The study of Candole Partners compares the expected costs and revenues of Paks II with the figures of the “Rothschild study” [2], the most recent power price forecasts published by the International Energy Agency, and the reference values of the French Court of Auditors. [3] The rate of return is below the cost of capital in all of the six scenarios outlined in the study. [4] [5]
The Candole study, sent to the Directorate-General for Competition of the European Commission, concludes that the Paks II project could only be implemented cost efficiently if calculated using the unrealistically high world market power prices used by the Rothschild study. [6] However, if realistic prices are used, it is evident that the construction and operation of the Paks II project would require state subsidy, reaching up to HUF 285 billion, depending on the actual scenario. [7] Hence, the Rothschild study carried out on behalf of the Hungarian Government is mistaken: the operation of the new power plant is not a good investment, neither financially nor energetically.
An in-depth investigation of the Paks II project by the Directorate-General for Competition of the European Commission is currently under way regarding the issue of prohibited state aid. [8] The Candole study demonstrates that a new nuclear power plant, regardless of whether owned by MVM or another state owned company, if constructed and operating with state aid, would seriously distort competition in the Hungarian power generation market, as it would increase the dominant market power of the Hungarian State. [9] The injected state aid would give a competitive advantage to nuclear power, crowding out alternatives to nuclear power in the Hungarian market. [10] According to Greenpeace’s position, based on these, pursuant to the currently effective EU legislation, the Paks II project qualifies as prohibited state aid
“Instead of investing into renewable energy generation in line with the world trends, the Hungarian Government, by implementing the Paks II project, would undermine the spread of alternative sources of energy, by both market and administrative means (see: import tax on solar panels, stopping of wind tenders, etc.). The Candole study proves that the project would cause serious economic disadvantages to the country, taking into account the expected continuous drop in renewables prices. Hence, the Paks II project, besides exposing Hungary to Russia for decades, would ruin Hungary’s competitive position in the international energy markets as well” – said Mr András Perger, Climate & Energy Campaigner for Greenpeace Hungary.
References of Candole Partners
http://www.greenpeace.org/hungary/Global/hungary/kampanyok/atomenergia/paks2/Candole_References.pdf
CV of Jan Ondřich
http://www.greenpeace.org/hungary/Global/hungary/kampanyok/atomenergia/paks2/CV_Jan_Ondrich.pdf
Notes:
[1] Candole Partners is an analyst institute in the field of energy and economics, specialised in the energy investments of the CEE region
http://greenpeace.org/hungary/Global/hungary/kampanyok/atomenergia/paks2/Candole%20Partners%20presentation%202016%2005%2026.pptx
[2] the study carried out by Rothschild on behalf of the Government:
http://www.kormany.hu/download/a/84/90000/2015%20Economic%20analysis%20of%20Paks%20II.pdf
[3] As far as the costs are concerned, the Candole study uses the figures of the Rothschild study carried out on behalf of the Hungarian Government, to ensure comparability of the results of the two studies. The Candole study uses its own proprietary pricing model to calculate revenues. To develop the different scenarios, the study used the reference values of the French Court of Auditors applied in its nuclear energy cost calculations, and the forecasts published by the International Energy Agency for the year 2015. See: Chapter 2 (p. 5)
[4] The six scenarios are presented in Chapter 4.4 of the study (see pages 15-21)
[5] The internal rate of return of the Paks II project is between 1.7 and 6.7 %, depending on the scenario, remaining below the weighted average cost of capital (WACC), showing that the project is uneconomical in all presented scenarios. The proposed nuclear power plant would not earn a return during its assumed 60-year lifetime, even using the rather optimistic capex and economic lifetime estimates of the Rothschild study. See: Chapter 4.3 (p. 14)
[6] The Rothschild study uses “overnight investment cost” (OIC) and excludes the cost of financing during construction and the lag between expenses and revenues. Furthermore, the study carried out on behalf of the Government does not assume that, for the first 10 years, the project will not make any revenues only costs (the costs being the construction and development expense of €12.5bn plus financing costs). The Rothschild study works with the outdated price forecasts developed by NERA, the German Ministry of Economy (BMWi) and the International Energy Agency, and uses an unrealistically high and overrated price curve. See: Chapter 4.1 (p. 7)
[7] The amount of the required annual aid is between HUF 14 and 285 billion, depending on the scenario. The most probable scenarios show that the amount of the required aid would be somewhere between HUF 180 to 285 billion per year. See: Chapter 4.5 (p. 22)
[8] Letter of the Directorate-General for Competition to the Hungarian Government on initiation of the procedure
http://eur-lex.europa.eu/legal-content/HU/TXT/?uri=uriserv:OJ.C_.2016.008.01.0002.01.HUN&toc=OJ:C:2016:008:TOC
[9] The Hungarian state currently has a dominant position in the Hungarian power generation market and this dominance would be even increased going forward after the commissioning of Paks II. See: Chapters 5.4 (p. 33) and 5.5 (p. 34)