Successive Czech governments have supported Temelin expansion. Here are the five most common arguments used to justify the policy.*



Argument 1: Temelin will provide a strong fiscal stimulus to the Czech economy, injecting some €12 billion over 10 years.

The argument developed by the nuclear industry and adopted by successive Czech governments is that the expansion of Temelin will provide a beneficial fiscal stimulus returning the economy to growth. This is a myth with no credible theoretical foundation. Current empirical academic research on the effectiveness of fiscal stimuli shows that government investment projects like Temelin are highly unlikely to contribute to sustained economic growth. This conclusion holds true regardless of who owns the companies performing the construction work funded by the state – it is the type of state investment, ie. what the public money is spent on, not the nationality of the contractors that counts. If the state wishes to pursue an expansionary fiscal policy and promote industrial growth through higher taxes, it should invest the extra revenue in areas of lasting value, such as education and vocational training, rather than in a wasteful project such as Temelin 3&4, which would burden Czech taxpayers for a generation or more.


Argument 2: Temelin will boost the competitiveness of Czech industry, notwithstanding the public subsidy required to fund it.

On the contrary, subsidized nuclear power generation will harm the competitiveness of local industry. The purchasing and investment power of Czech industrial consumers will be reduced, as well as that of households. In addition, those select few companies that will benefit in the short term from the expansion of Temelin are benefiting at the expense of other, more economically productive industries and recipients of public money. In essence, the public subsidy scheme envisaged for Temelin is designed to prop up a sunset industry at the expense of everyone else.


Argument 3: Temelin will ensure that the Czech Republic remains self-sufficient in electricity production.

This argument assumes that national self-sufficiency in energy, secured through subsidized electricity production, is more desirable than self-sufficiency in Skoda cars, Moravian wine or Vysocina potatoes, secured by means of their subsidized production. The integration of European grids and power exchanges makes this policy goal seem quaint, and given the galloping expansion of German renewable energy production, somewhat misguided as well.


Argument 4: Due to evergrowing demand for electricity and increasing dependence upon erratic renewable energy sources, stable energy sources are required to avoid blackouts.

The assumption of an evergrowing demand for electricity is mistaken. World Bank data on change in annual GDP and change in annual electricity consumption in the Czech Republic demonstrate that the high correlation between GDP changes and power consumption changes started to weaken ten years ago. Since 2003, increases in GDP have overtaken increases in power consumption. The decoupling of GDP and energy demand has become more evident in the past 4 years. In other words, a return to economic growth in the Czech Republic does not necessarily spell higher demand for Czech electricity.

Furthermore, no one disputes that the surge in renewable energy in Europe’s grids has made electricity markets volatile. The disagreement lies in how to address this volatility. 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. Conventional sources have been pushed out of the merit order and their role today is to balance output variations of wind and solar energy. The challenge becomes how to manage this volatility. The output of nuclear power plants is both difficult and expensive to regulate, making them unfit for purpose. We should better manage this volatility by making the supply, demand and the transmission of electricity more, not less, flexible. This is achieved by introducing more responsive generation, not less.


Argument 5: The price of wholesale electricity will recover, making Temelin profitable.

Before the global economic crisis hit, falling demand and renewable energy had already begun to undermine conventional supply. Pre-crisis wholesale 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 around €40 per MWh. Our research shows that the breakeven price of Temelin expansion is close to €115 per MWh expressed in 2013 prices. This selling price will have to be sustained in real terms, that is to say, in 2013 money, for the full operational life of the plant to ensure capital costs are covered. Neither we nor potential equity investors consider this realistic.


*This is a short excerpt from TEMELINomics 2, our second and final study on the economics of Temelin expansion. We examine the impact on CEZ and the state budget of the taxpayer-funded subsidy scheme being proposed by the Czech government as a way to pay for the construction of Temelin 3&4. We conclude that the subsidies that would be paid to CEZ under this scheme would far outweigh the increased dividends and taxes the state will collect in the unlikely case that Temelin is ever expanded. The full study in English can be downloaded free from our website here