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Market concentration in Gas and Electricity Sector

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					Country Report - Croatia

Prepared by Slavica Robic, M.El.Eng and Maja Bozicevic Vrhovcak, PhD

December 2007

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Disclaimer:
The AGREE.NET is not responsible for the accuracy of the information contained in this study. The opinions expressed in this study are those of the respective authors and do not necessarily reflect the policies or opinions of the Network. The sole responsibility for the content of this publication lies with the authors. It does not represent the opinion of the Community. The European Commission is not responsible for any use that may be made of the information contained therein.

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Table of Contents
Summary ............................................................................................................. 4 Market concentration in Gas and Electricity Sector ............................................. 4 2.1 Electricity...................................................................................................... 4 2.2 Gas .............................................................................................................. 7 3. Changing ownership ........................................................................................... 8 4. Energy Import / Export ........................................................................................ 8 4.1 Electricity...................................................................................................... 9 4.2 Gas ............................................................................................................ 10 5. Social impacts ................................................................................................... 10 6. Support of Renewable Energy Sources ............................................................ 11 7. Support of Energy Efficiency ............................................................................. 12 8. Actions and recommendations for improvements ............................................. 13 9. References ........................................................................................................ 15 10. Annex - Degree of EU legislation transposition ............................................. 16 1. 2.

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1. Summary
One of the basic political objectives of the Republic of Croatia is accession to the European Union (EU). Currently, Croatia has a status of candidate country and is undergoing the process of screening and harmonisation with EU’s policy framework. Therefore, it is important that Croatian policy framework is consistent with the EU legislation. Overall energy policy framework in Croatia is determined by the international agreements and political determination to join the EU as soon as possible. In the international context, important documents are Energy Charter Treaty, Energy Community, UNFCCC and Kyoto Protocol as well as energy legislation of the EU. Legal framework for energy sector in Croatia is defined through package of energy laws that consist of the following primary legislation: Energy Act, Act on Electricity Market, Act on Gas Market, Act on Oil and Oil Products, Act on Production, Distribution and Supply of Heat and Act on Regulation of Energy Activities. The aforementioned legal framework has to great extent already been adapted, renewed and harmonised with the EU framework, but further changes need to be done. There are still some regulations missing, while some of the existing ones are still not fully harmonized with the EU. Encouraged by the EU market trends and rules, Croatia also started and is undergoing the process of market liberalization in both gas, and electricity sector. As a part of this process there have been major changes in the structure of Croatian electricity and gas markets, although the dominant players still remain the same. As of July 1 and August 1 2008 Croatian electricity and gas market, respectively, will be fully open.

2. Market concentration in Gas and Electricity Sector
2.1 Electricity
The dominant player in Croatian electricity sector is HEP Group (Croatian Power Supply Company) which owns the majority of the generating capacities as well as all transmission and distribution capacities (up to the metering points). There are also some industrial power plants and a few privately owned power plants. Industrial power plants are not part of HEP group but they have purchase agreements and they can deliver the power they produce into the power system. HEP Group is an undertaking which consists of transmission and distribution of electricity as regulated activities, and production and supply of electricity as market activities. HEP is organized in the form of a holding company with a number of daughter companies. The parent company of the Group, HEP Inc., performs the function of HEP Group corporate management. HEP Group is 100% state owned. According to the Act on Privatization before Croatia enters EU, at least 51 percent HEP Group stocks will continue to be owned by state. 4

