Croatian Electricity Sector and Impacts of Southeast European (SEE) Regional Electricity Market (REM)

In the Croatian electricity sector de facto prevails only one main subject. It is called Hrvatska Elektroprivreda (HEP Group) which was transformed in the early 1990s from a social to a public company wholly owned by the state. HEP Group is organized in the form of a holding company with a number of daughter companies. Within the HEP Group today there is a clear division (managerial, accounting, legal) of companies which perform regulated activities (transmission and distribution) from non- regulated ones (generation and supply). By signing the Stabilization and Association Agreement (SAA) with the European Union (EU) in 2001 (October 29th) guided with the aspiration to become a full EU member, Croatia has committed to gradually adjust its state monopolies in line with the conditions that correspond with those existing in the EU market. The process of electricity market liberalization was and still is based on the harmonization of Croatian legislation with the relevant EU directives. Despite having met all the formal requirements regarding electricity market opening, this process still has not resulted in emergence of new competitors or higher percentage change of electricity supplier. Restructuring the electricity sector is an imperative, but only in accordance with the degree of market development, the sector’s history, national energy resources and the overall economic interests. In the context of Southeast European (SEE) regional electricity market (i.e. Energy Community) Croatia has committed to implement the relevant Community acquis in accordance with the implementation timetable. Within the Energy Community’s framework (and thus the EU internal electricity market), Croatia adapted its Energy Strategy to the new conditions and opted to play an active role in the regional electricity sector primarily due to its favourable geopolitical position and transit potential. The potential benefits of regional electricity market (REM) for Croatia (and other countries in the region) can be related with reducing the need for installed generating capacities while maintaining the same level of system security, better use of favourable hydrological conditions, the possibility of increased competition, increased efficiency of the electricity sector and reduced labour costs.