Last week, our Equity Research team attended a conference focused on Croatian energy sector, its structural features, key challenges, emerging opportunities, and long-term risks. After a decade in which energy policy was largely defined by decarbonization targets and subsidy design, the discussion has clearly shifted. Across panels and presentations, the dominant question was no longer how fast the transition should proceed, but how energy systems can remain stable, affordable, and investable while it unfolds.

For Croatia and the wider CEE region, this reframing is critical. Energy security, grid resilience, and execution capacity are increasingly becoming the binding constraints, and as a result, the primary drivers of capital allocation, earnings visibility, and valuation premia across listed energy and infrastructure assets.

The most persistent bottleneck, both globally and locally, remains grid infrastructure. Congested grid-connection queues, often clogged by speculative applications, are materially slowing the rollout of economically viable projects. This challenge is amplified by an already heavy regulatory and bureaucratic framework, which continues to constrain investment momentum even where capital and technology are available.

Starting with fossil fuels, natural gas is increasingly framed as both a transition fuel and a security asset. Croatia’s LNG terminal at Krk sits at the center of this narrative. Current regasification capacity of approximately 2.6 bcm per year is planned to more than double to 6.1 bcm, positioning Croatia as one of the key energy hubs for this part of Europe and materially strengthening regional supply resilience. With expanded capacity expected to be roughly double domestic demand, Croatia is moving into a structurally surplus regasification position.

Further pipeline expansions, including the Southern Interconnection through Bosnia and Herzegovina, as well as a potential Croatia-Serbia gas link requiring only limited incremental construction (around 15km of pipeline), reinforce this strategic role. In combination with ongoing developments such as MOL’s ongoing acquisition of the Pančevo refinery, these projects strengthen the investment case for gas midstream, storage, and logistics assets. In this context, Janaf was repeatedly highlighted as one of the central pillars of Croatia’s regional energy relevance.

Beyond domestic oil and gas exploration, Croatia is also expanding its energy footprint through geothermal development in Velika Gorica, Osijek, Vinkovci, and Zaprešić. At the same time, both Croatia and other European countries are increasingly exploring upstream opportunities outside Europe, most notably in Central Asia.

In this regard, Croatia has established a strategic G2G partnership with Kazakhstan, investing in the Shygys block, which benefits from proven oil reserves, existing infrastructure, and proximity to neighboring exploration sites. Kazakhstan’s relevance extends beyond hydrocarbons – the country is the world’s largest uranium producer, accounting for roughly 40% of global output, and holds the second-largest uranium reserves after Australia – leading to our next topic.

Nuclear power has returned to the global agenda as energy demand once again emerges as a key growth driver, and increasingly as a system bottleneck. Croatia already holds a 50% ownership stake in the Krško nuclear power plant, whose operating license runs until 2043. Given the plant’s technical condition and prudent maintenance, it is realistic that operations could be extended by up to an additional 20 years.

At the same time, Slovenia and Croatia have begun discussions around a potential second block at the Krško site, while Croatia is also increasingly considering the construction of its own nuclear facilities. A supportive factor is that potential locations within Croatia – near Zagreb and along the Danube – have already been examined and technically assessed in the past century, before being politically blocked. The pro-nuclear narrative is driven primarily by system stability and the ability to provide continuous, 24/7 electricity supply – attributes that most renewable sources cannot deliver on a standalone basis.

That said, nuclear power remains as much an execution challenge as a strategic solution. Timelines, cost overruns, regulatory complexity, and public acceptance will ultimately determine whether nuclear evolves into a core pillar or remains a long-dated optionality.

Regardless of the direction Croatia ultimately takes at this crossroads, energy storage is set to remain a critical infrastructure component. Equally important is digital control, as without advanced software and optimization, battery and storage systems deliver limited system value. A key tailwind for storage deployment, and for energy-transition technologies more broadly, is the continued decline in costs. Battery investment costs, in particular, have fallen by nearly 90% over the past decade, materially improving project economics and flexibility potential.

The energy transition is no longer about ambition or agenda-setting. It is about delivery, execution, and the ability to develop infrastructure at scale. Croatia’s decisions over the next few years – on grids, gas, storage, and whether to seriously prepare for nuclear – will shape not only its future energy mix, but also the risk profile and investability of its energy sector for the next decade and beyond.