Of the remaining 49%, 7% will be transferred to the Croatian war veterans, 7% to employees and at least 15% at the stock market During the recent years Croatian energy laws have undergone significant changes for the purpose of harmonization with the EU legislation. 2000 is considered as the beginning of reform of the energy sector. Croatian Government has adopted the crucial laws in 2001 (Energy Act1, Act on Electrical Market2, Act on Regulation of Energy Activities) which set rules on market situation in power sector, create path for complete liberalization of energy market and define the buyer/seller relations. As a part of the energy sector reform, the single organization (HEP) which was responsible for both transmission and market activities was transformed into the model of transmission system operator and independent market operator. HEP Transmission System Operator (HEP-TSO) was established on April 4, 2005 by merging of HEP Transmission with a part of Croatian Independent System and Market Operator and the complete internal organization of HEP-TSO was restructured as of November 1, 2005. Following was the establishment of the HEP Distribution System Operator (HEP-DSO) in January 2006. The Croatian Energy Regulatory Agency (HERA) was established in 2004 for carrying out the Electricity market organization activity. HERA issues licenses for energy activities according to the Energy Act and its amendments and the Act on Regulation of Energy Activities. During the 2003 charges for transmission and distribution network were separated as of November 1, 2003. Through the reform of the energy sector laws and regulations the electricity sector became to great extent harmonized with the EU Electricity directive 2003/54/EC. The national indicative target for energy end-use energy efficiency (EE) still hasn’t been set, so more changes in the legislative are still required for harmonization with EU legislation in the field of EE. The legal basis for public support of cogeneration (EU Directive 2004/8/EC) exists through the Energy efficiency and environmental protection fund and the Tariff system Energy Act and Electricity Market Rules partially transpose the Directive on the promotion of the electricity produced from renewable energy source 2001/77/EC and in 2007 Tariff System for Electricity Production from RES and Bylaw on Feed-in tariffs have been passed. The only remaining gap in field of RES is the regulation on guarantee of origin of electricity from RES. Electricity Market Model There is only one electricity market in Croatia3 regulated by the Energy Act and the Electricity Market Act. Implementation of the Electricity Market Rules4 and other secondary legislative acts has created the condition for the operation and gradual opening of the market. In the initial phase electricity trading has been carried solely through bilateral contracts
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Official Gazette 68/2001: Energy Act, from Internet, hr: http://www.nn.hr/clanci/sluzbeno/2001/1120.htm Official Gazette 177/2004 : Electricity Market Act, hr: http://www.nn.hr/clanci/sluzbeno/2004/3078.htm 3 Croatian Energy Market Operator (HROTE), from Internet, http://www.hrote.hr/hrote/en/market/default.aspx 4 Official Gazette 135/06: Electricity Market Rules, from Internet, hr: http://www.nn.hr/clanci/sluzbeno/2006/3070.htm, en: http://www.hrote.hr/hrote/dokumenti/electricity_market_rules.pdf

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which are agreed between market participants. Until the full market opening, Croatian electricity market model consists of two segments: Public service, Open electricity market. In accordance to these market segments there are two customer categories: Tariff customers, Eligible customers. Public service supply is allowed only for supply of tariff customers and is performed by HEP Supply, while supply of eligible customers is free and negotiable on competitive market. Customers are granted the status of eligible customers in accordance with the Electricity Market Act (Article 31). The status of eligible customer gives the right to the customer to freely choose supplier. Regulated energy activities performed as public services also include electricity production for tariff customers and electricity supply of tariff customers. Both activities are performed by HEP Group as a part of a common and integral task of the energy entity having public service obligation of tariff customers' electricity supply. Procedure for change of supplier is free of charge unless non-standard services of HEP-TSO or HEP-DSO are required. The law provides for a gradual opening of the electricity market. The market will be fully open by July 1, 2008. Table 1 >20 >9 All undertakings (entrepreneurs) All customers Timeline for granting the status of eligible customers Customer’s electricity consumption [GWh] Date of entry into force December 15, 2004 July 1, 2006 July 1, 2007 July 1, 2008

The current model of bilateral market is based on electricity trading through bilateral contracts. Besides the supply contract or electricity trade contract, the eligible customer and producer have to conclude a contract for using the network with HEP-TSO or with HEPDSO depending on the voltage level connected to. All producers, suppliers and traders that wish to participate in the electricity market must have a license, issued by the HERA. The organization of the electricity market, electricity transmission and distribution are regulated activities performed as public services: HROTE performs activities of organizing the electricity market as a public service, under the supervision of the HERA. HEP-TSO is responsible for electricity transmission, maintenance, development and

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construction of transmission system, and power system control; HEP-DSO is responsible for electricity distribution, maintenance, development and construction of distribution system.

