Energy Technology, Systems and Equipment

1. Scope of the STPA

• Background information: Smart Specialisation strategy

In Croatia’s Smart Specialisation strategy, this STPA is defined as the “development and implementation of modern energy technologies and production of equipment that are expected to be efficient, remotely controlled and monitored, smart grid compatible, environmentally friendly and recyclable at the end of its lifetime.”

Its scope includes the following RDI topics, which are suggested as possible areas for growth and opportunity:

• primary and secondary equipment for electrical energy systems (turbines, generators, motors, transformers, switchgears, transmission lines and cables, management, measurement, protection, supervision, guidance);
• power plants, substations, components and systems connected to renewable energy sources;
• increasing efficiency and production capabilities of industrial, agriculture and forestry plants and machines;
• advanced energy storage systems;
• diagnostic and better management of energy equipment;
• planning, investment, real time management and monitoring of energy efficiency and CO2 reduction;
• computer automation and control processes;
• energy management and support for the functioning of energy markets at levels of microgrids, smart grids and smart cities;”
• energy-efficient interconnected and universal lighting;
• conversion of biomass into energy;
• biogas technology for production of electricity and heat.

According to further information in the Smart Specialisation strategy document:

• Companies in STPA4 tend to be export-oriented, and invest intensively in R&D, including being the holders of 11 patents.
• Croatia is ranked 9th out of 22 countries in south-eastern Europe on energy publications. Public research institutions include: Faculty of Electrical Engineering and Computing, Faculty of Mechanical Engineering and Naval Architecture (University of Zagreb), Faculty of Electrical Engineering Mechanical Engineering and Naval Architecture (University of Split), and Energy Institute Hrvoje Požar (Zagreb).
• ‘Inteligentna Energija’ is a business network of 32 members, focusing on energy efficiency, management, HVAC, smart grids, hydro-energy, solar, and biomass. The network includes Prointegris, Veski, Helb, Energo-Control, Solvis, RITEH.
• Croatia meanwhile has a lack of infrastructure for industrial research and testing of products and equipment for EU norms and directives.

1.2. Definitions and scope

There is some overlap in products between STPA4 (Energy Tech) and STPA5 (Environmentally Efficient Materials). In particular, renewable energy technology components and machinery are mentioned in both STPAs, and biomass and biogas are duplicated in both. For the purposes of our analysis and these documents, we have allocated renewable energy technology components (solar, wind, etc) to STPA5, and allocated biomass and biogas to STPA4.

There is also an overlap at the company level. For example, Koncar and Đuro Đaković are engaged in activities across several STPAs, including STPA4 and STPA5. Other companies are responding to the trend of energy efficiency, and are adapting accordingly.

This duplication is not necessarily problematic. As the work continues, specific initiatives and areas of interest will emerge in each STPA, and a narrowing of focus will occur naturally. Some larger companies may well be involved in more than one initiative, in more than one STPA. We accept this overlap, and merely state it upfront.

2. National Supply

2.1 History

In the second half of the 19th century, as part of the Austro-Hungarian Monarchy, Croatian territory fragmented into units that were to various economic interests. The regions of Dalmatia and Istria were under the direct administration of the Austrian government; the City of Rijeka and the northern Croatian territories were under the exclusive rule of Hungary; and the territory of the Military Frontier was constantly under crossfire between Vienna and Budapest, until 1881.

By the end of the 19th century, industry flourished in northwest Croatia because of foreign investments. Foreign entrepreneurs showed the greatest interest for the wood industry, but some, like the Viennese representative of Siemens, Herman Kellermann, were interested in constructing a cable car in Zagreb and installing lighting fixtures, which he reported to the headquarters in 1886.

Some examples of companies that have significantly evolved are:

• Rade Koncar that was founded in 1921 as a subsidiary of Siemens AG in Zagreb, that is now a standalone leader in the local cluster;
• Duro Dakovic that was founded in 1921 as the “first Yugoslav factory of wagons, machines and bridges Inc.”, by an aggregation of domestic and Hungarian capital.

After World War II, existing industries, many of whom are continuing in their operations, were generally nationalised, renamed, or merged/acquired.

2.2 Domestic production & evolution

2.2.1 Size

Overall, STPA4 industries account for a substantial proportion of Croatia’s economy. Firms in STPA4 industries employ several thousand persons directly, out of a total of 1,132,246 jobs in Croatia’s economy as a whole. Manufacturing firms in STPA4 produce approximately EUR 2 billion of output, which is approximately 3.9% of all private sector activity. STPA4 in Croatia consists of approximately 998 manufacturing companies, and an indeterminate additional number in services (there are 3809 companies in Croatia providing architectural or engineering services, some of which will be in this field). The distribution of these firms is shown in Figure 1 below. Realistically this can be considered an upper estimate, since some (perhaps many) of companies involved in the ‘C2511: Manufacture of metal structures and parts’ may be producing for applications other than energy technology and systems.

