants, 4 biomass power plants and 2 power plants operating on deponium gases and gases form water cleaning facilities.

Energy Mix

2.1.6 According to the information obtained from the state-owned generator, in 2013 a total of 18.9TWh of electricity was either generated in or imported into Croatia. Of this amount, 15.4TWh were sold to customers within Croatia. As regards the energy mix, the total of 18.9TWh is distributed as follows: approximately 43% came from the hydro plants and another 22% from conventional thermal plants, 13% from the Krško nuclear generating station, 3% from wind plants, 0.06% from solar plants and the remaining 19% was imported.

2.1.7 As may be deduced from the numbers above, the Croatian generation sector is currently combining traditional generating stations, such as gas and coal fired generating stations with plants producing electricity from renewables. The sector is still dominated by the state-owned producer HEP Generation Ltd. with its thermal and hydro generating stations. The TSO’s preliminary 2013 data shows that the total electricity production in 2013 amounted to 12.8TWh, and the majority thereof, approximately 65%, was produced from thermal plants and large hydro generating stations (over 10MW, which are not incentivised by the FIT system).

Plans for new generating capacity

2.1.8 HEP’s investment fund for the upgrade of hydro plants will amount to HRK 5b by the end of 2015.

2.1.9 Currently, HEP is investing in upgrading and refurbishing the Zakučac hydro plant (worth HRK 1b) by replacing four generating units, thus increasing its current installed capacity to 538MW by 2015. The first out of four phases has been completed, funded solely by HEP. The investment will also cover HE Dubrovnik 1 (HRK 250m) and HE Senj, both of which are underway, as well as HE Varaždin, where the refurbishment should start at the end of 2014.

2.1.10 The process of obtaining the building permit for Plomin C, a thermal plant with 500MW capacity and costing approximately EUR 800m is ongoing.

2.1.11 There are also 306 RES projects that have obtained building permits and are now in various stages of development. According to the planned installed capacity, wind is the leading source with 437.7MW, followed by nine biomass plants with jointly 52.36MW and then 257 solar plant projects with jointly 24.03MW producing capacity. It is important to stress that the interest in wind and solar is much greater than the data indicates, however the development of new projects is limited by the quotas applied to grid connection for wind generation and to the FIT system in relation to solar.

New technologies

2.1.12 HEP has invested approximately EUR 3m in installing 28 DWDM appliances within the Croatian territory, thus enabling data transmission of 100GBp/s. The new network will enable more efficient management of HEP’s systems and may be used by the administrative bodies, telecom, mobile operators and undertakers.

Structure of transmission sector

2.2.1 The transmission network includes transformer substations, switchyards, overhead lines and underground cables. In terms of power lines, the electricity infrastructure includes 1,247km of 400kV power lines, 1,210km of 220kV power lines and 5,013km of 110kV power lines. The transmission grid is operated by the TSO which is the state-owned HOPS.

2.2.2 The connection of generators and customers to the transmission network is regulated by secondary legislation. The respective connection fees are set by the TSO in accordance with the Croatian Energy Regulatory Agency’s (HERA)methodology for the calculation of the connection fees and approvals. These competences are granted to HERA by the Energy Act and the Act on Regulation of Energy Activities.

2.2.3 In accordance with the Electricity Market Act the TSO must connect all entities, including generators, to the transmission network on a non-discriminatory basis. In addition, the connection must be technically and economically feasible and the applicant must satisfy the requirements for connection. Limitations to this general rule apply to wind generating stations, which require a certain level of base load. The grid capacity for wind parks, as determined by the TSO, is set to approximately 400MW, out of which 297.45MW is already taken by fifteen operating wind parks, and another 42MW is taken by a wind park that is currently in the test phase. According to the August 2014 published list of the Croatian TSO, the remaining capacity of approximately 81MW is currently reserved for seven projects. A generator must enter into a standard form connection agreement, which determines the obligations of the parties, in particular with respect to the payment of charges and relevant deadlines. The general rule is that the generators are charged the full cost of their connection, which is determined by the actual connection expenditure. This cost must be factored into project development costs for any generation facility connected to the transmission network (all plants with output of more than 10MW) since the connection cost usually includes the cost of substation construction.