2.2 Gas
There are 36 natural gas distribution companies in the Republic of Croatia, and additionally there are two distribution companies for city gas and LPG / air mixture distribution5. Only 7 of 36 natural gas distribution companies deal only with the distribution. This situation is explained through the former laws which stated that the distribution of natural gas was one of municipal services. The only energy company with a license to produce natural gas is INA – Industrija nafte Inc – the Croatian oil company. Gas distribution sector, gas storage and LNG terminal regulation needed to be reformed through new legislation. Since the past experience with gas storage and LNG terminals was insufficient for drafting of the required new legislation, help within the Technical Assistance Information Exchange Unit (TAIEX) of European Commission has been approved. In April 2007 the Gas Market Act6 has been passed and therefore Croatian legislation for gas sector has been fully harmonized with the EU Gas directive 2003/55/EC. Natural gas transportation is the primary activity of PLINACRO (fully owned by the Republic of Croatia), which was established in January 2001 and it is the only entity which has a license for transport of natural gas. PLINACRO was established in the process of separation of gas transmission division from INA- Industrija nafte and has become the new driver for liberalization of gas market. PLINACRO has elaborated a plan for the development, construction and modernization of the gas transport system from 2002 to 20117 (Plan). The first phase of the Plan predicts the construction of several trunk gas pipelines (75bar) which will also enable interconnection with the Italian gas system. The interconnection with the supply route for Russian gas is achieved already through the Slovenian gas system. In the second phase of the Plan the network should be further extended and connected with Hungarian gas system. The new network extensions should also be such that they will allow future interconnections with Greece-Italy (IGI), Trans Adriatic Pipeline (TAP) and the Nabucco project 8. The gas sector reform commenced officially together with the reform of other energy sectors in July 2001 when the energy laws were passed. Thus the natural gas transport has become energy activity according to Energy Act and has been performed as a public service. Liberalization of natural gas market in line with EU requirements implies the possibility of choice among natural gas suppliers and free access to gas pipeline system. Transport system
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Ministry of Economy, Labour and Entrepreneurship: Energy in Croatia 2005, Annual Energy Report Official Gazette 40/2007: The Gas Market Act, from Internet, hr: http://www.nn.hr/clanci/sluzbeno/2007/1342.htm 7 PLINACRO website: Projects of the second phase of the construction and modernization of the gas transmission system, from Internet, http://www.plinacro.hr/en_projekti.asp 8 Screening Report Croatia, Chapter 21- Trans-European Networks, from Internet, http://ec.europa.eu/enlargement/pdf/croatia/screening_reports/screening_report_21_hr_internet_en.pdf

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is available to suppliers and eligible customers in accordance with in advance stipulated and publicly announced provision. Similarly to electricity market, gas market also distinguishes eligible and tariff customers. Timeline for gas market opening is given in the Table 2. Table 2 Timeline for granting the status of eligible customers6 Customer type Households Date of entry into force August 1, 2008 Non-residential customers August 1, 2007

All vertically integrated gas entities with more than 100.000 customers are obliged to reorganize; within three years of the enactment of Gas Market Act. Gas distribution should be separated from other gas services. Croatia has ratified the Treaty establishing the Energy Community in 2006 which should ensure further development of the gas system and its interconnections with neighbouring countries.

3. Changing ownership
According to the Act on Privatization9 before Croatia enters EU, at least 51 percent of HEP Group stocks will continue to be owned by state. Until now (late 2007) no changes in power system ownership have occurred. The similar situation appears in the gas sector. In 2002, 25 percent plus one share of INA was sold to MOL Rt (MOL) and in 2005, 7 percent of INA’s shares was transferred to the Fund of Croatian War Veterans, and following that 15 percent were sold to Croatian citizens.

