Electricity Market Design in Croatia within the European Electricity Market Recommendations for Further Development

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1 energies Article Electricity Market Design in Croatia within European Electricity Market Recommendations for Furr Development Mateo Beus 1, *, Ivan Pavić 1, Ivona Štrit 2, Tomislav Capuder 1 Hrvoje Pžić 1 1 Faculty Electrical Engineering Computing University Zagreb, Unska 3, Zagreb, Croatia; ivan.pavic@fer.hr (I.P.); tomislav.capuder@fer.hr (T.C.); hrvoje.pzic@fer.hr (H.P.) 2 Croatian Power Utility (Hrvatska Elektroprivreda d.d.), Ulica grada Vukovara, Zagreb, Croatia; ivona.strit@hep.hr * Correspondence: mateo.beus@fer.hr; Tel.: Received: 31 December 2017; Accepted: 29 January 2018; Published: 2 February 2018 Abstract: One most important objectives European Union is creation an Internal Electricity Market (IEM) in Europe. Various national electricity market designs represent one major obstacles to creation IEM it is necessary to coordinate national market designs among Member States in order to achieve that. Therefore, this paper gives a comprehensive overview electricity market design according to laws related to electricity sector that are in force in Croatia. Additionally, paper identifies key obstacles that hamper development a well-functioning electricity market in Croatia towards its furr integration into IEM. Since Croatian Power Exchange (CROPEX) is not coupled with any or power exchange, special attention was given to necessary prerequisites for market coupling with Slovenian Power Exchange (BSP SouthPool) with Hungarian Power Exchange (HUPX). Keywords: balancing group; electricity market design; power exchange; internal electricity market 1. Introduction A few decades ago, entire electricity sector in Europe was organised as a state-owned -controlled monopoly. Each state had one or more vertically integrated companies that were responsible for generation, transmission, distribution supply electricity. In 1996, European Union gradually began to open up electricity sector to competition by launching first electricity-related directive (1996/92/EC). It consisted common rules for internal market for electricity [1]. This was followed by two electricity-specific directives, launched in The second directive (2003/54/EC) established rules for separation between network responsible companies (Transmission System Operator TSO Distribution System Operator DSO) competitive market companies. This directive also introduces conditions for cross-border trading electricity [2]. The Agency for Cooperation Energy Regulators (ACER) was established in third directive (2009/72/EC) [3]. The ACER s main task is to coordinate operation national energy regulators at EU level work towards a single EU energy market for electricity natural gas. In this regard, ACER, in cooperation with European Network Transmission System Operators for Electricity (ENTSO-E), plays most important role in development EU-wide network market rules [4]. The aim se directives was to create a competitive internal European electricity market (IEM). In order to furr promote completion IEM creation Energy Union, on 30 November 2016, European Commission published a Clean Energy for All Europeans package consisting numerous legislative proposals. Although this package consists more than 40 planned measures, following key objectives can be derived [5]: Energies 2018, 11, 346; doi: /en

2 Energies 2018, 11, establishment a common electricity market design across Union; efficient integration electricity produced from renewable sources into market; advancement energy efficiency energy cleanliness, which, along with support renewables, are needed to achieve European Union goals; promotion end-users or distribution grid users (energy storage, electric vehicles charging station, distributed generation) to take an active role in electricity market; a furr push to market-based pricing (even in scarcity periods) free access to both electricity balancing markets for all grid users. Liberalization Croatian electricity sector started with introduction 2001 Energy Act [6]. This act created a legislative framework that was necessary to provide suppliers customers with more freedom when selling procuring electricity. The Energy Act served also as a basis for creation a market framework focused on efficiency reliability. The main entities in Croatian energy sector, Croatian Power Utility (HEP) Croatian oil gas company (INA), which were responsible for production, distribution supply electricity, oil gas, started restructuring process with aim adapting to liberalised European Market. One main goals European directives was unbundling, which refers to separation market (generation supply) natural monopoly (system infrastructure organization) functions. Before unbundling process, both functions were provided by national utility. The process unbundling can be divided into: accounting unbundling, functional unbundling, legal unbundling ownership unbundling. Croatia formally conducted all se steps, except ownership unbundling. The main intention this paper is to explain organisation function electricity market in Croatia, as well as identify key obstacles propose relevant measures that Croatia needs to take in order to make a transition to a fully liberalized, liquid transparent electricity market. Additionally, this paper contributes with recommendations towards integration Croatian market into wider regional market, which is a necessary step before creation IEM. The paper is organised as follows. Relevant work is presented in Section 2. Section 3 provides a general overview electricity market design in Europe. Section 4 analyses electricity market design in Croatia, while cross-border capacity allocation is explained in Section 5. Support schemes for electricity production from Renewable Energy Sources (RES) Combined Heat Power (CHP) in Croatia are explained in Section 6, Section 7 provides a detailed analysis procurement ancillary services. Section 8 explains in detail current situation Croatian retail market. Finally, conclusions recommendations are provided in Section 9. Although energy legislation in Croatia contains a lot secondary legislation related to one or more laws, main energy laws currently in force are as follows: Energy Act Electricity Market Act Act on renewable energy high-efficiency cogeneration Energy Efficiency Act Gas Market Act Oil Market Act Thermal Energy Act Act on Regulation Energy Activities. Secondary legislation related to a particular energy law is addressed as necessary in remainder this paper. Since this paper is focused on Croatian electricity market, we provide basic information on Croatian power system. Maximum minimum system dem, annual consumption transmission network losses are given in Table 1, while total production capacity in Croatia is given in Table 2 [7].

3 Energies 2018, 11, Table 1. Basic information on Croatian power system. Minimum System Load (MW) Maximum System Load (MW) Annual Consumption (GWh) Transmission Network Losses (%) , Table 2. Production capacity (MW) in Croatia. Power Plants Total Production Capacity Hydro Thermal Wind Industrial Relevant Work The creation IEM is one most important objectives EU concerning future energy. However, various national electricity market designs pose a significant threat to this process. Newbery et al. [8] examine potential benefits coupling interconnectors to increase efficiency day-ahead, intra-day balancing services trading across borders. They explain that additional gains are possible by eliminating unscheduled flows avoiding curtailment renewables with a better market design. Ringler et al. [9] emphasize importance electricity market design coordination among member states to benefit from a common IEM. Therefore, a detailed analysis various national electricity market designs is necessary for furr harmonization se markets creation a fully functional IEM in EU. Several papers on electricity market designs for specific countries have already been published. For example, Tanrisever et al. [10] examine organization functioning Dutch electricity market. The paper describes in detail role main market participants in Dutch electricity market. In [11], authors analyse restructuring processes for different market structures, such as Nord Pool, Trilateral Market Coupling (TLC), Pennsylvania-New Jersey-Maryl interconnection (PJM) electricity market structure in Russia. All se markets experienced different development paths during restructuring due to different states electricity sector prior to restructuring. In [12] [13], German power market organisation functionality is described. The main conclusion is that market concentration in Germany is still relatively high. Generally, market concentration is described using Hefindahl-Hirschman Index (HHI) as a measure market concentration competition among market participants. HHI is calculated as a sum squares market shares each market participant, can range from close to zero to 10,000. HHI close to 10,000 indicates monopoly market structure, while HHI close to zero indicates a market with perfect competition. Generally, markets with HHI less than 1500 are considered competitive; HHI between indicates moderately competitive markets, while HHI greater than 2500 indicates a highly concentrated market. In 2011, HHI Germany s wholesale electricity market concentration was around 2000, which means that wholesale market in Germany is moderately concentrated. However, in recent years, market liquidity in Germany increased due to obligation TSOs to sell renewable energy in spot market [12]. The French power market design functionality were also analysed, main conclusions were that French power market is still highly concentrated wholesale market liquidity is low compared with its neighbours. In 2013, French wholesale market had an HHI index around 9000, while liquidity was around 12%, which is relatively low compared with 40% for Germany 67% for Spain [14]. An interested reader is referred to [15] for European electricity markets liquidity values for Current Electricity Market Design in Europe Electricity is a special type commodity in that generation consumption (including grid losses) must be in balance at all times. Electricity markets are designed to be able to deal with this specific feature. Therefore, different types electricity markets are arranged consecutively, starting

