Market conditions for nuclear power plants may have changed, but Daniel Benes has not.



CEZ responds to changing market conditions...

What everyone expected has now happened. But if the decision was so ‘expected’, as all the pundits tell you today, why did they not say so earlier that the Temelin project was dead?

Anyone with an elementary understanding of European power markets knew that large nuclear power projects in Central Europe were an economic nonsense already in 2011. Before the global economic crisis hit, falling demand and renewable energy had already begun to undermine conventional supply. Pre-crisis electricity prices had climbed to €90 per MWh, while today the spot price and the expected futures prices for the next 5 years are hovering below €40 per MWh.

CEZ should have cancelled the tender three years ago. It would have saved tens of millions of euros of shareholders' money and hundreds of fatuous commentaries by the very same pundits who today tell you that the end of the project was all so predictable.

“This doesn’t mean that the Czech Republic has given up on nuclear power,” according to Daniel Benes of CEZ speaking this morning: “There’s still an acute danger that we won’t be able to cover our electricity needs in 20 years.”

Bollocks, if I may say so, Mr Benes! There is an acute overcapacity in Europe. There is certainly no need for large baseload generators like nuclear power stations. Power prices will very likely stay low for years to come, given the expansion of wind and solar in Germany, as well as low hard coal and irrelevant carbon prices (at least until 2021).

Given abundant power supply in Europe, the Czech government should focus on making the Czech transmission grid smarter, better interconnected and more robust, so that Czech consumers are able to profit from cheap German wind and solar power. Instead, it is puzzling over how it can pay for yet more inflexible baseload generation.

As we wrote in a recent study on the subject, "The Czech energy establishment favours a return to the status quo ante, in which regulated, vertically integrated incumbents meet the nation’s electricity demand by operating a fleet of large, inflexible, baseload power plants. Such a backward-looking approach fails to face up to fact that renewable energy has become the new baseload because of its zero marginal cost of production."

Daniel Benes whines that market conditions have altered, making the project no longer viable. Wow! Market conditions have changed! But isn’t this what makes a market economy different from a command economy, and isn’t this why market economies allocate capital more efficiently than command economies (and third-rate managers such as Mr Benes)?

And isn’t Daniel Benes paid lots of money precisely to anticipate and exploit changing market conditions on behalf of his shareholders? And isn’t this why we have market analysts, to analyse changing market conditions?

Reading reactions to news that CEZ has cancelled the Temelin tender, it seems the only person taken by surprise was the US Ambassador: "As close friends and allies, we are concerned about the signal this may send to U.S. and international investors," he says. With respect, Your Excellency, but this is more bollocks. Why would a rational investor, US or otherwise, be concerned that CEZ is acting in the interest of its shareholders?

Yes, the decision to cancel the Temelin tender was long expected, but not by all those who now appear so wise after the event. And yes, we told you so already in January 2012. We called it ‘TEMELINOMICS’. Daniel Benes calls it changing market conditions. The result is the same. No Temelin 3&4.

*Thanks to Jan Ondrich, Ivan Kotev, Georgi Vukov and Martin Bebiak, my colleagues at Candole, for all your sterling work on the subject over the last five years.