Czechs pull plug on nuclear expansion

Tuesday, April 22, 2014

More than five years of international intrigue ended with a whimper on April 10th as ČEZ, a Czech utility company, officially cancelled the planned expansion of the Temelín nuclear power plant, 120 km south of Prague in the South Bohemia region. The project was undone by a fall in electricity prices and the spectre of a botched state energy scheme in years past.

The plan had called for adding two reactors to the existing two at Temelín (a second Czech nuclear plant, Dukovany, operates four reactors). The price tag was an estimated $15 billion, and the project made less and less sense as the wholesale price of electricity fell. Prices are now less than half what they were when bidding on the contract began in 2009. For much of that time the tender process was viewed through a cold war lens, with the two final bidders being the American firm Westinghouse (now a division of the Japanese conglomerate Toshiba) and a consortium lead by Russia’s state-owned Atomstroyexport. The American and Russian ambassadors openly lobbied on behalf of their favoured firms and the companies themselves tried to outdo one another by signing highly contingent contracts with local suppliers to sweeten their offers.

The perceived Russian ties of the previous and present Czech presidents (Václav Klaus and Miloš Zeman) lent the proceedings added drama, as did the German government’s 2011 announcement that it was phasing out all its nuclear power stations, a development some argued would provide a ready-made market to export Czech electricity. The Ukraine crisis added yet another twist in recent months, with many Czech politicians speaking out in opposition to allowing any Russian firm access to such an important project.

In the end, however, it was domestic subterfuge that may have been the project's eventual undoing. With market electricity prices falling, ČEZ's chief executive, Daniel Benes, sought electricity price guarantees from the Czech government to cushion the project from market turbulence. Such guarantees are not uncommon; the British government provided one last year to spur its own nuclear-power project. But in the Czech Republic the disastrous experience with an incentive program that produced a solar-energy boom in 2009 and 2010, straining the state budget as a flood of shifty startup firms sprang up to exploit it, made such a guarantee politically unviable. All such incentives were ended last year and new taxes on solar energy were introduced. Investors, many of them legitimate, sued the state. “There is absolutely no appetite from the state to get involved in something new like this now,” says David Marek, chief economist with Patria Finance, a Prague-based investment bank.

But that doesn’t mean the state has no interests in ČEZ, which is 70% state-owned and carries a long-standing reputation of meddling in politics (European Commission investigators raided its offices in 2010). Andrej Babiš, the current finance minister, is pushing for bigger dividend payouts from the highly profitable firm. That could patch holes in future budgets. “He is trying to tap as much money as possible in a variety of areas to increase public investment and stimulus,” says Mr Marek. Mr Babiš’s dividend push, along with the widespread perception that the Temelín project was doomed to be a financial failure, saw ČEZ shares surge on the announcement that the nuclear project had been cancelled. Such are the ways of power politics.

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