While a few large companies have become famous in STPA4 industries (e.g. Koncar Group, Đuro Đaković, Siemens, and others), there is clearly a substantial contribution from small and medium size firms. Small and medium size firms play a particularly substantial role in the following sectors: ‘C2511 Manufacture of metal structures and parts’; ‘C2790 Electrical equipment’, and ‘M7112 Architectural and engineering activities and related technical consultancy’. Large firms are particularly dominant in ‘C2711 Manufacture of electric motors, generators and transformers’, ‘C2530 Manufacture of steam generators et al’, ‘C2732 Manufacture of insulated wire and cables’, and ‘C2811 Manufacture of engines and turbines’.

There is a relatively heavy involvement of foreign companies in STPA4. Most local companies have a working relationship with foreign companies—for example as suppliers of intermediate goods and technologies. Some firms are part of much larger groups, such as Siemens. Other apparently Croatian firms (such as Đuro Đaković) are actually foreign-owned: the German construction conglomerate Bilfinger Power Systems acquired Đuro Đaković Montaza and have been actively running the company.

2.3 Exports

Export data provides one of the richest sources of data about the STPA1 industry, partly because of the precision of customs data, and partly because exports products are usually the most competitively produced. Export data for this purpose is obtained from the UN COMTRADE database, which is interrogated via the open-access World Integrated Trade Solution (WITS) platform.

In analyzing export data, the team carefully reviewed the STPA4 definition and RDI topics against available export data. Table 1 shows the parity of RDI topics against export data categories. It is evident that some RDI topics are well-covered (such as equipment for electrical energy systems), while other RDI topics cannot be analysed with this data (such as ‘diagnostic and better management of energy equipment’) since exports of services are not standardized internationally and available.

2.3.1 Size

STPA4 firms currently account for 7.6 percent of Croatia’s total exports. These are valued at approximately US$ 979 million of exports per year (according to 2015 data).

STPA4 exports have shrunk at approximately 0.9 percent annually, on the basis of data from 2007 to 2015. The decline can be shown in Figure 2, which plots Exports of STPA4 sectors (red line) and Croatian exports in general (blue line). This is worrying, in the context of growth in other export sectors such as pharmaceuticals.

Furthermore, Croatian firms in STPA4 have seen their revenues shrink even while exports of firms in other countries have grown. This observation is shown by comparing the black line, which plots growing exports in STPA4 sectors by other countries, with the red line, which shows declining exports by Croatian firms in STPA4 sectors. This indicates that Croatian firms in this STPA are having trouble maintaining and growing their revenues internationally.

Croatia remains a net importer of STPA4 products. Imports of energy technology products stood at US$ 1439 million in 2015, compared to exports of US$ 979 million. Nevertheless, imports have been shrinking (at an average rate of 2.6 percent annually).

Export orientation varies greatly between subsectors within STPA4. As can be seen in Figure 3, the highest proportion of exports can be seen in smaller sectors, such as steam generators, heaters, and electric motors and transformers. The lowest proportion of exports are witnessed in the largest sectors: metal structures and parts, and architectural and engineering activities.

 

Within STPA4, Croatian exports are relatively concentrated in a few product categories. These can be shown in Table 2, which compares Croatia’s basket of STPA4 exports with the proportions of STPA4 exports of all other countries globally. The Table indicates that Croatia exports 16% less STPA4 products than average for all countries around the world (RCA of 0.8412), and exports 24% more goods of category 8401 than average for all countries around the world (RCA of 1.24). The line items of most interest are probably those that are greatly above average in Croatia, indicating a disproportionate specialization in those products. Using that logic, Croatia’s STPA4 exports can be seen to be concentrated a few product categories: 8402; 8403; 8406; 8504; and 8533. All other product categories are exported at approximately average rates, or below-average rates.

Table 2: Proportion of exports from Croatia, compared to proportion of exports globally

When compared with high-income countries alone (rather than all global exports), the results are approximately the same. One additional observation may be noted: that Croatia has an unusual concentration in category 8544 (insulated wire). The data Croatian exports compared to high-income countries is shown in Table 3.

