THE CHALLENGES OF EUROPEAN ENERGY SECURITY

Jiří Feist, CEZ Group

2

EU-WIDE DISCUSSIONS INCLUDE ENERGY SECURITY, BUT WITHOUT CLEAR PRIORITISATION

„CARE“ – climate action and renewable

energy package

Liberalisation packages

Diversification of Supply

Liberalisation of electricity market

Secur

ity o

f

Suppl

y

Emissions

reduction

„Sufficient and secure electricity supply

together with GHG emissions reductions“

3

Generationcapacity

Power grids

Will there be enough generation capacity to meet demand?

Will power plants have uninterrupted delivery of fuels?

Will the grids be capable of suppling enough power?

MAIN POWER SUPPLY QUESTION MARKS

Fuel supply

4

EU-27 countries

0

100

200

300

400

500

600

700

800

2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

GW*

Other

Gas/Oil

Hard Coal

Lignite

Nuclear

Hydro

Additional planned capacity

Peak demand + 5% margin (CAGR 1,25%)

* maximum available capacity = net installed capacity without non-usable capacity (availibility ratio wind: 0,25; RoR hydro: 0,3; other 0,85-0,95)

Source: Platts, Eurelectric, CEZ

EUROPEAN POWER GENERATION CAPACITY IS LIKELY TO FALL SHORT

320 GW Shortfall

Extra 320 GW has to be built till 2030 outside of current planning

EU could be short of electricity as soon as in 2013 even when considering small demand growth

New additions come mostly from gas and wind, but wind´s disponibility is rather low

5

20 25

8

27

57

5

826

2751 12

30

3114

HC IGCC CCGT Nuclear

*coal 110 USD/t, oil 80 USD/bbl, CO2 40 EUR/t

Full costs of a new power plant*EUR2008/MWh

CO2

fuel and other variables

fixed costs

capex8190

78

47

FROM THE ECONOMIC POINT OF VIEW, BUILDING NEW NUCLEAR POWER PLANT LOOKS MOST ATTRACTIVE

Nuclear plant is the most commercially attractive option for electricity generation and a viable solution for large-scale CO2 reduction

The economic evaluation of other sources is driven by CO2 regulation, which is not clear in the long run

6

Generationcapacity

Power grids

Will there be enough generation capacity to meet demand?

Will power plants have uninterrupted delivery of fuels?

MAIN POWER SUPPLY QUESTION MARKS

Fuel supply

Will the grids be capable of suppling enough power?

7

WITH THE GROWING DEMAND AND FALLING INDIGENOUS SUPPLY EU BECOMES INCREASINGLY DEPENDENT ON EXTERNAL ENERGY SOURCES

Who can provide Europe stable and secure fuel deliveries?

What are the energy options?

42

44

46

48

50

52

54

56

2000 2001 2002 2003 2004 2005 2006

En

erg

y Im

po

rts

/Co

ns

um

pti

on

Ra

tio

(%

)* ...

EU´s Energy Import Dependency

Source: Eurostat

* Excluding uranium imports and nuclear power stations consumption

8

COAL REMAINS THE MOST ABUNDANT FOSSIL FUEL IN THE EU

Lignite

Hard Coal

Oil

Gas

Source: BP Statistical Review of World Energy June 2008, Euracoal

EU´s Proven Fossil Fuel Reserves*

Total: 822 TJ

Domestic coal available in many EU statesHigh security of supplyDiversification of suppliers possiblePrice: low

* Reserves that can be with reasonable certainty can be recovered in the future from known deposits under existing economic and operating conditions.

9

NON-EXISTING GAS MARKET EXPOSES THE GENERATORS TO SINGLE SUPPLY SOURCE IN MANY PARTS OF EUROPE

Import from outside the EU necessary - security of supply dependent on supplier reliability and market access

Price: high

Source: BP Statistical Review of World Energy June 2008, WoodMackenzie

10

FUEL SUPPLY FOR NUCLEAR POWER GENERATION IS WELL DIVERSIFIED

24%

17%

9%7% 7%

6% 6% 5% 4%

0

200

400

600

800

1000

1200

1400

Au

str

alia

Ka

zac

hs

tan

Ca

na

da

US

A

S. A

fric

a

Na

mib

ia

Bra

zil

Nig

eri

a

Ru

ss

ia

Th

ou

sa

nd

to

nn

es

World uranium supply

Small quantities of fuel, easy to import

Diversification of suppliersLong-term stockpiling possiblePrice: very low

Source: IEA

11

RENEWABLES ARE POPULAR CHOICE BUT COULD NOT BE DEEMED AS SECURE SOURCE

Fuel supply subject to laws of nature – potential for human intervention limited

Considerable amount of reserve capacity and new transmission infrastructure needed to balance the wind volatility

Lower heat rate of biomass creates logistical issues and potential fuel/food scarcity

Source: EWIS, ETSO

12

Generationcapacity

Power grids

Will there be enough generation capacity to meet demand?

Will power plants have uninterrupted delivery of fuels?

MAIN POWER SUPPLY QUESTION MARKS

Fuel supply

Will the grids be capable of suppling enough power?

13

Commercial cross-border flows in 2007

sum of cross-border trade vs. country’s consumption ratio

0

10

20

30

40

50

60

Germ

any

Franc

e

Nethe

rland

s

Czech

Rep

ublic

Slovak

ia

Hunga

ry

TW

h

Import Export

13% 14% 15% 37% 67%

Source: ETSO, CEZ

External trade has become significant factor in securing supply and balancing the system

Greater interconnection capacity widens the market and thus increases generation competition and efficiency

MARKET INTERCONNECTION IMPROVES GENERATION EFFICIENCY BUT ALSO CREATES GRID BOTTLENECKS

13%

68%

14Source: EWIS

Volatility of wind power requires increasing reserves in grid capacity to absorb changing power flows when wind starts/ stops blowing

Decrease in available cross border capacity reduces trading opportunities

GROWING WIND POWER GENERATION IN EUROPE IS ENDANGERING TRANSMISSION STABILITY

15

CONCLUSIONS AND RECOMMENDATIONS

The EU has created strong tools to promote emission savings, similar measures are desirable for security of supply (gereration, fuels, grids)

Sufficient capacities of generation resources and transmission grids are the keys to energy security and an efficient energy market – the necessity are fixed rules providing long-term investment environment (e.g. long-term CO2 rules).

Need for ongoing open discussion about nuclear energy as one of indispensable sources in the European energy mix

“Secure” generation capacities can´t be dependent on the will of God (the role of renewables, while important, should be complementary to the need for secure sources in the overall energy mix).

The EU needs a strong common foreign energy policy to strengthen its position in strategic fuel supply negotiations.

Energy security should be a clear priority!

THANK YOU