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Central Europe’s Bad Bet

By Paul Hockenos

The ongoing UN Climate Change Conference in Warsaw provides a unique opportunity to cast a spotlight on Central Europe’s energy policies. This may come just at the right time because the Czech Republic, Hungary, Poland, and Slovakia, known as the Visegrad Group, are all in the process of making profound mistakes concerning their energy supplies, which will cost these countries dearly for decades to come.

While most of Europe is investing in renewable energies and planning for low-carbon power supplies, the Visegrad states are committing themselves to a future of coal, nuclear energy, and imported gas and oil. The cost of fossil fuels and nuclear power has soared in recent years, and will continue to increase, while the price of renewable energy has plummeted. Clean-energy technology has also greatly improved. Now that it is cost-effective even for countries with modest means and moderate sunlight, it makes no sense to continue investing in conventional energies.

Flawed energy strategies will not only separate the Visegrad Group from the European mainstream. They will also severely hamper long-term energy security, which is valued above all else. Memories of Russian aggression and postwar Soviet rule naturally make Central Europeans uncomfortable. Today, squeezed between Putin’s Russia and another enormous, historically unfriendly neighbor to their west, Germany, it is understandable that their foremost goal is energy autonomy.

Yet, tragically, by sticking to conventional energies, the Visegrad bloc is putting energy independence ever further out of reach. In the Czech Republic, fossil fuels account for about 80 percent of the primary energy supply, almost all of which is imported, and the lion’s share bought from Russia. Hungary and Slovakia are also prominent customers of Gazprom, a Russian gas company. Poland, the most energy autonomous of the group, relies heavily on its own coal reserves and Soviet-era coal-firing plants, the dirtiest in the EU. In fact, Poland is the biggest coal producer in Europe and the ninth largest worldwide.  Even so, Russia supplies 90 percent and 65 percent of its oil and gas, respectively.

The Visegrad countries’ response to this quandary may sound logical— “diversity of supply.” The more kind of energy sources a nation uses, the less dependent it is on any one particular source. For Central Europeans, this potpourri includes conventional fossil fuels, nuclear power, and unconventional natural gas like shale gas, waste-to-energy incineration, and renewables. But this diverse array of energy sources is deceptive.  U.S. petrochemical giants grossly overestimated the shale gas reserves in Central Europe . They talked big and then this year, after making new calculations, withdrew completely from Poland, which was wrongly thought to possess massive reserves. There won’t be a shale gas revolution in Mitteleuropa .

All of the Central Europeans – and many of their counterparts from the Baltic States across the Balkans – think that nuclear is a big part of the answer. Hungary’s Prime Minister Victor Orban proclaimed that the Visegrad Group would pursue its energy needs, including nuclear and shale gas, regardless of EU concerns.

The Czech Republic is trying to expand its nuclear fleet, which consists of two nuclear power stations in southern Bohemia. Its aim is to double capacity so that by 2040 nuclear energy will account for  one-third of its domestic mix. The Czechs’ 9 billion euro tender to build two new nuclear reactors is the largest-ever contract offered by the country and the only active tender for new nuclear capacity in the whole EU. And there’s a good reason investors aren’t jumping to bite – the financing costs of nuclear reactors are so exorbitant they can’t pay for themselves anymore.

Nuclear power is simply no longer affordable. Just look at the problems Great Britain has brought upon itself: Europe’s first new nuclear reactor since the Fukushima disaster during the 2011 spring will cost investors around $23 billion. To make it worthwhile, the British government had to promise French consortium prices of about 92.5 pounds per megawatt-hour of power – more than twice current market levels. And this price will be valid for 35 years as of 2023.

This is why the European Commission is ever more skeptical about nuclear power. The commission recently signaled that new nuclear projects should not qualify for state aid – a stipulation that would certainly spell their death. A leaked report from the commission’s energy ministry underscored what fossil fuel and nuclear utilities had long denied– that they’re subsidized more richly than renewables. Take away those supports, say experts, and neither could compete with an array of advanced green energies.

As for Poland, its political elite, closely associated with the conventional energy lobby, as is the situation across Central Europe, wrongly believes that Poland’s coal will rescue it from import dependency. Warsaw is even planning several new open-pit lignite mines.

Polish coal is simply no longer competitive with that from Russia and elsewhere. This comes at a time when the EU’s emissions trading scheme (ETS) is broken and no one’s paying for carbon emissions. This won’t be the case for much longer. Germany’s new government will hopefully make sure that the ETS gets back up on its feet and pushes coal out of the energy market.

In a recent Financial Times piece titled “A Rising Power,” a representative of the global bank Citigroup confirmed, “We’re at a point now where demand starts to be driven by cold, hard economics rather than by subsidies and that is a game changer.” UBS, another international bank, argued that an “unsubsidized solar revolution” has begun in Europe. It estimates that solar energy could supply 18 percent of electricity demand in parts of Europe by 2020.

This means that Central and Eastern Europe can now go green, and begin putting infrastructure in place that will increase its energy security and cut its energy bills. Poland’s windy northern coast is a perfect location for both onshore and eventually offshore wind farm. Hungary sits on a wealth of geothermal power, something the Turks caught on to when they built the region’s first thermal baths there four hundred years ago.

Numerous studies show that Central Europe is ripe for renewables. One recent report entitled Energy [R]evolution Energy Blueprint for Poland argues if Poland shifted its planned investments from coal to renewables, it could increase renewable energy use from 7.8 percent (2010) to 26.8 percent by 2030, while at the same time halving its coal usage.  Shifting 90 percent of energy investment to renewables would also create over 100,000 jobs (while the coal sector would lose 50,000). From the Central Europeans’ perspective it makes sense, as it would serve security of supply and decrease reliance on exports.

Even though the political class in Central Europe will be hard to win over, opinion polls show that ordinary citizens and localities are much more open to renewables than their representatives. A March 2013 survey found that 45 percent of Poles want to have a renewable-energy micro-generation installation in their households. Farmers were among the most interested in investing. There is also considerable open-mindedness toward renewables as the energy source of the future. A separate polling of Polish municipalities showed that two-thirds of local officials see clean energies as a chance for local economic development. The idea of small-scale renewable energy production is particularly appealing to people in search of energy autonomy. Now that the price of green energy technologies has come down and will certainly sink further.

The Central Europeans are at a crossroads in energy policy– and unfortunately there is not an open, vigorous debate about it in progress. In the energy sector, many of the structures and biases from the old days persist. There is unconcealed collusion between the politicians, the energy companies, and the media that undermines a real democratization of energy. This state of affairs is the reason that legislation easing the way for individuals and small businesses to become energy producers has run into a brick wall.

This condition bodes ill for the Visegrad states as taking the wrong path today will hurt them for decades to come– ultimately making their industries uncompetitive with those of clean-energy economies. The Central Europeans’ motivation for going green may not be climate protection or safety concerns about nuclear power, but then this isn’t a requirement for renewable power investment. There are enough sound reasons to begin making the shift to clean energy in Central Europe. 

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Paul Hockenos is a Berlin-based journalist and author of the blog Going Renewable on the German Council on Foreign Relations website.

[Photo couresty of Shutterstock]

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