A Czech atomic-plant expansion planned near the German border had been one of the few prizes left for Europe’s nuclear-power industry after the Fukushima disaster stopped projects from Switzerland to Romania.
Russian and U.S. contractors have prepared to bid for the $10 billion contract to build two new reactors, Europe’s largest competitive tender for a nuclear project. Now a combination of cheaper European power prices and carbon credits, falling demand for electricity and concern government support may falter leaves CEZ AS’s project in doubt, analysts and investors said.
“The future of nuclear energy in Europe looks very dim indeed,” said Mycle Schneider, an independent consultant on energy and nuclear power based in Paris. “Nuclear is too capital intensive, too time-consuming and simply too risky.”
Abandoning the Temelin project would deal another blow to the foundering nuclear industry in Europe, and to contractors such as Russia’s Rosatom Corp. and Westinghouse Electric Corp., after the 2011 accident at the Fukushima plant in Japan.
The catastrophe led Germany to set in motion the closure of all its reactors, while Italy and Switzerland dropped building plans. Projects already under way in France and Finland have suffered delays and cost overruns. The Czech Republic and the U.K. were seen as the the two European countries with the strongest commitment to new nuclear plants. Now projects in both countries are in doubt.
“At this point the Temelin project has no market logic,” said Michal Snobr, a CEZ shareholder and an energy adviser to J&T Bank in Prague. “Building the reactors now would be incredibly risky for CEZ and the Czech Republic in general.”
CEZ shares fell 1.4 percent to 625 koruna today in Prague, the steepest drop in a week. The utility lost 13 percent of its value last year and a further 8.1 percent since the beginning of this year.
Temelin’s future looks even less certain after Centrica Plc bailed out of the plan to build atomic plants in the U.K. on Feb. 4. A day later, Electricite de France SA threatened to do the same unless the U.K. government ensures the project is profitable.
That doesn’t bode well for CEZ, which has cited the U.K. model of government support as an inspiration. The Czech utility is asking the government, its majority shareholder, to guarantee future purchase price of electricity to ensure that it gets return on its investment, Chief Financial Officer Martin Novak said in a Feb. 1 interview in the Bloomberg office.
“The negotiations have only just started,” Novak said. “There has to be a consensus for such a type of support all through the political spectrum that would last a really long time.”
German wholesale power prices have more than halved since 2008 as the economic crisis cut demand and wind turbines and solar panels increased supply, while a slump in EU carbon permits to a record low has removed much of nuclear’s advantage over fossil fuels. At the same time, increased technical scrutiny after Fukushima has raised the cost of new reactors.
The move away from nuclear in the European Union stands in contrast to other parts of the world. China has 26 reactors under construction, more than a third of the world’s total, according to data from the Nuclear Energy Institute. Russia is building 11 units and India seven.
While the Czech government says it wants new reactors to replace coal plants and reduce dependence on Russian gas, consensus is proving difficult to find. The center-right government of Prime Minister Petr Necas is battling plunging popularity and had to face as many as five no-confidence votes in the parliament since 2010 as it carried out deficit cuts, raised the sales tax and curbed public spending.
The opposition Social Democratic party would get 84 of 200 seats in the lower house of parliament if elections were held now, compared with 42 seats for Necas’s Civic Democrats and 29 for the junior coalition partner TOP09, according to a Stem poll conducted in January. Regular parliamentary elections are scheduled for next year.
A government led by Social Democrats would provide “absolutely no guarantees” on power generated by Temelin as such a plan has the potential to increase the budget deficit and state debt, the party’s shadow finance minister Jan Mladek said in an interview last month.
CEZ, in which the state holds a 70 percent stake, is scheduled to sign a contract with the winner of the Temelin tender before the end of this year. Westinghouse Electric Corp. and a Russian-Czech consortium led by Rosatom Corp.’s unit Atomstroyexport are the sole competitors after CEZ threw out Areva SA’s bid last October. Areva has filed an appeal with the Czech antitrust office over the exclusion and is trying to block the tender process.
CEZ’s hopes of finding a strategic investor willing to help finance the new Temelin reactors have been disappointed. Most European utilities are selling assets and reducing spending rather than looking for new projects, CFO Novak said.
“The Finnish model of financing where a few industrial companies put funds together and get a share in the plant is not very realistic in the Czech Republic,” Novak said. “We have to work with the scenario that we do it by ourselves.”
CEZ is capable of funding new Temelin reactors on its own using a combination of cash flow and debt, CFO Novak said. The project makes economic sense even at the current power prices, according to the executive.
Power Price Weakness
“CEZ’s inability to finance the nuclear investment could not be excluded,” Credit Suisse analysts Piotr Dzieciolowski and Vincent Gilles said in a Feb. 1 report. “Sustainable profitability of CEZ is significantly worse than current guidance, which is largely supported by hedging.”
Prices of electricity would have to rise to at least 50 euros per megawatt-hour and remain stable for the rest of the decade to make Temelin possible, Credit Suisse said. Erste Bank AG analyst Petr Bartek lowered his 2014 profit estimates for CEZ by as much as 10 percent, citing weak power prices.
Lack of financing has stalled nuclear projects elsewhere in eastern Europe. Romania is struggling to find investors for its Cernavoda plant. RWE AG, GDF Suez SA, Iberdrola SA and CEZ pulled out of the 4 billion-euro project in 2011. Bulgaria has been unable to lure more investors to its aborted Belene project, estimated to cost at least 6.3 billion euros. The Lithuanian government is reviewing the plan to build a new 1,350 megawatt reactor in Visaginas, which was rejected by voters in a non-binding referendum in October.
Even CEZ has hinted signing a contract doesn’t mean it will go ahead and build the reactors. The company still has three years before actual construction begins, and it may decide to back out of the project before 2017 if market conditions deteriorate further, Novak said.
“The time for making the final decision is still relatively long,” he said. “Then we can look at it once again.”
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