2.3.2 Destinations

Croatian energy technology firms have been relatively more successful at breaking into higher income markets than other Croatian exporters. Figure 4 shows a comparison of STPA4 products with other exported products. STPA4 exports are substantially less likely to be destined for low and middle income countries than other exports are, and substantially more likely to be destined for high income countries and the EU-27 than other exports are. This is a cause for optimism if it means Croatian STPA4 firms have been successful in finding buyers in sophisticated higher income markets, though it deserves further investigation during company interviews. There is a potential contrary reason, which is that the data is an artefact of foreign firms doing some lower cost production in Croatia and then repatriating intermediate goods to their headquarter countries or elsewhere for export.

This pattern is shown at a higher resolution by looking at Croatia’s top 20 export destinations for STPA4 goods. These countries are shown in Figure 5. Germany absorbs 19% of exports, with Austria, Italy, Slovenia, Netherlands, Sweden, United Kingdom, Finland, France, Poland, and Slovak Republic all in the top 20. There is also a strong regional dimension to the exports, with Bosnia and Serbia also on the list. A few outliers are Saudi Arabia (3%), Oman (2%), (Algeria 2%), and (Qatar 2%).

2.3.3 Growth and opportunities

In recent years, despite an overall shrinkage of STPA4 exports, Croatian exporters have managed to increase their exports in some product categories. These are shown in Figure 6. Because of the large number of product categories, we have attempted to group these logically into groups of related products (as shown in the Figure). Notable increases have been seen in Electric Boards & Panels and in Telephone Sets and Data Transmitters. Electric boards and panels in particular tend to be highly customized, which may indicate some cause for optimism for the future.

Strategically it is useful to consider which of these products are in growing or shrinking markets globally. Figure 7 shows a comparison of growth in Croatian exports to global export growth, for each product category. It shows several product categories that are fast growing in Croatia and are fast growing globally [top right quadrant of the graph]: ‘8537 Electric Boards & Panels’; ‘8517 Telephone sets and data transmitters’; ‘8512 Electrical lighting and signaling equipment’; and ‘8547 Insulating fittings for electrical machines’. This gives grounds for optimism, since it means that Croatian firms are successfully pursuing opportunities in sectors that are growing globally. There are also some product categories that have grown fast in Croatia, but are flat or shrinking globally: ‘8506 Primary cells and batteries’; and ‘8539 Electric filament and discharge lamps’. Growth in the other product categories is less remarkable, albeit still worthy of investigation for future opportunities.

A closer look at the exports of growing sectors is shown in Figure 8. The four graphs are arranged in order of size. It is apparent that exports of these products (8517, 8537, 8539, and 8506) are concentrated almost exclusively in European markets, inside and outside the EU. The reasons for particular success in these export markets can be explored further during interviews with companies.

 

Further, it is apparent that the growth of each product category is accounted for mainly by the growth of a single product (rather than of the product category as a whole). Figure 9 shows a higher resolution picture from the data. In batteries, almost all the growth is accounted for by manganese oxide batteries; in telephones, base stations spiked in a single year, but consistent growth has come from export of cellular telephones; in lamps, growth is generated by fluorescent hot cathode lamps; and in insulating fittings, it is non-ceramic, non-plastic fittings that have accounted for all growth. Only electric lighting and electric boards & panels show a more balanced picture, with growth from several products at once.

3. Industry Functioning

3.1 Regulatory context

The most important regulations of the energy sector in Croatia are the Law on Energy and the Law on the Regulation of Energy Activities. The regulation on energy activities is the standard by which adopted prices and tariffs are transferred from the government to energy providers, under approval of the Croatian Energy Regulatory Agency (HERA). Key legislative frameworks are:

• Law on Energy (Official Gazette, No. 120/12, 14/14)
• Law on the Regulation of Energy Activities (Official Gazette, No. 120/12)

Upon accession to the EU in 2013, the Third Packet of EU energy regulation had to be speedily implemented and is now the dominant regulative in the sector. The many ordinances included open access to market, financial reporting standards and consumer rights.

3.2 Financial health of the cluster

On the basis of financial data obtained for thirty energy technology companies in Croatia, revenues have been hovering at a constant level—around EUR 1.1 billion annually. These thirty were selected as three companies from each of the ten product groups identified in Croatian industry data. Profits are relatively slim on such large revenues, at between EUR 18 and 50 million in recent years. This data is shown in Table 4.

Perhaps more worrying is the decline in jobs. According to the same data for thirty companies, the number of employees in these companies has declined by almost 10 percent in only two years (2013 to 2015), from 9612 to 8787.

