Government considers guaranteeing electricity prices to pay for Temelín expansion

14-02-2013

The Czech state-controlled energy giant ČEZ is looking at bids in one of the biggest investment projects in Czech history – the construction of two new blocks at the Temelín nuclear power plant. However, dropping electricity prices have raised questions over the project’s long-term profitability. To ensure the 300- or-so-billion-crowns investment pays back, the Czech government is now considering introducing fixed electricity prices.

Temelín, photo: Filip JandourekTemelín, photo: Filip Jandourek The Czech Republic is one of the few countries in the world that has made a clear choice in favour of nuclear power. According to the latest chapter in the country’s long-term energy strategy, as approved by the government last November, the share of nuclear power should increase from today’s one third to some 55 percent over the next three decades. To achieve that, the state-controlled energy firm ČEZ is planning to build two new nuclear reactors at the Temelín power plant at an estimated cost of around 300 billion crowns, or nearly 16 billion US dollars.

The Temelín tender is now underway, and ČEZ is now reviewing two bids: one by the Japanese-US company Westinghouse, the other by a consortium led by the Russian firm Atomstroyexport; the third bidder, the French company Areva, was excluded from the process over technical reasons.

However, the relatively low prices of electricity – of around 40 euros per MWh – would make the project extremely unprofitable. The Czech government has therefore come up with a solution – it is now considering introducing fixed prices of electricity produced by ČEZ’s nuclear power plants, covering the difference between the market and the fixed price. Deputy minister of industry and trade, Pavel Šolc, told the news website insider.com last month that the ministry received an order from the government to work out the details of the plan.

Tomáš Sýkora is the chief analyst of a leading Czech investment bank, Patria Finance. He believes the plan is very likely to materialize.

“First of all, don’t forget that the government holds 70 percent of ČEZ shares. It’s the firm’s major owner and should be interested in the best possible results of ČEZ in the future. Then, there is an update of the Czech energy strategy for the period until 2040 released last year which envisages an increase of nuclear power production instead of brown coal.

Martin Bursík, photo: Archive of Radio PragueMartin Bursík, photo: Archive of Radio Prague “And last but not least, the conditions surrounding such a big investment project could be in the interest of some involved decision makers and ČEZ lobbying has been historically quite strong I must say. And of course, current electricity prices and their outlook are not in favour of Temelín enlargement. So that’s why I think so.”

The plan to introduce fixed prices for electricity produced in Czech nuclear power plants has caused an uproar among environmentalists. Earlier this month, six influential Czech NGOs, including Duha and Greenpeace, addressed an open letter to Prime Minister Petr Nečas asking him to analyze the economic and environmental impact of the plan before it is approved.

Green Party’s Martin Bursík served as environment minister in two Czech governments. He says he calculated what the government guarantees would do with electricity prices for end users.

“Let’s say the difference is 30 euros per MWh. We now produce 28.6 TWh from nuclear power and two more blocks at Temelín would produce another 15 TWh. When you put this together, you get over 40 TWh. This means the difference would be 0.8 crowns per kWh which is twice as much as the subsidies for renewables nowadays.”

Speaking of subsidies for renewable sources of energy, the Czech Republic has experienced quite a fiasco. When joining the European Union in 2004, the country promised to produce 8 percent of its electricity from renewables by the year 2010. To achieve that, the government introduced generous incentives for investments into photovoltaic installations. But Czech officials failed to react to the falling prices of photovoltaic technology; as a result, solar plant’s capacity skyrocketed, and so did the margins of their operators. This year, Czech companies and household are set to pay 44 billion crowns in subsidies for renewables, a situation that led to a public outcry and concerns about the competitiveness of the Czech industry.

Alena Vitásková, photo: Elena HorálkováAlena Vitásková, photo: Elena Horálková The head of the state energy regulator, Alena Vitásková, last week filed a criminal complaint over the issue, and said the incentives were purposefully blown to generate profits for solar plant owners. But Martin Bursík says this could in fact lead to cutting all subsidies for renewable sources or energy.

“As I understand the situation, the Ministry of Industry and Trade and the dominant electricity producer, ČEZ, abused this negative atmosphere and campaign against renewables to be able to cut the subsidies and get rid of potential competitors on the market. I think this is a very rough game in which ČEZ has the power to influence legislation to get rid of their competitors.”

The government’s plan to provide ČEZ with guaranteed prices of electricity, says Mr Bursík, is a direct follow-up of the bungled support for renewables.

“There is a risk that the photovoltaic fiasco – the abuse of the favourable conditions by several politicians and public officials – will be followed up by a nuclear fiasco. That’s why I’m saying this publicly; I want to start a debate about all of this. I consider this formula of the ministry to be completely wrong.”

The official energy strategy, which includes the plan to increase the capacity of Czech nuclear power plants, was put together by a commission of experts headed by the former chair of the Academy of Sciences, Václav Pačes. I asked the secretary of the commission, Hynek Beran, why they thought the Czech Republic should increasingly rely on nuclear power.

Photo: Archive of Radio PraguePhoto: Archive of Radio Prague “We are not at the seaside or in the desert which means renewables cannot cover our consumption. So we have three possibilities – nuclear, coal or gas. It’s a question of creating the right energy mix. And if you want to close coal mines which are also criticized by environmentalists and they are penalized by carbon dioxide taxes, you can either import gas from Russia or somewhere else like Algeria for instance, or you can build nuclear power plants.”

This sounds like a plausible argument. But the question is whether the Czech Republic needs new energy sources at all. The country is now a major European exporter of electricity; each year, the Czech Republic exports the equivalent of the production of three nuclear reactors. Jan Beránek is a leading expert on nuclear energy for the international environmental group Greenpeace.

“What we are seeing here is that there is no justification for a new nuclear reactor in the country. There is already massive overcapacity. The Czech Republic is dumping almost 18 terawatt hours per year - which is the equivalent of three large reactors - into other European markets. And in that sense, there is no economic need or justification for building even more overcapacity especially if the new reactors will produce electricity at relatively high costs.”

Meanwhile, one of the authors of the Czech energy strategy, Hynek Beran argues that exporting between 5 to 10 percent of the country’s annual electricity production would greatly benefit the economy. And Mr Beran also explains why the government’s plan to pay for the construction of two new blocks at Temelín through fixed electricity prices makes sense.

Temelín, photo: Filip JandourekTemelín, photo: Filip Jandourek “There is a high-level market deformation, so the government could either stop the market deformation, stop all of those 44 billion crowns, and then there would be no need to look for ways to support Temelín, to motive the investors. Or the government has to come up with the steps to do it. Or the third possibility – when you are planning to build nuclear blocks – is not to support the commercial company, but, for example, to build a new company owned by the state.”

The state-controlled energy firm ČEZ is set to pick the winner of the Temelín tender next year, and if the project gets a green light from the government, construction work should start in 2016 and be completed some ten years later. No decision about fixed electricity prices has been made so far. But Jan Beránek of Greenpeace, who has been campaigning against nuclear power in the Czech Republic since the early 1990s, says the country lacks a serious public debate about the project.

“I really believe that the debate, for example about the construction of the first two Temelín reactors, was much more open back in the 1990’s. More factual arguments were a part of the debate; the media covered diverse opinions and views, so that not only the proponents of the project and government or industry officials, but also other economists, environmental movements, regular citizens, international experts were given the floor. And I have to say that I don’t see anything like that happening these days.”

14-02-2013