Renewable energy producers in Croatia continue to terminate incentives contracts

Subsidies for renewables were introduced in 2012. Last year the capacity operated by privileged power producers decreased for the first time as they terminated contracts for the incentives for an overall 376 MW, Croatian Energy Market Operator (HROTE) said.

The wave of termination of power purchase agreements with the government was triggered by the energy crisis and the surge in market prices. Some investors opted to take a chance as the levels substantially exceeded the tariffs under HROTE’s mechanism.

After steady growth, the capacity within the incentives scheme shrunk 37%, compared to the drop in production of 22%. They tumbled 1,048 MW to 653 MW and from 3,492 GWh to 2,720 GWh, respectively.

The largest number of the terminated contracts belongs to solar

By the end of September, 63 power plants with a total capacity of 341 MW gave up subsidies, and by the end of the year another four with a combined 35 MW joined them.

Amid extremely high energy prices, last year was marked by a part of investors exiting the scheme for privileged producers to seek a more economically viable business model on a market basis without further burdening the mechanism, the report reads.

The largest number of terminated contracts is in the solar power segment – 26, with an overall capacity of 6.8 MW. Wind farms have the largest capacity – 234 MW (11 facilities) while three cogeneration plants left, with 102.8 MW in total.

The average purchase prices paid to the power plants within the mechanism in 2022 ranged from HRK 0.46 to HRK 4.37 (EUR 0,06-0,58) per kWh.

Additional terminations could threaten the subsidy scheme

The report highlights the possibility of additional terminations of contracts as one of the risks for the incentive scheme this year.

HROTE said in that case it may need to purchase electricity to fulfill its obligations to buyers to whom it already sold electricity in advance, the report reads.

HROTE will inform power producers about the long-term risks of doing business on a market basis

In order to prevent it, HROTE said it intends to analyze and possibly revise the energy sales model and to inform power producers about the long-term risks of selling electricity on the market in a highly volatile price environment.

According to HROTE, it should discourage perceiving short-term price peaks as a good business opportunity and turn investors away from the idea to terminate contracts with the government.

HROTE must sell 60% of the electricity received from power plants under the incentives scheme to suppliers in Croatia at a regulated price, while the remainder is sold on the market.