4 Energies 2018, 11, a few years before actual delivery ending after delivery electricity. Figure 1 gives a conceptual overview different types electricity markets regarding ir time dimension. Energies 2018, 11, x FOR PEER REVIEW 4 20 Figure 1. Conceptual overview different types electricity markets regarding ir time Figure 1. Conceptual overview different types electricity markets regarding ir time dimension [16]. dimension [16]. Forwards futures are long-term markets, which run from years before up to day before Forwards delivery electricity. futures are They long-term serve market markets, participants whichas run a tool from for reducing years before ir exposure up to to day price before delivery fluctuations electricity. in short-term They markets. serveit market is in participants interest electricity as a tool producers for reducing to contract ir exposure future to price electricity fluctuations sales in using short-term forward markets. future It is markets in interest order to electricity reduce ir producers exposure to to contract price future decrease in short-term markets. electricity sales using forward future markets in order to reduce ir exposure to price It is also important to distinguish two ways in which electricity can be traded in different types decrease in short-term markets. wholesale markets. The first way is bilateral trading, in which producers customers directly It negotiate is also important agree on to distinguish price electricity. two waysthe in which second electricity way is trading can beat traded power in exchanges different or types wholesale organised markets. trading platforms. The firstpower way is exchanges bilateralare trading, usually indesigned which as producers continuous trading customers or discrete directly negotiate auctions. Discrete agree on auction price is a form electricity. trading The where second market way participants is trading submit at power generation exchanges or organised dem trading bids that platforms. are used Power to obtain exchanges supply are usually dem designed curves. Market as continuous clearing trading price for oreach discrete auctions. trading Discrete period is auction based on is a form supply trading dem where curve market intersection. participants Continuous submit trading generation implies dem trades bids between that are two used market to obtain participants supply when one dem accepts curves. fers from Market or clearing without price for formation each trading period is a uniform based on market supply clearing price. dem The price curve is formed intersection. for each Continuous trades independently. trading implies trades Day-Ahead Markets (DAM) are basis electricity trading, where electricity is traded one between two market participants when one accepts fers from or without formation a day before delivery. Their high importance arises from day-ahead balance requirement uniform market clearing price. The price is formed for each trades independently. entire bidding zone, i.e., in a bidding zone planned electricity generation must be equal to Day-Ahead forecasted dem Markets plus (DAM) difference are between basis imports electricity from trading, exports where to electricity or bidding is traded zones. one day beforeeuropean delivery. day-ahead Theirmarkets high importance usually use arises discrete from auctions day-ahead as a form balance trading. requirement entire bidding zone, In Intra-Day i.e., in amarkets bidding(im) zone electricity plannedis electricity traded on generation delivery must day. These be equal types to markets forecasted dem supplement plus difference DAM between secure imports balance frombetween exports supply to or bidding dem zones. caused European by day-ahead unexpected markets events usually that can use occur discrete between auctions closing as a formdam trading. delivery time, e.g., due to In unexpected Intra-Daypower Markets plant (IM) outage or electricity inaccurate iswind traded forecast. on Using delivery intra-day day. These market types platform, markets supplement market participants DAM can secure minimize balance gap between between supply day-ahead dem contracts caused by unexpected actual produced/consumed volume electricity. European intra-day markets are usually designed as events that can occur between closing DAM delivery time, e.g., due to unexpected power continuous trading or discrete auctions. plant outage or inaccurate wind forecast. Using intra-day market platform, market participants The role TSO is to maintain a real-time balance by activating reserves. Balancing Markets can minimize (BM) are used gap by between TSO to day-ahead procure reserves. contracts Balancing markets actual produced/consumed can be divided into reserve volume electricity. procurement European intra-day financial settlement markets are usually imbalances. designed Reserve asprocurement continuous trading is a reservation or discrete spare auctions. The capacity rolein advance. TSOThis tocapacity maintain can, aif real-time needed, be balance used for by generation activating dem reserves. balancing. Balancing Financial Markets (BM) settlement are used byimbalances TSO can to procure be defined reserves. as penalization Balancing for markets participants can be causing dividedimbalance into reserve procurement financial awards financial for settlement market participants imbalances. used for imbalance Reserve procurement mitigation (e.g., is reserve a reservation providers). spare capacity inelectricity advance. markets This capacity in Europe can, are if needed, organised beby used for Nominated generation Electricity demmarket balancing. Operators Financial (NEMOs), while TSOs are in charge balancing markets. settlement imbalances can be defined as penalization for market participants causing imbalance financial awards for market participants used for imbalance mitigation (e.g., reserve providers). Electricity markets in Europe are organised by Nominated Electricity Market Operators (NEMOs), while TSOs are in charge balancing markets.

