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Prague’s nuclear option

April 17, 2018

Prague has always been big on upping the Czech Republic’s nuclear power capacity, but less so on how to finance it. As Brussels looks on with dread, Moscow may be about to ferment more discord on the EU's eastern edges.

The four cooling towers at the Temelin nuclear power plant
The four cooling towers at the Temelin nuclear power plantImage: Getty Images

Bucking trends in much of Europe, the Czech government has said recently it will announce within the next three months how it plans to finance new nuclear projects. But when the government's Standing Committee on Nuclear Energy met last week to consider investor models and financing for the construction of new nuclear reactors, many asked: What is actually new, other than the government?

"Czech nuclear plans are going very slowly and there is little interest within the government to have government funds going into them," Jan Haverkamp, an expert consultant on nuclear energy at Greenpeace Central and Eastern Europe, told DW.

As Prague teeters on the brink of what many call ‘illiberalism' in Eastern Europe and is cozying up to Moscow, any decision made will shed some light on the Czech Republic's stance regarding the EU writ large and in particular its C02 emissions targets. Neighbor Poland, also at loggerheads with the EU, is weighing its nuclear options, while Hungary has already taken the Russian route.

The pro-Russian Czech president, Milos Zeman
The pro-Russian Czech president, Milos ZemanImage: Reuters/D.W. Cerny

Read moreIs the Czech republic moving closer to Russia and China?

The new trade and industry minister, Tomas Hüner, has been bold enough, noting that the Czech Republic — currently generating just over a third of its electricity from six nuclear reactors — "definitely" needs a new reactor to replace some the capacity at the older of its two nuclear plants, Dukovany, 50 kilometers (31 miles) north of the Austrian border. The other is at Temelin, also close to the German and Austrian borders.

Hüner recently reaffirmed the government's 2015 energy policy in which nuclear power was designated to become the main source of electricity production in the Czech Republic, its share rising from 35 percent to between 46 percent and 58 percent by 2040.

New nuclear capacity of 2,500 Megawatts would be added by 2035 and the rest thereafter, he said. The share of lignite coal would fall to no more than 21 percent, renewables rise to 25 percent and gas range from 5 to 15 percent.

Prague's nuclear options

The committee is looking at three possible investor models and also at how to finance such a project:

  • Option 1: Breaking up CEZ and transfering its nuclear plants to a state-owned company

Splitting CEZ, the country's state-owned power company, might mean keeping strategic assets like sales and distribution in state hands, Prime Minister Andrej Babis has said.

Babis had earlier opposed the split, saying before October's parliamentary elections that it would hit customers, i.e. voters.

By March he had changed his tune, saying he would appoint an expert team to assess a proposal to split 70 percent state-owned CEZ — and the biggest Czech listed company with market capitalization of $13.2 billion (€10.5 billion) — into a traditional generation firm with nuclear- and coal-fired plants and a new company for renewables and other assets.

  • Option 2: The state buys out an existing part of CEZ to build the plants

According to news agency Reuters, Hüner said the government was not opposed to buying some CEZ assets, but should decide on the investment model for building a new nuclear plant before making any decisions on how the utility should be split. 

  • Option 3:  CEZ creates a new subsidiary to build the units with state and private backing

In this scenario distribution could fall into the "new energy" company, whose shares — up to a majority — would be offered to investors. The government would take full control of the "old energy" company focused on production from nuclear and lignite sources.

A lot of hot air?

All recent governments in Prague have been committed to developing domestic nuclear energy. A 2011 draft national energy policy to 2060 saw a major increase in nuclear power, to 13.9 giggawatts or up to 18.9 giggawatts in the case of a significant adoption of electric vehicles by 2040; the latter representing 60 percent of the country's total power capacity.

Coal use was to decrease to one third of present level by 2040, gas-fired power was to increase and support for renewables would reduce dramatically by 2014.

The version then adopted in November 2012 assumed a minimum of 50 percent from nuclear, with two new reactors being built at Temelin and one at Dukovany. The 2015 national energy policy reiterated most of the 2012 plan.

Trade and industry minister, Tomas Hüner, says the Czech Republic "definitely" needs a new reactor
Trade and industry minister, Tomas Hüner, says the Czech Republic "definitely" needs a new reactorImage: Getty Images/M.Hitij

Follow the money

However, all failed to resolve the funding issue. There were no state guarantees for electricity prices, for example, in 2014 when CEZ cancelled the tender that April, saying that the project did not make financial sense. If the project had been implemented at 2014 energy prices it would probably have ended in CEZ's bankruptcy, one industry source told DW. 