4. Energy Import / Export
Croatia highly depends on energy imports and during the recent years import is continuously having an upward trend. In 2005 the total energy import increased by 2.9% with respect to 2004. The imports of electrical energy, petroleum products and natural gas rose, while the imports of coal, coke and crude oil fell. The greatest increase of 65% was that of the electricity, while the petroleum products and natural gas rose less than 10%. During the six year period (1999-2005) the total energy import in Croatia grew at an average annual rate of 5.6%, with a high average increase rate of 36% in petroleum products. The electricity import also grew rapidly at an average annual rate of 14.8 percent5. When it comes to export of energy, the most important energy forms exported from Croatia
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Official Gazette 32/2002: Act on Privatization

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are petroleum products. In addition Croatia also exports electrical energy, small amounts of solid fuels and since 2001 it has been exporting natural gas. The total energy export increased by 2.5% with respect to 2004. The biggest increase of 122.5% was recorded in the electricity export while there was also a significant increase in the export of natural gas of 28.5%. The export of petroleum products fell for 8.9%. The upward trend in export can also be noted in the observed six year period with the average annual rate of increase of 7.2%5.

4.1 Electricity
Croatia is primarily an importer of electricity and the dependence on the imports will become even greater in the future. The amount of electricity flows through transmission network in 2005 was 15.8 TWh, 4 per cent more than in 2004. Losses in transmission network were 560GWh (4.5 per cent lower than in 2004) which equals 3.44 per cent of total electricity consumption on transmission level10. The trend is showing decrease in losses since reconnection of 1st and 2nd synchronous zone UCTE11 in October 2004. Table 3 Overview of electricity flows in transmission network in 200510 Transmission network Substations Installed capacity [MVA] 400kV 220kV 110kV Total 1234 6 2270 4765 101 4762 7158 112 11132 5 4100 Transmission line length [km] 1159

The reconnection of synchronous zones created the physical structure for the integration of the SEE (South East Europe) market with the IEM (Internal Energy Market) and it will therefore affect the market liberalization process in Croatia as well as security of the supply. Table 4 Import and export of electricity into the Republic of Croatia 10 2000 PJ Export 1,39 2,12 1,46 2,11 5,88 2001 2002 2003 2004 2005 2005/04 2000/05 % 14,8 56,6 13,08 122,5

Import 15,75 13,48 14,14 16,12 19,07 31,49 65,1

For future activities it is primarily planned to strengthen internal high voltage (400 kV)
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HEP Group: Annual Report for 2005, from Internet, hr: http://www.hep.hr/hep/publikacije/godisnje/2005godisnje.pdf, en: http://www.hep.hr/hep/en/publications/Annual/2005Annual.pdf 11 Union for Co-ordination of Transmission of Electricity in a non profit association wit 34 members (TSOs) and is one of the largest and most reliable synchronous electric power systems in the world

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connections. Also, there are plans to build more high interconnections capacities; a second 400kV line to Hungary, submarine high voltage direct current (HVDC) cable to Italy and a 110 kV line to Montenegro8. The planned projects will contribute to the Trans European Energy Networks (TEN-E ) but until the regulatory framework is completed the transit of electricity through Croatia remains an important issue.

4.2 Gas
Croatian electricity and gas market still cannot be referred as liberalized, but the process is ongoing and the results evident. The demand for electricity and gas is increasing and Croatia already has problems with meeting the gas demand during the colder winter periods (mostly due to insufficient gas transport structure), and domestic electricity supply is insufficient to meet the demand as well. It is also to be expected that electricity demand continues to grow, and thus it will become even a greater issue. The security of gas supply is dependent on the distribution sector. In this sector, there are some new pipelines under construction and the import of LNG via a terminal in the Adriatic has been confirmed for the year 2012 which will improve security of gas supply.

