Environment-Friendly Technologies, Systems and Equipment
1. Cluster profile
The origins of the Environment-Friendly Technology and Systems cluster in Croatia go back to post-World War II Yugoslavia. Končar-KET built its first hydropower plant in Slovenia in 1948, almost 70 years ago. Similarly, waste management and wastewater treatment firms have long been active in Croatia, due to the longstanding need to deal with the waste products of industries and households. Even the history of cutting-edge renewable energy technologies such as solar photovoltaics (PV) dates back to a relatively early stage; the Zagreb-based Ruđer Bošković Institute played a role in the early development of solar PV technology, and in 1989 the then Socialist Republic of Croatia boasted the world’s 20th largest solar PV industry. However, aside from the essential and ubiquitous waste management sector, the cluster has largely failed to put down roots. For example, only one solar PV manufacturer is now active in the country, and that firm has been producing PV modules only since 2009 (earlier entrants have gone out of business). Similarly, while Croatia is one of only a few countries that can claim the capacity to manufacture large wind turbines, the country has been unable to build on this experience and enter the world market.
The cluster of firms that operate within the sphere of activity defined by the Environmental-Friendly Technology and Systems STPA (STPA 5) is an amalgam of mainly: (1) manufacturers of renewable energy equipment (including solar PV, wind and hydropower) and waste management equipment; and (2) waste management and wastewater treatment firms. In addition, the STPA counts a handful of firms that manufacture products that might be considered “advanced materials”. Finally, there are a number of firms that provide environmental support services, such as air quality emissions testing, or the conduct of Environmental Impact Assessments. The Smart Specialization Strategy (S3) places an emphasis on manufacturing; of the 69 firms listed in the STPA, 34 are engaged in some form of manufacturing. Firms engaged in manufacturing accounted for 43.7% of the revenues of the STPA in 2015.
The Environment-friendly STPA could be viewed as a subset of the Energy STPA, and the line between the two STPAs is somewhat fluid. For example, biogas is a renewable energy source, but since the technology used to turn biogas into energy is essentially a modified version of that used for non-renewable energy, biogas technology is covered by the Energy STPA. And biomass (which in the Croatian context essentially means wood pellets) is covered by the Wood and Wood Processing STPA. Thus, although the S3 includes biomass and bio-based products under STPA 5, the only remaining firms under this broad category are a handful of firms involved in bioplastics.
The nature of the STPA has a number of implications for a data-based analysis. First, while the area covered by the STPA is broad (renewable energy, waste management, advanced materials, etc.), there are a relatively small number of firms left once these are divided among the various categories. Second, the specific economic activities of the firms generally do not correspond neatly with prescribed activity classifications, including NACE classifications and their corresponding Croatian NKD classifications.
- Regulation and Markets in Croatia
The demand for the products and services provided by firms in STPA 5 is heavily affected by renewable energy policy and regulation. At the very broadest level, the COP 21 Paris Agreement’s targets of zero net greenhouse gas emissions provide a framework that promotes not only the generation of energy from renewable sources, but also the production of technology and equipment that supports that generation. European Union countries have often been at the forefront of policy support for renewable energy, and EU Renewable Energy Directive 2009/28/EC sets a legally binding requirement that 20 percent of all energy consumed in the EU in 2020 come from renewable sources.
