Temelin nuclear power plan, Czech Republic (IAEA Imagebank, CC BY-SA)
When the ČEZ company (the biggest producer and distributor of electricity in the Czech Republic) was assigned to build two new units at the nuclear power plant in Temelín five years ago, this was generally recognised as a move in the right direction. For some time, many Czech economists have thought this will be a suicide mission for the company. In their opinion, if the project was implemented at 2014 energy prices, it would probably end in bankruptcy of the company nowadays ranking among top ten energy companies in Europe.
Temelín – the project planned as the most expensive investment in the history of the Czech Republic, worth EUR 8–12bn, was suspended in spring 2014, by closing the tender for construction without announcing the winner – is an example that investment in nuclear power industry in Europe has become a somewhat risky business in recent years.
The current situation in the European energy market, non-transparent and hardly predictable (which arises from the combination of various factors, with the common denominator in many cases being the EU climate policy) may complicate, if not undermine, plans of construction of the Polish nuclear power plant. It would cost over PLN 60bn. At the same time, the results of the calculations of the profitability level of energy prices in the wholesale market, differ substantially. Professor Andrzej Strupczewski, the ombudsman for nuclear energy at the National Centre for Nuclear Research, determines this price as EUR80–90/MWh. Similar data are presented in the Polish nuclear power programme adopted in 2014. “The analyses and experience show that nuclear power plants are the source of the cheapest energy. Only coal-fired power plants using open pit deposits may compete with them,” assures Professor Strupczewski.
According to Professor Władysław Mielczarski, the Institute of Electrical Power Engineering in Łódź University of Technology, the profitability level exceeds EUR 150/MWh. “I am not against the nuclear power industry. However, I believe that the plans to develop it in Poland are totally unrealistic for economic reasons,” he explains.
The final decision on the construction of a nuclear power plant (at Żarnowiec or Choczew) with the capacity of 3200 MW is scheduled for 2017. Until then it is worth analysing carefully what will be the impact of changes in the European energy market, the status and development plans of nuclear energy in other countries of Europe, in particular, Central and South-East Europe. Countries which are similar to Poland with regard to the level of economic development and financial capacity but, contrary to Poland, are free from prejudice against „nuclear energy” and having practical experience.
(infographics Dariusz Gąszczyk)
(infographics Dariusz Gąszczyk)
Polish partners from the Visegrád Group, as well as Bulgaria and Romania, belong to the European coalition of nuclear power industry friends., A nuclear club under the auspices of the former USSR was established in this part of the continent, using the Soviet nuclear technology. Poland failed to join the club after the plans to build the first power plant in Żarnowiec had been abandoned. Now Poles aspire to become a member of this group, for the time being as a supporter, but the moment of joining may not be very fortunate.
Finding money and partners becomes more and more difficult
„The biggest challenges for the construction of new nuclear power units are to choose the financing method and guarantee return on investment. 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 cause 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, stress the authors of a recently published report by the Centre for Eastern Studies ‘Nuclear projects in Central and South-Eastern Europe. The current state and perspectives.’
Countries with almost non-existent own resources of energy commodities, such as Slovakia and Hungary, are the most persistent in investing in the nuclear power industry. The nuclear plants in Mochovce and Jaslovskie Bohunice produce 55% of Slovakian electricity and 50% of Hungarian. Slovakia is also the only country in the region where new nuclear power units are currently under way. The construction commenced six years ago in Mochovce was supposed to be completed in 2013 and its cost was estimated at EUR2.7bn. The contractor is the Italian Enel which is the majority shareholder of the investor, i.e. SE (Slovenské Elektrárne) company. At present its completion is scheduled for 2017 and the costs have gone up to EUR4.4bn. A long-standing dispute between the government and Enel, as well as the planned sale of shares in SE puts the project at risk. The withdrawal of the foreign shareholder, ČEZ, also jeopardises the already advanced-stage project involving the construction of new units in Jaslovskie Bohunice. Perhaps the only chance to save this project from failing would be to involve the Russian Rosatom, although for the time being quite distant in the future due to the conflict in Ukraine.
(infographics Dariusz Gąszczyk)
An investment project with a similar scenario involving a Russian company as the major player is already being implemented in Hungary. It carries much more serious strategic consequences than in the case of Slovakia. In January 2014, Hungary decided to commission the construction of new units in the Paks nuclear power plant, which is of a key importance for energy security, to Russians, avoiding the tendering procedure. For the most indebted country in the region, it was probably the only realistic method of funding the investment worth EUR 12.5bn. The condition set by the government of Victor Orbán that the construction of power plant should be financed by public funds and remain wholly owned by Hungarian was satisfied. The Russians granted the Hungarians an interstate loan up to 80% of construction costs. As foreign experts estimate, the arising financial liabilities incurred for the period of 30 years may significantly increase the country’s deficit and public debt. Although, for the time being the share of nuclear power industry in the production of electricity in Romania amounts to 20% only, it is recognised as a pillar of energy security.