5. Social impacts
Electricity prices for households and industry in Croatia are lower than the EU prices (electricity prices for households are 30% lower than EU-25 average and for industry 20% lower12). In the process of adjusting Croatian energy sector to the EU standards, the electricity prices will have to be modified. Gas prices in Croatia are formed on market basis but there is a policy of overall price limitation, considerably below the market price. This price cap is also responsible for eligible customers not exercising their right to switch a different supplier. At the same time, a result of price limitation policies is the loss of price parity – natural gas is twice as inexpensive as heating oil12. The gas market liberalization resulted in certain changes in the structure of the natural gas price for end consumers. The basic gas price follows the appropriate tariff systems: The Natural Gas Supply Tariff System for the Tariff Customers13 and The Natural Gas Transportation Tariff System for Gas Suppliers and Eligible Customers13 and the distribution margin defined by HERA. In the five year period (2000-2005) there was almost 50 percent
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Dekanic, I., Kolundaic, S., Slipac, G.: Croatia’s Energy Future.,Energija, vol. 55 (2006), from Internet, http://hrcak.srce.hr/index.php?show=clanak_download&id_clanak_jezik=7445 13 Official Gazette 99/2002: The Natural Gas Supply Tariff System for the Tariff Customers, from Internet, http://www.nn.hr/sluzbeni-list/sluzbeni/index.asp 10 HEP TSO (HEP OPS) Official webpage : Electricity market, from Internet, en: http://ops.hep.hr/ops/en/market/default.aspx 11 Training Center For Energy Trading (TCET): An Analysis of the Croatian/SouthEast European Situation Regarding the free Energy Market Implementation, from Internet, http://www.tcet.info/pdf/wg2_chapter3.pdf

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rise in average selling price of natural gas (i.e. for households from 1.45 HRK, 2000 to 2.04 HRK, 2005) and the trend is showing a continuing growth12. The rise is expected to be even bigger once the market becomes fully open (2008) because then there will be no limitations for neither gas nor electricity prices. Contrary to the continuous trend of job losses in EU energy sector as a result of sector restructuring and liberalization process, in Croatia there is still an increase in employment. In the two year period (2003-2005) the employment in electricity generation and distribution has increased about 8 per cent, while in gas production and gaseous fuel distribution there was a 7 per cent increase, giving a total of 1200 new job openings5.

6. Support of Renewable Energy Sources
The share of RES in Croatian energy and electricity supply is high and amounts to around xx % of total energy consumed and around xx% of the total electricity consumption. The origin of this energy is in large hydroelectric power plants and fuel wood. As all European countries, Croatia is trying to enhance energy production from the so called new renewables – small hydro, wind power plants, biomass and solar energy use. In accordance with EU Directive on the promotion of the electricity produced from renewable energy source 2001/77/EC Croatia is obliged to set its share of RES in total energy consumption in 2010. In alliance with business indicators the recommended target is 1100 GWh of electricity from RES, or 5,8% of total energy consumption in Croatia in 2010 (excluding large scale hydro power plants). Before the restructuring, HEP, as the monopoly in the power sector, was in charge of setting the purchasing contracts with producers of electricity from RES, and the purchasing price was set to 90% of market price for electricity per kWh. With the restructuring of power sector, the purchasing contracts became HROTE’s responsibility. Following this changes a new system for stimulation of production of electricity from RES was introduced. The new system started in 2007 when Croatia has introduced the Tariff system for the production of electricity from renewable energy sources and cogeneration (OG 33/07). Tariff system for electricity produced from renewable energy sources and cogeneration determines the right of the producer to the incentive price, which market operator pays for the delivered electricity. This tariff system also includes guaranteed feed-in tariffs from all the facilities that use RES or cogeneration and have the right for incentives. Tariffs are determined by technology; they are valid for 12 years and are adjusted every year according to average small goods' price coefficient, as well as dependant of the share of domestic component within the project. Croatia also has a specific clause in energy policy, which states that renewable electricity will be supported only until the share of 5,8% in total electricity consumption in 2010 is reached. Tariff system defines incentives for RES separately for the facilities with installed power over 1MW and for those whose power equals or is less than 1MW. The bylaw on support of electricity production from RES and cogeneration (OG 67/07) sets the fee for support of RES which all the energy supply subjects (of both tariff and eligible 11