In line with Directive 2009/28/EC, Croatia adopted in 2013 a National Action Plan for Renewable Energy by the year 2020. Thus, Croatian national targets to be met by 2020 include:
- 20 percent reduction in greenhouse gas emissions from 1990 levels;
- renewable energy will account for 20 percent of gross final energy consumption;
- 10 percent of energy used for transport will come from renewable sources;
- Self-sufficienc in domestic energy production;
- 35 percent of electricity will come from renewable energy sources (including large hydropower)
Croatian legislation that is relevant to firms in the STPA include the following:
- Energy Act (2012)
- Electricity Market Act (2013)
- Gas Market Act (2013)
- Act on Regulation of Energy Activities (2012)
- Thermal Energy Market Act
- Oil and Oil Directives Market Act
- Act of Efficient End-Use of Energy
- Tariff System for Electricity Production from Renewable Energy Sources and combined heat and power
- Act on Sustainable Waste Management (2013)
- Renewable Energy Act (2015)
The Energy Act of 2012 defines energy policy generally, while the Electricity Market Act regulates generation, transmission and distribution activities. Feed-in tariffs have been the main means of promoting renewable energy generation; these are set through the Tariff System for Electricity Production for Renewable Energy Sources and Combined Heat and Power. For example, domestic demand for the installation of wind capacity benefits from a relatively high feed-in tariff of HRK 0.708/kWh (EUR 0.10/kWh). However, the 2015 Renewable Energy Act replaced the previous feed-in tariff system (i.e. guaranteed grid access, long-term purchase agreements and payment levels based on generation costs) with a feed-in premium model, where a premium is paid above the electricity market price. A premium model gives RES operators the incentive to give greater consideration to market price signals by, for example, increasing production in periods of high demand or when electricity production from other sources is low. This can help facilitate improved integration of renewable energy into the overall electricity market.
A facility that wishes to benefit from an incentivized price must obtain “eligible producer” status from HERA (Croatian Energy Regulatory Agency); an eligible producer is one that produces both electrical and thermal energy in a single facility, or uses waste or renewable energy sources “in an economically appropriate manner harmonized with environmental protection” (except for hydropower facilities with a capacity of 10 MW of higher). (HROTE) A number of other incentives are available to certain eligible producers:
- Solar photovoltaic power plants with cogeneration capacity receive a higher feed-in tariff.
- The Environmental Protection and Energy Efficiency Fund (EPEEF) offers interest-free loans for renewable energy developers.
- The national distributor HEP ODS bears the grid connection costs for renewable energy power plants.
Due in some part to a large installed hydropower capacity—which accounts for roughly half of energy consumption—Croatia has likely already met, or is close to meeting, its 2020 renewable energy consumption targets under the National Renewable Energy Action Plan. In terms of renewable energy as a proportion of total energy consumption, Croatia ranks sixth in the EU, behind only Sweden (49%), Latvia (40%), Finland (38%), Denmark (34%) and Austria (30%). Data from HROTE, shown here in Figure 1, reveals that more than 65 percent of the total capacity installed by eligible producers is provided by wind power plants. Solar, the next largest RES, was well behind and accounts for only 7.6 percent of the installed capacity. The scale of the plants in these two RES categories was also markedly different; 19 wind power plants produced 417,950 MW of power, whereas 1,218 solar power plants produced 48,481 MW.
However, an emerging constraint that may impact firms going forward is the fact that most if not all of the available licenses for RES eligible producers have already been awarded in many sectors. No new licenses were issued for solar or wind production in 2015 and 2016. The National Renewable Energy Plan also envisages the addition of 1.2 GW of wind capacity by 2020, versus only 52 MW of solar. However, a practical constraint on onshore wind farm locations is the availability of land; there is a ban on onshore wind projects along the coastline, and all licenses for potential wind farm locations have already been awarded. Meanwhile, the feasibility of offshore wind has yet to be explored fully, although factors that weigh against it are the likelihood of NGO opposition, technical difficulties related to the depth of the Adriatic Sea (though these may be mitigated by technological advances), and high costs (although these have come down considerably and experts expect these to fall farther).
With regard to waste, the Waste Act (OG No. 178/04, 111/09, 60/08, 87/09) prohibits the import of waste for the purpose of landfilling and use for energy purposes. Import of non-hazardous waste into Croatia is allowed only if the waste is to be used for material recovery, and the import of hazardous waste is restricted further, to cases where the end product of the material recovery process is no longer considered as waste.
2. National Supply
2.1 Solar Photovoltaics
With solar irradiation levels up to 60 percent higher than those in northern Europe, Croatia would seem to be a perfect fit for solar power. However, in 2016 there is only one producer of solar PV modules in the country, Solvis d.o.o. (The solar equipment manufacturing industry in Croatia is centered exclusively on photovoltaics (PV); Concentrated Solar Power (CSP), which requires expanses of flat land for effective deployment, is not particularly well suited to the country’s geography.)
