Croatia exclusive: Power market and electricity price war in Croatia, the report

11. December 2013. / SEE Energy News

Due to favorable electricity prices offered by traders from Slovenia and Germany, about 30,000 customers have left the former monopoly electricity supplier HEP since June. – HEP responded to competition by lowering prices by 10 percent, but traders did the same immediately – Slovenian GEN-I and the German “RWE Energy”.

Since the electricity market in Croatia has opened for households as well as for small consumers  from June this year, the real pricing war flared up between the Croatian Electric Power (HEP) and traders for the past few months, which resulted in the price dumping of electricity on both sides. So far this certainly corresponds to small consumers. But, apparently, it will not end like this, because HEP and traders are “threatening” with further increase of competitiveness and delivery of electricity from their “store”. Traders make strategic combination of how to win new customers, and HEP how to keep existing ones.

According to recent data, due to favorable electricity prices offered by traders in Slovenia and Germany, about 30,000 customers have left HEP since June! It was certainly the reason for a surprising move of HEP, to lower the price of its electricity by 10 percent on 1st October. It seemed to set off the two main players, Slovenian GEN-I and the German trader “RWE Energy”, and both were broke down the prices. Robert Golob, President of GEN-I, said that they will try to always have lower rates of HEP by about 10 percent, and Zoran Milisa, director of “RWE Energy”, said that their electricity prices also will still be more favorable than those offered by the HEP! Percentage was not mentioned.

It must be admitted that this sounds quite confident. But let’s take a peek at the details.

Recently, about 13,000 households and approximately 1,200 small business customers in Croatia sent a request to the Slovenian GEN-I to change electricity supplier. GEN-I offered to these categories of customers electricity at prices 12.5 percent lower than HEP had.

GEN-I and “RWE Energy” penetrate

Approximately 6,500 households and 650 business customers already buy electricity through the company GEN-I, including the large retail chains, some tourist resorts: Plava Laguna in Porec, Rovinj Tobacco Factory, and Croatian shipyards. GEN-I supplies electricity to the city of Zagreb and the Croatian 35 ministries and offices of the state administration.

And since HEP reduced price for those ten percent, GEN-I answered that cheapening by lowering their price by an additional ten percent. In addition, customers who move in the company GEN-I can count on a free first bill for kilowatt hours, as well as on guarantee that they will pay for electricity at the same price until the end of 2015.

In Croatia, otherwise, there are more than 2.3 million electrical connections. More than 2.1 million measuring points from this number belongs to households.
GEN-I calculated that in Croatia they will supply about 20,000 customers by the end of this year, 50,000 households and small business customers next year, and that they will cover 17 percent of Croatia’s current market already in 2016.  In Slovenia, they are covering 30 percent of the market and they are the largest supplier of electricity.

Unlike the Slovenian dealer, “RWE Energy” was released with a different offer in Croatia 1 October. This company offers favorable electricity prices for small and medium entrepreneurs – with consumption up to 200,000 kilowatt-hours per year.

– “RWE Energy” will approach individually to every entrepreneur and offer a model contract and the price of electricity in accordance with its energy profile. We have experience in the liberalization of the electricity and gas in several countries of Central Europe, which is why we can estimate the profile of entrepreneurs and recommend the most appropriate model to him – said Zoran Milisa, CEO of “RWE Energy.”

This company in Croatia is already supplying with electricity a large number of companies, from small entrepreneurs to large enterprises and institutions, such as the “Narodne Novine”, “Alka”, “Badel,” “Labud,” cities: Zagreb, Pula and Opatija Croatian Academy of Sciences, the Ministry of internal Affairs of Croatia and others.

Reduction brings loss

Croatian energy analysts note that HEP was not supposed to lower prices and that this combination is bringing nothing, and that it has created a greater obligation and the problem. It has been calculated that by the end of the year HEP will lose about 10 MEUR because of the cheapening, and for the whole year, they could lose more than 40 MEUR. Such a move even more surprising, given that the HEP, as the main argument for the increase in electricity prices in 2012 stated exactly need to finance investments, to thereby provide about 78 million, which would certainly impact on the reduction of energy imports. Now they with the price cuts of electricity for households, voluntarily gave up part of that income?

According to the Croatian electrical professionals, there is another important reason why there was no need to lower the price. HEP has this year achieved a record production of hydroelectric power plants, and the next year may be faced with drought and significant reliance on expensive production of electricity from gas, and electricity imports. The calculation would then be quite different, and it would certainly entail higher electricity prices.

Experts say that the Croatian government should not react in panic and ask the HEP and the Croatian Energy Regulatory Agency (HERA) to lower the price of electricity for poor households, but to issue regulations for protected customers, who do not have money for electricity. Also, it is stated that the current level of the outflow of customers who have left HEP (about 30,000) is not so important that it had to lower the price.

Therefore, according to these overviews, there was quite wandering in search of an adequate response to the “pricing attack” of traders. On the other hand, HEP sent an optimistic tone.

Tina Jakasa, director of HEP’s company for the supply (“HEP Opskrba”) told the portal energy-net, that in the last five years, only four percent of customers in the enterprise sector moved to the competition, and some were soon changed their mind and came back. More than 35,000 customers in the field of entrepreneurship has accepted the offer of HEP as the best and the safest.

She says that HEP is still the right choice of biggest industrial customers, such as “Messer”, “Vetropack”, “Drvenjaca”, INA, CEMEX, “Podravka”, which are the highest-spending customers, and therefore the most sensitive on the issues of security of supply and price.

Deceiving consumers

– The last time we faced and deceiving consumers. We have cases that our competition took only about ten of hundreds billing of some of our well-known customer and immediately put it on their reference list! Our conditions are better in all respects than those offered by competitors. They are transparent, so customers do not have to fear any unpleasant surprises in the form of hidden costs. It is very important for large manufacturing companies and exporters, where electricity prices significantly affect the price of the final product – says Tina Jakasa. – Our prices also do not depend on the movement of the exchange rate, and the agreements do not have the extra costs for energy balancing.

We guarantee the safety of prices by bank guarantees for our offerings and it is not a problem to fulfill what we signed. I would venture to say that we have best deal of tariff models to meet specific customer needs, with the option of planning costs, as well as the most favorable terms and conditions of payment.

She recalls that the European experience shows that alternative suppliers are not won more than a few percent of the market a year and says that she would ignore the bombastic announcements of competition.

– Our 11,150 employees and production of the HEP guarantee security of supply, and much better quality services in the whole of Croatia in relation to several employees of the competition sitting at the Zagreb office. When we talk about the regulatory limits, the truth is that they exist. Specific legal status HEP is a burden to us. It obliges us to offer the same conditions to customers of the same category, while competition has the option of free price formation, which gives them a significant advantage.

Alternative supplier may simply decide to realize a loss on a particular customer, because its acquisition fits into the marketing strategy. HEP, o the other hand, can not offer special terms to specified customer – says the head of “HEP Opskrba”.

It can be seen that the free electricity market in Croatia is dominated by two clearly expressed optimism. On the one hand, there are the first GEN-I and “RWE Energy”, who are sure to continue their success on the Croatian market, and on the other side there is HEP with waving his hand at all. It is obvious that they are very persistent in their efforts, so it is quite certain that the electricity price war on the free Croatian market will take some time.

Source; Serbia Energy See desk

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