3.3 Innovation

As mentioned in the introductory section of this document, energy technology is regarded as an innovative sector. There are a number of university faculties doing related research, and a number of patents have been obtained.

Our investigation of the data suggests that STPA4 industries do show a disproportionately high rate of innovation in Croatia. The Table below shows some statistics on innovation by Croatians and in Croatia. Worldwide, 17% of all patents from Croatian inventors are for Energy Tech industries; and 14% of all patents from Croatian applicants are for Energy Tech industries16. For patents registered in Croatia, 17% of patents with Croatian resident applicants are patents for Energy Tech. This is shown to be a relatively high rate when compared with the proportion of all patents registered in Croatia that are for Energy Tech: only 5%17. In other words, Energy Tech accounts for more than three times the number of patents from Croatian applicants that would be expected from its proportion of registered patents in general. The holders of registered patents in Croatia are listed in the final column of the table.

Of the 37 distinct patents in STPA4 that have been registered by Croatian applicants since January 2014, a focus on herbal medicines and medical equipment and devices can be observed. The full list of patent titles is footnoted here.

4. Cluster Agents

4.1 Geographic locations

As noted in the Smart Specialisation strategy, these firms are heavily clustered in Zagreb, but with subsidiary clusters in other main regions of Croatia. Figure 10 is a map of the locations of these companies, together with the total income of subsectors of STPA4. The predominance of Zagreb can be seen in both graphs: Zagreb and its surrounding county has 152 STPA4 companies, while no other single county in Croatia has more than 40, and most have many less than that. The map on the right side shows that almost all of the companies outside Zagreb are engaged in the production of metal structures and parts. Only a few counties have a substantial production in other products, such as steam generators in Brodsko-Posavska (613 million HRK of income in 2015), engines and turbines in Karlovacka (572 million HRK), and engineering consultancy in Primorsko-Goranska (645 million HRK). All other product categories are almost negligible.

4.2 Position in the value chain

Figure 11 shows some of the main activities of Croatia’s top firms in each of the product categories within STPA4. Overall, Croatian firms seem to have achieved a fairly good distribution of activities along the value chain, including engineering and design, basic electrical equipment, manufacture of intermediate and final goods for electricity production, goods for electricity control and distribution, and operations and maintenance.

Figure 11: Top companies in Croatia per product category

Source: CIRAZ team analysis of companies financial data and background knowledge

4.3 Key firms

As noted earlier in this document, STPA1 is dominated by a few large firms. Their evolution and current profiles are as follows:

• SIEMENS HRVATSKA. Siemens has been operating in Croatia since 1886, when Siemens Oesterreich (OSSW) built a power plant with the lighting system for the city of Zagreb. In 1910 the first Siemens office was opened in Zagreb and in 1921 Siemens founded a company in Zagreb, then Kingdom of Yugoslavia, as a joint venture with S&H, Vienna. In the same year, Siemens launched the first production line for the electro motors in Zagreb, a predecessor of the largest Croatian electro technical company.

Significant Siemens projects in the 1930s included supplying key electrical components for the hydro power plant in Karlovac (then Karlstadt), resulting in construction of a transmission line between Karlovac and Zagreb. In 1966 long-term cooperation with the Croatian state railway company was started by delivery of Siemens remote control equipment. In 1992 Siemens d.o.o. was founded in Zagreb, capital of the Republic of Croatia, followed by Energetski transformatori in 1994, a joint venture with Končar. In 1995 Siemens became majority shareholder of ATM Inc., an automation and process control equipment factory. The merger of Siemens d.o.o. and ATM Inc. on January 1st 1997 marked the beginning of today’s Siemens Inc. with the regional headquarters in Zagreb and offices in Split, Osijek and Rijeka, expanding its presence in Croatia into all areas of electrical engineering and electronics – IT, communications, energy, manufacturing, transportation, medical care etc.

Today, the local branch of Siemens is compliant with implementing the vision defined at the headquarters. Siemens has nine related entities in Croatia, reflecting different segments like healthcare, ICT, infrastructure. They are the known suppliers of products, solutions and services for the generation, transmission and distribution of electricity, for industrial automation and drive technology.

Turnover – Siemens Croatia generated approximately EUR 41.8 million in consolidated revenues in 2015. Employees – About 300 people are employed at Siemens Croatia in Zagreb, and the regional offices in Split and Rijeka. Recent evolution – The recent evolution of Seimens Croatia conforms to the activities described above for Siemens AG.

