The Czech Republic can serve as a textbook case of how decisions about the future of energy should not be made, explains Martin Sedlák of the Heinrich Böll Foundation.
In the first week of June the Czech government adopted an action plan that is supposed to lead to the construction of four new reactors in the country − first in Dukovany and then in Temelín. The government's decision, however, is not the product of a rational political debate; it is the result of the long-term erosion of responsible governing. Therefore, the Czech Republic can serve as a textbook case of how decisions about the future of energy should not be made.
The National Action Plan for the Development of Nuclear Energy was drafted by the Ministry of Industry and Trade (MIT) along with the Ministry of Finance. It is based on this year's updated State Energy Policy, which is supposed to lead to the Czech Republic increasing its share of nuclear energy to up to 50% by 2040.
"In 2040 the fuel mix for electricity generation will comprise 46 to 58% nuclear, 18 to 25% renewables and secondary sources, 5 to 15% natural gas, and 11 to 21% brown and black coal," claimed Minister of Industry and Trade Jan Mládek (Social Democrat) upon publicly presenting the new energy policy.
If the scenario envisioned in the State Energy Policy actually plays out, nuclear energy will become the dominant source of electricity in the Czech Republic for a long time to come. In the decision-making process the Czech government rejected a policy based on renewables or natural gas. Politicians were particularly opposed to renewable energy due to its high price. However, as this paper demonstrates, Czech politicians' rejection of green energy was not founded on economic data but on ideology, as the high price of nuclear energy seems to pose no problem.
Three investment models
The National Action Plan proposes three investment models for building new nuclear reactors. The MIT does indeed state that it prefers the model in which the current owner and operator of these nuclear power plant, ČEZ − or one of its fully-owned subsidiaries − will make the investment. However, the MIT has proposed two alternatives to this scenario: It may be possible to create a consortium of private investors, that is, a group of investors with the aim of reaching a certain goal (ČEZ, a financial investor, a large consumer, the company responsible for constructing the reactors, etc.). The MIT also proposes that the state could directly build the reactors through means of a newly established state-owned company.
After the National Action Plan was adopted by the Czech government, Minister Mládek was quoted by the economic daily Hospodářské noviny as saying he would prefer the creation of a state-owned company. He stated: "The government could simply order such a company to build the reactors." Paradoxically, the National Action Plan drafted by the MIT considers this option to be generally hypothetical. Minister of Finance Andrej Babiš, Hnutí ANO (ČEZ falls under the Ministry of Finance) is against this option; he would prefer to see the creation of a joint-stock company and funding from ČEZ.
As the state owns a majority of stock in ČEZ, all three of these possibilities would involve the participation of the state (although in the case of the first two models the state would only be indirectly involved).
The schedule contained in the National Action Plan, however, assumes that until 2025 mainly ČEZ will be responsible for undertaking preliminary project work. This groundwork should come at an expense of 32 billion Czech crowns (€878 million). Only in 2025 will the decision be made whether this project will be publicly financed or not. The National Action Plan includes calculations with various base load energy prices. If base load prices grow to €80/MWh by 2035, the MIT assumes that these new reactors will be viable on the market without any subsidies. However, if today's low base load prices remain unchanged, the MIT estimates that nuclear power plants will need to receive additional annual funding, for example, through a contract for difference scheme.
A radiant heritage
In the Czech Republic we call the MIT's methods salami tactics: The current government is having a project drawn up for the construction of new reactors in which billions of Czech crowns will be invested. There is thus a real threat that future politicians will inherit a grim inheritance from which they will have to work their way out of. Or they will have to commit themselves to massive subsidies from public sources − which (at least according to available public documents) have not yet been consulted with the European Commission over adherence to business competition rules.
Calculations made by independent analysts suggest that there may be a substantial threat to consumers in the future. For example, in a recent study Candole Partners, a consultancy group, has calculated that the economic impact on consumers could be as much as one billion euro per year.1 The author of the study, economist Jan Ondřich, confirmed that the necessary guaranteed floor price for new nuclear reactors would have to be €115/MWh.
The looming threat of massive subsidies is the reason that in early 2014 the government rejected guaranteed nuclear energy prices and ČEZ subsequently cancelled the call for bids for building new reactors. For the time being, Prime Minister Bohuslav Sobotka (Social Democrat) and Deputy Prime Minister Andrej Babiš have kept this line. The only government minister who is not against long-term public support for introducing guaranteed prices for energy produced by new reactors is Minister of Industry Jan Mládek.
His opinion copies the position of ČEZ: "New units can be built only with a guarantee from the government. This means using the same model as the British have," Ivo Hlaváč, chief external relations officer of ČEZ, explained to EurActiv last year.
