V4 energy security: The land of nuclear and coal

The original Paks nuclear plant, slated for expansion. Hungary, 2012. [IAEA/Flickr]

Visegrád countries are seeking ways to ensure energy security while delivering on their climate commitments. Nuclear is seen as the ideal solution by some, with natural gas playing a limited role. EURACTIV’s Central European partners report.

Energy systems in Europe are changing, with the increasing deployment of renewable sources redefining old truths. According to ideal visions, the energy mix in the EU should be based on energy efficiency, renewables and natural gas, which is perceived as a relatively clean source, flexible enough to be compatible with solar or wind power.

Ironically, it is not profitable to operate gas power plants under current market conditions, and many say renewables are to be blamed for this.

In November 2016, the European Commission introduced a jumbo legislative package (aka Winter Package). Apart from the obvious, it is an attempt to restore stability to the electricity market in the EU.

There are two ways for Europe to ensure stability for investments into stable conventional power plants, as member states have to decide between a market-based approach and so-called capacity mechanisms designed to remunerate the availability of electricity generation.

This is one of the issues that the countries of the Visegrád Group – Poland, Czech Republic, Hungary and Slovakia – are divided on. While the Czechs oppose the implementation of capacity mechanisms, versions of such a scheme were already introduced in Slovakia.

Poland is preparing for an introduction of its own mechanism, too. But the country, reliant on coal, is strongly against a proposal by the Commission to impose an emission limit that would prevent coal power plants from entering the capacity support schemes.

One of the solutions for Poland to decrease its dependence on coal could be to opt for nuclear power. That would be in line with the strategies of the other V4 states. Two new reactors are being built in Slovakia, and the Czech Republic has started to look for a supplier of technology for another one. And Hungary has already received approval for the Russia-financed Paks II project.

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

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 …

Hungary: One word – Paks

The construction of two new nuclear blocks at the Paks site is the epicentre of Viktor Orbán government’s energy strategy.

Hungary currently depends on energy imports for 70%of its needs. The government believes the easiest solution is to increase the capacity of the country’s only nuclear plant, contrary to the main concerns that this nuclear deal will further increase dependence on the Russian energy industry.

Government commissioner András Aradszki argues that stable electricity production systems and new capacities that do not depend on weather conditions are needed because otherwise the country’s ability to provide electricity at satisfactory prices would be threatened. Some experts claim that nuclear energy has had a place in the Hungarian energy mix for a long time to help diversify resources, among other reasons.

Hungarian Greens/EFA MEP Benedek Jávor says Hungary currently depends on Russia for 60% of its energy needs and it does not make sense that the Fidesz government wants to remedy this by a treaty on a nuclear power plant financed by a Russian loan, built by the Russians, constructed using Russian technology and depending on (imported) Russian fuel for its operation.

“The government made no meaningful attempt to outline an alternative to the two new blocks, even though estimates suggest investment costs would be as much as 30 per cent lower than what will be spent on the Paks expansion, by focusing on renewable energy and improving energy efficiency,” the MEP said.

Hungarian governments have never been fond of renewable energy resources. “The Orbán government went as far as putting special taxes on solar energy-related investments and made it completely impossible to construct wind turbines. This is unprecedented and goes against European energy policy and global trends openly,” president of the Energy Club Ada Ámon said.

The Commission raised concerns about several issues regarding the €12.5 billion Paks investment, including the lack of public procurement tender and illegal state aid to the plant, but in the end gave a green light to the project.

According to the latest polls, the project is opposed by 43% of Hungarians. However, 23% have not yet decided what they think about it.

Regulated prices of energy: Paws off!

Energy policy, namely the Energy Union, has become one of the constant sources of conflict between Brussels and the Hungarian government. Viktor Orbán believes the EU wants to ban Hungarian utility cost cuts by amending the directive regulating the electricity market as part of the Winter Package.

The European Commission’s actual problem with Hungarian energy policy is that the government sets energy prices in decrees and the benefits of this are only available to household consumers. Fidesz wants to keep the regulation of household electricity prices in the hands of member states. It could serve their own electoral goals, influential Hungarian journalist Gábor Stier explains. Utility cost cuts were already one of the main campaign messages of Fidesz in 2014.

