Feed-in tariff and market electricity price comparison: The case of cogeneration units in Croatia

In August 2007, the Government of the Republic of Croatia instituted a feed-in tariff system, requiring the Croatian Electricity Market Operator (HROTE) to off-take the electricity produced from renewable energy sources or cogeneration units fueled by natural gas. Analysis of the off-take electricity price range, which depends on the net electrical output and electricity market trends, indicates that it is more cost effective for cogeneration units greater than 1 MW to sell their electricity on the exchange market. This was confirmed by developing a mathematical model to calculate the cost-effectiveness ratio of a cogeneration unit. This ratio represents the relation between the profit spread, i.e. the difference between the profit generated from selling the electricity on the exchange market and the profit made from dispatching the electricity to HROTE, as well as the total investment costs. The model can be applied for changes in certain parameters, such as the net electrical output, volatility and spot electricity price. The Monte Carlo method is used to obtain the most probable cost-effectiveness ratio and average future electricity price. Together with these two economic parameters and market price analysis, it is possible to calculate and calibrate an acceptable off-take electricity price.