Renewables

RE-Source Croatia Hub 2024: Region’s PPA market is awakening

RE-Source croatia 2024 conference ppa renewables

Photo: RES Croatia

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March 23, 2024

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Published:

March 23, 2024

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Power purchase agreements are still rarely used in Southeast Europe as a tool for investors to secure financing for new wind farms and solar power plants, and for consumers to enjoy stable energy prices in the long term. Namely, investors, financial institutions, consultants, and companies but also regulators and transmission system operators lack the necessary knowledge of such contracts. In addition, there are not enough new projects and consumers that would be willing to buy electricity via PPAs.

However, large industrial consumers as well as developers, bankers and PPA consultants who participated at the II Regional Conference RE-Source Croatia Hub 2024 once again (Re-Source Croatia 2023) demonstrated a high interest in the topic.

More than 300 people from Croatia, the region and Europe attended the conference in Zagreb dedicated to the development of PPAs.

Speakers at three panels pointed out times are changing and that the number of PPAs, primarily virtual ones, has increased despite an unfavorable business and regulatory environment, as well as that there are now a lot more negotiations underway.

Balkan Green Energy News was a media sponsor of the event for the second year in a row. The conference was organized by the Renewable Energy Sources of Croatia association (RES Croatia or, in Croatian, OIEH) in cooperation with the European RE-Source Platform.

Milatić: HERA, HOPS are blocking projects

RE-Source croatia 2024 conference ppa renewables ivo milatic
Ivo Milatić (photo: RES Croatia)

Maja Pokrovac, director of RES Croatia, said PPAs have become common in Europe and that Croatia is trying to follow the trend. But, in her view, the situation is not good.

Due to administrative barriers, primarily because the decision on the grid connection fee hasn’t been adopted yet, four large renewable energy projects are currently blocked, she said.

Besides, Pokrovac added, auctions for premiums have not been launched. The conference should serve to clearly list all the barriers and obstacles in project development, she stressed.

Annie Scanlan, Director of Policy and Impact at the European RE-Source platform, pointed to record PPA growth in Europe in 2023. It demonstrates the increasing demand for renewable energy sources among European companies, she said.

Milatić: The government has secured funds for grid upgrades

The largest corporate buyers of renewable electricity in 2023 in Europe come from the heavy industry, IT, retail, telecommunications and engineering and technology, Scanlan added.

The Government of Croatia also believes PPA contracts are the future, State Secretary in the Ministry of Economy and Sustainable Development Ivo Milatić said. They are a basis for long-term stability and predictability of income and expenses of electricity producers and consumers, in his words.

He noted that the deadline for adopting the grid connection fee was back in 2022. According to Milatić, there shouldn’t even be a fee, arguing that the government secured more than EUR 1 billion for grid upgrades.

It is not the ministry’s fault, he stressed and urged the Croatian Energy Regulatory Agency (HERA) and the Croatian Transmission System Operator (HOPS) to do their jobs.

Dries Acke, Policy Director of SolarPower Europe, presented the European Union’s electricity market design reform. He said it doesn’t change the fundamentals.

Energy buyers now offer PPAs for up to ten years

RE-Source croatia 2024 conference ppa renewables market
Photo: RES Croatia

The first panel was about the new rules on the wholesale electricity market in Croatia.

Luka Pehar, Director of the Electricity Market Sector and eco-balance group at Croatian Energy Market Operator (HROTE), noted that the new laws on the electricity market and  renewable energy sources introduced new market participants. They include active buyer, group of active buyers, citizen energy community, renewable energy community, aggregator, and energy storage operator.

However, the bylaws for implementing the legislation are not adopted yet, said moderator Goran Fržop from the firm TEC Obnovljivi Izvori. Pehar said it is planned as soon as possible.

Branimir Beljan, regional manager of Danske Commodities, said PPAs are an option not only for new projects but also for the ones leaving the feed-in tariff scheme.

The pay-as-produced PPA model corresponds to feed-in tariffs, Beljan added. It carries the lowest price for the producer, but also the lowest risk.

The risk and price are higher with the pay-as-nominated or pay-as forecasted model, and the highest with the baseload model.

When the risk and price rise for producers, they decrease for the buyers, Beljan said and added that in Europe the baseload model is the most common. Danske Commodities acts as a buyer in PPAs.

Beljan: Now we offer ten-year contracts

Beljan stressed the producer’s reputation, credit potential and financial strength as the main factors in the selection of potential partners for PPAs.

For Danske Commodities, the market price is the benchmark for determining the offers for producers and it won’t offer more, he added.

The risks that the company takes as a buyer lower the basic price, depending on the three aforementioned contract models. Beljan said producers seek the longest possible contract period.

But in the case of Croatia, buyers can’t accept more than three years as it is as far as liquidity goes at the benchmark forward market, the one in Hungary, he said.

On the other hand, Danske Commodities has made some adjustments in its business operations, and this year it is offering PPAs for up to ten years.

