New Renewable Energy and High Efficient Cogeneration Act

On January 1 2016 the Renewable Energy and High Efficient Cogeneration Act (Official Gazette No 100/15) came into force, replacing a confusing and complicated legal framework which had consisted of multiple acts and regulations and was discouraging to investors (for further details please see "Oil and gas and renewable energy legislative and market update"). The new act, which was announced almost four years ago, has been welcomed and is a huge step forward for renewable energy projects in Croatia.

Background

The main objectives behind the Renewable Energy and High Efficient Cogeneration Act are the harmonisation of Croatian and EU legislation and the integration and harmonisation of Croatian renewable energy sector regulations, in order to increase production and use of renewable energy in line with sustainable development objectives.

Scope

Among other things, the Renewable Energy and High Efficient Cogeneration Act:

  • regulates the production and use of electricity from renewable energy sources;
  • regulates project development;
  • stimulates renewable energy production;
  • introduces a project register;
  • regulates power plant construction and high-efficiency cogeneration; and
  • encourages international cooperation in the renewable energy field.

It is the first act to specifically cover cogeneration electricity production.

Objectives

The Renewable Energy and High Efficient Cogeneration Act is mainly intended to:

  • improve energy policy;
  • reduce harmful effects to the environment;
  • reduce fossil fuel use;
  • lay the groundwork for projects with other EU member and non-member states and an energy network based on renewable energy and high-efficiency cogeneration; and
  • diversify electricity production.

The act will attract new investors and make possible new renewable energy projects.

Renewable energy consumption

Croatia is also implementing its EU objectives successfully. The latest Eurostat report on the use of renewable energy in 2013 indicates that Croatia's 18% share of renewables in gross energy consumption is still above the EU average. In addition, Croatia has almost reached its target of 20% by 2020. According to Eurostat, in 2013 the largest increase in renewable electricity generation in Europe was recorded for Croatia, with a growth of 27.9%.

Electricity update

Croatia is following the global trend of switching to a clean energy economy. At its conference on climate change in Paris, the United Nations adopted the first-ever universal, legally binding global climate deal, which signaled a transition away from fossil fuels to a clean energy economy. As a result, coal stocks sank, deterring investments in the coal industry. In addition, the Organisation for Economic Cooperation and Development (OECD) concluded its Antalya Agreement, which stipulates that OECD countries will not fund coal power plants through state agencies from 2017.

In line with this trend, Croatia's new government announced that the Plomin C project for the construction of a 500-megawatt-capacity coal power plant (for further details please see "Electricity market projects") will likely be stopped, and that Croatia has no need for the project. However, the government must still examine all factors of the project and all penalties arising from the tender, and no official decision has been rendered.

The preferred bidder – Japanese company Marubeni – and the Croatian Electric Utility Company (HEP) signed an exclusivity agreement in February 2015, in which HEP committed to continuing negotiations with Marubeni. This was despite the European Commission providing HEP with a negative opinion on the proposed agreement, claiming that it is contrary to EU competition law.

In light of the above, the future of the Plomin C project is unknown.

For further information on this topic please contact Miran Macešic or Ivana Manovelo at Macešic & Partners by telephone (+385 51 215 010) or email (mmacesic@macesic.hr or manovelo@macesic.hr). The Macešic & Partners website can be accessed at www.macesic.hr.

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