The project planned was the most expensive investment in the history of the Czech Republic, worth €8-12 billion ($9.7-14.6 billion).

The biggest challenges for the construction of new nuclear power units in Central and Eastern Europe are financing and guaranteeing investment returns, according to a report by the Center for Eastern Studies. 

"Amidst the financial crisis, since 2009 many West European energy companies have withdrawn from nuclear projects carried out in the region (…) Declining wholesale electricity prices and low prices of CO2 emission allowances mean that the multi-billion worth investments in nuclear power units involve high financial risk. Each country tries to find its own path of resolving this situation," the report said.

And so it seems Prague may well decide to take the path of least resistance, Haverkamp believes.

"Given that the Czech government is not willing to accept contracts for difference [fixed sale prices above market price] for projects, or government subsidies or other forms of state aid, and given that construction costs for new nuclear projects currently and for the foreseeable time remain high, no matter who constructs them, it is likely that this will get stuck in a lot of noise around a potential split-up of CEZ and a potential tender, without it leading to a real project," he said.

The issue of where to locate a deep storage site for high level nuclear waste has also been an impediment. Hüner said recently that preparing the localities for construction was needed so that by 2025 building permits could be granted for such a facility, but preliminary examination of around half a dozen sites has been met with local opposition.

Russia's President Vladimir Putin
Russia's President Vladimir PutinImage: picture-alliance/dpa/Tass/M. Klimentyev

The geopolitics

In Europe, only France and Finland are constructing reactors and Germany has decided to decommission all 17 of its nuclear reactors by 2022, while Austria another Czech neighbor, also opposes any expansion of nuclear power in Europe.

The European Commission meanwhile, is perhaps the most vehemently opposed to Prague's ambitions to expand its nuclear power.

Prague wants Brussels to loosen its rules governing exemptions on public bidding and in particular to downgrade price in favor of criteria such as technology, which it hopes would shorten and simplify the process.

If this falls through, the Czech government might then consider a deal with Russia along the same lines as Hungary, which signed the €12 billion Paks plant deal with Moscow in 2017.

In January 2014, Budapest commissioned a Russian company to construct new units at its Paks nuclear power plant, avoiding the tendering procedure altogether. 

The conditions set by Victor Orban's government that the construction of power plant be financed by public funds and remain fully owned by Hungary were met, although crucially the Russians granted the Hungarians an interstate loan up to 80 percent of construction costs.

The Czechs might, after all, argue that Rusatom is best placed to replace an existing Russian reactor.

That plan would also likely get political backing in Prague after the reelection in January of the pro-Russian President Milos Zeman (pictured at the top of the page), who has said he would not oppose to a nuclear deal similar to the one Hungary struck for Paks. Prime Minister Andrej Babis has not expressed any official position on Russia.

France's oldest Electricite de France (EDF) nuclear power station, near the village of Fessenheim in France
France's oldest Electricite de France (EDF) nuclear power station, near the village of Fessenheim in FranceImage: Reuters/V. Kessler

The bidders

CEZ last year held talks with six companies and consortia that had expressed interest in building reactors at Temelín and Dukovany, including Westinghouse; Rosatom Overseas; EDF; Areva-Mitsubishi Heavy Industries joint venture Atmea; China General Nuclear Power Corp; and Korea Hydro and Nuclear Power.

The US nuclear construction company Westinghouse was — during the previous push to get nuclear projects rolling in 2014 — reportedly in the driving seat, with the French sidelined. But Westinghouse has since hit financial problems and France's Areva has become a state energy company, making cross-border subsidies within the EU even more complex.

The Russians, however, are still there and are being joined by other companies and countries with fast developing levels of nuclear know-how and experience. Romania, for example, has been seeking a Chinese partner. The Chinese company, CGN, was the only one to register in 2014 in the tender for the extension of the Cernavoda nuclear plant.

Questions of shifting loyalties, business interests and geopolitical strategy among middle weighted European powers in a rapidly changing world will likely give Brussels and Washington head aches for some time to come. But they will be music to the ears of an energy-dependent and anti-EU Kremlin.

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Head shot of a man (Jo Harper) with grey hair and brown eyes
Jo Harper Journalist and author specializing in Poland