Q&A: electricity generation and transmission in Croatia

Regulation of electricity utilities – power generation

What authorisations are required to construct and operate generation facilities?

There are two types of authorisations necessary to construct and operate generation facilities: licences for the performance of electricity generation activities and energy authorisation for the construction of new generation capacities. The licence for electricity generation is issued by the Croatian Energy Regulatory Agency (HERA) in accordance with the Rules on Energy Licences and Maintenance of Registry of Issued and Revoked Energy Licences (Official Gazette Nos. 88/15, 114/15 and 66/2018). The energy authorisation for the construction of generation capacity is granted by the Ministry of Energy (the Ministry) pursuant to the Electricity Market Act. Other construction, location and environmental licences are issued by authorised administrations or ministries in accordance with the respective legislation. If and when it finds it is necessary, the government may decide on the construction of additional electricity generation facilities through a public tender procurement process in the interest of safety of supply.

What are the policies with respect to connection of generation to the transmission grid?

Under the Electricity Market Act, HOPS must provide non-discriminatory access to the transmission grid according to the regulated third-party access regime. Any new generator should file a request for connection to the transmission grid, which HOPS must accept if all the prerequisites set out in the General Conditions for Grid Usage and Electricity Supply (Official Gazette Nos. 85/15 and 49/20) and the Grid Code are met. HOPS may not deny access to the new generator based on possible future network limitations or additional costs related to an increase in network capacity.

Upon issuing consent for connection to the grid, an agreement is concluded between HOPS and the new grid user. A new generator whose access to the grid was denied may appeal against HOPS’s decision to HERA. HERA’s decision is final, but the unsatisfied party may file a claim with the Croatian Administrative Court.

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

The use of alternative energy sources (eg, water, wind, sun, geothermal sources, and combined heat and power (CHP)) is one of Croatia’s strategic plans as outlined in the Strategy of Energy Development until 2030 with an outlook to 2050 (the Strategy). According to the Strategy, Croatia has great natural and technical potential. Following EU requirements, in late 2013, Croatia adopted a National Action Plan for Renewable Energy Sources until 2020 (Action Plan), as the implementing instrument for the realisation of EU targets (20-20-20) and the national energy strategy. To meet the targets, the government has shifted its focus from encouraging wind farm construction (the incentives have been quite high in recent years) to energy production from biomass, biogas, cogeneration and small hydropower plants. Croatia has already reached its 20 per cent target.

The Energy Act also expressly states that use of alternative energy sources and CHP is in Croatia’s interest (article 13). According to the Electricity Market Act, any generator that uses renewable energy sources may be awarded ‘eligible producer status’, under conditions set by the law.

Effective from 20 December 2018, the Act on Renewable Energy Sources and High-Efficiency Cogeneration (Official Gazette Nos. 100/15, 123/16, 131/17 and 111/18) (the RES Act) for the first time harmonises national and EU legislation (in particular Directives 2009/28/EC and 2012/27/EU) in the field of renewable energy and aims to stimulate and enhance the production of ‘green’ energy. The RES Act introduces market premium as the new incentive model, which replaces the present feed-in tariff model. Feed-in tariffs have been kept as incentive model for smaller plants only, up to 500kW.

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

Environmental protection has a great impact on Croatia’s policy in the electricity sector, as outlined in the Strategy. In this regard, Croatia encourages the use of natural gas and renewable energy sources, while in the future it plans to accept nuclear and hydrogen technology only if those technologies prove to be safe and acceptable to the environment. Renewables are not only encouraged because they are less harmful energy sources and better for the environment, but also because national fossil energy sources are insufficient for the steady increase in electricity demand. Furthermore, Croatia has natural potential for the production of ‘green energy’.

Generally, because Croatia is an importer of energy, the use of renewable energy sources causes an increase in generation costs and, consequently, electricity prices.

Does the regulatory framework support electricity storage including research and development of storage solutions?