RE-Source croatia 2024 conference ppa renewables vladimir milanovic masdar
Photo: RES Croatia

The producer side of the story was presented by Masdar Taaleri Generation. The company is active in Croatia, Europe and beyond as a developer and investor. Vladimir Milanović, the firm’s director, said it is currently buying ready-to-build projects.

He highlighted the bottlenecks in grid connections and permitting in Croatia. The good news is that the country’s risk profile has greatly improved since it joined the Eurozone and the Schengen area, and it is seen as part of Central Europe, Milanović added.

According to him, when it comes to PPAs, the market is small, with a few firms in the heavy industry sector, so there aren’t so many consumers.

The EU’s electricity market design reform proposal includes government guarantees intended to ease reaching PPA deals. Ivona Zagajski from law firm Marohnić, Tomić & Gjoić pointed out that it remains to be seen how it would be implemented.

A TSO shouldn’t be afraid

RE-Source croatia 2024 conference zageb ppa renewables contracting
Photo: RES Croatia

Guy Brindley, Market Development Lead at WindEurope, delivered the introduction to the second panel, which covered PPA contracting and the types of agreements.

Mislav Slade-Šilović, director and business consulting lead for CEE at PwC Croatia, said energy sector activity is speeding up.

Ćurković: There are no obstacles for virtual PPA contracts

According to the results of PwC’s survey on PPAs in Croatia, the main problems are the price of electricity, slow project development and the lack of knowledge about such deals.

Two companies that signed PPAs – Encro and E.ON Energija – presented their experiences.

Encro has two contracts as a producer, from 2022 and 2023. Tomislav Ćurković, the company’s director, said there are no obstacles to virtual PPAs except expensive guarantees. He argued it could be solved by the EU’s proposal that governments provide guarantees for a certain period of the PPA contract, and added it would also reduce the price of energy.

As for, physical PPAs, the transmission system operator shouldn’t be afraid to enable the producer to deliver energy directly to the consumer, Ćurković said.

E.ON Energija has signed a PPA contract as an offtaker. Executive Director Vladimir Sabo pointed out it is very important to explain the benefits of PPAs to consumers.

Slade-Šilović: Banks used to be very conservative, but that has changed

The company tries to help the firms it supplies to enjoy the benefits of financial stability, Sabo said. E.ON Energy has thus prepared offers not only for the large but also small and medium-sized companies, he explained.

Mislav Slade-Šilović agreed things are changing. Banks were very conservative, but now they look at PPAs differently, which is a breakthrough as financing is crucial for such contracts to be signed, he added.

Price was the main factor when PPA contracts first appeared, but now stability, hedging and protection from large market fluctuations are key for foreign corporations, Slade-Šilović asserted. It is also an opportunity to demonstrate to consumers that they are buying goods produced using electricity from a particular renewable power plant, he said.

Marko Lasić, CEO of Croatia’s first virtual power plant – KOER, agreed that PPAs aren’t known well enough, but also said they are just one piece of the puzzle called energy transition.

In his opinion, the EU’s intention to roll out state guarantees to incentivize PPA contracting is important. It would shift the focus from building power plants to market mechanisms, and subsidize supply and demand balancing, Lasić stressed.

Zoran Miliša, president of ENNA Opskrba, said the firm offers its clients a complete energy solution.

Ladislav Tolmaci, Executive Director of Erste Corporate Finance Solutions, part of Erste Group, also participated in the panel. It was moderated by Božidar Šeperić, sales manager in Resalta.

The untapped potential of guarantees of origin for renewables development

RE-Source croatia 2024 conference ppa renewables guarantees of origin
Photo: RES Croatia

The third panel discussed guarantees of origin. Jos Tuinenburg, Senior Consultant at I-REC Standard Foundation, described their role in decarbonization.

Zlatko Zmijarević, head of HROTE’s incentives system implementation service, noted that GOs were introduced in Croatia ten years ago and added they are little used.

Their use could boost electricity market development, he stressed.

According to Zmijarević, the GO market isn’t linked with the electricity market. Guarantees of origin are a tradeable virtual document in the registry, he explained.

Ante Mikulić, CEO of Croatian power exchange CROPEX, said it established a GO sales system in 2019, much before France, Germany, Slovakia and Hungary.

Trading in GOs is becoming similar to electricity and natural gas Mikulić explained.

Kopanja: There are three reasons to buy guarantees of origin

According to Vuk Kopanja from ACT Commodities Group, GOs are bought upon an order from the board or shareholders, when a buyer in the supply chain demands certification for its goods and when the company has strategic plans such as an initial public offering and needs green electricity to be evident in its reports.

Szyman Kowalski, Vice President of Re-Source Hub Poland, said GOs are gaining in importance even in Poland, where coal has a 75% share in electricity production. There was no demand until a few years ago, so the price was zero, he underscored.

But last year it was between EUR 8 per MWh and EUR 10 per MWh, so now the country needs to increase production from renewables to match demand, Kowalski said.

Nikolay Pavlov from RE-Source SEE Hub participated in the panel as well. It was moderated by Ivana Đurović from Knauf Gips.

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