After two years of negotiations, the European Commission has approved public support for a new nuclear power plant in Dukovany. At the same time, those interested in the construction of the Czech core – French EDF and Korean KHNP – submitted their offers. What new information about the largest Czech public contract does this bring us, and where does the fog remain?
1. How much will the new cores cost?
Citizens pay for new power plants in electricity prices or taxes. So the important thing is how much they will cost. However, only the investor, i.e. ČEZ, knows the key information about the offered price.
The experience of several European nuclear projects indicates the price of the technology for one block from 250 billion upwards. The EDF reactor, a scaled-down version of which the company offers to the Czech Republic, is now being completed at the Flamanville power plant in France, two are being built at Hinkley Point in the UK, and last year it was launched in Olkiluot, Finland. The price ranged from 300 billion crowns (Olkiluoto) to half a trillion (Hinkley Point) per reactor.
Reuters reported that according to the French newspaper Les Echos, the cost of the EdF reactor is now around 10 billion euros (approx. 250 billion crowns).
Czech experts expect that the Korean offer may be slightly lower in price, but it will hardly be a diametrical difference. After all, the Poles also expect that the price for the first Polish nuclear power plant with three blocks from the American company Westinghouse will be about 150 billion zlotys, which translates to a little over 280 billion crowns per block.
The first part of the interview with Michal Macenauer
However, the price of the technology is only part of the total bill. “On projects in Europe, technology costs make up roughly a third of the total price,” says energy expert and minority shareholder of ČEZ Michal Šnobr. If the Czech Republic does not succeed in significantly shortening the construction and loan repayment period, the total costs for one block with a capacity of 1,200 MW will rise to three quarters of a trillion crowns.
For comparison: Czech consumers and taxpayers will be billed for roughly 2,000 MW of solar power from the photovoltaic boom between 2007 and 2010.
2. Why does Brussels have to approve the funding?
The investor of the new resource in Dukovany is ČEZ, which trades on the common European market. The project of a power plant that will produce for at least 60 years, moreover, in an environment that is changing dramatically, is risky and there is no certain return on invested capital. CEZ managers must act with the care of a proper manager in the interest of all shareholders, they must strive to maximize profit. Therefore, ČEZ itself would not be able to start the project.
The construction of a new nuclear power plant will therefore not be possible without public support, the fairness of which is assessed by the European Commission. It ensures that the common market is not distorted by a player who, thanks to state aid, is in a better position than competitors. Therefore, it issues a so-called notification, i.e. approval of the financial model.
3. What does public support for Dukovan look like?
We do not know the notification decision in detail, it should be published within two months. However, the Czech proposal was not approved according to the original ideas.
Public support takes three forms: The state will provide CEZ with a cheap subsidized loan. He will fully bear all the increased costs that would arise due to his fault. Finally, it will buy electricity from the new block at a pre-agreed price through a newly established state trader, which will then sell it on. The guaranteed price paid by the state trader is to prevent the investor from losing out. It must cover the recognized costs of the new plant plus a reasonable profit.
If the guaranteed price is higher than the market price, the state will pay the power plant the difference. If, on the other hand, the market price of electricity exceeds the agreed purchase price, the power plant will be obliged to pay the difference to the state. “The state would then use this money to finance the mechanism. Or he will return them to the state budget or use them to reduce the regulated component of the electricity price. Any profit will be fairly divided between the investor and the state,” assures the spokesman of the Ministry of Industry and Trade, Marek Vošahlík.
The support for the new source is to be financed in a similar way to the support for solar panels from the days of the solar boom. That is, a fee paid by consumers in the price of electricity, possibly from the state budget or from the proceeds of the sale of electricity by a state trader.
The fee for the support of renewable sources today amounts to approximately 500 crowns without VAT per megawatt-hour of electricity consumed. It mainly subsidizes solar, the support of which is to end after 2030. After the completion of the new source, the fee to support renewable sources will probably be replaced by a new fee to support nuclear.
4. How does the approved support differ from the Czech proposal?
Brussels has approved the public support model for the Czech Republic with the tightening of some conditions. First of all – public support can last not 60 years, but only 40 years from the start of the new unit. The power plant must therefore be paid for 20 years earlier, so that higher sums will have to be paid from the pockets of consumers or taxpayers for its public support.
In the end, the model of the guaranteed purchase price also looks different from what the Czech Republic requested. Originally, the state trader was supposed to conclude a long-term contract with the new power plant for the purchase of electricity with a predictable price. However, according to the notification, the guaranteed price should move according to the movement of market prices. These are more and more unstable with the increasing share of renewable resources.
