Monday, March 11, 2013

Konstantin E. Jacoby: Winner of the Temelin tender wins the Eastern European market

Michal Hudec (energy analytics) discussed with Konstantin Jacoby (EEE JacobyKo) actual issues linked to nuclear energy and the future prospects of nuclear energy sector in Slovakia as well as in broader CEE region.

  • Run-up question: You are currently based in Slovakia and you lead your own small company, which is focusing on consultancy also in field of energy. What is your experience from Slovakian market and how would you evaluate those 12 month from business point of view?

First of all, I am not a newcomer on the market. I have been analyzing this market from 2007 and actually my first step into the market was with the VVER-440 multifunctional simulator in Trnava in 1998. Moving to Slovakia was a logical consequence of my previous business in AREVA - at the right time (in my opinion) and independently of Fukushima. I had actually made the decision before the tragedy.

The market itself is strongly influenced by the international environment and influences. One is the financial disaster in 2008 with its subsequent economic crisis, which reached Slovakia in 2011, another is the German decision about nuclear exit. I am observing these forces also in my business. Further, it is now also apparent that Slovakia is no longer a low-cost country for the benefit of the Western part of the European Union. And this is good. Slovakia has its own technical expertise.

My first business year with an independent company was a difficult year , as usual for any new company. I call it a “zero round”. The income is quite low but the future story is promising.

  • You have mentioned that you did not decide to come here because of Fukushima. Why this remark?

Yes, I have mentioned this because this question was often asked to me last year during conferences by Slovak clients and other potential clients. Actually I had made the move after the official shut down of nuclear units in Germany. So this is coincidence in time, but not the answer on question “why?.” I offered already two to three years ago to AREVA to increase our presence here and not only to concentrate on the part of I&C and electrical systems for the completion of NPP Mochovce. I proposed to the company to come here and set up a wider business presence. However, this was not realized the way I considered it necessary and in the end I have decided to go on my own.

  • You worked for AREVA before. What were your responsibilities there?

In the past I had actually two major areas of assignment in AREVA. The first one was the training center for power plant personnel, organized in the nuclear division, but working worldwide for fossil, industrial and nuclear plants. It was in the 90s, when the nuclear training business of that training center was sharply decreasing in the German market. And therefore, we restructured the department in preparation for the upcoming slowdown. The restructuring of the training department was my first large activity lasting 7 years and we managed to transform the business result from minus 30 % to plus 26 %. And as the French acquired the majority in the nuclear division of (at that time it was called Framatome ANP) I became responsible for marketing in Russia, then later in the Czech Republic and in Slovakia, running large projects in Ukraine at the same time.

  • How would you evaluate the situation in Mochovce 3 and 4? The project is already delayed, but on the other hand, there is no other NPP construction, which had been finished by the official deadline...

I would not say it is a typical example for a construction of a nuclear plant. It is a project to be completed. The two units were conserved for about 20 years and the documentation established 20 years ago was not in the quality that is used nowadays, therefore you can expect surprises. This is one aspect; the other one is the process of completion itself. The design to cost approach was introduced for purchasing, the project was started and the supply consortia were set up for the nuclear and conventional islands in several steps. This took much longer than it was expected and this is the main reason of the delay. Also technical problems contributed to it, but this did not make the one and a half a years.

  • And what is your expectation based on your previous experience?

I do not have detailed information but my personal expectation is 2014, maybe 2015 for the fourth unit.

  • Slovakian JAVYS and Czech ČEZ established a joint company JESS. Its aim is to prepare the project and later to build a new nuclear source on Jaslovské Bohunice site. What do you think about such a vision, to have additional nuclear power plant on small Slovakian market?

The project in Jaslovské Bohunice is a necessary one.

  • Why necessary?

When you look at the forecast of energy consumption mentioned in the Energy Security Strategy adopted in 2008, Slovakia transformed from an electricity exporter to an importer. Even if you take into account current economic slowdown in Europe, there will be a big gap in electricity generation in Slovakia. Two units (V1) were shut down prior to entering the EU, this makes a loss of almost 1.000 MW of electricity generation capacity. We have a restricted lifetime of the existing units (V2) until 2030 maximum. So at least replacement capacity is needed. And also for the Mochovce units 3 and 4, one can estimate that they run for 30-40 years and Mochovce units 1 and 2 are 15 years older, so they have another 20-25 years ahead. One has to have base load generation capacity in the energy mix and nuclear generation capacity reliably provides that. Nuclear energy is very independent from fuel pricing unlike fossil energy. Gas fired power stations are dependent by 95 % from fuel volatility.

