Maja Pokrovac: The South of Croatia Will Produce Power at Lower Prices

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Maja Pokrovac: The South of Croatia Will Produce Power at Lower Prices Than the North

Date: March 3^rd 2021

Author: Alenka L. Klopčič, Tanja Srnovršnik

Category: En.vision

Topic: Electricity , Renewables , Energy policy , En.vision

“Renewables, in sharp contrast to fossil fuels, have defeated COVID-19, as they are the only technology that recorded an increase last year. We could say that renewables have been ‘immune’ to COVID-19,” said Fatih Birol, the Executive Director of the International Energy Agency (IEA), earlier this year (MORE). But how successful was 2020 for the area of renewable energy sources (RES) in Croatia? How much renewable capacity was added in 2020 and how much is expected to be added this year, and how many RES projects are currently still in the pipeline? Energetika.NET raised these questions during a recent video interview with Maja Pokrovac, director of the Renewable Energy Sources of Croatia Association (Obnovljivi izvori energije Hrvatske). In the interview, we also tackled, among others, Croatia’s application of the premium model of stimulating production from RES, as well as green hydrogen as an opportunity for the country.

Pokrovac said that she fully agrees with the view of the Executive Director of the IEA, Fatih Birol, on renewables during the COVID-19 pandemic, adding that, however, renewable energy generally showed a trend of growth.

“COVID-19 has delayed and postponed the building of some of the RES projects due to the restriction of mobility during the lockdown. Fossil projects, on the other hand, had stagnated before the COVID-19 crisis even started. New fossil projects do not exist, among other reasons, because nobody wants to finance them. This crisis has motivated countries that have good RES capacities – these are mainly Mediterranean countries with good insulation and wind – to understand that they can, and have to, rely on domestic resources, i.e. own production of electrical energy from domestic renewables. During 2020, Croatia made major advancements in the energy transition – we created a new Energy Strategy up to 2030, the government created and started a premium model for RES projects up to 2 MW, and administrative and regulatory premises were also made. We completed more than 400 MW of wind projects that are ready for the next tender for projects starting from 2 MW, as well as 300 MW of solar projects. All this was achieved in 2020,” said Pokrovac in response to Energetika.NET’s first question in the recent video interview.

On the basis of data from the Croatian Energy Market Operator, HROTE, in 2019 Croatia installed RES capacities of 877 MW in the feed-in tariff (FIT) scheme. “By December 2020, we had installed 1,035 MW of RES capacities, which means that in 2020 a further 158 MW were added, mainly wind (142 MW), biomass plants (12.5 MW) and biogas (3.2 MW).In addition, there were RES projects that were not part of the FIT scheme, such as the projects of the Croatian national power utility, HEP, a 3.5 MW solar plant in Vis and the 58 MW Korlat wind park. Moreover, there were also a lot of smaller projects for industries and households that received subsidies from the Fund for Environmental Protection and Energy Efficiency, which together added up to more than 200 MW in 2020,” said Pokrovac providing more details about the RES capacities added in Croatia in 2020.

The amount of RES capacity will increase with every new tender

On the basis of HROTE's data relating to what has already been contracted and is being developed, Pokoravac further explained that this amounts to 800 kW of small hydropower plants, 20.6 MW of biomass and 2 MW of biogas. “In addition, we have newly signed contracts from the recent market premiums and guaranteed purchase price, which amount to 13.4 MW of solar plants, 0.9 MW of hydroenergy, 1.3 MW of biomass (power up to 500 kW), 2.1 MW of biomass (in the category from 500 kW to 2 MW) and 7.7 MW of biogas (tender up to 2 MW), which together totals 25.5 MW. This figure will increase with every new tender, since this was just the first. Up to 2022 there will be 2.3 GW of RES projects tendered and contracted as is defined in the Regulation on Quotas, which predicts the expected number of RES projects based on the market possibilities.”

