1000 Largest: Frane Barbarić, HEP: Business Could Stabilize Next Year

In this unprecedented energy situation, we analyze consumption daily, consider the most favorable options for energy and fuel procurement, model scenarios for optimizing fuel procurement and power plant production, forecast economic trends in Croatia, and monitor the success of receivables collection… At this moment, the most important strategic commodity is gas.

Its supply through the LNG terminal, along with the planned filling of gas storage in Okoli, guarantees a secure gas supply in Croatia for the upcoming heating season. HEP has leased its share of the LNG terminal capacity until 2030 and will implement the recently adopted decision of the Government of the Republic of Croatia, which allows for the filling of the Okoli PSP storage to a minimum of 90 percent by November 1, 2022, in accordance with the EU regulation on measures to protect the security of gas supply.

Our business is strongly affected by the rise in energy and electricity prices on the exchanges, as well as very unfavorable hydrological conditions. On the reference exchange in Budapest, the wholesale price of electricity delivery for the annual contract rose from around 50 EUR/MWh in 2020 and the first half of 2021 to above 200 euros by the end of 2021, and currently stands at over 250 euros. The megawatt-hour for the first quarter of 2023 costs nearly 300 euros.

The price of gas in the same period increased by about 1500 percent, and CO2 emission units by about 500 percent. HEP bears a significant burden due to the limitations on the increase in electricity prices for households defined by the Government’s package of measures.

In mid-February, the negative financial effect for HEP was estimated at around 460 million kuna on an annual basis. Additionally, by the end of June, the company will write off more than 100 million kuna in receivables due to the earthquake in Banovina. Many factors influence changes in market electricity prices in Europe, with the most important being the prices of energy sources used in electricity production, the prices of CO2 emission units, and the share of production from renewable sources.

Therefore, all forecasts are thankless. Regarding gas, the movement of wholesale prices in the upcoming period will critically depend on the development of the geopolitical situation, the course of aggression in Ukraine, and the implementation and expansion of the embargo on the import of Russian energy sources. At this moment, storage facilities in the European Union are filling up very quickly, and if Russia continues to supply gas, and the winter is not extremely cold, stagnation with a downward price trend can be expected; otherwise, prices may rise.

If there are no new major disruptions in European energy markets, we expect that business could stabilize next year, and we hope to achieve results in 2024 at the level prior to the current crisis.