buyers) have to include in energy prices. Necessary financing is collected through a special fee paid by all electricity users, which is determined by the Regulation on fees for promoting electricity production from renewable energy sources and cogeneration (OG 33/07). All the funds that will result from such a pricing system should be used for meeting the incremental expenses of promotion of RES and cogeneration use14. Electricity buyers (tariff and eligible) pay electricity prices increased by the costs of electricity production from RES. The funds acquired through this pricing system are distributed among producers of electricity from RES depending on the total amount of produced electricity. To be granted these incentives, the producer of RES energy has to have special permission and the status of eligible producer.

7. Support of Energy Efficiency15
In the field of EU energy policy framework, Croatia is required to have energy policy that should also include energy efficiency policy and Croatian framework has to be harmonized with EU policy which covers following areas: End-use efficiency and energy services Buildings Minimum efficiency in energy using products – Eco design Domestic Appliances – Labelling Office Equipment – Energy Star Programme Combined Heat and Power There are also requirements for implementation of environmental management systems such as Eco Management and Audit Scheme (EMAS) and ISO-14000 standards. The important place of energy efficiency in overall Croatian energy policy is also confirmed by the national energy programmes, established in 1997. Programmes dealing with energy efficiency are as follows. KOGEN: Program of development and promotion of cogeneration, removal of barriers and promotion of projects for combined usage of heat and electrical energy; MIEE: Network of industrial energy efficiency – Program of development of structure which interconnects large groups of energy consumers from industrial sector, public and commercial service sector and connects them with expert and national organizations for promotion of energy efficiency measures; KUENzgrada: Program for energy efficiency in buildings, development of energy efficiency in new and existing buildings in public sector, business and residential buildings;
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Official Gazette 67/07:

The bylaw on support of electricity production from RES and

cogeneration
Slavko Krajcar: Energy Efficiency Master Plan for Croatia, 1 st Draft, Annex 2: Analysis of Energy Efficiency Policy and regulation in Croatia, October 2007
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KUENcts: Program of development and energy efficiency of centralized heat systems; TRANCRO: Program of energy efficiency in transport, promotion of energy efficiency in road, railway, sea and air transport. The legislative framework for cogeneration in Croatia is aligned with the EU acquis. The primary legislation covering this area is the Energy Act, the Electricity Market Act and the Act on the Regulation of Energy Activities. The criteria, terms and possibility of use of cogeneration plants are prescribed by the Bylaw on use of renewable energy sources and cogeneration. The national target for cogeneration electricity is set in the Regulation on the minimum share of electricity produced from renewable energy sources and cogeneration whose production is incentivised (OG 33/07). The criteria for highly efficient cogeneration in line with the EU Directive 2004/8/EC and Commission Decision 2007/74/EC establishing harmonized efficiency reference values for separate production of electricity and heat in application of Directive 2004/8/EC are set in the Bylaw on attaining the status of an eligible electricity producer (OG 67/07). Two issues are still left unsolved here – guarantees of origin for electricity produced in cogenerations and assessment of national potentials and established progress reporting structure. First will be legally solved based on the recommendations of the on-going CARDS 2004 RELEEL (Approximation of Renewable Energy Legislation and Energy Efficiency Labelling with the EU acquis) project. Second issue will be solved by drafting the report on national potentials and achieved progress.