5 Energies 2018, 11, The Electricity Market Design in Croatia According to Current Laws Regulations All market participants ir roles in electricity market in Croatia are explained in accordance with current energy legislation. Additionally, electricity market parameters (HHI, products available in DAM IM, etc.) are identified compared with parameters well-established markets, such as Nord Pool. Market participants defined within Croatian electricity market can be divided into those who trade electricity under market principles (competitive market participants) regulated market participants responsible for market organisation network management Competitive Market Participants Market participants in wholesale electricity market in Croatia are producers, traders suppliers Producers A producer is an energy entity with a license to produce electricity. Additionally, energy entities producing electricity for its own needs energy entities operating generation facilities below 1 MW can be considered as exceptions since y do not need to have a license to produce electricity. According to Articles 4 6 [17], a producer may buy or sell electricity to anor producer, supplier, trader, power exchange, Croatian Transmission System Operator (HOPS) in order to provide ancillary services, providing balancing services, compensation plan exchanges to cover losses in transmission network, HEP Distribution System Operator (HEP-DSO) in order to provide ancillary services to cover losses in distribution network or in a way that is imported or exported over Croatian borders. A power producer in Croatia is classified eir as an eligible producer or an independent producer. An eligible producer is a producer with both grid (priority dispatch) market priority. RES/CHP generators may obtain a so-called eligibility status. All RES/CHP generators that have this status are subsidized under Feed-in-Tariff (FiT) support scheme. The Energy Act, Act on renewable energy high-efficiency cogeneration secondary legislation regulate incentivizing such electricity production, as well as purchase/sale electricity produced from renewables cogeneration [18 21] Traders A trader is an energy entity that purchases sells electricity has been licensed to carry out energy activity. According to Articles [17], a trader may buy or sell electricity to producer, supplier, anor trader, power exchange, Croatian Transmission System Operator in order to provide ancillary services, providing balancing services, compensation plan exchanges to cover losses in transmission network, HEP Distribution System Operator in order to provide ancillary services to cover losses in distribution network or in a way that is imported or exported over Croatian borders Suppliers A supplier is an energy entity that has been licensed to perform activities electricity supply. According to Articles 8 11 [17], a supplier may buy or sell electricity to producer, anor supplier, trader, power exchange, Croatian Transmission System Operator in order to provide ancillary services, providing balancing services, compensation plan exchanges to cover losses in transmission network, HEP Distribution System Operator in order to provide ancillary services to cover losses in distribution network or in a way that is imported or exported over Croatian borders. As opposed to a trader, who is a market participant not allowed to sell electricity to end-users, e.g., households, a supplier can sell electricity to end-users. This means that trader can only participate in wholesale market, while supplier can participate in wholesale retail market.

6 Energies 2018, 11, Each market participant must obtain Energy License issued by Croatian Energy Regulatory Agency (HERA) to participate in market [20] Regulated Market Participants Balancing Group Scheme Except market participants, re are also four regulated market participants [17]: Croatian Energy Market Operator (HROTE) Croatian Power Exchange (CROPEX) Croatian Transmission System Operator (HOPS) Croatian Distribution System Operator (HEP-DSO). HOPS is responsible for maintaining instantaneous generation-consumption balance, but before actual delivery, balancing responsibility is passed on to Balancing Groups (BG). In [16], a BG is described as an entity that takes up responsibility to compose a balanced portfolio. BG can represent a certain number producers, suppliers consumers individually or combined. The DAM in Croatia is organised on basis BGs. There are several types balancing groups in Croatian market [20,22]: Market Balancing Group (M-BG) Power Exchange Balancing Group (PE-BG) ECO Balancing Group (ECO-BG) not operational yet TSO s Balancing Group (TSO-BG) DSO s Balancing Group (DSO-BG). A market participant must be a member a certain BG. Each BG has its own manager who is responsible for imbalances entire BG. A market participant who wants to join a certain BG is obliged to sign a membership contract with manager BG. All market participants also have to sign an Electricity Market Participation Agreement with HROTE. Article 13 [22] defines that a BG manager is responsible for imbalances its balancing group members in a settlement interval. HOPS procures balancing energy issues monthly invoices for imbalances to managers balancing groups based on calculation imbalances conducted by HROTE. If a certain BG has a negative imbalance during an imbalance settlement period, HOPS issues an invoice to BG manager. On or h, if BG has a positive imbalance during an imbalance settlement period, BG manager issues an invoice to HOPS. Balancing energy calculation is carried out in accordance with Electricity Balancing Rules [22], while balancing energy price is calculated in accordance with rules recommendations defined in Methodology for determining price for settlement balancing energy [23]. CROPEX is only member, at same time, manager PE-BG. All market participants interested in participating at CROPEX are obliged to sign a Membership Agreement with CROPEX. Prerequisites for market participants to sign Membership Agreement with CROPEX are as follows [24]: Valid Energy License issued by HERA Balance Responsibility Agreement with HOPS Electricity Market Participation Agreement with HROTE. HOPS HEP-DSO are only members managers ir BGs. They must have ir own BGs because y purchase electricity to cover for losses in ir networks (both HOPS HEP-DSO) balancing energy (only HOPS). ECO-BG is not operational yet. Fully operational ECO-BG is expected for 1 January Until n, HROTE will remain single buyer electricity from RES/CHP that is under FiT support system. In this way HROTE practically acts as an aggregator RES/CHP production.

7 Energies 2018, 11, Energies 2018, 11, x FOR PEER REVIEW 7 20 Currently, HROTE sells electricity to suppliers proportionally to ir market share at regulated price HROTE [25]. sells When electricity ECO-BG to suppliers becomesproportionally operational, to HROTE ir market as ashare manager at regulated price ECO-BG [25]. When will be responsible ECO-BG for becomes production operational, forecasthrote imbalances as a manager caused by RES ECO-BG underwill FiT. be responsible HROTE will for pay imbalances production to HOPS forecast on hourly imbalances basis. Furr caused discussion by RES under support FiT. HROTE mechanisms will pay in imbalances Croatia can to be found HOPS in Section hourly 6. basis. Furr discussion support mechanisms in Croatia can be found in Section 6. At closure DAM, BG managers submit ir market positions to HROTE to verify ir At closure DAM, BG managers submit ir market positions to HROTE to verify ir compliance. HROTE forwards received market positions to HOPS, which verifies ir technical compliance. HROTE forwards received market positions to HOPS, which verifies ir technical feasibility with respect to network constraints. Market positions PE-BG, TSO-BG DSO-BG feasibility with respect to network constraints. Market positions PE-BG, TSO-BG DSO-BG are also are also delivered delivered to HROTE. to HROTE Bilateral 4.3. Bilateral Electricity Electricity Market Market in in Croatia Croatia In Croatia In Croatia electricity electricity can can be be traded traded in in two two types wholesale markets: bilateral bilateral over--counter power power exchange exchange [17,20]. [17,20]. Balancing market is not yet operational. Bilateral trading trading means means that that market market participants agree agree on on trading contracts by directly interacting with each each or. This This implies implies that that each each market market participant can can make bilateral contracts with members its its own own BG BG or with or with HOPS HOPS for balancing. for balancing. However, most most electricity in Croatia is still traded through bilateral bilateral market. market. Every Every market market participant participant from from Croatian bidding zone (except RES in in FiT FiT support support scheme) scheme) can can make make a bilateral a bilateral contract contract with with any any market market participant from Croatian Croatianbidding bidding zone zone can can also also engage in cross-border trading. Trading with market participants from or EU bidding zones engage in cross-border trading. Trading with market participants from or EU bidding zones implies implies use cross-border transmission capacity, which is explained in detail in Section 5. use cross-border transmission capacity, which is explained in detail in Section 5. The concept bilateral electricity market in Croatia is presented in Figure 3. Black dotted The concept bilateral electricity market in Croatia is presented in Figure 3. Black dotted lines lines represent BGs. Figure 2 contains M-BG (M-BG 1 3), DSO-BG, TSO-BG, PE-BG ECO-BG. In represent each BG, BGs. Figure manager 2 contains is specifically M-BG (M-BG denoted. 1 3), Black DSO-BG, dotted TSO-BG, lines with PE-BG arrows represent ECO-BG. market In each BG, positions manager that is specifically manager denoted. each BG Black sends dotted to HROTE. linesgreen with arrows lines with represent arrows market represent positions bilateral that manager arrangements each between BG sends market to HROTE. participants, Green which lines can with be members arrows represent same bilateral or any arrangements or BG. between Market market positions, participants, which HROTE whichsends can be to HOPS members to verify ir same technical or anyfeasibility, or BG. are Market represented positions, which with HROTE blue arrows. sends to HOPS to verify ir technical feasibility, are represented with blue arrows. Figure 2. Bilateral electricity market in Croatia interactions between players (green lines represent Figure 2. Bilateral electricity market in Croatia interactions between players (green lines represent bilateral agreements between market participants; black dotted lines with arrows represent market bilateral agreements between market participants; black dotted lines with arrows represent market positions, which manager each BG sends to HROTE; blue line represents market positions, which HROTE sends to HOPS to verify ir technical feasibility).

