The Price of Electricity Will Rise for Two Reasons

The wave of price increases following entry into the European Union will not spare the energy market either. Electricity last increased in price a year ago by 20%, justified by the need for investments by HEP in production capacities, as well as the import of electricity due to a poor hydrological year.

Croatian citizens also expect the same, whose fears are justified considering that in the 27 EU member states, the price of electricity has increased on average by more than six percent in just the last three years.

Although cautious with forecasts, experts agree that we can only expect rising energy prices in the long term.

– “The price of electricity will rise for two reasons: global demand for energy will certainly increase, which will cause a global price rise, and investments in the energy sector will need to be strengthened,” said Tomislav Čorak, Croatian principal of the global consulting firm A.T. Kearney.

Čorak sees several reasons for such forecasts. From the ever-increasing global demand for electricity, through the decline in fossil fuel production, to the increase in the share of energy from renewable sources, which has a higher unit price.

– “Namely, Croatia today has a deficit of produced electricity compared to demand. This means that Croatia will either have to continue importing electricity or modernize its production capacities. If it continues to import electricity, it will depend on prices in the open market, which are more likely to rise than fall in the future. If it invests in new production capacities, it will have to create new investment potential, which is possible through raising the price of electricity – as other EU countries in the region have done. However, investments in new technologies will enable more rational electricity consumption (e.g., the trend of digitalizing electricity networks), which means that despite the rise in the unit price of electricity, total consumption will be controlled,” explains Čorak.

Due to the crisis, more and more citizens are already facing serious problems with electricity bills. For example, in this year up to May 13, 2013, there were 1,197 electricity supply suspensions just in the area of Elektrodalmacija Split. Elektra in Šibenik disconnected 463 consumers, Zadar 350, and Dubrovnik 230.

Similar electricity price increases after joining the EU have also been experienced by neighboring countries such as Slovenia, Slovakia, and the Czech Republic, where the price of electricity has doubled since joining the EU in 2004. There are several reasons for the price increase, from the global rise in oil and gas prices to the slow liberalization of the market and the privileges of national energy monopolists, which is why the European Union has failed to create a unified internal market.

– “These markets have different experiences. Only the Czech Republic, as a transitional market, has managed to transform its national electricity company into a significant international player. ČEZ started a restructuring program about ten years ago, and in addition to optimizing operations in its own market, it has managed to expand into various markets in Eastern Europe such as Slovakia, Hungary, Bulgaria, etc. Of course, the prerequisite for restructuring was the liberalization of prices in the market. Slovenia has a relatively closed market because it is formally liberalized, but true liberalization is yet to come. Hungary and Poland have liberalized markets, which has allowed foreign players to enter, increasing the supply of electricity, and gradually the price of electricity has also risen. We can conclude that the price of electricity is rising, but total consumption could be controlled thanks to the growth of technological control capabilities,” concludes Tomislav Čorak.

A solution for cheaper electricity bills may be sought in the possible emergence of new electricity suppliers, but they are currently not sufficiently stimulated, so HEP continues to successfully hold a monopoly. Croatia, like any other EU member state, is obliged to align its legislation with European law, thus enabling the opening of the electricity market. This was formally done in 2008, but in reality, the Croatian monopolist HEP still has no competition. Due to current legal regulations, the price of electricity will remain the same until new tariff systems are adopted. New regulations have still not been adopted contrary to EU Directives, which, among other things, mandate the adoption of laws to protect poor consumers. The implementing regulation was supposed to be adopted by May 8, 2013, at the latest, but has not been adopted to this day.

Today, alongside HEP, there are 14 other suppliers, but only four are active, collectively accounting for 1.8% compared to HEP, primarily because they still do not operate with households but only with business entities. To break the monopoly of national companies, the EU has adopted the Third Energy Package, but HEP continues to delay the process of separating transmission from electricity production. As a result, Croatia faces million-euro fines that would again fall on the shoulders of citizens.