Stier says it is one of the reasons why it is important for Hungary to obtain favourable negotiation positions with Russia. He says this was successfully achieved by the extension of Hungary’s long-term natural gas contract.

On the contrary, Ada Ámon said it is alarming that our dependence on the Russian energy industry is increasing. She also believes that the partly classified treaty on the Paks nuclear plant subordinates Hungary to Russian interests not just in energy, but politically as well.

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Slovakia: The nuclear champion

Few in Slovakia believe that nuclear energy will not play a crucial role in the country’s electricity mix in the following decades. At 58% in 2015, its share will further increase before the end of the decade following the launch of two new reactors at Mochovce.

Alexander Duleba, an energy analyst at the Slovak Foreign Policy Association (SFPA), believes that a safe operation of reactors is the key to Slovakia’s energy security, but also to cheap supplies. “The power produced in old nuclear reactors is currently the least expensive,” Duleba told EURACTIV.sk.

The analyst does, however, foresee a gradual increase of the share of decentralised renewables, which covered 23% of electricity demand in 2015, with hydropower playing the prime role.

“Nuclear energy is the basis of low-emission power production and renewable sources play a significant role in meeting the objectives stemming from the EU membership and help reducing global warming,” the Slovak ministry of economy also said, stressing the priority of “energy security” and “cost effectiveness”.

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Despite recent nuclear scares in Slovenia and France, the European Commission this week gave the go-ahead for the two remaining reactors to be completed at the controversial Mochovce nuclear plant in Slovakia. The decision was widely condemned by environmental group Greenpeace. EURACTIV Slovakia reports.

Raising the percentage of renewables in the energy mix is the goal of the Slovak Association of Photovoltaic Industry (SAPI). “Big centralised units – including nuclear reactors – are ‘a matter of the past’,” Ján Karaba of SAPI told EURACTIV.sk.

There is a consensus that renewables, as a domestic source of power, contribute to security of supplies. At the same time, the overwhelming view is sceptical of their subsidies and fearful of their role in the system stability. In fact, since 2013, distribution system operators have been refusing to connect to the grid renewable capacities superior to 10 kW.

Karol Galek, an opposition member of the Slovak parliament’s economy committee and the energy expert of the Sloboda a Solidarita party, believes that nuclear energy will continue to play a dominant role. But he adds that “unsubsidized renewables, which must reflect local conditions, have the biggest potential”.

According to energy analyst Karel Hirman, “energy security means the accessibility of sufficient amount of energy for a fair and affordable price when this energy/power is needed.” That implies a mix that does not threaten the grid’s stability by unpredictable fluctuations. “The deployment of renewables must stick to this frame,” Hirman told to EURACTIV.sk.

Coal vs gas: Coal prevails

It is generally acknowledged that subsidies for renewables deformed the energy market, which in turn undermined gas power. It is illustrated by the fate of modern gas power plant Malženice.

“After a short test operation, the plant had to close, because it was not capable of producing electricity under the operation costs of 70 EUR/MWh, the long-term market price being slightly higher than 30 EUR/MWh,” Duleba explained.

Karaba believes that “introducing some form of capacity mechanism” would be the solution. This is also the hope of the dominant gas utility and emerging power utility Slovenský Plynárenský Priemysel (SPP).

The company welcomed the introduction of CO2 limits as a criterion for capacity mechanisms in the Commission’s Winter Package. It hopes that the proposals include the factor of “emissions of other polluting substances”, too.

A kind of a capacity mechanism – in the form of feed-in tariffs – was already introduced in Slovakia, designed for the Nováky plant powered by domestic brown coal.

It is unlikely that the power from coal (currently 12% in the electricity mix) will be replaced by natural gas (6%) in the foreseeable future. The image of the cleanest fossil fuel was, moreover, damaged by the 2009 gas crisis.

“Today, Slovakia is a far more secure country in terms of gas supplies than in 2009,” Duleba said, adding, however, that gas has a much more important role to play in heating. “Together with the Netherlands we have the densest gas network in the EU,” he also stressed.