Cross border issues

2.2.4 The Croatian transmission system is interconnected with neighbouring countries’ transmission systems, namely with:

1. Bosnia and Herzegovina (HV 400kV cable Ernestinovo-Ugljevik and HV 400kV cable Konjsko-Mostar);
2. Serbia (HV 400kV cable Ernestinovo-Sremska Mitrovica 2);
3. Hungary (HV 2x400kV cable Žerjavinec-Heviz and HV 2x400kV cable Ernestinovo-Pecs); and
4. Slovenia (HV 2x400kV cable Tumbri-Krško and HV 400kV cable Melina Divača).

There is also interconnection with surrounding ENTSO-E countries by means of eight transmission lines running at 220kV. The Croatian network is further interconnected with neighbouring countries on the 110kV level by 18 transmission lines in constant or part-time usage.

Plans for new transmission capacity

2.2.5 In the period before and after 2020, a number of facilities, units, devices and components of the transmission network will exceed their lifespan and will need to be repaired, replaced or revitalised. HOPS’s own investments in the transmission network (investments in network upgrades of system character, revitalization, ICT infrastructure, replacement and reconstruction of transmission areas and the usual other investments) planned in the period 2015-2024 are estimated at an amount of approximately HRK 8.23b, or an annual average of HRK 823m, of which HRK 5.07b in transit systems and HRK 3.16b in the connectors for conventional, wind and solar power plants and objects for HEP-DSO.

2.2.6 The Republic of Croatia, after consultation between HOPS, the Ministry of Economy and HERA registered six projects for the status of Project of Common Interest. These investments are reported separately due to the fact that the final scope and financial support to the project is determined by the planned feasibility study which is expected by the end of 2014. It is estimated that by 2020, all of these projects will be completed and approximately HRK 967m will be invested in them:

• Substation 400/220kV Brinje (Croatia);
• Substation 400/110kV Lika (Croatia);
• Transmission line 400kV Lika – Brinje (Croatia);
• Transmission line 400kV Banja Luka (Bosnia and Hercegovina) – Lika (Croatia);
• Transmission line 400kV Lika – Velebit (Croatia);
• Transmission line 400kV Konjsko – Velebit (Croatia).

Structure of distribution sector

2.3.1 The distribution network is part of the electrical energy network which transfers electricity from the transmission network into substations VN/SN 110/35(30)(20)(10)kV, and then distributes it to end (middle and small) users. Although formally it can be of high, middle or low voltage, in other words up to and including 220kV, in reality it is low voltage (35kV, 30kV, 20kV, 10kV, and 0.4kV) with the sole exception of Zagreb where 110kV lines also form part of the distribution network.

2.3.2 The distribution network is managed by the DSO, a limited liability company wholly owned by the state (via HEP d.d.). In addition to distributing electricity taken from the transmission network, ensuring reliable customer supply, managing sales, metering, billing and payment collection for electricity supplied, HEP ODS is responsible for the maintenance, replacement, reconstruction and development of the distribution network and plant.

2.3.3 The DSO submits an annual report to HERA, which may request the implementation of certain measures required to ensure that the DSO upholds the principles of transparency and non-discrimination in its operations.

2.3.4 Subject to prior consent from HERA, the DSO adopts a distribution network development and construction plan. This plan takes into account energy efficiency measures, demand-side management and distributed production.

Structure of supply sector

2.4.1 According to the Electricity Market Act, the wholesale electricity market in Croatia consists of trading (for more details please refer to paragraph 2.5).

2.4.2 Since mid 2006, the Croatian electricity supply market has been gradually opening up to competition and was fully opened on 1 July 2008. Moreover, customers can buy electricity from any supplier on the market, but not directly from traders (i.e. wholesalers) or generators.

