In 2021, electricity and natural gas prices for household consumers in Croatia were among the lowest in the EU.

Following the recent soaring gas and electricity prices in Europe, a significant blow came for Croatian household consumers on April 1, 2022, after new tariffs were introduced by the government and the Croatian Energy Regulatory Agency. Despite government intervention and easing measures, household consumers were hit by average increases in electricity and gas prices of 10% and 16%, respectively. The latter, along with environmental considerations, provides a tailwind for even stronger focus on renewable energy.

Renewables currently account for approximately 31% of Croatia’s energy mix, of which 53.82% is electricity generation; 6.59% of renewable electricity goes towards powering transportation and 36.93% towards heating and cooling.

“We are pleased to see that wind and solar are the fastest-growing electricity generation sources in Croatia. Since Croatia has an above-average geothermal gradient, about 60% higher than the European average, the use of geothermal water for energy purposes could be further exploited,” says Vedrana Jelušić Kašić, Management Board Member at Privredna banka Zagreb, a member of Intesa Sanpaolo Group. From 2023, targets for renewable energy generation and use will be revised upwards, aiming at 32% renewable energy usage by 2030. Like most other EU countries, Croatia is targeting 2050 as the year when the energy balance tips in favour of renewables.

The south of the country is the concentrated centre of energy production, whereas the north is where most energy is consumed. For this reason, there is also an opportunity in Croatia to rethink and strengthen the energy system, to ensure efficient storage and consistent delivery to end consumers.

A refreshed energy strategy
In February 2020, the Croatian government adopted a new Energy Strategy intended to improve energy security, increase efficiency and reduce dependence on fossil fuels. The programme will also increase localised production of renewable energy, with the aim that renewable resources will grow to at least 65.6% by 2050 as a share of total energy consumption.

A huge part of the motivation for switching to renewable energy is the fact that Croatia imports about half of the total energy consumed annually – around 80% of its oil and gas needs and around 30-40% of its electricity.

Within the growing renewables sector, the fastest-developing projects are in wind and solar energy, where the reduced cost of technology is making projects increasingly cost-effective.

An expected €17.8bn will be spent on Croatia’s energy sector in the period to 2050, of which around 75% will directly improve the electricity system. €2.4bn will be spent on the grid alone. Cumulatively between 2020 and 2050, 2.3% of the country’s GDP will go towards energy efficiency.

A new frontier in renewables is geothermal energy and Croatia is exploring potentials related to geothermal fields in the north. Once developed, geothermal energy could supplement the production of electricity from renewable energy sources.

Indeed, if properly generated and used to full potential, geothermal sources could produce energy to heat the entire capital of Zagreb. At present, only one geothermal power plant is fully operational in Croatia.

If all goes to plan, by 2030 wind energy is expected to account for 21.3% of power generation, solar power 6.1% and geothermal energy 0.8%, while the hydroelectricity share will be around 44% (a slight decline from the current share of 46%). High-efficiency biomass co-generation and the use of biogas for electricity generation will also factor in the future energy mix.

The need for greater energy diversity and security is underlined by the Ukraine crisis, and the subsequent rise in oil and gas prices. In March 2022, the European Commission proposed REPowerEU ­– an emergency plan to increase the resilience of the EU-wide energy system in view of the invasion.

This includes: (i) mitigation of energy retail prices to support low-income households and other heavily affected entities; (ii) securing sufficient gas storage to prepare EU Member States for the next winter; and (iii) actions to eliminate the European Union's dependence on Russian fossil fuels in the mid and long term.

It plans to achieve the last through diversification of gas supplies, via higher LNG and pipeline imports from non-Russian suppliers, and larger volumes of biomethane and renewable hydrogen production and imports, and the creation of an integrated EU energy system, largely based on renewables, greater energy efficiency, electrification and the elimination of infrastructural and regulatory bottlenecks.