  • OECD published a report on levelized costs of electricity produced while using various technologies. For example, the average prices calculated for the whole life cycle are more or less comparable for nuclear and other mature technologies. In case of nuclear, the majority of price is dependent on huge initial investment costs, in contrary to electricity produced from other sources that are highly sensitive to fuel price and less to investment costs. But altogether, the prices are more or less comparable…

I would not say that. The price of energy from fossil power plants actually neglects the decommissioning consequences. Nuclear generation includes that. And this is the first point. The second point, which is very important at the moment in the financial crisis, is that you can rely on quite stable generation cost for several tens of years. With gas it is different. Nobody can predict how much gas and oil will cost several tens of years from now on. It can be 5 times more than now.

  • But the statistical calculation of OECD is not so pessimistic about the other energy technologies than nuclear…

With high efficiency of the power plant you can have quite fixed generation plans for a very long time. This provides a financial payback security. With a gas power station you do not have the guarantee because you do not know the price at which you will sell electricity and the price at which you will buy gas. This is much higher insecurity for an investor than with a nuclear plant.

  • Let’s switch to another topic. A hot issue, which is quite intensively discussed this time, is the prospect of uranium mining in the East of Slovakia. Do you have any detailed information about it, for example, is it true that the quality of ore is a world class?

What I have heard about the uranium ore in Eastern Slovakia, it is of good quality for exploration and it raised interest with a number of companies, including AREVA. Having such a resource is a big advantage and it gives security for long-term planning of energy sources.

  • Why do you think it is an advantage regarding the security? Mining is one activity, trading another and enrichment or uranium fuel production is completely another independent business activity. And there is no guarantee that uranium ore mined in Slovakia would be used in form of uranium fuel in reactors operated in Slovakia. 

Considering uranium trading, trading of the ore, there are certain restrictions given by law. On the other hand this gives an opportunity for two companies which are involved in enrichment and production of the fuel on both sides – Russian and European. For both it is an additional way of diversification of fuel production. This can attract big players in the nuclear field.

  • Do you see any possibility that enrichment facility might be built in Slovakia for example?

It is too early to say that. Mining is one thing and the establishing of the enrichment factory is another thing. It is also a huge investment but this could feed Slovak nuclear power stations for the next decades, 30 – 40 years, maybe 50. Using new technologies, it can last much longer.

  • But this is not an answer to the question of the potential benefit for Slovakian nuclear power plants in case the uranium ore would be mined in the Eastern Slovakia…

This is very simple due to the trade. There are many possibilities how to do that. When you cooperate with enrichment facilities you can explore uranium and combine this, let’s say, with shares in enrichment facilities or fuel facilities. There are many combinations possible. It is already done in other countries. So, why not in Slovakia or somewhere else in the EU?

  • We discussed the completing the nuclear power plant Mochovce. The similar project is being realized in Temelín in Czech Republic in a short term. And there is also o lot of discussions, issues like AREVA’s exclusion...

First of all the decision to exclude one of the three big players and the biggest European player is a big drawback for European nuclear ambitions. It was quite unexpected, from my point of view. There have been some signs prior to this decision. The presence in Slovakia and the Czech Republic and the involvement in the industrial and political dialogue about Temelín were not sufficiently strong, as a marketing strategy. AREVA has built units all around the world and represents a strong involvement in the industry. It is an industrial power in Europe and in the world. The tender participation should reflect the presence in the country at all levels – from public to industrial. It cannot just simply end up with presentations. People and politicians need to see the involvement and what the company does in the country in fact.

The presence in both countries, the Czech and Slovak Republics, was hard to manage. And there was a big communication problem behind that – not only between the Czech side and AREVA but also within AREVA itself. According to my last level of information, the Eastern parts of Europe are sales region of the German part of AREVA. New builds are accounted for by the executive management, sales departments and marketing in Paris. So, do they really work hand in hand? It might not be like that. The dialogue appeared weak and one could only expect that one of the competitors gets in and takes the opportunity. And it is obviously that what happened.

  • Behind this weakened position of AREVA you see a lack of coordination between both French and German parts of company?

Maybe yes, also those business units apart from new build sales and development (but not only their sales units) are important for winning new builds, and here the process suffers from some inefficiency. A new build win is normally prepared also by market presence of other business units of the company, like nuclear service or nuclear engineering, which have their own sales staff apart from new build sales and development staff...
  • Let’s talk a little bit more about AREVA. How would you evaluate company’s position on CEE market? It is a giant in the West, but a kind of dwarf here. CEE is the traditional market of Russian Rosatom. At the same time, Russians are more and more active since the last days. AREVA seems to be lagging behind and this gap has deepened so far…

From the Russian point of view it is seen as a traditional market. If you look at the positioning of the Russian VVER and RBMK power plants, there are three circles: around the area of Nizhniy Novgorod and the outer one runs through EU regions.

The new political situation that evolved more than 20 years ago and the EU enlargement a few years ago drastically changed the market propositions. EU is now near the Russian border, divided just by Belarus and Ukraine. This former market of Russia is now also a European market. So it should be served by European companies, but also from Russia. This is natural. I am not excluding the former provider.

