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Updating EU’s Climate and Energy Policies: Croatia

Approaching the deadline (30 June) for EU Member States to submit an updated draft of their 10-year National Energy and Climate Policies (NECP) to the European Commission, we turn our attention to Croatia, investigating the country’s most recent targets, progress and expectations ahead of the updated NECP.

In the NECP document from 2020, Croatia set a target of 36.4 per cent share of renewables in its final energy consumption by 2030, alongside a target of 13.2 per cent of green energy in transport within the same period. In energy efficiency, Croatia aimed for primary energy consumption of 344.38 PJ (8.23 kilotons of oil equivalent – ktoe) and final energy consumption of 286.91 PJ (6.85 ktoe) by the end of 2020s.

Translating these targets to emission cuts, Croatia set a 7 per cent and 43 per cent reduction in greenhouse gas (GHG) emissions for sectors not covered by the EU Emissions Trading System (ETS) and those included in the system, respectively.

In its assessment, the European Commission noted the country’s “sufficiently ambitious” renewables target, which exceeded the recommended 32 per cent target. Regarding GHG reduction targets, the EU’s executive body found that Croatia’s targets align with the Effort Sharing Regulation (ESR) and was on track to overachieve its target with the proposed policies. However, no corresponding national target was set in the 2020 document.

Whilst fossil fuels still play a “substantial role” in Croatia’s energy mix, the role of green energy continues to grow, the European Commission noted in a 2023 country report. Croatia’s 2021 energy mix saw a 31 per cent share of renewables, with fossil fuels accounting for the remaining 69 per cent. In 2021 (compared to 2020), gas dropped from 32 per cent in 2020 to 29 per cent, the share of oil decreased by 1 per cent and coal and coal products remained at 5 per cent, while renewables increased by 3 percentage points. During COP26, Croatia also announced that it will abandon coal by 2033.

Croatia’s green transition momentum

Croatia has picked up key momentum in its green transition. This has been further accelerated by its EU Recovery and Resilience Plan (RRP) with its implementation “well underway,” as the 2023 country report noted.

As part of the RRP’s implementation, Croatia conducted an in-depth analysis of barriers restraining the higher uptake of renewables and adopted its first national Hydrogen Strategy to incentivise the production and use of renewable hydrogen. Additionally, the country passed some amendments to the Act on Biofuels for Transport which established a framework for deploying alternative fuels and producing and using advanced biofuels and hydrogen in transport.

Finance access for businesses has also been improved by setting up new RRP funds providing loans, loan guarantees and interest rate subsidies.

In 2023-2024, Croatia plans to adopt the relevant legislation to improve the uptake of renewables, including the introduction of a premium-based system to support renewable energy sources. Additionally, the country plans to connect an additional 1500 megawatts (MW) of renewable capacity to the grid.

Filling in gaps amid key momentum

However, a notable gap in Croatia’s green transition has been its energy efficiency policies. In its 2020 NECP assessment, the EU Commission considered the target to demonstrate “low ambition,” with the policies and measures outlined in the plan seemingly insufficient to ensure the attainment of the overall target. Since then, Croatia’s RRP set out a list of concrete measures to address energy efficiency in different sectors.

Among them is a new Energy Efficiency Programme, setting out investment priorities for energy efficiency and district heating systems by 2030, but also up to 2050. As part of this, grant support was awarded to 75 energy-intensive small, medium and large firms that had committed to improving their efficiency and use of renewables in the industrial production process.

These measures, in conjunction with national efforts outside the recovery plan, are expected to increase the renovation rate in the upcoming years and contribute to achieving an annual renovation rate of 3 per cent by 2030. However, the low uptake of installation of rooftop photovoltaics remains a challenge due to a complex legislative framework and administrative procedures.

Can more be done?

While the role of renewables continues to increase, there is “room for growth,” the Commission said. The bulk of the country’s clean energy comes from hydropower, which, due to more frequent droughts, may result in lower power output and thus impact the security of supply. Additionally, whilst VAT on the purchase and delivery of solar panels was abolished and taxes were cut for producers-consumers last year, household investment in photovoltaics continues to be hampered by “legal uncertainty.”

Considering this context and plans to phase out coal by 2033, “it is important” that Croatia’s potential in wind, solar and geothermal is explored.

In the report, it was also noted that the country’s permitting procedures for renewables are “cumbersome and longer than the EU average.” An inadequate and in some cases incomplete legislative framework on permitting procedures for deploying renewables and the lack of staff and technical capacities contribute to the slow uptake of large new renewable energy installations.

Separately, it is worth pointing to the share of renewables in the transport sector (7 per cent in 2021) which is among the lowest in the EU and well below the 2030 target of 14 per cent.

Financing Croatia’s green shift

Croatia’s RRP looks to play a central role in filling in the above gaps. Adopted in July 2021, the plan dedicated 40.2 per cent of its 5.5 billion-euro budget to finance the country’s green transition. This includes 789 million euros for energy efficiency and post-earthquake reconstruction and 728 million euros for sustainable mobility. Additionally, the plan allocated 658 million euros for modernising energy infrastructure, the production of advanced biofuels and renewable hydrogen, and carbon capture and storage projects.

The Croatian government has thus far submitted two payment requests, resulting in an overall disbursement of 1.4 billion euros. An additional 818.4 million euros was disbursed by the EU Commission in pre-financing.

In conjunction with RPP funds, Croatia’s Cohesion Policy funds for 2021-2027 allocated 4.5 billion euros for the green transition and, as part of this, more than 500 million euros of investments from the European Regional Development Fund (ERDF) will be allocated to projects that are expected to result in 20 per cent primary energy savings and increase the share of renewables to 60 per cent in power production by 2030.

Croatia, similar to most EU countries in CEE, is eligible for additional funding from the EU Modernisation Fund, co-funded by revenues from the EU ETS and the Connecting Europe Facility (CEF) Energy programme. Under the latter, the “GreenSwitch” project, a cross-border electricity smart grid between Austria, Croatia and Slovenia, received 73.1 million euros for investments in December 2022.

What can we expect in the updated NECP?

In the 2023 country report, the Commission noted that Croatia will need to increase its renewables target in the updated NECP to make a “stronger contribution” to the more ambitious EU climate and energy targets in the Fit for 55 Package and in the REPowerEU Plan. “Indicative target RES share according to updated NECP is 42.5 per cent,” Croatia’s Ministry of Economy and Sustainable Development tells CEENERGYNEWS.

Whilst not explicitly confirmed, it is believed that the EU Commission’s concerns about Croatia’s security of power supply (for example, the uncertain output of hydropower) will be addressed in the updated document. “It will be necessary to use all available potentials of renewable energy sources in order to achieve the set targets. Of course, the shares of individual RES will differ. We expect that wind and solar energy will be dominant, but it will be necessary to use geothermal energy, biomass, green hydrogen and other RES also,” the Economy and Sustainable Development Ministry tells us.

Indeed, it will also be interesting to see how the EU Commission’s comments on permitting rules for the development of renewables, and transport decarbonisation will be addressed in the updated document.

In particular, whilst unconfirmed, the updated NECP looks to provide new details on the country’s support for the development of geothermal energy. “A few measures within the NECP emphasise geothermal energy usage for various purposes. Also, a couple of funding programmes (EEA grants, National Recovery and Resilience Plan 2021-2026 – NPOO) are available where the development of geothermal energy projects is being co-funded,” Croatia’s Economy and Sustainable Development Ministry says.

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