The small footprint of solar PV manufacturing in Croatia belies the long history of the industry in the country; investment in solar PV technology dates back to before Croatian independence. As early as the 1980s, researchers at the Ruđer Bošković Institute were involved in running calculations on solar heating conditions, and in 1989 the first solar PV module factory was set up in Croatia, by Solar Cells Ltd (formerly Končar Solar Cells). This now defunct operation was, at the time, one of the 20 largest solar factories in the world. Another company, Solaris, was set up in Novigrad in 2000 and also began manufacturing solar PV modules. At one point Solaris counted 140 employees, but it is also now no longer operational.
As a result, Solvis, which began production in 2009, is the only remaining solar PV end manufacturer in the country. Solvis reported €24.8 million in revenue in 2015—a 54 percent increase over 2014. The company maintains a facility in Varaždin where it manufactures a range of standard on-grid and off-grid solar PV modules, integrated rooftop systems, and custom modules for special installations including yachts and bus stops. There is a mini-cluster of firms—closely affiliated or associated with Solvis—in the area around Varaždin in northern Croatia. These firms provide ancillary services such as mounting, installation, sales and repair.
Destination markets for Solvis’s exports (and, by extension, for Croatia’s solar PV exports as a whole) include installations in Slovenia, Hungary, Germany and, further afield, Egypt and Burundi.
Another player in the local supply chain is Applied Ceramics d.o.o., the Croatian subsidiary of a Silicon Valley firm that opened a manufacturing facility in Sisak in 2005. However, while the facility manufactures semiconducting materials, which are used in photovoltaics to convert light into energy. Applied Ceramics had €4.9 million in exports in 2015, representing 96 percent of its total production. Unlike other companies in this sector, the firm is engaged in the production of semiconductors generally, rather than focusing specifically on the solar PV market. And whereas Solvis and many of the other solar PV firms in the country are located in Zagreb and the area around Varaždin, Applied Ceramics is located in Sisak—the city where the company’s founder had worked before immigrating to the United States.
The first wind farm in Croatia was built on the northern Adriatic island of Pag in 2006. As of 2016 there are 19 wind farms operating in the country with a total installed capacity of 500 GW. The amount of installed wind capacity in Croatia has grown significantly in recent years, and in 2015 the country’s 22 percent in increased capacity was the largest in Southeastern Europe, although capacity still lags behind that in nearby countries like Romania and Bulgaria. (EWEA 2015 Wind Report)
A number of Croatian firms have been active in the wind supply chain, although Croatian firm presence in this sector is notable for its breadth rather than for its depth. The Croatian companies that have been engaged in this sector have their main areas of economic activity elsewhere. Muct of the domestic activity in the wind industry in Croatia was related to the 17.5 MW Pometeno Brdo wind farm, which came online in 2012 in the region of Split.
Notwithstanding, the Croatian wind industry is notable for its capacity—thanks to Končar-KET—in the manufacture of wind turbines. Wind turbine manufacturing is dominated by global companies like Siemens, Vestas and Enercon. Končar-KET ventured into the production of wind turbines—including sophisticated components such as blades and naceless—by leveraging its long experience in producing generators, transformers and other energy equipment. The firm built the 1 MW and 2.5 MW wind turbines deployed at Pometeno Brdo and also claims a design and research capacity in wind technology. In addition, a number of Croatian firms are active, or have recently been active along the length of the wind supply chain. For example, Brodosplit BSO built the towers that house the wind turbines at Pometeno Brdo.
Nevertheless, in 2010 Dalekovod d.d. was a project investor and contractor for electrical works for the wind farm near Gračac. It consisted of 4 wind turbines with a nominal power of 2.3 MW (total of 9.2 MW) that were manufactured by Siemens.