Talking about some concrete examples of the RES projects, Pokrovac mentioned that the Chinese company Norinco is building the Senj wind plant near the town of Senj. It is the first and biggest Chinese investment in RES in Croatia. The plant will have a capacity of 158 MW, it comprises 39 wind turbines and it will produce 539 GWh of electricity per year, she added. “Additionally, investors from the Netherlands are developing the ‘Lički Medvjed’ wind park near Otočac. There are also other investments, such as big solar plants on the continent as well as solar projects on islands and, what is also important, smaller solar projects based on the prosumer concept: production at the place of consumption. These are just some of the examples.”

The south is producing cheaper renewable power than the north

The prices of RES have been falling strongly, with Portugal’s PV auction drawing a record low bid of 11.14 EUR/MWh last year. How competitive are the prices of renewables in Croatia compared to other sources and which RES are the most competitive? Pokrovac responded to this question by saying that it is impossible to compare prices with other countries as the systems are different in different countries. However, it is evident that the prices are falling, they will continue to fall, and they will be competitive. Where insolation is high, they can go below the market prices. For example, Croatia has 30% higher insolation in Dalmatia with 1,450 solar hours on a yearly basis compared to Slovenia. Places with higher solar insolation produce energy at lower prices, she said.

“Therefore, the south of Croatia will produce power at lower prices compared to the north of Croatia, hence we have already had more than 4 GW of requests for solar projects in Dalmatia. The fall in the price of technology is obvious globally,” she said, naming Spain as a good example, since the country has recently tendered 3 GW of RES capacities at auctions for the first time, implementing the Contract for Difference model, which has helped it achieve the lowest price of wind energy in Europe – 20 EUR/MWh.

“Spain has entered the second phase of the new auction models, while Croatia has just started a new model of supporting renewables. However, the new model recently implemented showed that the prices offered were lower than the reference prices. For example, the maximum reference price for small solar plants was 630 kunas per MWh while the lowest tendered price was 469 kunas per MWh. With bigger projects such as biogas up to 2 MW, the maximum reference price was 1,080.98 kunas while the tendered price was 1,049.98 kunas per MWh. Future tenders will continue to lower the prices,” she believes.

Premium model – “definitely a new incentive for further development”

“The premium model is definitely a new incentive for further development, especially since we have stagnated in the area of RES over the past four years. We have been waiting since 2016, when the new Law on RES was adopted, which, among others, announced the implementation of a premium model, for the implementation of this model. The projects that began in the previous FIT model were being finalised while the new ones could not start,” mentioned Pokrovac in response to the question of how the application of the premium model of stimulating production from RES launched last year has changed the state of play for RES in Croatia.

“Owing to the premium model that started last year, this year is important for RES investments. Last year we also had a tender for four geothermal projects, which will initiate investment of some hundreds of million kunas in the coming years just for exploration works alone. A significant arrival of investors is noticeable in Croatia, all of whom want to invest in renewables,” said Pokrovac.

Good regulation for the premium model, but still a few barriers to overcome

Speaking about the current legislation, Pokrovac noted that Croatia has a good regulation for the premium model, “the tender for the premium model for bigger projects of 500 kW has been prepared and is due to be approved by the European Commission in the coming months. In addition, the EU Directive on RES is to be transposed into Croatian legislation by the end of this year in order to introduce new market players, such as aggregators that will aggregate producers and consumers of energy”.

“Additionally, aggregators will be able to sell electricity depending on consumers’ requirements. It is a virtual system in which aggregators can have a contract with numerous producers and consumers while electrical energy, based on the quantity to be bought, will be cheaper. This system is good for the energy community as it represents another new model, especially in business zones whereby instead of a situation in which just one company buys electricity, companies will have the opportunity to buy energy through an aggregator, thus purchasing it at a lower price,” she is convinced.

“Another aspect on which we need to make further progress is the lengthy administrative procedures which are the biggest barrier to investments. Some improvements are noticeable in terms of property issues, however, spatial planning is still a nightmare. Harmonisation with the RES Directive will also bring this under control, as the Directive requires all permits to be issued within a period of two years whereas currently it can take almost five years to obtain a building permit for a wind park,” illustrated Pokrovac.

