Croatia: Entrance of RWE as power supplier and trader endangers HEP, realistic opportunity for RWE supply business expansion

, SEE Energy News

The electric energy­ is not cheap in Croatia, but the question is can it be expected that the tariff customers rush en mass to change their supplier, because it has not happened in Europe.  The liberalization had greater success with large customers, so it is logical that RWE Energy will put focus on that segment, taking advantage of the publicity got with tariff customers. When RWE Energy took 10% of tariff customers, what they wish in the next three years, they could earn approximately 40 million, and that’s a very respectable sum.

The announcement of appearance of one more provider of tariff customers, who will compete with HEP OPS, stirred the water on a little stagnant electricity market. Since 2008. HEP has lost only 2% of the market, that really are negligible numbers and although it is formally opened, the electricity market still has the characteristics of a monopoly. All the more the announcement of the entry of a new supplier of tariff customers with powerful background is significant innovation that could change the state of the market. More than any others electricity sellers in Croatia RWE Energy did not show ambition to enter into market of tariff customers, so it is interesting to consider the potentials.

Tariff customers in Croatia spend 40% of total energy consumed. It is approximately 6.5 TWh per year, which is not a little. That amount of power is distributed to 2.2 million customers. The current price of electricity in Croatia after the last record price increase is not so low and amounts 63 euros / MWh. With this price of electricity Bulgaria, Estonia, Romania, Lithuania, Iceland and France are cheaper than Croatia. Due to a very good product mix by HEP there is no reason that the price of electricity goes wild, all the more because it is in parity with  purchasing power – which is much more important parameter than the cost – the price of electricity for tariff customers is 3.6% higher than the EU average ! So with earnings, energy bill is not really small, and it is already creates a good climate for change supplier.  This could be particularly evident in Dalmatia, where a lot of energy is spent for air conditioning in the summertime and for heating in winter. To access to consumers needs good database of customers, and it is not cheap, so it would be logical synergy with some large and well-established service provider, such as T-Com, VIP or some credit card companies. Furthermore, for the pretender to enter the market is the best position to provide an favorable energy price, where RWE Energy has the advantage because of its own production, and will calculate possible losses more prepared than someone who just trades of energy and who does not have that luxury. On the Croatian market only merchants have been competing to HEP, without their own production portfolio. This fact created their significantly higher risk of access to greater consumers whose consumption is more complicated to plan, which is the reason why the liberalization with us has kept on the lighting of public areas. Even to HEP, with private facilities at hand, is not always easy to track spending in the system.

There are no bottlenecks for the transport of electricity because Croatia has two double 400 kV line toward Hungary and the difficulties of allocation of cross− border transmission capacity can potentially occur only in extreme situations. For electricity trade remains the difficulty of balancing energy payments, with what struggle all traders of electricity in Croatia. It’s hard to plan consumption for those with a small number of customers (and all merchants are in the same situation) and for poor planning a bill is expensive. HERA is aware of that and it has been already working to change the methodology that should facilitate business to energy merchants until the Regulation on the market organization would be bought in the beginning of next year. The question is, can be expected that the tariff customers will rush en mass to change their supplier. That has not happened nowhere in Europe where the market is truly liberalized and for buyers are offered a handful of proposals. Electricity prices in the western countries are significantly higher than in Croatia, but the competition offers obviously are not so attractive that the mass transfer occurs, namely it has been showed that this percentage remained at single digit numbers. Greater liberalization has success with larger customers, so it is logical that RWE Energy will put focus on that segment, taking advantage of the publicity got with tariff customers. No less important, should not ignore the psychology because the consumers mainly have a positive experience with the liberalization of the telecommunications market, which could also have a positive impact. Even more so, if the process of changing suppliers does not show complicated in practice, RWE Energy will have a good chance of success in the Croatian market.

How big discounts RWE Energy intends to offer is not yet known and it was mentioned the figure to 10%, although the highest number probably refers on discounts for large customers. The price of electricity in the supply is very low now and will remain low as long as Europe does not begin to pull out itself from the economic crisis. MWh of electricity can be bought for 45-50 euros, and when all the costs are taken into account it will be huge margin, but again we talk about a decent profit. If RWE Energy took 10% of market of tariff customers, what they wish in the next three years, they could earn by rough calculation approximately 40 million, and that’s a very respectable sum. If we talk about our own production, advisable on home ground, earnings can only grow. However, it does not say without reason, who is the first – his girlfriend. The experience of western countries has shown that the liberalization has slowed the process of increase of energy prices, and this will definitely occur in Croatia, which is the most important benefit. How will the HEP manage in the new circumstances, it is another story. Without a doubt, it will be interesting to follow the developments.

Source;EnergetskiNedeljnik/Serbia Energy SEE Desk

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