Deadlines for the construction of renewable energy (RE) plants are expiring because all the necessary permits cannot be delivered on time. The entire system for obtaining location, construction, and usage permits for existing RE projects has been stopped, making it apparent that it will not be possible to construct a power plant within the legally prescribed deadlines.
It is known that connecting to the power grid represents one of the bottlenecks in the development of RE projects. A key factor for starting a new investment cycle is the decision on the amount of the unit charge for connection, under the jurisdiction of HERA (Croatian Energy Regulatory Agency), which is determined according to the Methodology for determining the charge for connection to the electric power network. It was announced that the Decision would be made by the end of last year, but that did not happen, and the consequences are multiple.
Currently, due to the unknown price of connection, the development of new production facilities from renewable energy sources in Croatia is completely blocked, and all projects are essentially “on hold”. Due to the mentioned delay, investors cannot initiate the process of creating EOTRP (Elaborate of the Optimal Technical Solution for Connection) and obtain a connection agreement, i.e., Electroenergy Consent, which are all prerequisites for obtaining other necessary permits (location and construction permits) for the development of RE projects. Especially problematic is the fact that investors are obliged to obtain all permits and build the plant within seven years according to Article 17 of the Electricity Market Act, or five years for projects that have obtained energy approval according to Article 133, paragraph 2 of the same Act, as long as the energy approval is valid, with the period not being extendable. Therefore, due to the failure to decide on the amount of the unit charge for connection to the network, investors cannot continue further development of projects, while the deadline for the construction of the plant is running, making it apparent that within this period, it will not be possible to build a production facility and obtain a usage permit, i.e., not be able to deliver a valid location permit within three years from the date of enforceability of the energy approval because the entire procedure is blocked.
New Methodology, Old Problems
By adopting the Methodology for determining the charge for connection to the electric power network (Official Gazette 84/2022, hereinafter: Methodology 2022) in July 2022, Croatia abandoned the “deep” connection charge model, where investors, besides paying for the infrastructure needed for the connection to the network (from lines, cables, and other equipment), also paid for the costs of network reconstruction (so-called creation of technical conditions in the network – STUM). Thus, according to the 2022 Methodology, a new model of connection charge, the “shallow model”, characterized by paying a contribution for STUM as a product of connection power with a fixed unit price of connection charge, was implemented. According to this model, investors are excluded from financing network enhancements since such enhancements are essential for the entire transmission and distribution system and must be borne by the system operator.
Considering that Croatia, according to the goals of the Energy Development Strategy of the Republic of Croatia until 2030, with a view to 2050, must successfully build as many RE facilities as possible to increase the share of RE in direct energy consumption to 42.5%, investments in the electric power network are necessary. To enable the electric power network to connect new RE power plants, it is urgently needed to build key infrastructure (a new 400 kV transmission line from TS Konjsko (Split) to TS Melina (Rijeka). This is the key infrastructure of systemic importance, which cannot be financed from the connection fee because it is essential for the entire transmission system and should be financed from EU funds, network charges, and/or the budget of the Republic of Croatia.
As the existing implementation framework does not have clear deadlines or connection costs, the adoption of the 2022 Methodology did not take into account ongoing projects that had signed connection agreements according to the previously described “deep” model.
Namely, according to the 2017 Methodology, the obligation to build the new 400 kV Konjsko-Melina transmission line was imposed on investors by HOPS (Croatian Transmission System Operator) at 80% of the costs as part of their connection fee. Since the cost of constructing the new Konjsko-Melina transmission line was estimated at 280 million euros, with an additional 15-25 million euros needed for property legal arrangement of the land through which the transmission line passes, investors found themselves in a situation of legal uncertainty regarding the question if they finance 80% of the mentioned transmission line, do they have the right to regress and how should this regress be realized, i.e., who is the obligor for the payment and at what moment does the obligation to pay the regress arise and in what amount.
OIEH appealed that if the new Methodology is being drafted, the transitional and final provisions of the new methodology should regulate the relationship between the 2017 Methodology and the 2022 Methodology and prescribe the way how investors of already started projects to which the 2017 Methodology applies will realize their right to regress. Alternatively, OIEH proposed allowing the annexation of signed connection agreements by HOPS in a way that the new (shallow) model of connection charge would be applied to existing power plant construction projects, which would also solve the current problem of paying STUM costs while simultaneously respecting the principle of equal and non-discriminatory treatment of all investors, but HOPS negatively commented on the possibility of annexing existing connection agreements with the obligation to build a 400 kV transmission line.
It is absurd that key energy transmission infrastructure, which represents primary/systemic lines of special interest to the Republic of Croatia, is developed and financed by private investors and then handed over to the system operator in ownership, while simultaneously the operator would charge other interested investors for connection to the network, i.e., the operator would double finance the construction of lines at the expense of investors without any participation, which is beyond reason and most importantly beyond legal frameworks.
All this is legally defined in Article 86 of the Electricity Market Act, which clearly states that the transmission system operator-HOPS is responsible for the management, construction, maintenance, and operation of the transmission system, but not in a way that private investors finance capital electric power transmission infrastructure.
And that’s not all
According to its new rules, HOPS introduces limitations on the transmission of electricity where investors do not have security about when and how much-produced electricity they can supply to the grid. If HOPS can disconnect renewable energy facilities from the grid at any time for any duration, no financial institution will agree to finance such projects because no mechanism can guarantee the security of loan repayment.
Likewise, HOPS introduced a discriminatory rule allowing the submission of requests for information on the state of the transmission network for the preparation of EOTRP only once a year, and if an investor for any objective reason misses the period from May 1 to May 15 for submitting a request (in practice, a maximum of 10 working days), they lose an entire year, even if they are late by just one day.
RESC also proposed a connection price of zero euros for RE to the network. Why? The end customer pays the total price of the product they consume. That is, the end customer on their bill receives a calculation of the energy price and network charge by which they pay for the development and maintenance of the network so that electricity can be delivered to them. If only Croatian producers paid for network development then all producers outside the Republic of Croatia, and Croatia still, we said, imports more than 30% of electricity annually, would sell their energy to our customers without paying a share in network development, thus being more competitive for the amount our producers pay for network development. Therefore, it is not logical to import energy and bring producers from outside Croatia into a better position than domestic ones. It is in the interest of HOPS and Croatia to encourage domestic electricity production by producers within the Republic of Croatia.