The extension of the Cernavodă power plant by two units, the plans were launched several years ago, has so far been unsuccessful – in the years 2010–2012 all six foreign shareholders of the company established with a task to design and implement the project withdrew (i.a. German RWE, French GDF Suez, Czech ČEZ). At present, Romania is vigorously trying to gain a Chinese partner – the Chinese company, CGN which was the only one to register in 2014 for the tender for the extension of Cernavodă. It may count on the co-ownership of the power plant and conclusion of a contract for difference (CfD), guaranteeing the specific minimum price of the energy sold. However, no binding contracts have been signed yet.
The authorities of Bulgaria whose nuclear power plant Kozloduy supplies 33% of electricity decided not to build a new power plant in Belene (it turned out that the costs would exceed EUR10bn, i.e. twice as much as expected). The construction of a new nuclear reactor in Kozloduy will not start either. Less than a year after the conclusion of the contract Westinghouse, the future contractor, has practically withdrawn from the project. The American-Japanese company is not any longer interested in financing the project and Bulgaria itself cannot afford it.
Cheap or expensive
All those problems faced by the neighbouring ‘friends of nuclear power industry’, have not soured the atmosphere around the Polish nuclear programme so far. Despite the termination of the contract with the WorleyParsons company carrying out location and environmental studies at the end of 2014, due to missed deadlines of the contract, which will result in several month delays in the project cycle, cautious optimism dominates. The start-up of the first unit of the Polish nuclear power plant is scheduled for 2029.
Meantime the Polish government and the major opposition party clashed over the future of energy, including the nuclear one. During the election campaign Ewa Kopacz, Polish PM, said Polish energy security is based on coal and added that she does not consider nuclear energy a priority. Szydło, shadow Prime Minister of the opposition Law and Justice Party (PiS), was surprised as nuclear power plant was a flagship project of the government under previous PM and a friend of Kopacz Donald Tusk. Despite this quarrel, the State Treasury confirmed that Poland is planning to build a nuclear power plant to produce about eight percent of the country’s energy ready to use in 2025.
According to Maciej Bukowski, PhD, the President of the Warsaw Institute of Economic Studies (WISE), the nuclear power industry is a huge technical and financial challenge but it makes economic sense in Poland. “We have to replace lignite-fired power plants by other sources, as the time of lignite is about to end. The nuclear power industry is the chance to generate relatively cheap energy in the future. Offshore wind farms could be another alternative”, explains Bukowski. Professor Strupczewski says that costs of construction of offshore wind farms, taking into account power consumption indicators, converted into megawatts are 1.5 times higher than nuclear power plants. “Why couldn’t Poland, which in accordance with the Act, is to develop and subsidise RES, afford nuclear power industry?”, Professor Strupczewski asks.
Considerable number of specialists are, however, more and more convinced that Poland will not have a nuclear power plant and, even – that it should not have one. Capital expenditure accounts for the major part (approx. 70%) of electricity production costs in nuclear power plants. The expenditure on fuel hardly exceeds 10% of costs. This specific nature of the nuclear power industry means that before first electricity flows, huge money has to be spent on the construction (EUR4.5bn, and according to the Moody’s agency – even PLN5.4bn per 1 thousand MW). The Polish power industry is not able to finance such enormous projects. Combined creditworthiness of all companies within PGE EJ1 (SPV created by the biggest state-owned Polish energy company PGE and other major state-owned companies) – would not be sufficient. The plans envisage gaining a foreign partner to undertake the construction of the power plant and simultaneously to co-finance it (up to 49%). However, the conditions of such cooperation may be not favourable for us. This is evidenced by the examples of the countries from our region, where Western energy companies wind-up their businesses, unable to reach consensus with the governments. Investors expect a guarantee if they are supposed to pump billions of dollars in advance, and in the case of the nuclear power industry it have to be a decades-long guarantee that they would recover their money and gain profits irrespective of the situation.
(infographics Dariusz Gąszczyk)
To gain a partner ready to fund the investment project it may be necessary to conclude a CfD-like contract in which the British government has recently given a 35-year guarantee of a minimum price of GBP92.5 per 1 MWh to EdF corporation building nuclear units at Hinkley Point by subsidizing potentially lower market prices. Such a solution was considered by Czechs in the case of the Temelin project and later rejected – may be perhaps applied in Poland. The price obtained by EdF is PLN550 at the current rate of exchange of the British pound.
“Life has shown that my calculations which have been already done several years ago were correct, particularly, taking into account that the construction costs will be by approx. 20% higher in Poland than in Great Britain. Contrary to Hinkley Point which has cooling infrastructure, the Polish power plant would be built from scratch as a typical greenfield project,” – stresses Professor Mielczarski. “I think that gaining a foreign investor is rather unlikely. For huge energy companies the programme of the Polish nuclear power industry is unreliable. No nuclear power developer will treat seriously someone who wants to build a house but has neither a plot of land, nor money nor a building permit,” – he adds.
As regards to the nuclear power plant construction, Poland has more room for manoeuvre than Slovakia or Hungary, and is in a better position than the Czechs who are planning to increase the share of the nuclear power industry in electricity generation from the 30% to over 50% by 2040, due to the fast depletion of their lignite resources. Nevertheless, they have postponed the decision concerning the extension of Temelin for 10 years. In Poland, after the construction of the power plant in Pomerania, this share would reach approx. 12%. It is not about elementary needs of the country but the optimisation of its energy mix. Before Poles start, it would be at least worth determining whether costs of producing electricity from nuclear energy are high or low.