When there is a surplus of electricity from solar and wind turbines on the market, the price falls. In less favorable conditions, it goes up. The guaranteed price for the purchase of electricity from the new Dukovan should be lower when market prices fall, and higher when they rise. The new power plant will thus be incentivized to reduce output, deliver less electricity, and not push prices down even more in the summer, when there is typically a surplus of solar electricity.
“Thanks to this exposure to market signals, market distortions will be limited and the crowding out of renewables will be avoided, which will help the electricity system and facilitate its decarbonisation,” explains the European Commission.
An expensive nuclear power source producing low-emission electricity, as well as renewable sources, will not reach its maximum capacity. This will worsen the return on investment, which further raises the claim for public support. While solar or wind turbines can be simply disconnected from the grid in case of excess supply, the nuclear block is less flexible and its shutdown is more expensive.
Part of the Czech energy industry – for example, the former commissioner for the nuclear industry Jaroslav Míl – sees this as a consolation for German operators of subsidized solar and wind turbines. According to Míl, the purchase of nuclear electricity in a long-term contract would be cheaper for Czech consumers and taxpayers, especially if the state trader also sold the electricity not on the stock exchange, but in a long-term bilateral contract.
5. Will the new core provide us with cheaper electricity?
No, it’s a myth. Today’s production of older blocks in Dukovany and Temelín is cheap, because they are already paid for and the cost of their acquisition was much lower. For example, Temelín, launched in 2000, came to 98 billion crowns. Generating electricity from new blocks will never be so cheap.
In addition, according to the terms of the European notification, the state trader will have to sell electricity on the free market.
“In order to exclude market concentration and to eliminate the risk that the measure will give an advantage to some consumers, the Czech Republic has committed that at least 70 percent of the power plant’s production will be sold on an open energy exchange. Specifically, on the daily, intraday and futures market, during the entire lifetime of the power plant. The rest of the production can be sold through transparent and non-discriminatory auctions,” it says on the website of the European Commission.
The price of Czech electricity will thus continue to be formed on the international market and will continue to be influenced mainly by Germany. “This condition puts the Czech taxpayer in a terribly disadvantageous situation,” says Michal Šnobr. In addition to renewable sources, gas power plants will also compete with nuclear electricity on the free market. According to Šnobr, this will worsen the return on the nuclear investment, and the support will thus become more expensive for the consumer or the state coffers.
However, not everyone sees the same risk in the purchase of electricity by the state at a floating price derived from the exchanges and the subsequent sale of this electricity on the free market. “Generally, it’s not a problem. The new source will have to be paid for anyway, the only question is how the costs will be distributed between electricity consumers or taxpayers. A floating price for a purchase need not be a problem, it also has advantages,” says Michal Macenuaer, head of strategy at the energy consulting firm EGÚ Brno.
He appreciates that the system motivates the nuclear power plant to be more flexible and to behave economically. “However, the exact formula for calculating the purchase price, which we do not yet know, will be decisive for the assessment,” he says.
6. Do we need a new kernel even at a high price?
It is not yet certain whether the Czech Republic will be able to pay for the four nuclear blocks that the government is considering. It will not be possible to repeat the same model that the European Commission approved for the new Dukovany unit for other reactors. Daniel Beneš, CEO of ČEZ, confirmed this last year in an interview with SZ Byznys: “If four blocks were to be built, the format devised for the construction of the first block in Dukovany is not replicable.” The state will have to be the investor for the next blocks.
“Today, the state is more indebted than ČEZ. He would have to borrow three to four trillion crowns for four blocks. But it will also need additional increased spending on healthcare or the military. With increasing indebtedness, the national debt will become more expensive, which will affect the lives of each of us,” points out Šnobr.
It is hard to find an alternative for an expensive core. Renewable sources will not ensure supply to the grid as needed. Coal is on the decline, its domestic reserves will gradually run out. In the case of gas, we are limited by transport capacities and rising transport costs.
“Almost every nuclear power plant is ultimately an economic success. If the investment is not totally screwed up, it will pay off. Inflation is to blame,” says EGÚ analyst Petr Čambala.
According to him, the magic is that the cores are supposed to serve for many years, during which the price level rises many times. “With an average annual inflation of 3.5 percent, after 60 years you will reach almost eight times the general price level, but the investment costs of the power plant will not change anymore. It works like a mortgage on an apartment: If I take it for 20 years, my real repayment costs gradually decrease thanks to inflation, but the apartment will serve me long after the loan is paid off,” he says.
Nevertheless, the question is whether the construction of large nuclear blocks is the only way forward for the Czech Republic. Gas plants are more flexible than nuclear units and more suitable for the new energy sector with a high proportion of renewable sources. According to Mílo, small modular blocks could also be built by private investors who would not need notifications from Brussels.
In the Czech Republic, however, there is no public, political or professional discussion about alternatives at all.
