Croatia is a net importer of electricity in both the ‘no target’ and ‘delayed’
scenarios for most of the modelled time period, until 2050 when the CCS-equipped gas power plant allows Croatia to export electricity. The ‘decarbonisation’ scenario enables Croatia to become a net exporter of electricity from 2030 onwards due to its relatively high renewable energy potential.
Croatia’s generation adequacy margin is positive for all years in all scenarios, meaning that the country has sufficient generation capacity to satisfy demand using only domestic capacity in all hours of all years.
In order to address challenges associated with intermittency that will characterize a large share of the installed RES generation capacity, Croatia should work on the no regret measures discussed above to enable a high share of RES penetration without compromising security of supply, involving demand side measures, increased network connections and storage solutions.
6.3 Sustainability
Croatia has high renewable potential, especially hydro and wind, and thus can make a higher than average contribution to Europe’s 2050 emission reduction targets compared to other countries. In Croatia CO₂ emissions in the electricity sector are reduced by close to 100% in all scenarios by 2050 compared with 2016.
Renewable potential can be harvested with policies eliminating barriers to RES invest-ment. A no-regret step involves de-risking policies addressing high financing costs and high cost of capital to allow for cost-efficient renewable energy investment.
6.4 Affordability and competitiveness
Decarbonisation of the electricity sector does not drive up wholesale electricity prices compared to a scenario with no emission reduction target. The wholesale price of electricity is not driven by the level of decarbonisation but by the CO₂ price, applied across all scenarios, and the price of natural gas, since natural gas based production is the marginal production unit (in the region) needed to meet demand in a significant number of hours of the year.
The wholesale price of electricity follows a similar trajectory under all scenarios and only diverges after 2045, when high levels of low marginal cost RES production puts downward pressure on wholesale electricity prices.
under all scenarios there is a significant rise in wholesale electricity prices compared with current (albeit historically low) price levels. This increase is driven by the price of carbon and natural gas, both of which increase significantly by 2050. While higher wholesale prices will likely transmit through to end user prices, affecting afford-ability, it will help to attract investment needed to replace outgoing capacity.
Ambitious decarbonisation policy will require higher levels of investment in generation capacity, with total investment in the ‘decarbonisation’ scenario 37%
more than the ‘no target’ scenario. However, the cost structure will change with higher up-front investment costs in exchange for lower operation (including fuel) and mainte-nance costs.
Although not modelled in full hourly detail, wholesale price volatility of electricity is also expected to increase, ceteris paribus, in a world with a high share of intermittent renewables. Demand and supply side measures such as increased storage capacity may mitigate volatility. Over the long term policy decisions will need to be made on how to deal with price volatility, and what the acceptable level of price volatility is consid-ering the costs of supply and demand side measures.
Due to the high initial investment costs of RES technologies, profitability is very sensitive to the cost of capital, which is higher in Croatia than in Western European member states.
Although much of the value of the cost of capital depends on country risk linked to the general macroeconomic performance of a country, the cost of capital can be reduced to some extent through interventions by policymakers. This begins with a stable policy framework and the rollout of de-risking measures. As outlined above, such measures should be considered no-regret steps minimising system costs and consumer expenditures.
While the need for RES support is initially high, reaching around 10 EuR/MWh, it is significantly reduced over the modelled time horizon due to increasing electricity wholesale prices that incentivise RES investment even without support over the long term.
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