HOPS Sent OIE Contracts That Likely No One Will Sign

The Croatian Transmission System Operator (HOPS) has recently sent contract proposals for connection to 45 investors in renewable energy with a total capacity of 2.6 GW, and judging by the content, it is unlikely that anyone will sign them. The contracts foresee an unknown final cost, the possibility of complete production limitation, and a variable cost sharing among projects. This is a combination of an unknown price and collective risk over which the investor has no control.

Since HERA has not established a unit price for connection for three years, the calculation has been made according to the old methodology: the investor bears 100% of the actual connection costs and participates in 80% of the costs of creating technical conditions in the grid (STUM). These interventions are estimated at nearly half a billion euros, but the final amount per project is unknown as it depends on movements in the same ‘pool’ (withdrawals and delays change the cost ratios).

In addition, advances and installments are foreseen, calls for payment in progress, and annual adjustments of shares, and until the completion of network works, HOPS reserves the right to reduce the electricity supply from zero to one hundred percent.

– We are asked to pay in advance for something whose amount and deadlines we cannot estimate, while we can be completely limited until the network is completed. Such a risk profile is not financed by banks – says one industry insider.

HOPS confirmed that 45 contract proposals have been sent and added that the final connection price depends on other projects.

– The connection contracts were prepared in accordance with the decision on the eligibility of each individual EOTRP, based on the Aggregate Analysis of creating the necessary technical conditions in the grid and operational limitations of all 45 power plants – HOPS states.

If they do not sign these contracts, investors cannot obtain a location permit and will ultimately lose the energy approvals they have duly paid for due to non-compliance with deadlines. Namely, the location permit must be obtained within three years of receiving the energy approval, and many projects have this deadline expiring at the beginning of next year.

Such a development is not surprising: in the renewable energy sector in Croatia, laws are often changed, regulations and decrees are delayed, state agencies do not comply with laws, and ultimately projects become unfeasible.

Additionally, signals have been coming from the Ministry of Economy in recent months about the ‘rationalization’ of renewable energy and the need to redirect focus towards nuclear power, with mentions of ‘removing’ projects with permanent permits. HOPS’s contract proposals are practically an operational tool for such an outcome: projects will not sign, development will halt, and as time runs out, the validity of energy approvals will expire.

If no regulatory changes occur, primarily if HERA does not establish a unit price that would make the calculation predictable and if the rules for cost sharing are not clarified, Croatia will again enter a period in which the investment cycle in renewable energy will realistically slow down, and part of the planned megawatts will disappear from the map due to the expiration of approvals.

The OIEH Association has recently sent a letter to the European Commission warning of an investment blockade and claiming that HOPS is trying to transfer the costs of network modernization, planned about ten years ago, onto projects. Such a model, they stated from OIEH, increases project costs by 30 to 40 percent and makes them unprofitable.

– The costs that HOPS wants to transfer to energy producers will be unrealistically high, which means that a large number of projects will be abandoned and that Croatia risks losing billions of euros in investments – OIEH recently stated.