The largest player in the Croatian wind sector is a foreign one, Siemens. To date, Siemens has installed approximately 40 turbines in Croatia, totaling around 100MW. In 2011, Siemens supplied 16 wind turbines for the ZD2 and ZD3 wind farm near Zadar, with a total installed capacity of 36.8 MW. Dalekovod d.d. was a partial investor in the project and positioned itself as a project implementer of wind power plants on a turn-key principle (including site selection, installation of equipment for measuring wind potential, optimal arrangement of wind generators, equipment selection, development of feasibility study, project development, permitting, construction and wind farm management).
The latest order from Siemens for 13 wind turbines with a total of 44.2 MW was made in October of 2016. Siemens will deliver and install the larger 3.4 MW wind turbines on the location in the Zadar VI Extension. The turbines will be installed on steel towers with hub heights of 79.5 meters. Deliveries are planned for the first half of 2017 and long-term service agreement with Siemens stands until 2031.
While hydropower is an important source of renewable energy and accounts for approximately half of the total installed energy generation capacity in Croatia, firms in the hydropower sector are shared with the energy STPA. Nevertheless, given the fact that hydropower accounts for such a large share of Croatia’s energy production, this report shall briefly discuss the hydropower industry and supply chain, especially small hydropower (while a renewable resource, large hydropower is often seen as less “sustainable” because of its environmental impact).
The total potential capacity for hydropower in the country is estimated at 12.45 TWh per year, and of this amount about 49 percent has already been exploited. There are four major hydro plants in Croatia; the Varaždin plant is situated in the north of the country, and there are three plants along the coast, at Senj, Obrova, and Zakučac.
The Croatian hydropower industry has a long history. In fact, the Jaruga Hydropower Plant, which was built in 1895 on the Krka river near Skradin, is the second oldest small hydropower plant in the world. Končar-KET built its first hydro plant, Mariborski Otok in Slovenia in 1948, and in 1957 designed and manufactured its first hydro power plant for export—Chichoki Mallian in Pakistan. In total the firm has finished over 150 hydro power plants around the world, containing more than 350 generators. Končar-KET registered €7.3 million in exports in 2015. The company produces electromechanical equipment—both primary (generators, transformers) and secondary (control, protection and measuring devices)—but does not produce turbines. Instead, it provides turnkey hydropower solutions in partnership with a foreign partner. Indeed, it appears that no Croatian firm is engaged in the manufacture of hydropower turbines—although A.B. Montaža produces water turbine parts and hydro turbine housing for Austrian and Slovenian partners.
Aside from its capacity as a provider of turnkey solutions for hydropower plants—and thus its presence along much of the hydropower supply chain, Končar-KET also manufactures small hydropower plants. A number of small hydro facilities have been installed in foreign countries, including Norway, Sweden and Colombia. In addition, two companies—Končar-Generators and Motors (Končar-GIM) and Uljanik Tesu d.d.—sell hydro generators on the world market. Končar-GIM’s product line focuses on both large and small hydro generators, as well as thermal generators, for power plants. In contrast, Uljanik Tesu d.d. focuses mainly on the manufacture of marine diesel generators and secondarily into generators for mini-hydro power plants. Končar-GIM’s main markets for large hydro generators are mainly neighboring countries and non-EU states in the Middle East, Africa and Latin America.
Whereas Končar-KET’s markets for large hydropower plants by Croatian companies span the globe, almost 90% of the installed capacity using Končar-GIM and Uljanik TESU generators has been in the EU and in Croatia’s neighboring countries, especially Norway, Italy and Bosnia and Herzegovina.
2.4 Waste Management
The major activities in the waste management and wastewater industry are: (1) waste collection; (2) waste treatment and disposal; (3) waste recycling and recovery; and (4) waste remediation (including cleaning oil spills and ground contamination, removal of asbestos, and the processing and neutralization of hazardous waste). Common waste disposal techniques include landfilling, recycling, incineration and waste energy production. Waste management services are provided by firms to municipalities and industries; household waste accounts for only 8 percent of waste, whereas the largest waste-generating activities are construction (33 percent), mining (28 percent) and manufacturing (13 percent). Of course, many municipalities continue to keep waste management activities—particularly waste collectio—as in-house activities.
