Croatia’s Renewables in Brief: Big Potential and Financing Connundrums

Renewable energy truly may be the phrase of the day, as Croatia too has pledged to reach a 20% share of energy produced from renewable sources by the year 2020. With the present figures standing at 16%, and given the costs involved, it is probably up to the private sector to take the initiative…as SEE reports..

The Croatian Ministry of the Economy recently presented the so called National Action Plan For Renewable Energy by the year 2020, a document which sums up the intended direction for the development of Croatia’s renewable energy sector, in keeping with the goals as set by the eu’s own strategy. In short, the minec renewable energy projects – and the funds allocated for that purpose – should by the year 2020 increase by no less than four hundred per cent.

As put, at the beginning of October, by Minister of the Economy Ivan Vrdoljak himself during the presentation of the new Renewable Energy Action Plan, since the end of 2012 the share of energy gained from renewable sources grew from 15.8% to the present level of 16, significantly up from the 12.6% recorded in 2006. Vrdoljak also stated, however, that the present renewable energy strategy, dating back to 2009, was based on expectations of an annual 2.7% growth in energy spending, while in fact we have witnessed, in the same period, an average annual reduction of 1.3%. The new strategy, due to be voted into power by the Croatian Parliament in December, will be adjusted accordingly.

That said, the Minister announced that the State will shift its focus away from encouraging mainly wind turbines and solar parks and concentrate more on stimulating the development of biomass, bio-gas, and chp(combined heat and power) plants, as well as the development of small hydroelectric plants. The logic behind such a shift in strategy is the simple fact that these kinds of facilities require ten times more employees for operation, and it is no secret that the Government hopes to use the strategy to create as many new jobs as possible.

“Theincentives paid by the Government for the development of green energy solutions will in this way directly boost entrepreneurial activity and stimulate regional growth, which is of paramount importance given the comparatively higher costs of renewable energy infrastructure as opposed to traditional energy sources,” Vrdoljak stated in his summary.

The new legislation consists of three different acts: the Law on Renewable Energy Sources, the Law on Energy Efficiency, and the Law on Thermal Energy. Somewhat in contrast to the existing Law on Energy Efficiency, this new piece of legislation will not only dictate that energy be efficiently spent, but also that it be efficiently produced, with a special focus being on encouraging the development of chp plants, which unlike conventional biomass plants employ mechanisms which harness secondary heat created in the process of production. To illustrate the point, Head of the Energy Directorate in the Ministry of the Economy Ivana Čalić expects to see 900 million Euros invested into renewable energy projects by the year 2015, and points out that when it comes to energy efficiency, the focus in the upcoming period has to be placed on the heating, cooling and transportation. By the same token, Čalić expects that come 2020 the share of renewable energy in the gross domestic energy spending will reach 35%, that is, once the power output of conventional hydroelectric plants has been factored into the equation as well. When it comes to renewable energy projects currently in the planning stage, it is expected that within the following year a total of 421 projects, with a collective power output of 281 mw, will be realised, amounting to roughly 0.25% of Croatia’s total annual power needs, which currently stand at 18 twh. At present the largest source of renewable energy in Croatia are wind parks, which have been under development in one form or another since 1988. Today there are eleven of them on Croatia’s territory, constructed mainly along the Dalmatian coast, with the combined installed capacity of 205.25 mw. The latest of these is the Jelinak Wind Park near Trogir, which became fully operational in July of this year.

There are six further wind parks which are either in the planning stage or under construction. When completed, these will collectively have the potential for some 250 MW in output. Next in line are the chp plants, with a total of three facilities with a combined capacity of 10.49 mw. Further development of these types of facilities, as already stated, will be strongly encouraged by the new legislation, in keeping with the new standards of energy efficiency in power production, which are also about to come into effect. Since chp plants run mostly on biomass, the fuel resources are abundant, either in the form of refuse from the Croatian wood processing industry or agricultural waste. There are also nine bio-gas power plants with a collective installed power capacity of 8.13 mw. These are, as the figures imply, smaller facilities mainly dependent on animal waste for fuel. Solar power is all the rage in Croatia at present with over 900 facilities and installations, although, as of yet, none of them are major solar parks but rather small to medium-size operations installed in industrial complexes and private homes with only a small portion of them connected to the national power grid. The power capacity of these is estimated at a total of just short of 33 mw. It should be noted that over two thirds of renewable energy projects expected to be realised within the next year fall into the category of solar power.

As for geothermal energy in Croatia, a certain potential that could support large scale operations exists in the form of two geothermal fields, Lunjkovac-Kutnjak and Velika Ciglena, the latter of which is already marked as the site for construction of a geothermal plant, with hep and ina having relinquished the exploitation rights to a private Zagreb-based company back in 2008. However, no work has been done thus far due to a lack of financing – and we are speaking of 70 million Euros needed just for the first phase, and then a further 130 million for the second phase which would come to include a vegetable drying facility, greenhouses, a fish pond and a health spa.

The last (but certainly not the least) on this list of renewable sources are the small hydroelectric power plants, defined as facilities with a maximum power capacity of 10 mw, produced through harnessing the natural water-flow without the need for the construction of accumulation reservoirs, as is the case with conventional hydroelectric plants. Small hydroelectric plants have been constructed in Croatia from the early 1980s onwards, and out of the 20 that still exist, 18 are currently in operation, with a total capacity of just under 40 mw. The biggest potential for these types of developments is seen as being on the river Mrežnica, which boasts as many as 93 waterfalls (49 of which have been used as sites for water mills throughout history) on its 65 kilometre course, not to mention its steady annual water-flow of 34 cubic metres per second.

Alas, there may be potential, but Croatia appears to be suffering, as we have written time and again, from the sort of overall investment climate which does leave more than a little to be desired. For instance, whilst researching for this article we have identified that, if one wishes to invest into wind or solar or any other renewable energy source for that matter, one must obtain no less than 62 different permits. The State, it is no secret, hasn’t the spunk any more to engage in infrastructural investment on a massive scale, which does mean, as we have stated in the introduction, that it will try to incentivise entrepreneurial activity, mainly by facilitating the absorption of eu funds allocated for that purpose. This naturally means that it is up to the private sector – principally the sme sector – to take the initiative, but with all that red tape still around…

Yet again, we are forced to advocate patience. The newly proposed legislation, which is due to be passed by the Parliament by the end of this year will reduce the number of required permits to ‘just’ 21, and with State subsidies and eu funding readily available, it may just mean that the market is finally ripe for the picking. We, at least, prefer to believe that truly is the case…