8 Energies 2018, 11, Organised Electricity Market in Croatia CROPEX CROPEX is Croatian power exchange is also nominated electricity market operator (NEMO). CROPEX is jointly owned by HROTE HOPS. CROPEX DAM has been operational since 10 February 2016, while CROPEX IM has been active since 26 April Currently, CROPEX has been organised as DAM IM energy-only market CROPEX Day-Ahead Market Market participants at CROPEX DAM submit generation dem bids that are basis for formation market clearing price. Participants can submit ir bids fers via Electronic Trading System (ETS) until 12 p.m. day before delivery. These bids/fers cannot be changed, y are binding. Hourly Orders are only type orders that are defined at CROPEX DAM. Single hourly orders are placed as a monotonous curve with up to 200 price-quantity combinations that limit volume at a specific price. Prices are defined in steps 0.1 EUR/MWh volume in steps 0.1 MW [26]. Prices for each order must be strictly defined in between minimum maximum price threshold. Market coupling mechanisms are used as means to integrate DAMs in EU. An Integrated electricity market in Europe will increase efficiency liquidity. Generally speaking, main idea market coupling is to lower electricity prices in entire EU by harmonising day-ahead operations different markets in terms product specifications, transmission capacity allocation across borders, gate closure time operational procedures. Currently, CROPEX is not coupled with any or power exchange, but re are strong intentions to couple first with Slovenian Power Exchange (BSP SouthPool) n with Hungarian Power Exchange (HUPX). Market coupling BSP SouthPool CROPEX is scheduled for second quarter 2018 [27]. BSP SouthPool has already implemented DAM coupling on Slovenian-Italian Slovenian-Austrian borders [28]. This implies that CROPEX will also be coupled with or European Power Exchanges once coupled with BSP SouthPool. Since CROPEX is still not coupled with any or power exchange, transmission capacities in Croatia are still auctioned explicitly. Cross-border capacity allocation in Croatia is explained furr in Section 5. Market coupling enables implicit allocation cross-border transmission capacities, which leads to increased cross-border flows, decreased price volatility electricity price convergence. Harmonisation products traded on power exchanges is one prerequisites for market coupling. Therefore, products traded at BSP SouthPool DAM HUPX DAM are compared with product specifications available at CROPEX in Table 3. Gate Closure, Trade Lot, Tick Size Order Types should be harmonised before CROPEX market can be coupled with HUPX BSP SouthPool. Table 3. Product specifications CROPEX, HUPX SouthPool Day ahead Market [26,29,30]. Gate Closure Trade Lot Tick Size Currency Order Types Price Steps Minimum Price Limit Maximum Order Price Limit Gate Closure Trade Lot Tick Size Currency Order Types Price Steps Minimum Price Limit Maximum Order Price Limit Day Ahead Market CROPEX 12:00 CET 0.1 MW 0.1 EUR/MWh EUR Hourly Orders The number price steps is 200 per day (including upper lower Order Price Limits) 500 EUR/MWh EUR/MWh HUPX 11:00 CET 0.1 MW 0.1 EUR/MWh EUR Hourly Orders, Block Orders 256 price/quantity combinations for each hour following day 500 EUR/MWh EUR/MWh

9 Energies 2018, 11, x FOR PEER REVIEW 9 20 Energies 2018, 11, Currency EUR Order Types Hourly Orders, Block Orders Price Steps 256 price/quantity Table 3. combinations Cont. for each hour following day Minimum Price Limit 500 EUR/MWh Maximum Order Price Limit Day Ahead Market EUR/MWh BSP SouthPool Gate Gate Closure Closure 12:00 12:00 CET CET Trade Trade Lot Lot 1 MW Tick Tick Size Size 0.01 EUR/MWh Currency Currency EUR Order Types Hourly Orders Order Types Hourly Orders Minimum Price Limit 0 EUR/MWh Minimum Maximum Order Price Limit Price Limit EUR/MWh Maximum Order Price Limit EUR/MWh It It is is interesting interesting to to compare compare order order types types available available at Nord at Nord Pool Pool EPEX EPEX DAMs DAMs with order with order types types available available at CROPEX at CROPEX DAM. DAM. Market Market participants participants at Nord at Pool Nord Pool EPEX are EPEX more are flexible more since, flexible in since, addition in addition to hourly to orders, hourly y orders, can y use can block use orders, block orders, exclusive exclusive group orders group orders flexible flexible orders orders [31,32]. [31,32]. Introduction Introduction se types se types orders orders could could bring bring additional additional flexibility flexibility to CROPEX to CROPEX DAM. DAM. During During first first days days trading, trading, only only GWh GWh electricity electricity was was traded traded over over CROPEX, CROPEX, which which means means that that its its liquidity liquidity was was less less than than 2% 2% [15]. [15]. Figure Figure 3 3 shows shows that that on on 4 October 4 October 2016, 2016, liquidity liquidity CROPEX CROPEX was was only only 0.84%. 0.84%. The The blue blue bars bars in Figure in Figure 3 represent 3 represent traded traded volume volume electricity electricity at each at each trading trading hour. hour. Trading Trading hours hours are are marked marked on on x-axis x-axis with with numbers numbers 0 24, 0 24, while while traded traded volume volume electricity electricity in in MWh MWh is is indicated indicated on on y-axis y-axis located located on on right-h right-h side side Figure Figure 3 with 3 with numbers numbers The 40. The blue blue green green curves curves represent represent forecasted forecasted actual actual dem. dem. Dem Dem level level is indicated is indicated in MW in on MW on left-h left-h side Figure side 3 with Figure numbers 3 with numbers If we compare If we liquidity compare CROPEX liquidity with Nord CROPEX Pool, with which Nord has Pool, liquidity which beyond has liquidity 90%, it is beyond obvious 90%, that it CROPEX is obvious is still that not CROPEX a well-functioning is still not a market well-functioning additional market analyses additional development analyses strategies development should be strategies performed should [15,33,34]. be performed However, CROPEX [15,33,34]. is However, a small national CROPEX power is a exchange, small national while Nord power Pool exchange, represents while a regional NordPool power represents exchange, a which regional is one power exchange, reasons which for such is one a difference reasons in liquidity for such between a difference m. in liquidity between m. Figure 3. Volume electricity traded at CROPEX difference between forecasted actual dem on 4 October [27]. Anor important indicator market development is market concentration described by HHI. Anor important indicator market development is market concentration described by HHI. HHI for CROPEX DAM is given in Table 4, while HHI for Nordic Croatian wholesale markets HHI for CROPEX DAM is given in Table 4, while HHI for Nordic Croatian wholesale markets is given in Tables 6, respectively. is given in Tables 5 6, respectively. In Table 5, abbreviations NO 1 5 are used for bidding zone names in Norway, while SE 1 4 are In Table 5, abbreviations NO 1 5 are used for bidding zone names in Norway, while SE 1 4 are used as bidding zones in Sweden. FI is a bidding zone in Finl DK 1 2 are bidding zones in used as bidding zones in Sweden. FI is a bidding zone in Finl DK 1 2 are bidding zones Denmark. in Denmark.

