Nuclear Energy as an Obstacle to Modernisation

In the Czech Republic, as in Great Britain, the enactment of laws relating to the so-called compensatory mechanisms, is currently under discussion. In line with the draft bill each citizen should contribute to the production of energy in new nuclear reactors and this will be done by including in the price paid by consumers the difference between the purchasing price of nuclear energy guaranteed by the state and the market price. Is this a deliberate decision on the part of the Czech government or “just” a sign of its inability to recognize the real weaknesses of the nuclear power industry today?

Campaign Against Renewable Resources

Citizens of the Czech Republic still can’t get over the failed attempt to regulate the purchasing price of electricity produced by solar power stations built in 2009 and especially in 2010. In late 2009, the Czech Energy Regulating Agency (ERÚ) provided the Ministry of Industry and Commerce with exclusive information on the dramatic growth of interest in licenses for solar power stations, driven by the generous purchasing price.

The Ministry failed to respond to the concurrence between two phenomena—the dramatic fall in the cost of producing solar panels and the legal provision preventing ERÚ from cutting its 2010 prices by more than five per cent—by proposing and pushing through a legislative amendment. Instead it took a very lax approach and failed to amend the law in time. The problem is that this information was not available to anyone else at the time. Because of the delay in adopting a new law, the regulator was unable to lower the 2010 purchasing price for solar power stations to a level that would reflect the actual expenditure on their construction.

It has since transpired that the then Minister of industry was playing into the hands of the ČEZ energy company that has subsequently become the largest investor in solar power in the Czech Republic. The Minister’s decision has further benefited other major anonymous investors (the reasons for their anonymity are not difficult to guess) who own the majority of the 1,500 MW solar power stations built in 2010 and have thus reaped the lion’s share of the subsidy paid by taxpayers and businesses through the inflated price of electricity. ERÚ estimates that contributions to renewable sources of energy cost each household an extra 10%, i.e. 0.48 crowns per kilowatt- hour. That wouldn’t be too bad if 0.32 crowns out of this amount were not directly linked to the cost increase caused by the solar power station pricing disaster. This regulating failure and abuse of state subsidies has become popularly known as the “solar siphon.”

The so-called major energy sector, whose main representative is ČEZ, the company that dominates the market, has used the solar siphon not only to enrich itself (ironically, at the expense of the citizens who are the company’s main shareholders) but also to eliminate potential competition from the market. The government’s failure has ignited a fierce campaign against all kinds of renewable sources of energy. One legislative amendment followed another, backed by strong words from the so-called independent regulator (the same one that failed to regulate solar energy). As a result, within one year the business sector lost so much confidence that no one—apart from those nearing the completion of their small hydraulic, wind or biogas projects—is currently planning to develop new renewable energy projects. Investors have been leaving the country in droves. And since legislation regulating the energy sector continues to be written by the “boys from Duhová Street” (i.e. ČEZ headquarters) there can be no doubt that ČEZ has used its connections with political parties and the government for unfair and crooked competition.

The Nuclear Sector is Dead without State Support

The myth of cheap nuclear energy dates back to 1954 when the Chairman of the US Atomic Energy Commission Lewis Strauss predicted that atomic power would make electricity “too cheap to meter.”These days we might say that the transaction cost of metering exceeds the cost of producing electricity. It is worth noting that this myth is being kept alive by the nuclear lobby, and only slowly and gradually beginning to crumble under hard evidence proving that atomic energy is uncompetitive.

Similarly optimistic statements relating to the economics of atomic energy could have recently been heard in the Czech Republic as well. In July 2011, ČEZ Finance Director Martin Novák claimed that ČEZ would be so profitable before construction has even begun that it wouldn’t require a loan to build the planned new reactors, Temelín 3 and 4, in Southern Bohemia. He added that “any suggestions that ČEZ might run out of money are laughable,” declaring that “regardless of the estimated expenditure, the cash ČEZ will generate between the time construction begins in 2015/2016 and scheduled completion in 2020 will be absolutely sufficient.” A mere eighteen months later, in February 2013, ČEZ stated that in order to complete the Temelín nuclear power plant they would demand a guarantee of energy prices from the government, otherwise they wouldn’t sign the contract for expanding the power plant. “It is basically impossible to build a nuclear power plant relying on market prices alone,” ČEZ strategy director Pavel Cyrani told the daily Mladá Fronta Dnes.