Temelin plays a crucial role in that. From my point of view the winner of the Temelin tender wins the Eastern European market. There were two nuclear completion projects. One is here in Slovakia, NPP Mochovce 3 and 4, and the second one was NPP Belene, which is dead now. Instead of that there might be a new build, and looking carefully at the NPP Belene project, it has never been a real completion. It was a new build project from the very beginning. So, all other new power plants are new-builds also in Eastern Europe. No completion projects. What AREVA missed to achieve in Eastern Europe is the move from the completion projects, where mainly I&C and electric systems are provided, to the market for new-builds. The propositions were splendid but the positioning was too weak.

  • But it is quite optimistic to expect the new-builds after Fukushima. Is it realistic that we will have some new additional NPPs?

Yes, of course it is realistic.

  • Well, in which time period you expect the change of political sense of nuclear then? It is very political issue indeed…

The major drawback for new nuclear power plants and also big infrastructure projects in general is not Fukushima. When you look at countries and policies approaching this question rationally, then Fukushima has a very little impact particularly in Europe. As a result of Fukushima so-called stress tests were performed and increased safety requirements were imposed that have an impact on existing nuclear power plants. They do not have much impact on generation III+ nuclear power plants. When you look at the design and safety requirements for Gen III+, requirements stemming from stress tests were already included into the engineering for this generation more than 10 years ago. So, for the licensing and the implementation of such projects I do not see a big impact of Fukushima.

  • This is the technical point of view. How about political point of view? Especially the Germans are very sensitive about nuclear.

Germany is one out of 27 countries in the EU. Perhaps the most powerful in terms of economic power but there are also restrictions for Germany. For nuclear power plants and big infrastructure projects the biggest drawback is the financial crisis, not Fukushima. How to convince investors and banks to put money into long term infrastructure projects now? I think it is actually the right time to do it now. Why? Since the 2008 crises a big amount of the world’s money disappeared. The so called “Euro crisis” is actually not a crisis of the Euro. It is an attack on the strongest currency in the world. Disappeared money is equal to a disappeared value.

There are only two possibilities how to regenerate this amount of value. The first is to pass the debt on somebody else, which is the process going on around. The other way is to put the value to the money by investing in reasonable way into value generating projects, like into large infrastructure projects, which will earn money for decades. This can help also the banks. This is the crucial point, to convince investors that it is worth to invest the money into the projects now.

  • It is nice prospect, but NPP means pay-back and added value only if it runs for decades without any serious difficulties. If you imagine the collapse similar to one that happened in Fukushima, all added value disappears and you start making a loss. You cannot think just about the added value, you have to keep in mind also the risks, don’t you?

First of all, the risk in nuclear energy technology is not a zero risk. The risk in other technologies is also not at zero.

  • If any power plant like running on natural gas or coal gets into troubles, the damages are minimal. If nuclear power plant collapses, the damages are enormous and they have a significant impact on area around…

This is a widely spread opinion. When you look at Fukushima from the nuclear accident’s point of view, the amount of deaths is “two”. Tens of thousands people died because of the tsunami. This is politically constructed and manipulated information. The risk from other technologies is also quite big. Look at hydropower. When you look at the technologies, hydropower had damaged thousands of lives and several thousands more lives than nuclear power.

  • Yes, nuclear technology itself is not so "mortal" than the other ones. But still the total impact is much broader, when radioactive materials spread into the environment. And the consequences include also lost households, lost the households, harmed human lives of inhabitants that used to live in area of NPP etc…

Again, what was the origin of the accident in Fukushima? I would like to come back to human nature. We cannot influence the planet but we can influence our behavior towards technology. The nuclear disaster in Japan was a long-term management disaster in nuclear technology. That is the point. This was a management disaster due to the closed nuclear society. There was no insight from other countries into what Japan was doing in the nuclear field. The same situation as it was in Russia 20 years ago.

  • What is the guarantee that nuclear safety management in Europe is much better than in Japan?

The stress tests show the best example. The peer reviews were the best practice example of cooperation between all levels of society including various authorities, engineering, and industry, including at the same time with the “Greens”. They put everything on the table and discussed it in detail.

It becomes difficult when politics gets involved. When you look at the last months - after the stress tests were completed and the peer reviews were finished – during which the final report was generated in Brussels, certain information that was leaked and promoted. Transparency in the process got lower. The stress tests themselves put all facts on the table, everybody was able to read it on the internet and leave an opinion. How was this information used? This was mainly behind closed doors in Brussels. This is not OK. The peer reviews and the stress tests themselves gave an excellent example how safe nuclear technology is. As soon as it is openly communicated and put on the table.

  • As you mentioned, some processes held in Brussels were behind the closed door. Why?