• Đuro Đaković was founded in 1921 by a conglomerate of banks, railroad equipment producers, and manufacturers of timber and coal. Its existence was to fill the need for repairs of wagons and locomotives, railway bridges and bridge constructions, as well as fabrication of machines and equipment. Between 1947 and 1952, the factory got its present name and commenced internationalization of activities. Đuro Đaković exported wagons to Turkish railways and entered a technical cooperation with Babcock Wilcox.

In 1964, manufacturing was expanded to include equipment for petroleum and petrochemical industry. Đuro Đakovic became the largest producer Steambloc boilers in the world in 1969. They began collaborations with the Sarajevo based Energoinvest in 1976, to export components of the primary circuit of a nuclear power plant. In 1982, the company in collaboration with Deutz an agricultural technology company, began mass production of combines. Đuro Đakovic commenced with mass production of M-84 tanks in 1983. They became a joint stock company by the decision of the Board in 1993.

Current operations of the holding company are divided into three main business segments:

1. a) Defense – for supply of tanks and combat vehicles, including full life cycle maintenance of the products,
2. b) Transport – for production of freight vehicles (standard and fully customized), in addition to maintenance services.
3. c) Industry and energy – for engineering services that include planning, design and project management. They also carry out procurement, construction and commissioning of plants.

Turnover – Đuro Đakovic holding earned approximately EUR 52.7 million in 2015, of which approximately EUR 30.5 million is from the Industry and energy business segment.

Employees —on 31st December 2015, the company had 872 people in its employ, a reduction from the 997 they had in 2014.

• Končar d.d. Končar Electrical Industries is a Croatian joint stock company which unites 20 independent companies and one affiliated firm. They began operations in 1921 with the manufacture of electrical motors in Zagreb. The core business activity of the KONČAR Group is primarily in power generation, distribution and transmission of electrical energy, industry and electric traction.

Current operations are divided into four main areas:

1. a) Energy and transportation – design and construction of plants for the production, transfer and distribution of electrical energy, and related equipment, locomotives, trams, and electrical equipment for stable electric traction plants.
2. b) Industry – electromotive drivers, electrical equipment of low and high voltage equipment.
3. c) Trade — electrical household appliances, and electrical low voltage switchgears.
4. d) Special activities – research and development of products and infrastructural services.

Končar Group has 15 subsidiaries carrying out the core activities outlined above, and two subsidiaries assigned to its special activities. They also have two associates in Croatia and one Joint Venture partner in China.

Turnover – The consolidated revenues of the group at year end 2015 was approximately EUR 424.2 million.

Employees – The group has around 3700 employees

• Maj MID d.d. 3. MAJ Engines and Cranes Plc was established in 1954 when it signed a license agreement with the Swiss firm Wärtsilä LTD – Winterthur. Their main activity is the production and assembly of diesel engines, deck cranes and spare parts, in addition to related services. They built their first marine diesel engine in 1961. Deck crane manufacturing began in 1977 and currently occupies a significant share of the production capacity. Their cranes are manufactured under license by Swedish manufacturer MacGregor-Cargotec.

 

Until recently, 3. Maj MID was a part of the shipbuilding conglomerate, 3. Maj Shipbuilding, Rijeka. The company was in financial trouble in 2013 and 2014, and making an average of Eur 5 million in losses. They were acquired last year by Uljanik Group for a symbolic amount of HRK 1. According to the pre-bankruptcy agreement, whoever acquired the company would inherit the debt of approximately EUR 20.5 million. However, according to the same arrangement, 70% of the debt would be written off, while the remaining 30% would be paid off within 4 years.

3. Maj MID is a separate entity from the more illustrious 3. Maj Shipbuilding, which was commissioned in 1892 and still going strong.

Turnover – Total revenues for 2015 was about EUR 15.4 million, a noteworthy increase compared to the year 2014 when total revenues were approximately EUR 1.3 million.

Employees – Total number of employees in 2015 was 164, a significant reduction when compared to 2013 when there were 314.

• Centrometal is a heating technology company that manufacture furnaces, boilers and other heating solutions. The factory for assembling and maintaining central heating systems was established in 1965. They expanded into construction and infrastructural development activities in 1990 in a separate entity which later got integrated into Centrometal ltd.

 

The company is currently implementing strategies to help them achieve their vision of becoming a leading Croatian thermo-technical equipment producer. Focus is on producing equipment that uses renewable energy sources such as wood, pellets, wood chip, solar etc

The company does development, production, and product maintenance in-house, including personnel training.

Turnover – Centrometal generated approximately EUR 28 million in 2015.

Employees – Total number of employees is approximately 220.