10 Energies 2018, 11, Table 4. HHI for supply dem side at CROPEX in period February 2016 April 2017 [27]. Month HHI Supply Side HHI Dem Side 2016 February March April May June July August September October November December January February March April Table 5. HHI for Nordic wholesale markets per bidding zone, 2013 [35] NO 1 NO 2 NO 3 NO 4 NO 5 SE 1 SE 2 SE 3 SE 4 FI DK 1 DK 2 HHI Table 6. HHI for Croatian wholesale market, [36]. Year HHI Table 4 indicates that market concentration at CROPEX is extremely high, which means that competition is very low. This can be partially explained by fact that CROPEX DAM has been operational since Based on data from Table 5, HHI index for entire Nordic wholesale market in 2013 was On or h, HHI index for same year in Croatian wholesale market was This indicates that in 2013 Nordic wholesale market was moderately to highly competitive, while Croatian wholesale market was not very competitive. One reasons for this is that Nordic market is mature, while Croatian market is still in development. However, from 2012 to 2016, HHI for Croatian wholesale market decreased from 6575 to Although an HHI value 4928 is still very high, this decrease means that Croatian wholesale market is developing in right direction. The concept an organised electricity market in Croatia is presented graphically in Figure 4. As already explained, black dotted lines represent BGs. In each BG members are separated from manager. Black dotted lines with arrows represent market positions, which manager each BG sends to HROTE. Red arrows represent arrangements between market participants at CROPEX. Figure 4 shows that one or more market participants from same or a different BG or from different bidding zones can freely participate in CROPEX. Market positions, which HROTE sends to HOPS to verify ir technical feasibility, are represented by blue arrows.

11 Energies 2018, 11, Energies 2018, 11, x FOR PEER REVIEW Figure 4. Organized electricity market in Croatia interactions among players (red lines represent Figure 4. Organized electricity market in Croatia interactions among players (red lines represent arrangements between market participants at CROPEX; black dotted lines with arrows represent arrangements between market participants at CROPEX; black dotted lines with arrows represent market positions, which manager each BG sends to HROTE; blue line represent market market positions, which manager each BG sends to HROTE; blue line represent market positions, which HROTE sends to HOPS to verify ir technical feasibility). positions, which HROTE sends to HOPS to verify ir technical feasibility) CROPEX Intraday Market CROPEX Intraday Market CROPEX IM uses continuous form trading. This is for market participants, in particular RES, CROPEX IM uses a continuous form trading. This is for market participants, in particular to reduce ir imbalance costs, optimize own generation/consumption schedules provide RES, to reduce ir imbalance costs, optimize own generation/consumption schedules provide flexibility in ir own production/consumption facilities. Namely, introduction a market flexibility in ir own production/consumption facilities. Namely, introduction a market premium support scheme scheduled for 2018 implies that RES will have responsibility for premium support scheme scheduled for 2018 implies that RES will have responsibility for balancing balancing in future. In [37], authors conducted an analysis trading activity price in future. In [37], authors conducted an analysis trading activity price development at development at ELBAS (Nord Pool s IM), concluded that intraday trading at ELBAS can be ELBAS (Nord Pool s IM), concluded that intraday trading at ELBAS can be beneficial for market beneficial for market participants to reduce ir imbalance costs. Table 7 shows a comparison participants to reduce ir imbalance costs. Table 7 shows a comparison between products that are between products that are currently available at CROPEX IM, BSP SouthPool, HUPX ELBAS. currently available at CROPEX IM, BSP SouthPool, HUPX ELBAS. Table 7. Market parameters comparison intraday markets [25,31,38,39]. Table 7. Market parameters comparison intraday markets [25,31,38,39]. Electricity Gate Smallest Minimum Maximum Bid Product Tick Size Electricity Markets Closure Gate Smallest Bid Span Minimum Price Limit Maximum Price Limit Size Product Tick Size Bid Size Type Markets Closure Bid Span Price Limit Price Limit Type EUR 0.1 Hourly CROPEX 30 min 60 min EUR 500 EUR 3000 EUR 0.1/MWh MW Hourly Block CROPEX 30 min 60 min 500 EUR 3000 EUR 0.1 MW Orders 0.1/MWh Block Orders 15-min, BSP EUR min, BSP 60 min 15 min EUR EUR Hourly 60 min 15 min 0.01/MWh EUR EUR 0.1 MW MW Hourly SouthPool 0.01/MWh Block Block Orders Orders 15-min, EUR min, EUR HUPX 120 min min min EUR EUR 9999 EUR 9999 EUR 0.1 MW Hourly 0.01/MWh MW Block Block Orders Orders 15-min, EUR 15-min, ELBAS 60 min 15 min EUR 500 EUR 3000 EUR 0.1 MW 0.1 Hourly ELBAS 60 min 15 min 0.1/MWh 500 EUR 3000 EUR Hourly 0.1/MWh MW Block Orders Block Orders As shown in Table 7, only difference between products available through CROPEX IM se three power exchanges is that 15-min products are not available at CROPEX. Gate Closure times

