1. What drives power prices in Croatia
En.trading 013
What drives power prices in Croatia
M.Sc. Borut Janša
Mentor EBS d.o.o.
Experts for emerging power markets
Energy Business Science

2. Subject What drives power prices in Croatia?
Will Croatian wholesale prices rise or fall when joining the EU?
What will be the regional impact of Croatia joining the EU markets?
The market logic will not change with Croatia joining the EU, but further development of Croatian power market will have impact.

3. Agenda Short Introduction What changes with Croatia entering EU
How power price is defined?
Croatian power market structure
import, export, pricing zones
What are the power price drivers in Croatia
Hydrology
Gas price, Coal price, CO2 price

4. Short Introduction M.Sc. Borut Janša
Education
Master of Science (MSc), Business Informatics, Finance
Bachelor of Science (BS), Theoretical and Mathematical Physics
Employment
Head of market and portfolio intelligence – Gen I d.o.o. (3 years)
Acting risk manager - Gen I d.o.o. (1 year)
Power Trader - Gen I d.o.o. (1 year)
Fund manager – Ilirika DZU d.o.o. (3 years)
IT project manager (9 years)
Mentor EBS d.o.o. (Energy, Business, Science)
Experts for emerging power markets – SEE region
Established in 2000, entered into power business in 2013
Consulting, Education, Regional management, Outsourcing, Prop trading

5. What changes with Croatia entering in EU
2013
Croatia becomes member of EU ETS - EU emissions trading schema
Eligible consumers
Longer period
Local company for trading will not be required
More trading companies will increase competition

6. How power price is defined?
Wholesale price (market price)
Assumption: We have efficient market
units are using marginal price – (fuel price, CO2 price, fixed price),
the price is optimized.
System of marginal prices and merit order
The price is defined for each hour

7. Supply (Merit order) / Demand curve
Nuclear
Lignite
new
Coal
old
Units must run (wind, solar, hydro)
Units working power(MW)
Marginal price (EUR)
Gas
Oil
Consumption
Market price(EUR)
CO2 costs

8. Merit order with import of electricity and congestion
Nuclear
Lignite
new
Coal
old
Units must run (wind, solar, hydro)
Units working power(MW)
Marginal price (EUR)
Gas
Oil
Consumption
Market price(EUR)
CO2 cost
Import
Capacity of CBTC
Price of imported power
Price of CBTC

9. Merit order with import of electricity and NO congestion
Nuclear
Lignite
new
Coal
old
Units must run (wind, solar, hydro)
Units working power(MW)
Marginal price (EUR)
Gas
Oil
Consumption
Market price(EUR)
CO2 costs
Import
Capacity of CBTC
Price of imported power

10. Croatia – Net import
Croatia is net importer

11. Croatia - Hourly net import
High volatility of hourly net import requires hourly approach in price forecasting.
source: MKOnline

12. Croatia - NTC Total NTC: Estimation of net hourly position:
import: 3500 MW
export: 2300 MW
Estimation of net hourly position:
min: -20oo MW
max: MW
Conclusion:
Croatia have congestion at least on one border
source: Entsoe.net

13. Price zone in SEE region – lack of power in the region (example bad hydrology)
Price zone is formed when not enough energy is in the region and there are congestions on northern borders because of import

14. Price zone in SEE region – including Romania and Bulgaria
Sometimes it is also possible that there is no congestion between Romania/Bulgaria and the region.
Changes in export fees from Romania and Bulgaria can have significant impact on price.

15. German price zone – export of power from region (example good hydrology)
German price zone is formed when there is no congestion on northern borders that usually when SEE region exports energy
German price defines regional prices.

16. Variation of hydro production in SEE price zone markets
We don‘t have Albanian hydro production. Our estimation is that Albania
can add 400 MW to monthly deviation.

17. Influence of temperatures on consumption
Croatia
Hungary
source: MKOnline

18. Influence of temperatures on consumption
Serbia
Slovenia

19. What are the price drivers in Croatia?
SEE price zone – lack of power in the region
Precipitation (region, Danube);
Changes in NTC (maintenance, political decisions);
Gas and CO2 price (Hungarian gas units define price);
Temperatures (hot summer additionally increase consumption)
Industrial production growth in SEE region;
Situation in Greece, Italy, Turkey;
Numerous markets with different characteristics:
regulatory changes,
changes in export fees from Bulgaria and Romania,
lack of market depth,
different auction principles on the borders.

20. What are the price drivers in Croatia?
German price zone – export of power from region
Gas (oil) price;
Coal price;
CO2 price;
Hydro potential in Alps;
Wind and photovoltaic production in Germany;
Changes in maintenance plans of nuclear reactors in France and Germany;
Industrial production growth in western Europe.

21. Will Croatian wholesale prices rise or fall when joining the EU?
Croatia joined EU ETS at the beginning of 2013, so joining the EU will not have additional impact on the prices.
Eligible consumers will not have significant impact on the prices.
Market depth will increase, but only on longer terms.
Market coupling will make market more efficient, however this requires some time.
Market will become more efficient, but the market logic will remain.

22. What will be the regional impact of Croatia joining the EU markets?
Deregulation in Croatia will speed deregulation on other markets;
Competition on regional markets will increase.

23. Price expectations for Croatia
CO2 – more upside potential, 3 EUR: the minimal price, depends on back loading voting;
Gas price – slow upside potential;
Coal price – support at current levels;
Hydrology (precipitation) – already above normal from 20% to 50% - more downside potential;
Regulatory changes;
General – more upside potential – less for current year, but more for the next years.