2.4.3 In order to secure supply, a customer has to enter into a supply agreement with a supplier of his choice and an agreement on usage of the grid with the DSO (or TSO if he is connected to the transmission network). Based on these two agreements, a customer receives two separate invoices, one for consumed electricity and one for use of the grid.

2.4.4 HEP-Opskrba d.o.o. (part of the HEP group) continues to be the largest electricity supplier, but there are a number of smaller private suppliers competing for a share of the supply market. Private suppliers continue to concentrate on the supply of public bodies (as electricity supply is procured in a public tender procedure).

Key issues

2.4.5 In October 2014, according to official HROTE information, there were 18 licences for electricity supply and eleven for trading in force. However, there is still minimal competition in the market because the state-owned supplier holds an 85% share of supply market share, but changes are visible from 2013 when the state-owned supplier held approximately 90%.

2.4.6 The Electricity Market Act provides that the state-owned supplier HEP-Opskrba d.o.o. must supply electricity at regulated prices and terms to all households as the default supplier and other customers for up to 30 days as the supplier of last resort (when such a customer, other than household, is left without its chosen supplier). The methodology for these prices is set by HERA’s tariff whilst the tariff amounts are set by the government and are generally lower than market prices. However, due to the state of the electricity market in surrounding countries, two companies – RWE Energy and Slovenian GEN-I – have lately presented their offers to households with prices lower than those set by the tariff. These offers to households were covered by the media, and customers’ switching rate is an increasing trend.

Structure of trading market

2.5.1 There is no power or commodity exchange operation in Croatia, although in 2012 there were public announcements by HEP d.d. (holding company) on establishing one in early 2013. The wholesale power trading business is exclusively based on bilateral contracts.

2.5.2 Wholesale trading has been opened up to competition and is based on free-market, negotiated prices. The electricity traders typically conclude the following agreements on the wholesale market:

• electricity transmission or distribution agreement;
• electricity purchase agreement; and
• balancing energy agreement.

2.5.3 Regulation of the cross-border transfer of electricity in Croatia is driven by the TSO and by auction. Since 2014, there have been four entities involved in auctions of projects on the Croatian border, including:

1. HOPS, as the auction office carrying out:

• yearly, monthly and daily auctions and the intraday allocation of the Croatian part of available transfer capacities (ATC) on the border with Bosnia and Herzegovina in accordance with the Rules on Allocation and Use of Cross-Border Transmission Capacities (Rules); and
• yearly, monthly and daily auctions on the border with Serbia in accordance with Annex 3 of the Rules – yearly and monthly auction rules on Croatia – Serbia Interconnection Capacity for 2014 between the control areas of HOPS and JP Elektromreža Srbije (EMS) of the Croatian part of ATC on the border with Serbia in accordance with the Rules;

2. EMS, as auction office carries out:

• daily auctions on the HR - RS border in accordance with Annex 4 of the Rules – daily auction rules for the allocation of transmission capacities at the border of control areas of EMS and HOPS.
• intraday allocation on the HR – RS border in accordance with Annex 5 of the Rules – rules for the allocation of the Interconnection Intraday Capacity at the control areas of EMS and HOPS;

3. ELES, as auction office carries out:

• intra-day allocation for both directions - Croatia to Slovenia and Slovenia to Croatia - in accordance with Annex 2 of the Rules – intraday capacity access rules between the control areas of ELEKTRO-SLOVENIJA, d.o.o. (ELES) and HOPS;

4. CEE CAO (CAO - Central Allocation Office), as auction office carries out:

• yearly, monthly and daily coordinated auctions in accordance with Annex 1 of the Rules – rules for the coordinated auction of transmission capacity on the HU – HR and SI – HR Border for 2014.

2.5.4 According to the Rules, allocated cross-border capacities may be transferred to another allocation participant via the auction system. The minimum amount of transmission capacity available to transfer to another allocation participant is 1MW.