Great Britain provides further proof of the dramatic decline of the nuclear power economy. Five years ago, the Department of Energy estimated that new nuclear reactors would produce electricity costing from 39 to 48 euro per megawatt hour. These days EDF, the French energy company contracted to build and operate the nuclear reactors in Hinkley Point in Somerset (with an output of 3.2 GW) demands a minimum guaranteed price of 118 euro per megawatt hour, i.e. three times as much. At the current stage of negotiating the conditions for building new nuclear reactors, the British government is trying to push down the fixed purchasing price to 76–82 euro per megawatt. What is being discussed in Britain is therefore whether British citizens should contribute to the survival of nuclear energy by paying two to three times more than the market price for this type of electricity. Justifying such a decision is far from a trivial issue for British politicians since the government guarantee covers the nuclear power station‘s entire lifetime of 40 years.

Nevertheless, the British government is preparing a new energy bill that is expected to present a so-called reform of the energy market and include a complex mechanism for subsidizing low-carbon energy, known as the Contract for Difference (CfD). Its basic principle is simple: if the market price of electricity is lower that the fixed price agreed by the government, the energy market operator covers the difference incurred by the energy producer. The expenditure is covered by a compulsory levy on all customers. It is worth noting that the coalition agreement states that the Conservatives and Liberal Democrats will support the construction of new nuclear reactors only on condition that these receive no public subsidies. It is hardly worth pointing out that should the market price exceed the purchasing price guaranteed by the state, the producer is supposed to make up the difference. However, this kind of situation is highly unlikely.

The European Commission’s Directorate for Competition is currently investigating two complaints relating to the compatibility of subsidies for nuclear generated electricity in Great Britain with state subsidy regulations. The Treaty of Lisbon prohibits any selective state aid that might favor specific market players. The only permissible type of aid relates to needs arising from EU legislation, e.g. the support for weak regions, environmental protection, etc. A member state may not take any action that falls under the general definition of state aid without notifying the European Commission, which will rule on its compatibility with state aid permitted by the rules. In the case of Great Britain, the Commission has already begun to investigate whether the British price guarantee—being more than double the market price of electricity—does not constitute inadmissible aid and the inquiry is expected to take at least 18 months. It is worth pointing out that subsidies for nuclear technologies are not covered by any existing exceptions to the general prohibition on state aid.

Missing Deadlines, Going Over Budget

Nuclear power plants are currently under construction in two EU countries. The Finnish Olkiluoto 3 nuclear power plant was meant to be operational by 2009. In February 2013, the Finnish atomic energy producerTVO confirmed a further delay, giving an expected date for connecting the station to the network of 2016, i.e. seven years behind schedule. The AREVA consortium has estimated the total expenditure at €8.5 billion while the Finnish operator’s estimate is €6.4 billion. This disagreement between the buyer and supplier is quite noteworthy. Either way, the original fixed contract price of €3 billion has been exceeded by more than a hundred per cent.

The French Flammanville power plant was supposed to start operating last year but similarly the date has now been pushed back to 2016. Who else should be able to stick to budget and the deadline if not the experienced EDF? At the time the decision on building the power plant was taken, EDF argued that it would produce cheaper energy than the entire fleet of existing nuclear power plants in France. With reference to 2015, EDF cited production costs of 28.4 euro per megawatt hour and it was on this assumption that the project was allowed to go ahead. Incidentally, the French Society for Nuclear Energy (SFEN) website still gives this outdated, ten-year-old figure. The actual state of affairs is dramatically different: In January 2012 the Court of Auditors published information that the production costs of energy production are now as much as 70 to 90 euro per megawatt hour (the interval is based on a 10 to 15 per cent rate of return). EDF expects the total increase in the cost of building the EPR Flamanville power plant to come to €2 billion.

Obviously, investors now have a choice of technologies that are more accessible, safe, economical, environmentally friendly as well as renewable, than nuclear power plants. As a last resort, the nuclear industry is thus turning to governments that can simply take a political decision to build new reactors, shifting all the associated risks onto their countries‘ citizens.

