In the spring of 2014, power company ČEZ cancelled its tender for the construction of two new blocks at the Temelín Nuclear Power Station. The decision came immediately after the government adopted a resolution in which it rejected “involvement in any type of state guarantee” for new nuclear projects. At the same time, however, a ministerial draft of the energy concept already several years in preparation still envisages new reactors. The Ministry of Industry and Trade therefore elaborated the National Action Plan for Developing Nuclear Energy in accordance with the government’s decision, and the government is to deliberate it in May 2015.
Those who expected that the Action Plan would contain a specific proposal for how to render investments into new blocks economically acceptable will be disappointed. The plan envisages the main path for realising the construction of new reactor blocks in a scenario where ČEZ will change its mind and opt to invest in the new blocks after all. If this does not happen, support mechanisms will be brought to bear, of which the plan outlines in detail only the Contract for Difference mechanism (now being prepared for the Hinkley Point Power Station project in Britain). Whether this mechanism will actually be deployed, however, would be decided by a future government in several years. For the time being, Mládek’s ministry has proposed spending CZK 32 billion to prepare the project—albeit with no guarantee that construction will ever begin.
Which factors have changed so much in the year since the cancellation of the Temelín tender that ČEZ’s management has changed their mind and have approved investments into the reactor? The market price of electricity remains low, and the emissions trading system—which could raise it—cannot be expected to recover before 2018. In this regard, ČEZ’s motivation has not increased. None of the reactors currently under construction by the participants in the last tender have been completed. To the contrary, their budgets are growing and the dates for them to come online are being pushed back—another reason to be circumspect.
One of the possible suppliers, the French company Areva, has run into economic difficulties in particular over the nine-year delay in completing the Olkiluoto reactor in Finland. In 2014, Areva incurred EUR 4.8 billion in losses and is now in danger of going bankrupt. Rosatom—the other participant in the cancelled tender—is an enterprise controlled directly by the Russian government, against which the European Union has imposed sanctions over its annexation of Crimea and military support of separatists in eastern Ukraine. The sanctions do not presently apply to Rosatom, but the risks that would follow from a concluded contract in the event of an escalation of the Ukrainian conflict are obvious. In the coming months, the European Commission will also review the contract concluded with Rosatom by the Hungarian government. It will assess the acceptability of the competitive advantage enjoyed by a state-financed enterprise on the open market.
In view of the development of the individual reactor construction projects that would come into consideration for Czech power stations, we now have a more precise idea of the price of such projects, which ranges from EUR 6,000 to EUR 9,750 per installed kilowatt, including financing costs. One of the errors in the present draft of the Action Plan is that it envisages a theoretical price of EUR 4,500 per kilowatt, which has not been possible to achieve in practice.
In a situation where ČEZ, based on its analyses, decides not to invest in new reactor blocks, guarantees will come into play. In the Action Plan, we find estimates of additional costs for the variant with guaranteed purchase prices under the Contract for Difference mechanism. This form of state support was approved in the autumn of 2014 for the project to build new reactors at the Hinkley Point C Power Station in Britain by the European Commission’s Directorate-General for Competition. This does not mean, however, that it will be approved for all other projects. Nor is it clear whether the Hinkley Point project will receive an investment decision on the part of the interested companies, or whether it will be supported by the new British government (a definitive decision on the project will come after the May elections).
Moreover, in media discussions Minister Mládek—as the presenter of the Action Plan—has rejected the Contract for Difference mechanism as a model with which the government does not agree. Thus, we know nothing about the future support model for the new reactor blocks—that is, except for the proposal to spend CZK 32 billion in preparation costs. An Action Plan lacking basic information should be returned by the government to the Minister of Industry and Trade.
This text has been translated by Evan Mellander. Find the original text in Czech here.