In turn, Croatia has intensified its efforts to secure a greater supply of sustainable energy, especially through increased use of wind and solar. The allocated EU funds are being directed towards projects that support renewables and greater energy efficiency both in industry and private households. Energy security is one of the top national strategic priorities. Among the solutions are expanding national gas storage and increasing the capacity of gas pipelines. Croatia’s first liquefied natural gas (LNG) import terminal, located on the island of Krk, commenced commercial operations in January 2021. Today it plays a key role in enabling a safer energy supply not only for Croatia, but also for the neighbouring region. This April, the technical capacity of the LNG Terminal was increased to 338,000 cubic metres per hour of LNG regasification.

The LNG Terminal has also introduced a new non-standard service for users, becoming the first to perform a complex LNG reloading operation directly from the FSRU vessel to trucks.

The role of hydrogen in Croatia’s energy transition is also being explored, with several projects underway. Hydrogen helps increase the integration of renewable energy sources, can be used to store energy and decarbonize transportation and industry. The Croatian government initiated a procedure to adopt the country’s hydrogen strategy for the 2021-2025 period.

Growing renewable energy production and greater resource efficiency will support the country’s diversification of energy resources with much less harm to the environment. “Privredna banka Zagreb is ready to play a part in supporting such developments by financing both the public and private projects that contribute to the greater energy diversification, security of supplies and the national green transition,” says Vedrana Jelušić Kašić.

State-owned energy spearheads transition
This green transition is a cornerstone of the National Recovery and Resilience Plan, through which Croatia aims to connect 1.5GW from renewable energy sources to the grid by the end of 2024, and more than 2.5GW of new renewable power plants by 2030. Currently, Croatia has more than 970MW of power in windfarms, around 100MW in solar plants, 100MW in biomass and 50MW in biogas plants.

The green transition is supported by HEP Group, the national state-owned energy company – its latest and biggest single investment being a windfarm in Korlat in 2020, where the total investment was more than €65m.

Between 2019 and 2021, HEP also invested in a series of solar power plants with a total capacity of 23MW and a value of approximately €27m. In late 2021, HEP secured the development and building of seven more solar power plants with 60MW capacity, with an estimated investment value of €50m.

In total, HEP is developing solar power plant projects with a sum capacity of 168MW at 18 selected locations across different towns and municipalities. HEP plans to increase the share of renewable sources in its own electricity production by 50% by 2030.

As renewables sites are created, habitat-sensitivity maps for solar and windfarm projects will chart the entire territory of the country by 2023 – so investors can see which locations are suitable for developing renewables and where they can expect a potential problem with wildlife protection measures.

PBZ finances renewables
Privredna banka Zagreb is a pioneer in financing renewable energy sources (RES) in Croatia, its first windfarm project having been financed more than a decade ago.

“I am glad that Privredna banka Zagreb, as a member of the Intesa Sanpaolo Group, has joined the UN initiative Net-Zero Banking Alliance to bolster common efforts to combat climate change and introduced #green loans. Privredna banka Zagreb supports its clients in designing a new economic ecosystem, while green and circular economy and sustainable development represent a great opportunity for all stakeholders in the economy,” says Vedrana Jelušić Kašić.

The bank operates in line with the strategic guidance of the Intesa Sanpaolo Group. It is dedicated to environmental, social and governance (ESG) considerations in accordance with the Energy Strategy of the Government of Croatia, and guided by EU objectives to reduce greenhouse gas emissions, related to the financing and development of renewable energy projects.

Over the past 10 years PBZ has participated in providing more than 260MW of power through renewables, predominately windfarms but also biomass and biogas projects. It has approved more than €220m of loans for renewable projects, including project finance, refinancing and acquisition finance. Currently, the outstanding loan amount related to RES projects is more than €160m.

Most recently, PBZ was the Mandated Lead Arranger in a process of the acquisition of two windfarms – Danilo  (44MW) and Rudine (34MW) – by Croatian investor Professio Energia. With refinancing from PBZ, Professio Energia has ensured a stable platform for long-term operations and further development of renewable energy sources in Croatia.