2.5.5 The transfer of rights for use of transmission capacity allocated at the yearly and/or monthly auction on the border of Croatia and Hungary must be made by 00:00 three working days preceding the day of the use of the transmission capacity and by 08:00 two working days preceding the day of the use of transmission capacity at the other borders.

2.5.6 The use of transmission capacity is registered to the TSO in the cross-border electricity exchange plans within the following deadlines:

• use of yearly and monthly transmission capacity at the borders with BIH by 09:45 on the trading day;
• use of yearly and monthly transmission capacity at the borders with Serbia by 08:00 on the trading day;
• use of yearly and monthly transmission capacity on the Croatian-Hungarian and Croatian-Slovenian border by 17:00 two days preceding the trading day; and
• use of the daily transmission capacity on all borders should be registered by the trading day, and no later than the deadline for contracted schedules delivery in accordance with the electricity market rules.

It is not possible to change the submitted plans of cross-border exchange upon the expiry of the above-mentioned deadlines.

Data on traded volumes

2.5.7 Around 26% of total consumed electricity is imported. Figures for 2013 show that 12.8TWh was generated in Croatia, 8.746TWh was imported and 6.773TWh exported.

Cooperation with other exchanges

2.5.8 Data shows that HEP buys electricity primarily through tenders organised on the Croatian border. Until November 2014, the total sum for purchases on all Croatian borders (Bosnia and Herzegovina, Serbia, Slovenia and Hungary) was 13.86TWh.
Other suppliers generally do not enrol in foreign exchanges directly, but do so through their agents. There is no publicly available data on these quantities.

HERA

3.1.1 Although HERA is established as an autonomous, independent and non-profit public institution which regulates energy activities in the Republic of Croatia, its board of directors is appointed by parliament. Once a year, HERA reports on a number of (not all) activities from its competences to parliament, while the Ministry of Economy supervises the legality of HERA’s work. HERA’s duties, authorities and responsibilities are prescribed by the Act on the Regulation of Energy Activities (2012) and by the Energy Act and other Acts regulating specific energy activities.

3.1.2 HERA performs the following activities (among others):

• providing opinions to the Ministry of Commerce on the FIT system and incentives for RES and cogeneration;
• supervising the application of all tariff systems and prescribed compensations;
• providing advice to the Ministry of Commerce on general terms and conditions for energy supply;
• organising and implementing tendering procedures for the construction of generating facilities (when publicly financed);
• supervising energy undertakings;
• supervising the quality of services provided by energy undertakings;
• publishing information and data on energy efficiency and the use of energy; and
• participating in energy policy design.

3.1.3 HERA issues:

• licences for carrying out energy activities. In relation to the electricity market, these are licences for namely generation, transmission, distribution, or trading of electricity or for involvement in the organisation of the electricity market; and
• rulings on granting the status of eligible generators.

3.1.4 HERA provides:

• opinions to the Ministry of Economy on proposals for tariff amounts;
• opinions to the government on proposals for the amounts of compensation for connection to the network and increases in connected power; and
• consents to energy undertakings for the construction of direct lines.

HROTE

3.1.5 HROTE organises electricity and gas markets as a public service, under the supervision of HERA. In addition, HROTE has a key role in incentivising electricity production from renewable sources and cogeneration and in incentivising production of biofuels for the transport sector/industry. This is achieved by collecting fees from end customers and suppliers of electricity and distributors of fuel and allocating this fee to generators of electricity/biofuel from renewable sources/cogeneration (Preferred Generators).

3.1.6 The main responsibilities of HROTE on the electricity market front include (among others):

• issuing electricity market rules which outline how HROTE regulates the market and sets relations between HROTE and the TSO, DSO and other electricity market players;
• keeping records of electricity market participants;
• registering contractual obligations among market participants; and
• preparing a day-ahead national level market plan.

3.1.7 The main responsibilities of HROTE on the incentives system front include:

• concluding contracts with Preferred Generators;
• concluding contracts with all suppliers regarding the regulated purchase of electricity coming from RES; and
• financial settlement according to concluded contracts.