Grid investments much needed

Maja Pokrovac on the need for grid investments: “Regardless of the RES capacity that the power system has to accept, the grid that we have was built a long time ago and was aimed for centralised production and centralised consumption. Nowadays, we need decentralised production and decentralised consumption and therefore the power grid needs to be redesigned. The grid is not sufficient, for example, for the amount of RES production that is planned in the Energy Strategy, which is 2 GW up to 2030. On the other hand, there is already demand for four times more than is planned in the strategy.”

In addition, the process of redesigning and strengthening the network is lengthy and demanding and many other EU countries have the same needs, continued Pokrovac. “The European Bank for Reconstruction and Development (EBRD) has recognised this need in Croatia and it has approved two grants for our RES Croatia Association – one is for a study on how to plan the strenghtening of the power grid in order to support integration of new RES projects, while the other study will cover mapping of the RES market in Croatia, the goal of which is to guide all investors in Croatia on how to develop and implement RES projects.”

Pokrovac stressed that investments in the power grid are much needed. “I am sure that the Croatian government will use the possibilities provided by EU funds, the National Recovery and Resilience Plan, as well as the Modernisation Plan, to assist the Croatian transmission system operator, HOPS, and the distribution system operator, HEP-ODS, in implementing the necessary investments. RES are a priority for Croatia and therefore it is crucial that EU funds are used to the maximum for the power grid.”

Maja Pokrovac on CROPEX: “The Croatian Power Exchange, CROPEX, is a well organised power exchange. It opens the possibility for traders and producers to exchange, buy and sell electricity. It also has a well organised intraday market. Although there are not yet that many projects on the market, CROPEX is a place for those projects that leave the FIT scheme. It follows the trends and technologies, and the trades are functioning. The future integration of RES definitely requires further development of the organised market, an additional increase in liquidity in the intraday market, the establishment of a liquid derivatives market to trade in futures, changing of regulations to introduce Corporate Power Purchase Agreements (CPPA), further development and a drop in prices of RES technology and, consequently, an increase in competitiveness with an emphasis on storage systems. In cooperation with the financial derivatives market, work is being carried out to establish financial derivates linked to the CROPEX day-ahead price, which brings potential protection from the risks of changes of the market price. Financial derivates are a safe signal for new investments and price fluctuations on the wholesale market.”

Future RES goals and the hydrogen reality

When Croatia’s goal of reaching 36.4% of RES by 2030 was communicated two years ago, it sounded too ambitious to many institutions, especially those coming from the fossil industry, responded Pokrovac to one of Energetika.NET’s final questions. “However, it has proven to be a good vision, considering how many requests for RES projects we have now. We could even achieve the goal before 2030. However, in addition to the COVID-19 crisis, Croatia suffered two earthquakes last year, so the focus is also on the recovery. We can certainly expect that the RES goals will be strengthened in accordance with the EU Green Deal. The COVID-19 crisis has definitely forced the world to aim for more ambitious scenarios, since we have all realised how dependent we all are on imports and how important it is to rely on domestic resources.”

To end, when talking about hydrogen – on which the European Commission is betting quite significantly – Pokrovac remains realistic, saying that “for hydrogen, completely new infrastructure has to be built, but hydrogen can – and needs to – have an important role in the energy transition. Although its usage mainly depends on technological innovation, the spectrum of possibility is wide. Recent studies on the future use of hydrogen in the EU show that, due to the lack of alternative solutions for decarbonisation, the main areas in need of hydrogen are those industrial sectors that have problems reducing CO₂, such as refineries, chemical factories, steel factories, and the production of ammonia and cement. These industries are present throughout Europe, including in Croatia. To reduce and eventually eliminate CO₂ emissions from the processing industries, these studies estimate that 300 TWh of hydrogen need to be produced from renewables.”

Furthermore, she added that “hydrogen has an important place in the storage of produced energy, but innovative solutions are required. It is possible to use it by processing it into higher hydrocarbons, which results in synthetic fuel that can then be used for aviation transport because it is liquid. Hydrogen will be important in the future in transport. There are many potential areas and ways of using it. In Croatia, the strategy is in the process of being prepared, which shows that we are actively following the new EU strategy with a particular focus on a green hydrogen,” concluded the director of the Renewable Energy Sources of Croatia Association.