Energy analyst: New nuclear reactors will heavily increase Hungary’s debt

Paks nuclear power plant in Hungary. The Hungarian government didn't call a public tender to build a new reactor and instead chose Rosatom. The Russian firm offered beneficial financial conditions. [Paks NPP]

Hungary does not care about the requirements imposed by the European Commission on Paks II, energy analyst András Deák told EURACTIV Slovakia.

András Deák is a senior research fellow at the Institute of World Economics of the Hungarian Academy of Sciences.

Deák spoke with’s Pavol Szalai.

Hungarian MEP Benedek Jávor (Greens) told me that the new power plant at Paks is like a veterinarian’s horse. It has all the illnesses it shouldn’t have. What do you think about it?

I agree more or less with Benedek Jávor. This project raises many questions. Nuclear management is very complex and the government did not answer the basic questions on this investment. Plus, the way they manage the project raises further questions.

In the 2030s, the existing nuclear reactors will have to be closed. They provide roughly one-half of the Hungarian electricity demand. There is no doubt that this is a major issue, which has to be dealt with seriously.

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The European Commission cleared on Monday (6 March) the last hurdle for Hungary’s nuclear project Paks II despite outstanding concerns about the role of the national regulator and spent fuel management.

Contrary to Jávor, you actually do believe that Hungary needs the two new reactors.

No. I would just not exclude the nuclear option. I would definitely not exclude a Russian nuclear option in the whole story.

But from the very beginning – and this not only the fault of the current government but also of the previous social-liberal government – the alternative to Paks I is Paks II. There was no debate. It was not thoroughly examined. I could imagine putting gas there or building only one reactor, not two…

Jávor talked about renewable energies.

That is also an option. But I do not believe that renewable energy in the current form can fully substitute that capacity. However, there was no debate. Furthermore, there is the second question is: Why do we need new blocks in the mid-2020s?

Is it too early?

It is definitely too early because the first block will be decommissioned only in 2032. During a relatively long period, a lot of blocks will run simultaneously. In a situation, when you have a huge technological change in the energy landscape, time costs a lot of money. If it can, the government should not rush with major energy policy decisions.

What do you think about the decision of the European Commission, which said it was okay not to do a public procurement for the supplier of Paks II?

From the policy point of view, I would have preferred a tender, even if I know that only the Russian option would have been acceptable. First, to add some sort of transparency to the process. Second, to put the Russians under a bit of pressure.

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During his recent visit to Budapest, President Vladimir Putin proposed that Russia could fund 100 percent of the costs. What are the implications of this financial relationship with Moscow?

This is a credit line. It is optional. We do not have to take it. The government hesitates. There is no clarity, at what time, from what money, and how we would like to build these reactors.

The basic advantage of the credit line is the fixed interest rate from 4 to 5 per cent. In the current situation, it seems expensive. All interest rates are at around zero, but there is a great risk they will increase. Hungary, whose finances are very vulnerable, may have to finance itself on even higher interest rates. Having a long-term fixed rate is an advantage.

On the other hand, there are a good deal of disadvantages. For example, there is no dispute settlement management, no international arbitration, which is absurd. Another question is: Do you want to add another egg into the basket? Do you want to become more dependent on Russia?

The basic features of today’s nuclear new-builds are delays in delivery and increasing costs. What happens in such an event in Hungary, if Moscow builds and funds the project?

This is not a question for me. The official answer is: Believe us, everything is going to be on time and on budget. They say that, according to the supplier’s contract, which is classified, Russian side will be responsible for any delays. It is a turnkey project with a deadline and Russians have to deliver. It is difficult to believe in general and in the case of this government in particular.

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There are players in the game who are ready to take the Pak II case to the European Court of Justice – and I am one of them, Benedek Jávor told EURACTIV Czech Republic.

Slovakia’s Mochovce units no. 3 and 4, which will export electricity, should be finished before the end of the decade. Is there a place in the Central European market for two new Slovak and two new Hungarian reactors? Where will all this electricity go?

This is a matter of system and network development. The Hungarian system with two new reactors in the mid-2020s is definitely designed for exports. When a reactor is ready, it produces very cheap electricity. The two new units will push other projects out of the picture. Maybe gas will die.

Concerning exports in the future, we have quite a serious electricity deficit in the Balkans. From the Hungarian point of view, we should build more network capacity in the southern direction. For a period of 10 years, we will have the two old and two new units. So, we will have to design the whole network for a nuclear overcapacity. We will have to build new grids. And what will we do after closing the old reactors? We will again become an importer country. It is either crazy or we do not see the full picture. Maybe another two blocks will come online in the 2030s. I can imagine that. God knows.

Sometime in the 2030s a lot of old capacities will have to be decommissioned all over Europe. If we are serious about the carbon cap, coal capacities in the Czech Republic and Poland will have to be decommissioned. There will enough space for the existing nuclear. Renewables alone cannot make it.

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This week, the European Commission decided Hungary can invest in the project from the state budget under three conditions: using profits to cover the investment or operational costs, separation of the Paks I and Paks II operators and booking 30% of the output for power exchange. Will Budapest be able to fulfil these conditions?

These requirements do not challenge the construction, nor its financial scheme, (and) thus can be fulfilled relatively easily. It is difficult to imagine that they could seriously influence the government’s willingness to start the construction. Their substance may be revealed only in the mid-2020s and no one will care about them now.

The issue of state aid is basically about numbers. The decision on Hinkley Point (a nuclear power plant built by EDF in England) was the icebreaker.

We have two other issues. One is related to nuclear safety regulation. And the last issue is upcoming. If we start building Paks II, the public debt trajectory will be reversed. We will again increase debt, year after year, quite heavily.

Because the project is funded directly from the budget?

Exclusively from the state budget. The other option would be consumers. But because of the Hungarian policy of utility rate cuts, it is impossible. Electricity prices cannot be raised. This is politically unacceptable.

The big question is whether the Hungarian government will go until the end of the story. I do not see a way out. They are pushing it ahead.

Are they delaying it already?

Formally not yet, but substantially there are still too many open questions. It is understandable in the light of the 2018 elections. Prime Minister Viktor Orbán definitely does not want start construction before the elections. It would affect the budget and he needs money for the election campaign.

The big question is what he is going to tell to Putin next February, when they usually meet Orbán will have to make a pledge. That will be the moment of truth.

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