The Croatian waste industry generated €658,310,280 in revenue and employed 12,727 people in 2015. There are 776 firms in the sector. Of these, 375 are engaged waste collection, 131 in waste treatment and disposal, 172 in recycling and recovery, and 98 in waste remediation or treatment and disposal of hazardous waste. Waste collection represented the largest segment of the industry, with 46.5 percent of total revenues (€304,482,880), followed by recycling and recovery (34.8 percent and €229,731,453), waste treatment and disposal (10.3 percent) and waste remediation (8.4 percent).
Only two firms are engaged in the manufacturing of waste equipment: Tehnix d.o.o. and Kova d.o.o. Tehnix manufactures a wide range of waste and wastewater treatment products ranging from waste containers, mobile recycling units and garbage collection vehicles. The company has over 300 employees and reported revenues of €237,74,866 in 2015 and €13,856,826 worth of exports. The company appears to be focused on the regional market; outside of Croatia, the main destinations for Tehnix equipment are Serbia (where the company maintains an office), Slovenia, Romania, Bosnia and Herzegovina, and Macedonia. Kova d.o.o. manufactures large structures such as kiosks, bus shelters and playground equipment. One of its areas of activity is the manufacture of metal and plastic waste and recycling containers. Company revenues and exports have posted strong growth, with revenues more than doubling to €4,390,640 between 2011 and 2015, and export value growing from only €54,306 to €1,375,973 in 2015.
Waste equipment aside, in terms of export the waste management industry differs from the other industries discussed in the report, as the volume of waste imported is a better indicator of economic capacity than the amount exported. (Both the import and export of waste are of course highly regulated.) For example, Sweden’s efficiency in waste management is reflected in the fact that the country actually imports waste for treatment or for energy generation. There is no indication that Croatian companies are engaged in a similar level of activity. In fact, much of the waste produced in Croatia is exported to other countries like Austria for treatment.
2.5 Advanced Materials and Bioplastics
While Advanced Materials and Biomass/bio-based products are two distinct areas, in this report the latter category has been largely subsumed into the former for a number of reasons. As discussed above, biogas and biomass-related firms have been organized, for the time being, under the Energy STPA and, in the case of production of biomass itself, under the Wood STPA. A handful of firms in Croatia are engaged in the production of bioplastics, and so have been included here.
The relevant firms in this area are:
- Advanced Ceramics (also Solar PV)
- Beton-Lučko (also Waste Management)
- Gummiimpex (also Waste Management)
Advanced Materials is a broad category containing a small number of firms with, in most cases, few apparent links to one another. Firms engaged in the production of advanced materials are often integral parts of distinct supply chains. For example, Applied Ceramics, which makes ceramics used in solar photovoltaic (PV) panels, can be considered part of the solar PV supply chain—and perhaps others as well. Similarly, Beton-Lučko, which incorporates recycled rubber tires into noise barriers can, for the purpose of this STPA, also be considered to be part of the waste management value chain. (Beton-Lučko is primarily a concrete company.)
Similarly, the bioplastics firms listed above, Eco-Cortec and Miplast, could be considered part of the plastics value chain.
3. Cluster Figures
Figure 5. Environment-Friendly SnTPA 5 – 69 Firms
Source: FINA data downloaded from Poslovna Hrvatska
The Environment-Friendly STPA, as a grouping, has reported relatively high profit margins and profitability (in terms of both return on assets and return on equity). After a poor 2014, the industry seems to be growing and preparing a new investment cycle. Furthermore, there has been a slight uptick in employment from 7,412 employees in 2013 to 7,795 in 2015. Firm equity and total revenues both have a CAGR of 1.4% annually. As an industry, Environment-Friendly has a healthy and fruitful future with steady growth throughout.