Nuclear energy is thus turning into an obstacle to modernization and a burden for the future. The construction and approval process for nuclear power plants is disastrously slow and the initial investment extremely high. Nuclear power plants are becoming financially unviable, at least for the private sector. No private investor in their right mind would agree to have investments amounting to hundreds of billions of crowns tied up for more than ten years without the prospect of any return. That leaves governments or perhaps state or semistate owned energy companies as the only possible investors. And this is exactly the case with the Czech government and ČEZ.

To be competitive, nuclear energy would have to offer a technology that is at least a generation ahead in terms of flexibility and technical progress. That means small reactors requiring a relatively small initial investment and thus offering better economy, lower safety risks, and shorter construction time—i.e. reactors that would also be attractive to private investors. This kind of new generation of technologies has been promised for decades but is still nowhere on the horizon.

Constantly Neglected Risks of Nuclear Energy

An unjustly neglected chapter in the nuclear technology saga is the last phase in the fuel cycle, i.e. the issue of storing burnt-out nuclear waste. A satisfactory solution to the issue of safe storage of nuclear waste is yet to be found. There isn’t a locality whose citizens would welcome the building of such a disposal site. Acting on behalf of the Czech government, the Administration of Radioactive Waste Disposal Sites (SURAO), has been looking for a suitable site for years. In vain. The population of seven selected localities has rejected the construction in a total of 27 local referendums. The construction and operation of the waste disposal site was to be funded by compulsory levies on nuclear power operators paid into a so-called nuclear account. The levy hasn’t been adjusted since it was first set in the late 1990s. However, the estimated costs of building a disposal site have since risen from the original 49 billion crowns to 105 billion. It is clear that the best solution is the immediate adjustment of the levy on the production of nuclear energy to 50 crowns for megawatt per hour, otherwise the nuclear industry will demand—given the lack of funds in the nuclear account—further subsidies from the national budget.

In March 2013, Le Journal de Dimanche published the results of a study carried out by the French Institute for Radioactive Protection and Nuclear Safety (IRSN), a government agency jointly administered by the Ministry of Defense and the Environment Ministry. A case study looking into the costs of a nuclear accident in France focused on the Dampierre nuclear power station. In the „optimistic“ scenario the costs of an accident were estimated at €760 billion, which is more than a third of France’s entire national budget. The other extreme was €5.8 trillion—three times the national budget of France, a totally devastating amount the country couldn‘t possibly cope with. In case of a serious accident the contamination by Caesium 137 would spread through most of France and Switzerland, the entire territory of Belgium and Holland, as well as substantial parts of Germany—an area that is home to a total of 90 million inhabitants.

In terms of the extent of a potential major nuclear disaster in the Czech Republic the so-called principle of limited liability of nuclear power plant operators comes into play. The nuclear energy legislation provides for a so-called limited damage liability up to 8 billion crowns in case of a nuclear accident. That means that in case of an accident the government is liable for any damage over and above 8 billion crowns. A comparison between the operator’s liability with the real cost of a potential accident immediately reveals the degree of risk the government is taking on as it decides on the building of new nuclear reactors.

Discussing the economically irrational option of investing in a new nuclear power station might conceivably be necessary in a hypothetical scenario, whereby the Czech Republic experienced a critical shortage of electric energy, had no potential energy reserves or renewable sources of energy, decided to abandon coal burning for environmental reasons and had to rely on natural gas from Russia, which might suddenly turn off the taps… But even in that case I would insist on exploring other, safer options. However, none of the elements of the hypothetical situation outlined above is actually in place. On the contrary, the Czech Republic is a key energy exporter. In 2012 the country exported more than 17 TWh of energy. This is not only more than the annual production of the Temelín or Dukovany nuclear power plants but also more than the consumption of all Czech households combined. The country doesn’t need a new Temelín, and certainly not given present-day economic conditions.

Nine months before its term of office ends the government is on the brink of taking a decision that is likely to push ČEZ into insolvency. The company simply cannot afford to spend billions of crowns annually on construction. It will be therefore forced to sell its assets abroad and eventually also part of its network in the Czech Republic. Is there some criminal intent behind this or not? That is certainly a legitimate question.