SPP also underlined there is a great opportunity for natural gas offered by energy efficiency measures, joining a cross-sectoral consensus on the contribution of energy efficiency to Slovakia’s energy security. Despite the continued decrease in energy intensity, in 2015 Slovakia’s figure still ranked among the highest in the EU and 80 percent higher than EU’s average.

Czech Republic: Nothing but the market

In its energy strategy until 2040, the Czech Republic counts on nuclear power to replace coal as the main pillar of electricity generation. Its share should rise from the current 33% up to 45 or 50% over the next 23 years, helping the country both with stable electricity supplies and climate goals fulfilment.

By 2037, a new reactor at the Dukovany site should be put operation, possibly followed by another one later. There is also a plan to expand the other nuclear plant in Temelín.

The government has already got in touch with potential technology suppliers, but one serious challenge remains unsolved. The model for financing of this project worth around €4 billion is still unclear, and Prime Minister Bohuslav Sobotka already informed that there is no will to offer any kind of price guarantees.

Just like in other European countries, investment into conventional generation sources is considered to be critically unprofitable. That is also why the Czech ministry of industry and trade views the currently negotiated EU electricity market reform as a crucial issue. New market design should put an end to market distortions, according to the Czechs.

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Electricity market design should provide equal conditions for all energy sources, avoid capacity mechanisms and build on bottom-up regional cooperation, according to the Czech Republic. EURACTIV.cz reports.

A “Level playing field must be ensured for all market participants,” the Czech negotiating position reads, underlining that active consumers or local energy communities should be subject to the same conditions.

Renewable sources of energy should play a significant role in the country’s future electricity mix. In 2040, they could cover up to 25% of power generation, according to the national strategy. However, the government is cautious when it comes to financial support of green energy, based on bad experiences with “solar boom” which occurred between 2009 and 2010.

“The rapid development of renewables turned the electricity market upside down, completely destroying the traditional investment cycle in many countries and regions including the Czech Republic and Central Europe. It also brings significant costs for grid maintenance,” says Václav Trejbal, an analyst for the Czech confederation of industry.

On the other hand, together with energy efficiency measures, renewables are considered to contribute to energy security. “Physically, these are the only domestic sources (unlike oil, gas or nuclear) which we are not running out of (unlike coal)”, Karel Polanecký of the Friends of the Earth Czech Republic said.

“When it comes to energy security, decentralised systems independent from fuel supplies are the best solution we have been able to come up. An energy system based on renewables could look that way,” Jan Osička from Masaryk University in Brno also thinks.

Would gas save it?

Regarding the current problems of market functioning, there is a coincidence of three factors: low price of allowances in the European emission trading scheme (EU ETS), low price of coal, and generation overcapacity, according to Osička.

“When it comes to electricity price, the problem is that the fossil fuel industry does not pay adequately for the environmental damages they cause,” Polanecký also said. Imposing a carbon tax could solve the low price of allowances, he thinks.

Unlike many other countries, the Czech Republic strongly opposes the establishment of capacity mechanisms.

“These should be the last resort measures, justified by the regional generation adequacy assessment conducted according to the EU common methodology. Capacity mechanisms should be market-based and not market distorting, and should include comprehensive phase-out roadmaps in case that the market deficiencies are removed. They must also be cross-border opened,” said Lenka Kovačovská, the Czech deputy minister of industry and trade claimed at the Energy Council at the end of February.

One of the theoretical questions constantly present in Czech energy debates is whether natural gas could play a more significant role in electricity generation, possibly replacing nuclear in energy strategies.

According to green NGOs, which put emphasis on the need to reduce consumption of gas in heating, it could complement renewables in the electricity mix, as it is a flexible source, and it is also cleaner than coal. This view is shared by a broader spectrum of stakeholders. However, concerns remain due to the bad image of gas connected with the security of supplies.

Osička says there is no need to worry. “We are the best-prepared country in Europe when it comes to the N-1 standard of supply security. In January 2009 we survived a thirteen-day-long interruption of the main supply route – without problems. Since 2014 we have successfully participated in supplying Ukraine with gas from Western Europe,” he stressed.