4. Industry Functioning
4.1 Renewable Energy
The following firms are active in the solar PV supply chain in Croatia:
- Applied Ceramics—manufacture of semiconductor material (also in Advanced Materials);
- Solvis—manufacture of solar PV modules;
- Hilti—manufacture of solar PV mounting systems;
- Nika Konstrukcije—manufacture of solar PV mounting systems;
- SIP—manufacture of solar PV mounting systems;
- PiraeX—sales & installation;
- Bazgin—engineering, sales & installation;
- BT Solar—sales & installation
- Hvaljen budi—sales & installation
There is a significant degree of interconnectedness among at least some of the firms in the value chain. Solvis and BT Solar are separate but affiliated firms. In addition, BT Solar sells and installs Solvis modules as well as mounting systems constructed by Hilti and Nika.
The firms in the Croatian solar PV industry reported a total revenue of €41.7 million in 2015, representing a 61% increase from 2013 (CAGR 17.68% for all three years). Solvis accounted for 60% of the total revenue in the industry. In this category employment has a compound annual growth rate of 7.38% per year. Net profit doubled from 2013 to 2015 (to €1,084,644). Despite the increase in new employees the revenue per employee grew to €143,441 in 2015, indicating relatively high employee productivity levels.
Croatian firms are present along the length of the wind technology supply chain from the design stage to grid operation and maintenance and repair. Notably, three firms in the Končar Group are represented: Končar-KET in the manufacturing of wind turbines; Končar-GIM in the manufacturing of wind turbine generators, and Končar Institut in the supply of components. Croatian firms are active in high value-added segments of the supply chain, manufacturing components such as the turbine, which typically accounts for about 26 percent of the cost of an onshore wind turbine, as well as the turbine tower, which accounts for about 22 percent. Turbine manufacturing is an activity situated squarely in the global supply chain, and there are a relatively small number of turbine manufacturers, of which some of the largest are Vestas (Denmark), Goldwind (China), Enercon (Germany), Siemens (Germany) and Suzlon (India). Končar-KET, Brodosplit BSO, Đuro Đaković Strojna obrada, Tec Obnovljivi Izvor and Dalekovod are also involved in the wind sector, though not as their primary activity.
The domestic wind industry firms in Croatia comprise nine companies that represented €299 million in revenue in 2015. The sector employs some 1,700 employees—significantly more than work in solar—and boasts higher productivity per employee, at €176,321.
It should also be noted, however, that—aside from Siemens—the activity of Croatian firms in the wind turbine and wind manufacturing segments of the chain was largely confined to the Pometeno Brdo project near Split, and that the Croatian firms involved have not seemed able to leverage this experience into other projects and markets. Notwithstanding, the specific capacities of Croatian firms within the value chain include:
There are 5 firms involved in the hydro power industry and reported a total of € 51.8 million in revenues as well as a 3.82% net margin in 2015. However, even with the increase in financial inflow the grouping has shown falling revenues through 2014. Revenues recovered in 2015 with restructuring but this group of firms still shows very low revenue per employee figures (€63,102).
Table 5. Aggregated financial data for Hydro category in Euros
Source: FINA data downloaded from Poslovna Hrvatska
4.1.4 Advanced Materials
The advanced materials grouping consists of only 5 firms but it has demonstrated high net profit with an average of €5,292,727 for the period of 2013-2015. This sector has had a 22 percent increase in employment from 2013- 2015.
Figure 12: Aggregated financial data for Advanced materials in Euros
Source: FINA data downloaded from Poslovna Hrvatska
These firms have recorded an increase in the capital investment (ex: machines and buildings), and high profit margins and profitability (ROA and ROE).
4.1.5 Waste Management
Total revenues for waste category almost remained flat from 2013-2015. There are 10 waste management firms in the STPA that had 1,869 workers in 2015. Despite the increase in investment and new employment the industry strategy is not sound nor moving.
Table 6: Financial data on Croatia’s waste companies in Euros
Source: FINA data downloaded from Poslovna Hrvatska
5 Cluster Agents
5.1.1 Private Sector Agents