12 Energies 2018, 11, As shown in Table 7, only difference between products available through CROPEX IM se three power exchanges is that 15-min products are not available at CROPEX. Gate Closure times are different. Energies 2018, HUPX 11, x FOR has PEER Gate REVIEW Closure 120 min, while BSP SouthPool ELBAS have Gate 12 Closure min. CROPEX Gate Closure is 30 min. Additionally, BM is embedded in BSP SouthPool intraday are different. HUPX has Gate Closure 120 min, while BSP South Pool ELBAS have Gate Closure market this market is used by Slovenian TSO (ELES) to buy/sell electricity for settlement 60 min. CROPEX Gate Closure is 30 min. Additionally, BM is embedded in BSP SouthPool intraday imbalances market [38]. this market is used by Slovenian TSO (ELES) to buy/sell electricity for settlement imbalances [38]. 5. Cross-Border Capacity Allocation 5. All Cross-Border market participants Capacity Allocation from Croatian bidding zone can trade electricity using cross-border transmission All market capacities. participants Cross-border from capacity Croatian allocation bidding zone in Croatia can trade iselectricity explicit. In using explicit cross-border cross-border allocation, transmission a buyer capacities. or seller Cross-border electricity capacity must allocation first buy in Croatia transmission explicit. In explicit capacity cross-border necessary for trading. allocation, Energya buyer transmission or seller capacity electricity are must thus first traded buy separately. transmission Capacity capacity allocation necessary in Croatia for is performed trading. inenergy an annual, transmission monthly or capacity daily auction are thus traded or in an separately. intradaycapacity allocation allocation organised in Croatia by HOPS, is performed in an annual, monthly or daily auction or in an intraday allocation organised by HOPS, neighbouring TSOs, Joint Allocation Offices (JAO) or Coordinated Auction Office in South East Europe neighbouring TSOs, Joint Allocation Offices (JAO) or Coordinated Auction Office in South East (SEE-CAO). Annual, monthly or daily auctions between Croatia Slovenia between Croatia Europe (SEE-CAO). Annual, monthly or daily auctions between Croatia Slovenia between Hungary Croatia are organised Hungary by are organised Joint Allocation by Joint Office. Allocation Intraday Office. cross-border Intraday cross-border allocation between allocation Croatia Slovenia between Croatia is organised Slovenia by is Slovenian organised TSO by (ELES), Slovenian while TSO intraday (ELES), cross-border while intraday allocation cross-border between Croatia allocation Hungary between does Croatia not currently Hungary exist does [40]. not SEE-CAO currently exist responsible [40]. SEE-CAO for organizing is responsible anfor annual, monthly organizing daily an annual, auction monthly between Croatia daily auction Bosnia, between while Croatia HOPS is Bosnia, responsible while HOPS for intraday is cross-border responsible allocation. for intraday HOPS cross-border is alsoallocation. responsible HOPS foris organizing also responsible an annual for organizing monthly an annual auction between monthly Croatia auction Serbia, between while Croatia Serbian TSO Serbia, (EMS) while isserbian responsible TSO (EMS) for daily is responsible intraday for daily auctions. Once intraday cross-border auctions. transmission Once cross-border capacity has transmission been assigned capacity to ahas particular been assigned marketto participant, a particular it can market participant, it can use that capacity for delivery electricity purchased abroad. use that capacity for delivery electricity purchased abroad. CROPEX HOPS joined 15th Cross Border Intraday Market (XBID) Local Implementation CROPEX HOPS joined 15th Cross Border Intraday Market (XBID) Local Implementation Project [41]. Or members project are TSOs power exchanges from Germany, Austria, Project [41]. Czech Or Republic, members Romania Hungary. project are The TSOs intention power this project exchanges is to enable from Germany, coupling Austria, Czech intraday Republic, continuous Romania electricity markets Hungary. by using Theimplicit intention allocation this project intraday is to cross-border enable capacity coupling intraday at continuous borders between electricity countries markets that byparticipate using implicit in allocation project. This intraday implies that cross-border in Q4 2018, when capacity at borders project between is scheduled countries to go live, that participate CROPEX inintraday project. market This will implies be coupled that in with Q4 2018, HUPX when project intraday is scheduled market to go live, implicit allocation CROPEX intraday market cross-border will be coupled capacities with at HUPX Croatian intraday market Hungarian implicit border allocation will be used. intraday cross-border capacities at Croatian-Hungarian border will be used. Joint auction fices responsible for allocation Croatian cross-border transmission capacity are visualized in Figure 5. Joint auction fices responsible for allocation Croatian cross-border transmission capacity are visualized in Figure 5. Figure Figure Allocation Croatian cross-border transmission transmission capacities capacities (Y yearly; (Y yearly; M monthly; M monthly; D [42]. D daily) [42].

13 Energies 2018, 11, Energies 2018, 11, x FOR PEER REVIEW Support Schemes for Electricity Production from Renewable Energy Sources Cogeneration Electricity production from RES CHP in Croatia has been incentivized since 2007 in insuch a away that HROTE signs a along-term purchase contract with RES CHP under FiT support system. In April 2017, total installed capacity RES remunerated according to Feed-in Tariff system was MW, which 435 MW (65%) was wind power. The total amount electricity generated by RES CHP in in2016 was 1725 GWh, for for which HROTE paid paid million million HRK HRK or 896 or 896 HRK/MWh, which which is equal is equal to 119 to EUR/MWh 119 EUR/MWh [43]. [43]. This means This means that in that 2016 in 2016 around around 10% 10% total total electricity electricity generated generated in Croatia in Croatia was was produced by by eligible producers from RES CHP. Figure 6 shows total installed capacity each technology under FiT support system in Croatia Feed-in Tariff System Figure 6. Eligible producers installed capacity (kw) in Croatia [36]. The New Act on renewable energy sources high-efficiency cogeneration, which has been in force since January 2016, 2016, has has provided provided a framework a framework for supporting for supporting RES CHP RES electricity CHP production electricity via production market premium via market contracts premium obtained contracts through obtained a bidding through process. a bidding Thisprocess. Act alsothis changed Act also FiT policy changed in such FiT policy a wayin that such a FiT way support that system FiT support is in operation system is solely in operation for old eligible solely for producers old eligible producers for newly eligible for producers newly eligible withproducers less than 30 with kwless installed than 30 kw capacity. installed capacity. According to [19], RES CHP can participate in electricity market in Croatia in four ways: -- Existing RES CHP: Under Old Feed-in Tariff system issued in 2007, for production electricity Under from Old RES Feed-in CHP, Tariff purchase system contracts issued incorporating in 2007, 2012 preferential 2014 for price were production signed with HROTE electricity for from a period RES 14 CHP, years new purchase contracts contracts cannot incorporating be signed preferential anymore; price were signed with HROTE for a period 14 years new contracts cannot be signed anymore; - New RES CHP: - New RES CHP: Under Market Premium system, which implies that RES producers have to use public auctions Under to obtain Market status Premium eligible system, producer which implies (not in that force RES yet); producers have to use public Under auctions New to obtain Feed-in status Tariff with eligible guaranteed producer purchase (not in force price yet); for new RES producers with Under installed New capacity Feed-in up to Tariff 30 kw with (not in guaranteed force yet); purchase price for new RES producers As a with prosumer installed with capacity installed upgeneration to 30 kw (not capacity in force up yet); to 500 kw with a production capacity that As is lower a prosumer than with consumption installed generation capacity. capacity up to 500 kw with a production FiT preferential capacity thatprices is lower are than different consumption depending capacity. on technology size an eligible producer. Preferential prices for smaller producers are higher than those for larger producers. This is because larger producers typically have decreasing cost per MW. Rules that need to be satisfied by RES CHP producers in order to gain status an eligible producer are defined in [21]. RES