According to Trejbal, gas does have its place in Czech energy mix. “It is also one of the assumptions of the Czech energy strategy,” he said. The strategic document counts on 5 to 15% of gas in electricity generation.

However, Trejbal mentions the fate of modern gas plant in Počerady, very much similar to Malženice in Slovakia. Unless the price of allowances and electricity is higher than today, it does not make sense to build new gas generation capacities, Trejbal said. In his view, domestic reserves of coal offer a more probable alternative to the nuclear blocs at the moment.

Poland: Coal (and nuclear?)

Poland is a very traditional market in terms of energy supply. Most of the energy generated by Polish power plants comes from fossil fuels. Coal’s position is dominant and unlikely to change in the coming years – plants fuelled by black and brown coal are responsible for generating over 80% of energy in Poland.

Coal plants are not only providing jobs by themselves. They are also connected with coal mines and strong as ever miners’ labour unions that vehemently oppose any plans leading to a decrease in their power. As they are a highly-organised and motivated group of voters, the miners enjoy a significant amount of influence in Polish politics.

Poland also plans to join the club of countries using nuclear energy. The country’s first nuclear power plant was supposed to be online in 2024, but it has suffered a number of delays and currently the earliest date for it to become operational is 2029 or 2030.

The true cost of coal in Poland

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Current energy minister Krzysztof Tchórzewski stressed recently the need for such power plant, and he hopes that the construction can start in “the coming two years”. He added that a nuclear power plant is necessary for Poland, especially as the country plans to continue use of coal, so nuclear power will be “necessary to stabilise our energy mix”.

In terms of renewable energy, there are two main sources in Poland: biomass (over 80%of all the energy from renewable sources) and, to a far smaller degree, wind (10%). According to the recent numbers by Eurostat, the total RES share in 2015 was 11.8% against the target of 15% in 2020.

The potential of renewables was supposed to be strengthened by a new bill in 2015. Yet it was criticised by the groups as the legislation, together with amendments added in 2016, slowed down the market and failed to support the development of the small-scale generation by citizens, farmers and SMEs and the so-called prosumer economy.

“The small-scale generation of energy from renewable sources should be a basis for the development of a decentralised power sector in Poland and for contribution to the 2020 RES target, which now is not likely to be achieved,” euractiv.pl was told by Grzegorz Wiśniewski, president of the EC BREC Institute for Renewable Energy.

He admitted that given the increased politicisation of the Polish energy sector as a whole, it is difficult to foresee how the electricity market will develop. However more and more politicians are calling for legal enforcement of the development of prosumer energy, he said.

Gas: Let’s have links to everyone

Natural gas security is a much more complicated issue than coal. Poland imports nearly 75% of its gas from outside of the country. The chief source of imports is Russia – over 70% of the gas imported to Poland is bought from Gazprom.

Yet there are many ways for the situation to change. As Robert Zajdler from the Sobieski Institute noted, the gas infrastructure has been improving in Poland over the recent years. “We have both new LNG terminal in Świnoujście and plans for the Baltic Pipe connecting Poland to Denmark and Norway,” he noted.

The Świnoujście terminal, put into operation in 2015, can host 5 billion cubic meters of LNG per year, less than a third of the Polish yearly demand. Poland has a long-term contract with Qatar for supplying the LNG, which uses about a third of the terminal’s capacity and is supported by spot transactions, most recently with Statoil.

Other than the terminal, Poland invests in connections with most of its neighbours. “We have a good connection with the German market which is both big and liquid enough to be able to provide us with security. There are also already existing and planned, connections with the Czech Republic, Slovakia, and Lithuania which will further improve our security,” Zajdler explained.

Finally, Poland is trying to lever its membership in the EU to secure its supply. Civic Platform MEP Jerzy Buzek (EPP) and Donald Tusk, while he was still prime minister of Poland, had been the initial force pushing for the closer energy union.

“Thanks to the Polish actions, the EU has been convinced to focus more on the energy security, which includes pushing for increased cooperation between the member states, protected status, and plans for joint purchases, though the latter were not implemented,” senior fellow of the Pulaski Foundation Przemysław Zaleski said.

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