Entrepreneurs in Distress: To Sign a Long-Term Electricity Contract or Not?

– We do not know what is best to do at this moment, we have nothing to hold on to, there are no interlocutors who could provide us with solid arguments on which we could plan – this is almost the same conclusion of entrepreneurs facing new offers for electricity supply. In the best case, 300 percent more expensive than before. 

Their main dilemma at the moment is whether it is wiser to sign short-term contracts for up to one year or for a longer term of three years? This dilemma is accompanied by a global dilemma – are these drastic increases in energy prices a short-term shock or a long-term trend that could last for decades?

No one wants to pretend to be smart at this moment, to specifically predict how long the energy crisis will last, nor to take responsibility for advising entrepreneurs. However, what can be read between the lines is that we all need to prepare for a long period of high prices, which may last until the green transition, which already has some global deadlines by 2030 and 2050, is at least partially implemented. Instead of a gradual transition from fossil to green, the economy has experienced an ‘electroshock’ that has paralyzed it.  

From noble goals, the transition has been slow, so it is expected to proceed much faster due to financial interests, as evidenced by the increasing demand from entrepreneurs for the installation of solar panels and the growing competition in the production of alternative electricity.

Currently, in the electricity supply market, besides HEP Opskrbe, significant suppliers such as E.On, GEN-I, PETROL, and Enna Opskrba operate, but they do not represent serious competition to HEP, which has a market share of about 90 percent. They import electricity for their consumers’ needs, meaning they do not have their own production in Croatia. However, considering current, planned, or realized investments or acquisitions of projects and facilities for the production of clean electricity, some of the mentioned suppliers in Croatia or the neighborhood plan to strengthen their market position in supply in the coming years. In the meantime, HEP will be the most favorable option for both citizens and entrepreneurs when choosing a supplier.

HEP is the one that dictates the conditions in the market, and this will remain the case until competition develops or until renewable energy producers, as independent producers from HEP, begin to take a larger share of the market and thus the market position, either independently or together with other traders or suppliers.

HEP states that the level of price increase for entrepreneurs in each individual case depends on the commercial conditions of the previous contract and the moment of contracting a new supply contract. The final delivery price also depends on other elements, such as the consumption pattern of each individual customer (consumption curve), tariff models of measurement points, type, and duration of the supply contract.

– In the past few months, less than 20 percent of medium and large customers have opted for contracts with a duration of 12 months or shorter, while just over 80 percent of customers have opted for longer-term contracts, most often for a period of 24 or 36 months – they say at HEP.

They also add that some entrepreneurs are still hesitant to enter into long-term contracts, expecting a price drop and a calming of currently unfavorable circumstances.

– These customers, despite significantly more favorable prices they could achieve if they opted for multi-year periods, find it difficult to make such decisions, although this crisis has shown that customers with long-term contracts made wise choices – they conclude at HEP.

Many companies already have some projects for alternative energy use developed; however, these projects have been sitting in drawers as they were not profitable until now. Now the dust is being wiped off them, and considerations are being made on how to realize them as soon as possible to achieve energy independence.

What possibilities for contracting energy supplies are offered to entrepreneurs and what are their experiences with signing contracts can be read in the new printed and digital edition of Lider.