This is also the impact of the nuclear phase-out in Germany.

  • Germany has one of the strongest voices in the EU and it plays a key role on CEE market as the biggest economy here, with very strong economic influence whether direct or indirect. Therefore, don’t you think Germany will shape European energy policies the most and the outcome might be a kind of pan-European “Energiewende”?

Of course Germany plays a strong role particularly in the financial scenario of Europe. In this context the decision for Energiewende in Germany in 2011 was the biggest mistake. They made the decision without consulting it with its neighbors, without rational investigation of the consequences. The planning they presented to the German people was a very ambitious one and it was hiding certain information. The result of Energiewende is actually that at least until 2020 and maybe beyond Germany will use more fossil fuels, Germany will import electricity, and Germany will burn more coal.

Where is the so called green turnover of Energiewende? I do not see it. It is actually a lie. When you look at the photovoltaic technology, Germany is saturated. This is a change of the rules of the game. Germany is an export oriented economy. With this step they prepared, as this technology is no longer beneficially applicable in Germany, to push this technology to other countries. However, every member state of the EU has its own possibilities, sources, dependencies. This defines in a rational way how to set the economy and security of energy supply.

Security of energy supply is as crucial as the security of the currency, maybe even more. From my point of view it means to stabilize the economy and to foster the development of the country. I will go so far as did František Janouch in the discussion with Andrej Sacharov. Energy is a means of guaranteeing freedom. This has to be decided by every state itself. To cope with the different weights of the countries within Europe, the energy policy should follow regional approaches. Energy depends on natural resources. Also uranium is a natural resource. Also solar energy is a natural resource. It depends on the geographic area and incoming temperature, which amount of heat you can exploit. Wind is also regionally dependent. Regions have to investigate how to make the energy mix. This goes beyond political borders. A rational dialogue forms essential means how to do so.

Due to that I am telling, it was a crucial mistake to decide without consulting Germany’s neighbors. The plan to reconstruct, stabilize or enlarge the transmission grid and to adapt the market direction to this technical decision was estimated completely wrong. You get aware of it observing the unplanned electricity flows, which are the result of contradiction between the physical and market flow.

  • What might be the solution for such a situation – new infrastructure for transmission in Germany or something different?

We cannot wait until Germany consolidates the transmission infrastructure. We have to live in reality and that means when we talk about Central and Eastern Europe we need to ensure grid stability. It means adapting the grid to demands that will come in 5 or 10 years from now. But we need to do it now.

  • Stabilizing the gird is linked to additional investments also in the neighboring countries of Germany. At the same time, V4 transmission system operators published in January 2013 the second study, which asks for splitting the German-Austrian bidding zone. What might be the next steps?

A joint study of V4 TSOs was the first step. But in the end, this is at least a regional question and maybe European. We see that one country can make the decision and consequences have to be paid by others. And the answer for the whole issue can be that economic reality has to follow the physical flows, not the other way around. Germans do something in economic reality, which is not in line with the current state of the infrastructure.

  • Well, but it means that solving the situation would require Germans to admit their failure, the failure that was made in Germany. Personally, I cannot imagine such open recognition…

They do not need to admit that. The facts speak about that very loudly.

  • OK, but without the first blackout or the first serious problem, it will be just a discussion. The real practical consequence of German decision is still missing in this debate…

Maybe yes, but by the way I have already heard that in Austria that some wish Germany to witch on some of their nuclear power plants to re-enforce stability of the grid. Joining forces and arguments can help. Germany believes in its own forces and strengths, because countries like Poland, Slovakia, Czech Republic and Hungary are weaker, when acting individually, compared to Germany. But on the other hand, joined V4 countries together have a better position and they all face the same problem, which is the stability of the grid.

  • Let’s summarize our discussion. If you look back on all issues we have discussed, don’t they say anything about the future common energy policy in the EU? I don’t mean energy policy as a theoretical concept, but energy policy in fact. Will there be a real EU energy policy in the distant future?

Yes, there will be a European energy policy. I am not speaking about a centralized policy. The strength and the specialty of the EU is its diversity: 27 states, 27 cultures. This is the strength of Europe. Sometimes it is acting more slowly than centralized policies but this diversity is in fact more stable and any attacks can be handled more efficiently. My recommendation for the European energy policy is to really make use of diversity, to make use of energy corridors which are identified. All these corridors are multinational. Countries can really make use of that and foster the development and ensure that energy generation and energy transmission, energy security including renewables, nuclear energy and gas can lead to reducing CO2. In this context energy in Europe and the respective infrastructural projects can support economic stabilization like money does. Energy is just as important as money.

Konstantin E. Jacoby acts as energy technical-institutional consultant at EEE JacobyKo.
The interview was prepared in cooperation with energy analytics's Mr Michal Hudec.

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