14 Energies 2018, 11, FiT preferential prices are different depending on technology size an eligible producer. Preferential prices for smaller producers are higher than those for larger producers. This is because larger producers typically have decreasing cost per MW. Rules that need to be satisfied by RES CHP producers in order to gain status an eligible producer are defined in [21]. RES CHP producers that have obtained this status have a grid priority in Croatia. This means that in situations when HOPS must curtail generation, those producers will be curtailed last. RES under FiT system classification above will be members ECO-BG. HROTE, as a manager ECO-BG, will gar data from m generate RES day-ahead generation plans that are coupled with market positions received from or BGs. HROTE will be responsible for imbalances caused by RES that are members ECO-BG. Imbalances that have arisen as a result differences between planned actual RES production will be paid by HROTE from levies for renewables collected from end-users by selling electricity produced by RES to suppliers according to ir market share. Using funds collected from taxes, levies by selling electricity, HROTE also pays a preferential price for electricity to RES in accordance with actual production. According to [44], when ECO-BG becomes fully operational, HROTE will be able to sell electricity produced by RES at auctions, at CROPEX using bilateral agreements. Currently, HROTE sells electricity from producers within FiT support system at a regulated price defined by The Tariff System for Production Electricity from Renewable Energy Sources Cogeneration [45], whereby each supplier is obligated to buy a portion that electricity according to its market share Market Premium System In January 2016, Croatia adopted a new legislation package, shifting remuneration RES from an FiT support system to a market premium system, but market premium system is still not in use because methods for calculating reference price for different RES technologies have not been adopted yet. RES under a market premium system will be able to sell electricity according to same market principles as any or conventional producer. This means that y will be allowed to sell electricity using bilateral agreements or power exchange. The only difference between conventional producers RES under premium system is that RES additionally receives a premium from HROTE, which is difference between reference cost for each RES technology market price. From market perspective, RES under a premium system is equal to any or conventional producer, which means that y can be members any M-BG. This implies that RES under a premium system is responsible for imbalances y cause, unlike RES under FiT system Prosumers Prosumers are end-users whose main objective is procurement energy for ir own use, but y also have a certain production capacity installed that can be used to inject energy into network (e.g., rotop PV). Suppliers are obliged to purchase surplus prosumers generated electricity pay m following price [19]: 90% average monthly price that prosumer pays to supplier when prosumer s energy injected into network is less than or equal to energy consumed from network; 90% average monthly price that prosumer pays to supplier multiplied by ratio injected consumed energy in a month when energy injected into network from prosumer is greater than consumed energy. This measure does not serve as a support scheme, but rar as protection for small prosumers who may encounter problems finding a market participant willing to purchase ir excess energy. Small prosumers may choose to sign a different contract with ir supplier.

15 Energies 2018, 11, Procurement Ancillary Services As already mentioned in Section 4, every market participant in Croatia must be a member a certain BG. Each BG has a manager who signs a Balance Responsibility Agreement with HOPS. Imbalance a BG is defined as difference between actual generation/consumption a BG markets position sent to HROTE HOPS. HOPS charge managers BGs for measured imbalances. The reference price balancing energy in Croatia is defined as average price at CROPEX, BSP SouthPool HUPX [23]. Currently, HOPS can procure energy necessary for system balancing in following ways [22]: - activation through contracted ancillary services (bilateral contracts); - purchasing from neighbouring system operators; - at market principles using balancing market not yet operational. All market participants willing to provide ancillary services must be pre-tested in order to prove ir technical capability for providing desired services [46]. HOPS is a single buyer reserves contracts different types reserves ancillary services [47]: secondary reserves used to restore system balance; tertiary reserves used to restore system balance when secondary reserves are depleted to allow units that provide secondary reserve to return to ir pre-imbalance status, allowing m to be ready for next short-term imbalance intervention; tertiary reserves responsible for system safety; operation in compensation regime during which generating units provide voltage reactive power control; availability to start a generation unit without external power supply (blackout restoration capabilities). Primary reserves are not contracted or remunerated in Croatia. This means that producers, hydro power plants with installed capacity above 10 MW rmal power plants with installed capacity above 30 MW are obliged to provide primary reserve services without being remunerated [46]. The required amount primary, secondary tertiary reserves in Croatian control area is determined in accordance with ENTSO-E rules. According to [48], required amount primary reserves in Croatian control area is ±10 MW, while required amount secondary tertiary reserves is ±83 MW +256 MW/ 51 MW. It is also important to emphasize that HOPS still procures majority ancillary services reserves by bilateral contracts. Also, ancillary services in Croatia are exclusively provided by large-scale power plants a significant effort should be made in order to allow micro- to medium-sized power plants (DERs), as well as prosumers, to provide ancillary services. In this regard, proactive participation wind turbines, which is enabled in Nordic Regulating Market, should be treated as a positive example. The Danish TSO Energinet.dk updated its regulations in order to allow wind turbines to fer balancing power under same terms as or market participants in regulating market in that way increase flexibility system [49]. TSOs in Nordic area recognized importance benefits market integration wind power in electricity system balancing. The analysis made in [50], where a 21 MW wind farm has been tested, showed that wind farm is able to play a proactive role regarding downward regulation. Recommendations Regarding Procurement Ancillary Services in Croatia The main issue regarding procurement ancillary services is that BM is not operational yet. This is main reason why HOPS procures majority ancillary services reserves by bilateral contracts. This implies that prices se services are strictly defined by HERA, which hampers development market. For furr development overall electricity market in Croatia,