Electricity storage is not specifically regulated or supported by Croatian law. The RES Act prescribes that renewable energy demonstration projects shall not be supported through market premium or feed-in tariff incentive models, but through general research and development and innovation support programmes.

Does government policy encourage or discourage development of new nuclear power plants? How?

Croatia does not have nuclear power plants on its territory; however, HEP dd is a co-owner of Krsko nuclear plant in Slovenia. Although Croatia recognises the need for nuclear energy and has adopted a nuclear energy programme outlined in the Strategy, no plants have been built.

The greatest concern in construction of a new nuclear plant is its influence on the environment. To date, the government has not approved any nuclear energy construction projects and is not expected to do so in the near future.

Regulation of electricity utilities – transmission

What authorisations are required to construct and operate transmission networks?

The national transmission networks are owned and operated by the national transmission system operator, HOPS. As electricity transmission is a regulated, non-market activity, HOPS has the sole power to construct and operate transmission networks.

In accordance with the Electricity Market Act, and with prior approval from the Croatian Energy Regulatory Agency (HERA), HOPS has to pass an annual 10-year transmission system development plan. The current plan is prepared from 2019 until 2028. The plan implements measures to guarantee enough capacity and security of supply.

HOPS was granted a licence for electricity transmission activities, issued by HERA.

Who is eligible to obtain transmission services and what requirements must be met to obtain access?

Pursuant to the Electricity Market Act, HOPS must provide non-discriminatory access to the transmission grid to all grid users, based on the regulated third-party access regime, in accordance with the General Conditions for Grid Usage and Electricity Supply and the Grid Code. To obtain access to the transmission grid, new generators and customers are obliged to obtain consent from HOPS to connect to the grid. HOPS may deny access only in the case of limited technical or operating capabilities of the grid, undergoing maintenance works or in the case of danger to human lives or assets. Any new generator or customer whose access to the grid is denied may appeal against HOPS’s decision to HERA. HERA’s decision is final, but the unsatisfied party may file a claim with the competent administrative court. The administrative court proceedings should be conducted as expedited proceedings.

Are there any government measures to encourage or otherwise require the expansion of the transmission grid?

According to the HOPS 10-year transmission system development plan (2019–2028), Croatia has a transmission grid that is 7,694km long. There are no government incentives to encourage the expansion of the transmission grid. However, HERA as a regulatory body must review, approve and monitor the application of the 10-year transmission system development plan including any investment projects regarding expansion of the transmission grid. A draft of the new annual 10-year transmission system development plan 2020–2029 was published in September 2019 and it is expected that it will be adopted soon.

Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

In accordance with the 2015 amendments to the Energy Act, transmission services rates are set by HERA, instead of the Croatian government (which was previously the case). HERA rendered the Methodology for Calculation of Tariffs for Electricity Transmission (Official Gazette Nos. 104/15 and 84/16) and on the ground of the Methodology HERA renders tariff rates until 15 December of each year for the following regulatory year. The rates for 2019 were set by HERA’s Decision on Tariff Rates for Electricity Transmission (Official Gazette No. 112/18). No rates have yet been set up for 2020. The new Methodology adopts a recognised costs method meaning that tariffs are calculated based on total recognised costs for the previous year, estimated costs for the current year and planned costs for the following regulatory year. The main legal standards HERA applies are justified, transparent and objective costs.

Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?

HOPS is responsible for the reliability of the transmission grid, as the sole transmission system operator in Croatia with the licence to carry out electricity transmission as a public service. HOPS’s main responsibility is to transmit electricity and to maintain and develop the transmission network for the purpose of the reliable supply of electricity for customers at the lowest cost and the protection of the environment. An extensive list of HOPS’s powers and responsibilities is outlined in articles 29 and 30 of the Electricity Market Act.

The maintenance of the transmission network includes maintenance of overhead lines and underground cables, primary and secondary equipment, auxiliary plants, telecommunications equipment, and building structures in substations and switchyards.

Law stated date

Give the date on which the information above is accurate.

21 July 2020.