Croatia's accession to the EU opened the market to energy providers and is leading to lower household bills.
By Selena Petrovic and Ivana Jovanovic for Southeast European Times in Zagreb and Belgrade -- 09/12/13
Electricity customers in Croatia can now choose their provider. [Nada Bozic/SETimes]
Tens of thousands of Croatian energy consumers are exercising a benefit of the country's new EU membership.
Thousands have chosen to switch their electricity provider, an option that became available to them on October 1st. Slovenian GEN-I and German RWE offer a variety of electricity packages to their users, promising discounts ranging from 5 to 12 percent in comparison to national electricity company HEP (Hrvatska Elektroprivreda).
Both companies have been present in the Croatian energy market for years, but only as participants in building projects or as suppliers of large electricity users.
"With Croatia entering the EU, a number of energy laws have been implemented in accordance with the Union regulations, and the market has opened to other energy suppliers," Zoran Milisa, board chairman of RWE Energija, told SETimes.
He noted that the key requirement for RWE to enter any energy market is the existence of laws that allow for more than one electricity supplier.
"[In addition], it is necessary to separate the existing power companies into several independent business entities for production, transmission, distribution and supply, with guarantees that every supplier will have an access to distribution network under the same conditions as the existing, dominant supplier," he added.
In Croatia, HEP will remain responsible for distribution, and customers will receive two monthly bills: one from HEP for transmission network services, and another one from their provider of choice. The combined bill will be lower than the price customers paid prior to October 1st, even for those who choose to stay with HEP.
According to the Croatian Bureau of Statistics, a survey for 2011 based on a random sample of private households showed the average annual spending for electricity was around 450 euros. With the new 10 percent discount from GEN-I or RWE, the annual bill for these households should amount to 410 euros annually.
HEP's newest household package HEPI, according to company's recent presentation, includes discounts that could reach 8.3 percent of prior pricing.
In 2014, 3,000 companies in Serbia will be able to choose their electricity provider. [Nada Bozic/SETimes]
Željko Tomsic, professor at the Faculty for Electrical Engineering and Computing at Zagreb University, was in charge of the working group dealing with the energy chapter during accession negotiations with the EU. He said there are two main reasons for the new competition in Croatia's energy sector.
"Cheap electricity in the EU power exchange market is now available years in advance. Suppliers have bought a three-year supply of electricity, and this is why they can guarantee lower prices for this timeframe," Tomsic told SETimes.
"The second reason is EU accession. Croatia's EU entry has provided safety for new suppliers, some of whom had already been registered in the country, as they can always complain to the EU Directorate General for Energy or Directorate General for Competition," he said.
Zoran Aralica, a senior research associate at the Zagreb-based Institute of Economics, said the liberalisation process and the European companies' entry into the Croatian market were marked with constant talk about energy prices, without considering other elements important for Croatia's consumers and its economy.
"The very basic energy question is the efficient use of energy. This means the energy with the lowest cost is the one being used efficiently in production and in services. [Additionally], the main principle in this sector is the one related to security of supply. Finally, any inefficient energy within the system is always remediated by consumers and the state. This could be a problem in circumstances where these macroeconomic aggregates are experiencing enormous indebtedness," Aralica told SETimes.
Tomsic also identified some long-term risks tied to lower electricity prices, involving the issue of energy security.
"If electricity prices go up, and depending on availability of electricity in the EU, the suppliers could easily leave Croatia, and no new production capacities would have been built, as currently no new projects, except for the renewable energy ones which have the feed-in stimulus, cannot be cost competitive, so it is difficult to implement and, most of all, find funds for new production facilities," he told SETimes.
In Croatia, HEP will remain responsible for electricity distribution. [AFP]
Meanwhile, European suppliers said they are watching the entire region closely.
GEN-I has established its presence in all the countries in the area, and the most appealing markets are Croatia, Slovenia and Serbia, Dejan Paravan, executive director of GEN-I Zagreb d.o.o (LLC), told SETimes. He pointed out that Serbia has just begun opening its energy market this year.
"There are 60 licensed energy sellers and 30 of them are active. We expect more significant interest of companies for this sector when we open the market for customers on medium voltage," Serbian Deputy Minister of Energy Dejan Trifunovic told SETimes.
He added that in January 2014, the energy market will open for 3,000 companies that use energy on medium and low voltage, which make up 23 percent of Serbia's energy market.
The companies cannot buy the energy from public companies. If they do not choose one of the private bidders, they will have to use the energy from the backup supplies, which is going to be the most expensive.
"Starting in January 2015, small customers will have a chance to choose a supplier on the market, but they will also have a chance to get the energy from the public supplier," he said.
Ana Bovan, president of the Central European Development Forum, said liberalisation of the energy market in Serbia is significant for the implementation of EU standards, which consider both economic and climate issues.
"This is a very important step for a country where energy was cheap and where rational use didn't exist because when you have cheap energy, you are a big consumer. This will bring higher prices, but will open opportunities for some new industries which deal with energy efficiency and try to improve it," Bovan told SETimes.
She added that now energy prices will depend on prices on the European market.
"A reliable supply of energy with reasonable prices for all consumers and with minimal environmental destruction are standards which Serbia, as future EU member, will achieve," she said.
What can regional countries do to hasten their transition to competitive energy markets? Tell us your thoughts below.