8. Actions and recommendations for improvements
The majority of actions in Croatia in terms of energy market restructuring and liberalisation, as well as support for renewables and energy efficiency has been undertaken as a fulfillment of EU accession conditions and primarily have not been recognized as national interest. However, the (pre)accession process has started a couple of years ago and Croatia is now firmly on its way to becoming an EU member state. Energy companies unbundling, the sector restructuring and market liberalization are now so deeply imbedded in the Croatian reality that they have become irreversible. In these circumstances, the vast majority of energy professionals and experts are not questioning the trends (anymore) and the transposition of EU legislation is not regarded as imposed but as a sound way to direct the energy sector development. However, the sector inertia and insufficient communication between all stakeholders are presenting the serious obstacles in the legislation practical implementation. Thus, some recommendations given here are from the legislation point of view, while others are from the organizational viewpoint. Regulatory framework supporting renewable energy sources has been adopted but its implementation is impeded by the complicated and unclear bureaucratic procedures. These procedures should be simplified and the process of acquiring location permit, eligible producer status and grid connection accelerated. Recently the new Construction and Physical Planning Act (OG 76/07) entered the legal force. 13

Technical regulation concerning energy economy and heat retention in buildings (OG 79/05, 155/05, 74/06) prescribes heating requirements separately for residential and non-residential buildings, defines U values for windows and balcony doors and obliges that every main project of the building contains heating requirements card, content of which is also prescribed. The obligation to fill in the card is on the leading design engineer as well as on the performer of the construction works and it is used in technical inspection of the building. The card must also be available for buyers and renters of the building. However, many issues are still not regulated in this field. New by-laws have to be adopted to define the methodology for calculation of energy performance of buildings, to define terms and conditions for certification of buildings and for establishment of training programmes for independent experts who will perform certification of buildings and testing of buildings in connection with energy performance. The key legal act for Eco-design is the Act on Technical Requirements for Products and Conformity Assessment (OG 158/03), based on which regulations have been adopted that transpose the implementing directives for eco-design requirements concerning energy-using products. There is still a need to transpose the Directive 2000/55/EC on energy efficiency requirements for ballasts for fluorescent lighting by appropriate by-law. By the end of this year, the Energy Efficiency Master Plan should be adopted and soon be followed by the Energy Efficiency Action Plan. However, as the goal set by the Directive on energy efficiency is given as a 9% reduction of final energy consumption in 2016, it is crucial to have a sound projection of future energy consumption. The Croatian Energy Development Strategy has been adopted in 2002 and some projections are not valid anymore. Therefore the Energy Strategy should be revised as soon as possible. A national energy agency should be formed in order to provide for an overview of various actors activities in the field of energy efficiency and renewables. Cooperation between relevant ministries should be intensified, primarily between the Ministry of Economy, Labour and Entrepreneurship, Ministry of Environmental Protection, Physical Planning and Construction, Ministry of the Sea, Tourism, Transport and Development and Ministry of finance. These are the crucial institutions for devising and implementing the beneficial regulatory framework for renewables and energy efficiency and their cooperation in this field should be intensified. As all actions in energy sector are in final consequence targeting the energy consumers, a nation-wide awareness raising campaign on energy issues should be launched. Only an informed and educated public is able to take responsible decisions at all levels – personal, local, regional and national.

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9. References
Croatian Energy Market Operator (HROTE), from Internet,
http://www.hrote.hr/hrote/en/market/default.aspx