The Competition Agency

3.1.8 Preventing and/or enforcing anti-competitive practices in all sectors of the Croatian economy, including the electricity sector, is within the scope of competence of the Croatian Competition Agency (Agency).

3.1.9 The Agency may impose fines up to 10% of the total turnover of the undertaking realised in the previous business year.

3.1.10 While the energy market has gradually started to open up to competition since 2008, actual progress occurred only by the end of 2010, and thus the case law in this field is still undeveloped.

3.1.11 The current position of the HEP group may fall within the scope of dominant position, however, due to the state of development of the electricity market and the lack of competitors holding any significant part of the market, no such proceedings have been initiated against the HEP group.

3.2.1 The main Acts in Croatia are:

• the Energy Act 2012, which outlines the fundamental principles for performance of energy activities;
• the Act on the Regulation of Energy Activities 2012, which governs the energy sector;
• the Electricity Market Act 2013, which defines the Croatian electricity market as well as the roles and responsibilities of market participants; and
• the Energy Efficiency Act 2014, which defines the system for monitoring, measurement and verification of efficient energy use and obligations in terms of ensuring the functioning of such a system.

3.2.2 A major issue with the Croatian energy legal framework is the wide range of secondary legislation adopted by different authorities, such as HERA, the government and the Ministry of Economy (ordinances and similar documents), which implement in detail the principles introduced by legislative acts. These govern specific areas of the electricity sector (e.g. organisation and functioning of the electricity market, tariff systems, allocation and use of cross-border transfer capacities, use of RES and cogeneration etc.). These secondary documents are more easily adopted and amended and thus are frequently subject to changes.

3.2.3 In February 2013, pursuant to the Electricity Market Act, categories for vulnerable and protected customers have been introduced. Households determined to be “endangered consumers” by the competent body of social care can be supplied with electricity at the expense of the respective social care body. The by-law that should have been adopted by the government by late April 2012 which was to provide the mechanism for a social care body to determine “endangered customer” status for each applicant has not been introduced. Therefore, whilst the provision on endangered customers exists in law, it does not actually exist in practice.

Applicability of EU competition law

3.2.4 Article 74 of the Competition Act stipulates that the implementation of the Competition Act and especially in cases where there are doubts regarding its interpretation, in accordance with article 70 of the Stabilisation and Association Agreement, the criteria set out in the competition legislation of the EU is to be applied appropriately. This means that the Republic of Croatia is not only obliged to implement EU directives into national legislature, but also to apply the instruments of interpretation adopted by the EU institutions in national competition proceedings, including case law.

Licensing regime

Any applicant intending to pursue energy activity needs to obtain the respective licence for the relevant activity issued by HERA. Prerequisites for a particular licence depend on the activity, however, in general, applicants need to meet certain financial, technical and personnel requirements specified by the Energy Act. Licences are issued for a period between three and 15 years depending on the specific activity and the previous track record of the applicant (i.e. if the applicant is a new player on the market, the licence is usually issued for up to three years) and may be extended. An applicant to whom HERA has refused to issue a licence can appeal to the Ministry of Economy which can confirm HERA’s decision and reject the appeal; partially or wholly cancel HERA’s decision; or alter HERA’s decision. HERA is rather conservative when it comes to interpreting licence requirements though some flexibility is possible. For example, recently HERA approved a trading licence for a company with a virtual office; previously, it insisted that an actual office in which it could carry out inspections would be necessary.

3.3.1 The licensing requirements differ by activity. Generation (including from RES) is most heavily regulated and a number of licences, agreements and other documents need to be obtained or signed during the construction process and before the operation of the generating station. For example, in addition to general construction requirements such as obtaining a location, construction and use permit, a developer of a RES generating station will have to obtain additional energy approvals for construction from the competent ministry, and various other permits/contracts from different authorities such as HERA, HROTE and the TSO/DSO. The procedure was slightly simplified in 2012, especially for integrated solar PV systems which will mainly deal with the TSO/DSO as a point of single contact (which then deals with other authorities involved).