16 Energies 2018, 11, it is vital to establish BM. Additionally, introduction aggregation arrangement (explained in Section 8) would enable DERs to participate in BM like any or conventional producer. 8. The Retail Market in Croatia Market participants in retail market in Croatia are suppliers that fer electricity contracts to end-users. End-users have right to choose ir supplier. The supplier acts as a wholesale buyer for end-users. Since electricity market has opened, percentage end-users who have switched ir supplier is extremely low. The first reason for this is that re is no stard procedure to change supplier contracts. As a result, supplier changing procedure was relatively slow uncertain. Anor reason is that re were very few new suppliers in market, even after y emerged, end-users did not want to change ir old trusted supplier. Anor reason is that average electricity consumption (for household category) is relatively low even if different suppliers fer a better price, savings is overall very low for end-users. The retail market in Croatia is still not competitive because in 2016 companies that were part previously vertically integrated utility provided electricity for 85% total number end-users, including industrial consumers [43]. The main objective end-user is procurement electricity for its own use at minimum cost. Suppliers in Croatia are divided into two categories [20]: market suppliers suppliers that are not under public service obligation (sell electricity based on market principles), regulated (last resort) supplier (for commercial industrial consumers only) supplier that is under public service obligation (sell electricity based on price approved by HERA, while price for households is not regulated). The regulated supplier must sign a supply contract with all its end-users. The last resort supplier in Croatia is HEP ELEKTRA, Ltd. All end-users who are connected to distribution network need to sign use network contract with HEP-DSO. Market suppliers can provide electricity to all end-users with whom y have signed a supply contract. Furr Steps in Market Development Introduction an aggregator as a new market participant is important for furr development electricity market in Croatia. Currently, Act on Energy Efficiency provides only a definition an aggregator, but energy legislation in Croatia does not recognize an aggregator as a market participant [51]. In [52], NordREG analyses different models for aggregation dem response describes consequences for balancing groups with relation to settlement results. It concludes that aggregation arrangement supplier aggregator as one entity, where supplier can fer aggregation services (dem response, energy or flexibility services provided by Distributed Energy Resources DERs, etc.), is most efficient solution for well-functioning markets. If market is not sufficiently developed, like in Croatian case, NordREG suggests introducing anor aggregation arrangement Independent aggregator a supplier with balancing responsibility at same connection point with adjustment imbalances reimbursement sourcing costs. This aggregation arrangement would require a split separation balancing responsibility needs to set up a compensating financial transfer mechanism. Aggregators would become additional entities in market, which means that market concentration would decrease liquidity market would increase. This arrangement for aggregators also implies existence additional administrative costs related to establishment regulated framework for aggregation. Although it is not explicitly stated, provision aggregation services would require roll-out smart meters, which is currently not case in Croatia. Keeping all aspects electricity market in mind, it is not straightforward to choose which aggregation arrangement is best suited for Croatia. For time being, this question will remain without answer is a topic for furr research.

17 Energies 2018, 11, Discussion Conclusions This paper provided a comprehensive overview electricity market design in Croatia identified key obstacles that hamper development a well-functioning electricity market in Croatia its furr integration into IEM. Key obstacles that need to be resolved for furr development electricity market in Croatia are: market coupling with neighbouring power exchanges (BSP SouthPool HUPX) is still not conducted; secondary legislation, which is necessary for establishment Market Premium support scheme, has not been adopted yet; ECO-BG is still not operational; BM exists on paper, but is still not operational, while for furr market development it is necessary that BM become fully operational as soon as possible; aggregation services do not exist. Apart from se obstacles, re are or problems that are caused by se obstacles. The main additional problem caused by non-existence aggregation services is that micro- to medium-sized power plants (DERs) do not provide ancillary services in practice, although energy legislation does not prohibit m from providing this type services. Also, roll-out smart meters, which is a prerequisite for introduction aggregation services, is still not conducted on a large scale in Croatia. However, a positive step toward furr market development in Croatia is introduction IM at CROPEX. Also, all obstacles except for aggregation services should be resolved during On basis data available in this paper, key indicators that show current electricity market development level in Croatia are summarized listed in Table 8. One most important objectives European Union is creation an Internal Electricity Market in Europe. Various national electricity market designs represent one major obstacles to creation IEM it is necessary to coordinate national market designs among Member States in order to achieve that. The main purpose this paper was to provide information regarding market design to identify key obstacles that hamper development market in Croatia in this way, contribute to creation an IEM. Figure 7 shows a diagram that clearly separates steps market development future steps that need to be conducted in order to create a well-functioning market in Croatia. Table 8. Electricity market in Croatia key indicators. Key Indicators Value Number companies representing at least 95% net power generation 2 Number main power generation companies 1 Market share largest power generation company 85% HHI electricity wholesale market 4928 HHI power exchange (mean value on supply/dem side) / Total number electricity retailers 18 Number main electricity retailers 2 Installed generation capacity (MW) [53] 4524 Peak dem (MW) [53] 2869 Number smart meters installed N/A

18 Energies 2018, 11, Energies 2018, 11, x FOR PEER REVIEW Figure 7. Croatian market development steps. Acknowledgments: This work was supported in part by Croatian Environmental Protection Energy Acknowledgments: Efficiency Fund under This work project was Microgrid supported Positioning in part by(ugrip) Croatian from Environmental ERA Net Smart Protection Grids Plus funding Energy Efficiency scheme Fund by under European project Union Microgrid through Interreg Positioning Danube (ugrip) Transnational from ERA Programme Net Smart under Grids project Plus funding Smart scheme Building-Smart by Grid-Smart EuropeanCity Union (DTP Smart). through Interreg Danube Transnational Programme under project Smart Building-Smart Grid-Smart City (DTP Smart). Author Contributions: Mateo Beus Ivan Pavić performed research wrote paper. Ivona Štrit, Author Contributions: Mateo Beus Ivan Pavić performed research wrote paper. Ivona Štrit, Tomislav Capuder Hrvoje Pžić are responsible for guidance a number key suggestions. Tomislav Capuder Hrvoje Pžić are responsible for guidance a number key suggestions. Conflicts Interest: The authors declare no no conflict interest. References 1. The European Parliament Council Council European European Union. Union. Directive Directive 96/92/EC European Parliament Council. Off. J. J. Eur. Union 1997, 27, The European Parliament Council European European Union. Union. Directive Directive 2003/54/EC European Parliament Council. Off. J. J. Eur. Union 2003, 176, The European Parliament Council European Union. Union. Directive 2009/72/EC European Parliament Council. Off. J. Eur. Union 2009, 211, ACER Agency for Cooperation Energy Regulators. Available online: online: en/the_agency/mission Objectives/Pages/default.aspx (accessed (accessed on on July July 2017). 2017). 5. Losch, L.; L.; Van Van Driessche, Driessche, L. European L. European Commission Commission Presents Presents Energy Energy Winter Winter Package Package 2016; Linklaters 2016; Linklaters LPP: Brussels, LPP: Belgium, Brussels, Belgium, Štrit, I.; Gelo, T.; Krajcar, S. Possible Impact Global Financial Crisis on Prices in Croatian Electricity Sector. WSEAS Trans. Power Syst. 2009, 4, Croatian Transmission System Operator Ltd. Croatian Electricity System Basic Data Available online: (accessed (accessed on on January January 2018). 2018). 8. Newbery, D.; Strbac, G.; Viehf, Viehf. I. I. The benefits integrating European electricity markets. Energy Policy 2016, 94, [CrossRef] 9. Ringler, P.; Keles, D.; Fichtner, W. How to benefit from a common European electricity market design. Energy Policy 2016, 101, [CrossRef] 10. Tanrisever, F.; Derinkuyu, K.; Jongen, G. Organization functioning liberalized electricity markets: An overview Dutch market. Renew. Sustain. Energy Rev. 2015, 51, [CrossRef] 11. Oksanen, M.; Karjalainen, R.; Viljainen, S.; Kuleshov, D. Electricity Markets in Russia, US, Europe. In Proceedings th International Conference on European Energy Market, Leuven, Belgium, May 2009.

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