Dekanic, I., Kolundaic, S., Slipac, G.: Croatia’s Energy Future.,Energija, vol. 55 (2006), from Internet, http://hrcak.srce.hr/index.php?show=clanak_download&id_clanak_jezik=7445 HEP TSO (HEP OPS) Official webpage : Electricity market, from Internet, en: http://ops.hep.hr/ops/en/market/default.aspx Krajcar, Slavko: Energy Efficiency Master Plan for Croatia, 1st Draft, Annex 2: Analysis of Energy Efficiency Policy and regulation in Croatia, October 2007 Official Gazette 32/2002: Act on Privatization Official Gazette 40/2007: The Gas Market Act, from Internet, hr: http://www.nn.hr/clanci/sluzbeno/2007/1342.htm Official Gazette 67/07: The bylaw on support of electricity production from RES and cogeneration Official Gazette 68/2001: Energy Act, from Internet, hr: http://www.nn.hr/clanci/sluzbeno/2001/1120.htm Official Gazette 135/06: Electricity Market Rules, from Internet, hr: http://www.nn.hr/clanci/sluzbeno/2006/3070.htm, en: http://www.hrote.hr/hrote/dokumenti/electricity_market_rules.pdf Official Gazette 177/2004 : Electricity Market Act, hr: http://www.nn.hr/clanci/sluzbeno/2004/3078.htm Ministry of Economy, Labour and Entrepreneurship: Energy in Croatia 2005, Annual Energy Report PLINACRO website: Projects of the second phase of the construction and modernization of the gas transmission system, from Internet, http://www.plinacro.hr/en_projekti.asp Screening Report Croatia, Chapter 21- Trans-European Networks, from Internet, http://ec.europa.eu/enlargement/pdf/croatia/screening_reports/screening_report_21_hr_intern et_en.pdf Training Center For Energy Trading (TCET): An Analysis of the Croatian/SouthEast European Situation Regarding the free Energy Market Implementation, from Internet, http://www.tcet.info/pdf/wg2_chapter3.pdf

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10. Annex - Degree of EU legislation transposition
Directive Electricity Directive Gas Directive Renewables Directive CHP Directive Energy Performance of Buildings Directive Biofuel Directive Energy End-use Efficiency and Energy Services Directive Eco-Design Directives Completion of Energy Efficiency Action Plan23 Number 2003/54/EC 2003/55/EC 2001/77/EC 2004/8/EC 2002/91/EC 2003/30/EC 2006/32/EC 2005/32/EC COM (2006)545 Level of transposition 4,516 4,517 418 42 319 320 221 222 3

Explanation of marks: 5 – full transposition in the spirit of the original text of the directive. 4 – close to full transposition: only minor legislation is missing and there are tools that guarantee the implementation of existing legislation. 3 – vaguely done: major legislation is missing and measures and/or programs guaranteeing implementing are missing. The government basically took action to only formally fulfil EU requirements. 2 – legal transposition is missing but is in the legislative pipeline (deadline is passed) 1 – no sign that the country/government wants to fulfill the legal obligation

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Directive is completely transposed, but not fully implemented (e.g. TSO is not entirely unbundled). Directive is completely transposed, by laws are missing. 18 The issue of Guarantees of Origin is not yet legally regulated. 19 Partial transposition made through the Act on Physical Planning and Construction, Technical regulation concerning energy economy and heat retention in buildings and the Ordinance on efficiency requirements for new hot-water boilers fired with liquid or gaseous fuels. Subordinate legislation (implementing legislation) is still missing to regulate regular inspections of boilers and air-conditioning systems, to fully define all aspects of building certification. 20 The Directive is only partly transposed by the Energy Act, Regulation of the quality of biofuels and the Decision regulating annual percentage of biofuels in the total share of energy fuel consumption in 2007. The full transposition is expected yb the adoption of Biofuels Act. 21 The Directive is only partly transposed by the Energy Act, the Act on Regulation of Energy Activities and the Act on Production, Distribution and Supply of Thermal Energy. The first two are just stipulating energy efficiency as a national interest, while the third is prescribing obligation of metering and charging based on consumption. Thus, very few requirements of the Directive are transposed. The main legislation si missing – the Act on Efficient Energy Use is expected to fully transpose the Directive. 22 The Directive has not been transposed yet. However, the implementing directives 92/42/EECon efficiency requirements for new hot-water boilers fired with liquid or gaseous fuels and 96/57/EC on energy efficiency requirements for household electric refrigerators, freezers and combinations through the Ordinance on energy efficiency requirements for electric refrigerators, freezers and combinations thereof have been transposed through Ordinance on energy efficiency requirements for electric refrigerators, freezers and combinations thereof. The transposition of Directive 2000/55/EC on energy efficiency requirements for ballasts for fluorescent lighting is still missing. 23 EEMP has been completed but still needs to go through the procedure. After this, an EEAP will be developed (in 2008).

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