Trap for Domestic Industry: Dependence on Gas Will Cost Us Dearly

According to the latest report from European Clean Tech Atlas, published by the Brussels economic think tank Bruegel, the electrification rate of the Croatian economy in 2024 was 20 percent. This places Croatia below the European Union average (23 percent) and significantly behind industrially advanced European leaders such as Sweden (33 percent) or Norway (51 percent).

This stark figure is not just empty statistics but a structural challenge for Croatian industry: four-fifths of the total energy in the economy is still derived from the direct burning of oil derivatives, natural gas, and biomass.

Hydropower Legacy

Croatia traditionally boasts a high share of clean sources in electricity production, primarily thanks to hydropower plants that provide about 29 percent of supply, but also due to the accelerated growth of wind farms at 15 percent and solar at seven percent.

However, Bruegel analysts clearly emphasize in their analysis that this strong hydropower base is actually a legacy of the past. The majority of Croatian hydropower plants, they remind, were built between the 1950s and 1980s, so the high share of clean electricity is more due to inherited infrastructure than to recent structural advancements.

What they particularly warn about is the second dangerous paradox. Namely, while the Croatian electricity system is becoming greener, industrial plants are not keeping pace sufficiently.

Electrification of Industry Lags

Such a transition, the think tank analysts remind, involves replacing traditional gas burners, oil-fired boilers, or fossil fuel furnaces with modern technologies, such as electric arc furnaces, induction systems, high-temperature heat pumps, and industrial electric boilers.

And this transition is occurring slowly, leaving the manufacturing sector directly dependent on imported energy sources and geopolitical upheavals in the gas market.

Investment Costs

The first and most complex barrier to faster electrification is the enormous capital investments, or CAPEX. Replacing the entire thermal infrastructure in plants requires multi-million investments, so in conditions of a cautious investment climate and high capital costs, company managements are reluctant to change functional gas facilities before the end of their natural lifespan.

The second reason is operational cost. For the switch to electricity to be economically justified, the price of megawatt-hours of electricity for industrial customers must be competitive with the price of natural gas, and a more pronounced price gap in favor of gas directly demotivates management structures from the risk of conversion.

In addition to financial reasons, in certain industrial sectors such as cement, glass, or brick production, it is technically and extremely challenging to achieve extremely high operating temperatures above one thousand degrees Celsius solely through direct electrification, which requires expensive transitional solutions such as green hydrogen, and these investments are a long way off.

Unfavorable Market Position

Stagnation in electrification places the domestic industry in an increasingly unfavorable position in the European market. With the application of stricter rules within the European Union Emissions Trading System (EU ETS) and the gradual introduction of the Carbon Border Adjustment Mechanism (CBAM), the penalization of emissions from the direct burning of fossil fuels will become a key cost burden.

Plants, the message that can be read from the Clean Tech Atlas, that hesitate to electrify their primary processes are directly rushing into a cost trap. Indeed, the constant rise in the price of emission allowances will undermine their long-term profitability, and electrified competitors from Western and Northern Europe will simply push them out of the market.

However, in the overall picture, there is also a silver lining for the domestic industrial sector. According to data from the document, Croatia achieves an annual production of electrical grid equipment and transformers worth 600 million euros.

– This shows that the domestic electrical industry possesses the knowledge and capacity to produce the equipment needed for the electrical grid, but the main challenge remains to apply these technologies in their own industrial plants – concludes the Atlas.