Unfortunately, the National Action Plan will not help Czech politicians freely decide about the possible risks of proceeding along the nuclear energy path. In this plan the MIT has underestimated nuclear energy investment costs and in general only presents the positive aspects of the nuclear industry without addressing the possible negative impacts it might have on the economy. For example, the plan anticipates reactor investment costs of €4,500/kW, a far cry from the real expenses, which range from 6,000 to 9,750 €/kW. It also does not contain a contingency plan if construction is behind schedule or over budget. Current experience from Finland and France shows these risks to be very real, just as the construction of Temelín and other large infrastructure projects in the past have done. In 1993 the then prime minister, Václav Klaus, decided to complete the Temelín project: new reactors were supposed to be ready by 1995 for a price of 68.8 billion crowns (€2.6 billion in current prices). Instead of 1995, the reactors were connected to the grid six years later. The total price of both reactors at Temelín climbed up to 112 billion crowns (€4.2 billion in current prices).
Once again, we won't have enough electricity!
The government's current steps contained in the National Action Plan for the Development of Nuclear Energy are not the first attempts to promote the construction of more reactors. Both in the present and the past, the same trick has been used to justify the expansion of nuclear energy: the MIT has repeatedly made the claim that we need new reactors because without them we will have nothing to power our light bulbs. For example, in 2007 Minister of Industry Martin Říman claimed that "at the turn of the decade we will be consuming more than we can produce." Now it is 2015, but we have yet to register any shortage of electricity. What is more, since Temelín went online, we have exported more energy than we produce annually.
The government used the same trick to defend the completion of the two reactors currently at Temelín. In late 1992 and early 1993, the MIT warned that if Temelín did not go online by 1995 that we could expect blackouts for three weeks to one hundred days in 1997. On the basis of this report, the government decided to complete the power plant. But there never was a problem with the electricity supply, and so the government began supporting the use of electric heaters. Consumption was artificially increased, and suddenly there was a reason for reactors.
The current MIT would not dare to use the same trick for a third time, considering the fact that the Czech Republic is a net exporter of 18 TWh annually. Therefore, this year the ministry has innovated its arguments somewhat. "So that we are able to ensure the energy self-sufficiency and security of our country, it is essential to commence preparations for building one reactor unit at Dukovany and one unit at Temelín, with the possibility of expanding both plants by two units," stated Minister of Industry and Trade Jan Mládek. In some media statements, he has also drawn connections to lowering emissions. In his opinion, the Czech recipe for doing so should involve nuclear energy.
How to get out of this trap?
The energy industry is going through a dynamic transformation. The price of renewables is constantly decreasing, and it can be expected that another revolution will occur once batteries and other systems for storing energy emerge. Due to the pace of change in the industry, guessing what the market will look like in 10 or 20 years is very complicated. One thing we know for sure though: The energy system will be different than it is today and will resemble the internet more closely, with electricity flowing in both directions. The question is: Will having giant nuclear power plants make any sense?
It is highly likely that the National Action Plan for the Development of Nuclear Energy will end up not being used, and with a new generation of politicians, the Czech Republic will escape from the nuclear energy trap it is stuck in. It will, however, be crucial that the European Commission not succumb to the Czech Republic's insistence on allowing support for nuclear energy by classifying it as a technology for protecting the climate.
In 2015 the Czech government decided in favour of more reactors, ignoring critical voices warning that in the future subsidies will be needed. But the government is already counting on some form of support. Therefore, it is interesting to compare the Czech government's approaches to nuclear and renewable energy. Since 2010 the MIT has repeatedly interfered with guaranteed support for renewable energy, for example, by pushing through a retroactive lowering of feed-in tariffs. The MIT is currently holding discussions with DG Competition regarding the possible overpayment of subsidies to solar plant operators. The Czech government is thus abusing the notification process for public support for renewable energy. Considering the fact that European Commission officials are not familiar with the Czech situation and its ideological context − in which Czech politicians uncritically accept nuclear energy but reject renewables − there is a threat that the European Commission might take the Czech government's bait hook, line, and sinker. The Commission might even end up helping the Czech Republic set up subsidies for nuclear reactors while at the same time destabilizing the modern renewable energy industry.
The steps the Czech government has taken toward preparing the groundwork for possible public support for nuclear energy in the future and its attempts at disrupting the stability of investments in renewable energy will lead to green energy remaining marginal. Moreover, last year the Ministry of Industry was so busy thinking up its nuclear plans that it brushed aside its responsibility to update the National Action Plan for Renewable Energy. Solar energy is becoming cheaper by the day. Nonetheless, two years ago growth in this field was stopped dead in its tracks. Even if administrative rules are simplified, renewed interest in solar power is not expected as this year's amendment to the Energy Act has introduced new barriers. Support for wind energy was also eliminated two years ago and is not planned for the future. The Czech Republic also lacks a detailed, functional plan for utilizing the great potential energy efficiency measures offer.
Reprinted from the Heinrich Böll Foundation: http://cz.boell.org/en/2015/07/29/czech-nuclear-illusion
1. Candole Research, November 2013, 'TEMELINOMICS 2', www.candole.com/files/Temelinomics%202.pdf