3.3.2 A licence may be cancelled before its expiration:

• temporarily, if the licensee can no longer maintain/meet the conditions required for the issuance of the licence; no longer conducts the licensed activity; or if in three consecutive months it does not meet its obligations towards other parties; or
• permanently, if the licensee fails to remedy breaches that were identified by HERA.

3.3.3 A licensee whose licence is cancelled can appeal to the Ministry of Economy.

Contracting

3.3.4 Electricity sale and purchase contracts (E-SPC) are concluded between suppliers, traders or generators; while the parties to the supply contract are the supplier and end-customer (i.e. traders may not supply end-customers but only wholesale customers, suppliers and other traders). Each generator, supplier and trader is liable to the TSO for deviations from their agreed schedules, and in order to keep the continuity of the electricity system, the TSO is authorised to enter into E-SPCs, but solely for the purpose of procurement of balancing electricity and to cover losses in transmission lines.

3.3.5 Generators and end-customers have to enrol in a grid usage contract with operators of the grid, i.e. either the TSO or the DSO. The DSO has one other function in the market: providing public supply services. Public supply service is the provision of regulated prices to household customers for an unlimited term. Although households are free to choose their supplier, in reality, the DSO supplies the vast majority of households in Croatia.

3.4.1 Energy generation from RES is supported mainly through a FIT for Preferred Generators. Additionally, the Croatian Bank for Development and Reconstruction (HBOR)and the Fund for Environmental Protection and Energy Efficiency operate a loan scheme for RES projects.

3.4.2 In general, electricity generated from RES is sold to HROTE for a FIT (higher than the usual market price and is used as an incentive for this type of investment). The table below gives a general Overview of the FIT system 1 Tariff system for generation of electricity from RES and cogeneration (OG 133/2013, 151/2013)  (numbers may be increased by up to 15%, depending on the local content requirement; numbers for the actual project may vary).

Table 1: FIT Rates

*RP- price equal to the applicable tariff item for active energy at the unique daily tariff for the supply of electricity within the universal service, tariff model blue

3.4.3 FITs from customers are collected by the suppliers on behalf of HROTE and then paid to HROTE. Suppliers are obliged to purchase certain amounts of electricity produced from RES for a regulated price, lower than the above FITs. The amount of the regulated price depends on the actual RES the electricity is generated from, as well as the portion of the particular supplier in the total supply market.

3.4.4 Generation of heat from RES is regulated under the Heat Energy Market Act 2014 (as amended). This Act provides for certain types of generation to have preferred heat generator status that the terms were to be prescribed by a governmental regulation, which was never adopted. Therefore, this type of generation is still not supported in Croatia. Some investors are now obliged to use heat energy (as a by-product) in order to reach a certain efficiency level set out in applicable regulations and electricity off-take agreements for Preferred Generators with HROTE. However, since there is no heat subsidy mechanism in place, these investors have to find a use for this energy themselves.

3.5.1 No information is available at the moment of writing this guide.

Figure 2: Electricity GWh 2 Croatian Bureau of Statistics
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Source: CBS

Figure 3: Electricity sources in 2013 3 Republic of Croatia, Ministry of Economy Energy Institute Hrvoje Požar: Energija u Hrvatskoj 2013 (accessed on 4 July 2013)
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Figure 4: Overview of shares of individual electricity sources 4 HEP 5 Republic of Croatia, Ministry of Economy Energy Institute Hrvoje Požar, Energija u Hrvatskoj 2011 (accessed on 4 July 2013)
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• Ministry of Economy: www.mingo.hr
• HERA: www.hera.hr
• HROTE: www.hrote.hr
• HEP d.d.: www.hep.hr
• TSO: www.hops.hr
• DSO: www.hep.hr/ods/dp/default.aspx