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The design of the Croatian Feed in Premium support system for renewables

Croatia has been actively supporting renewable energy on the policy level since 2007, when it first introduced a Feed in Tariff (FIT) system. However in September 2015 a new renewable energy law ended the FIT and introduced feed in premiums (FIP). Although the law came to power in January 2016, the FIP has still not been implemented due to numerous by laws that have not been defined.

The FIT system had some major drawbacks. The support levy has been set unrealistically low, leaving the system under financed. The quota system did not reflect the cost developments of technologies and renewable energy technical potentials. For instance, solar PV has been greatly undermined, despite of an enormous drop in technology costs and a very large potential along the Dalmatian coast. Legal provisions for developing energy communities have been largely ignored. However, despite all of these negative aspects, the system managed to kick-start a market that largely exceeds any other in the Western Balkans.

Floating premium design – under this policy design the producer receives a premium on top of the electricity market price. This premium will vary among projects since it will be the result of a bidding procedure. Namely every producer will place bids to enter a pre-defined quota. In order to limit the support, the Croatian Energy Market Operator (HROTE) will first predetermine the maximum bid amount for every technology. This is also referred to as the maximum referent value (EUR/MWh). In addition HROTE will also determine each month the referent market electricity price. This will vary according to the fluctuations of the price on regional power exchanges. As producers will have to sell their electricity on the market, their profits will depend primarily on their ability to under or over perform the referent market electricity price. If they manage to exceed it, they will receive a higher return. However they would have also achieved smaller returns if they underperformed the market. The premium will be paid out for a period of 12 years.

Pay-as-you bid auctioning – renewable energy investors bid the prices under which they are willing to sign a power purchase agreement with HROTE. Provided that their offer is accepted they will receive exactly the bid amount, however this cannot exceed the maximum referent value determined for each technology. The auctions will be held once every year and latest by 1st April.

Ex-post electricity market price setting – HROTE will determine the referent market price (RMP) on a monthly basis, for each previous month and based on the weighed average of average monthly electricity prices achieved on the Croatian Power Exchange (CROPEX), Hungarian Power Exchange (HUPX) and BSP Regional Energy Exchange in Slovenia. The weighted average of each of these market prices will depend on the volume of electricity they traded each month.

Financial pre-qualification – a bid will be valid only if a bank guarantee is submitted along with other supporting documents. In the bidding round a bank guarantee of 50 HRK/kW (cca 6,6 EUR) will be required. After the project has been accepted, another bank guarantee amounting to 300 HRK/kW (cca. 40 EUR) will have to be submitted.

Besides these basic design details, other important elements are still unknown.

For instance the technology development corridor until 2020 and quotas remain undefined. The current consumer levy for supporting renewables is currently too small and unless it’s increased the system will be underfinanced. There are no rules regarding selling of renewable electricity on the market. Finally Croatia requires a new energy strategy and a revision of the National Renewable Energy Action Plan.

Considering the constant political turmoil’s in the country that seem to draw the government’s attention from energy policies, it’s difficult to predict if all the required by-laws will be ready until 2018, when the new system is expected to start. Hence the Croatian renewables market is currently in a standstill, and the only projects that are being developed are the ones that managed to get into the FIT system.

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