Czech Nuclear Expansion Deemed Hopeless Without State Aid

Thursday, December 5, 2013

The Czech Republic’s ambition to secure its future energy independence with a $15 billion nuclear expansion will be thwarted unless the state guarantees a price for the power, the country’s largest electricity producer said.

“We won’t build without state guarantees,” Pavel Cyrani, chief of strategy at Prague-based CEZ AS, said in an interview in the city. “It’s simply impossible.”

CEZ, like other power producers in Europe, has seen profit margins squeezed after economic stagnation cut demand, dragging down prices. The utility has delayed choosing a supplier of two new reactors for its Temelin plant pending assurances from the government that the project will make money. The state, CEZ’s main shareholder, is counting on the expansion to counter a loss in capacity as ageing plants are retired over the next 15 years.

Nuclear generation is vital for lowering emissions while limiting dependence on Russian energy as Czech coal-fed capacity dwindles, Deputy Minister of Industry and Trade Pavel Solc has said. His comments were echoed by Cyrani, who said atomic power will remain one of the cheapest energy sources this decade and is the “best solution” to fill the nation’s future energy gap.

CEZ is waiting on the outcome of protracted coalition talks to form a new government, which is due to approve a new energy strategy next year. Without that strategy, company management can’t make any “far-reaching” decisions, Cyrani said.
Government Guarantee

The utility has sought a contract-for-difference from the state, an agreement that guarantees a price for power for a set number of years, shifting the risk to consumers and taxpayers. Such a deal underpinned a decision by Electricite de France SA to commit to a nuclear project in the U.K. in October, an arrangement that has been criticized as costly to the country.

Both Britain and the Czech Republic are looking to strengthen energy independence and reduce reliance on dirty-burning coal as aging power stations are taken out of service.

With two nuclear plants and a fleet of coal-fired units fed by increasingly scarce lignite from local mines, CEZ says it will need to replace almost 3,500 megawatts of capacity by 2030.

The Social Democratic Party, which won the October election by a narrow margin and is in talks to form a government, said it won’t push CEZ into the Temelin expansion project if it looks unprofitable. The party would be “cautious” about providing any state guarantees to protect CEZ from losses, its candidate for finance minister, Jan Mladek, said Oct. 17.

The deadline for choosing the main reactor supplier has been postponed to the end of next year at the earliest. Westinghouse Electric LLC and a Russian-Czech group led by Rosatom Corp. are vying for the contract.
Temelin Objections

Opponents of the Temelin project argue that the country doesn’t need such a massive new source of generation because it already exports 20 percent of its electricity output -- mostly to Germany -- and efforts to boost efficiency may lower power consumption in the future anyway.

Building the new reactors without a contract-for-difference or other type of guarantee would hurt CEZ and “fund the destruction of 4.5 billion euros ($6.1 billion) of taxpayer money,” Georgi Vukov, an analyst at Prague-based Candole Partners, said in a study published in November.

The Temelin project would only be profitable if the market price of electricity held above 115 euros a megawatt-hour, according to the study. Benchmark year-ahead power in neighboring Germany traded at about 37.24 euros a megawatt-hour yesterday.

If prices remain at the current level, the annual subsidy payment from consumers to CEZ would be about 1 billion euros over 35 years, according to the Candole study.

“We believe that the Temelin project will be abandoned,” Vukov said in the report. “Subsidies paid to CEZ will far outweigh the increased dividends and taxes the state will collect in the unlikely case that Temelin is ever expanded.”

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