ICIS POWER HORIZON: Czech and Slovak power prices will move in accord through 2030
ICIS Editorial
01-Jul-2019
This story has originally been published for ICIS Power Perspective subscribers on 01 July 2019 at 17:04 CET.
LONDON (ICIS)–Czech and Slovak wholesale power prices will move in unison until 2030, according to ICIS long-term price forecasts. However, both countries see a switch in their net trade position in 2021. The Czech Republic is expected to switch to becoming a net power importer, largely due to lignite and coal closures. At the same time, Slovakia is forecast to become a net exporter due to new nuclear capacity.
ICIS PRICE FORECAST
- Czech Republic and Slovak wholesale power
prices are forecast to move in unison from 2019
to 2030, remaining below the Hungarian and
Romanian prices, with whom they participate in
the net transfer capacity based day-ahead
market coupling, known as 4MMC
- From June 2019, ICIS widened its forecasting coverage to five new markets: the Czech Republic, Hungary, Romania, Slovakia and Switzerland
- Forecast are based on annual averages of forecast hourly prices rather than on average day-ahead prices
- The annual average power prices in both countries are forecast to dip in 2019 compared to outturn prices in 2018, only to resume rising until 2025
- In 2025 they are forecast to peak slightly above €70/MWh and fall to around €63/MWh before rebounding
CZECH LIGNITE/COAL CLOSURES AND UNCERTAIN NUCLEAR PLANS
- We assume in our modelling a reduction in
lignite generating capacity in the Czech
Republic, which is largely replaced by imports
and to a lesser degree by renewables
- We assume that the Czech Republic
closes around 3.6GW of lignite and coal
capacity in 2021, followed by around 1.5GW
in 2022 and further around 1GW in 2023-2024
- Based on our estimates of the latest European Environmental Agency data, around 4.5GW of the Czech coal and lignite power (co)generating capacity will not comply with the nitrogen oxides (NOx) and sulphur dioxide (SO2) limits set for large combustion plants for both 2021 and 2022, when the limits tighten
- Czech energy incumbent CEZ, which owns a share of those power plants, already announced that 1GW of coal fired capacity will be shut down in 2020 (link) due to the new emission limits
- Emissions limits tighten in the
same period that ICIS
forecasts EUA prices will be rising
- ICIS assumes EU ETS prices rise to reach €35/tCO2e on average by 2022 driving up marginal costs for thermal generation across Europe
- By 2024 the carbon price is expected to peak at €41.95/tCO2e on average
- At the same time, the Czech Ministry of Industry and Trade has proposed not to issue free carbon allowances to the power sector from 2021 – this is currently being reviewed by parliament
- In light with the looming closures, the Czech government plans in its draft national energy and climate plan (NECP) to support heating from biofuels, part of which can co-produce electricity, and a modest increase of renewable electricity
- The Czech nuclear fleet is made up of
1.9GW Dukovany and
2.1GW Temelin plants, which
in our modelling we assume will remain
online until at least 2030. We do not
assume any new nuclear by 2030
- Currently, the four 470MW nuclear units at the Dukovany plant are expected to be decommissioned around 2035-2037, but government figures have floated the idea of extending the lifetime of these units to 2045, and operator CEZ has confirmed to ICIS it is considering this
- CEZ and the Czech state are currently in the process of drawing up a framework agreement over new capacity to replace the existing Dukovany units, but details are unclear, with no financing model yet agreed for the new capacity
- We assume that the Czech Republic
closes around 3.6GW of lignite and coal
capacity in 2021, followed by around 1.5GW
in 2022 and further around 1GW in 2023-2024
CEZ also filed an application to extend the environmental impact assessment statement on a planned expansion to Temelin which stalled in the development phase in 2014, signalling it may revisit this expansion
SLOVAKIA – NEW NUCLEAR COMING ONLINE
- In Slovakia, unlike in the Czech Republic,
nuclear capacity will replace the coal and
lignite closures
- Two new reactors, Mochovce 3 and 4 are expected to commission during 2020 and 2021 respectively, adding 7.4TWh of supply
- By 2021, total nuclear generation makes up 71% of power demand
- In addition, coal industry subsidies end in 2023, which means generation margins reduce
- New nuclear in Slovakia however means power prices rise less quickly
- As a result, ICIS assumes 486MW coal and lignite plants are phased out completely by 2024
- Slovakia targets limited growth in renewables capacity, according to its draft NECP. ICIS assumes RES capacity grows from 3.3GW in 2019 to just 4GW by 2030
- According to its NECP, Slovakian power demand will rise steadily
CHANGES IN NET TRADE POSITIONS
- ICIS modelling suggests that at the same
time as the Czech Republic turns into a net
importer, Slovakia will switch to net power
exports in 2021
- Czech Republic will turn into a net
importer both after a decrease in
directional exports, and an increase in
directional imports
- The biggest year-on-year drop in directional exports are to Slovakia – down by around 2TWh/a in 2020 and again in 2021. At the same time, directional imports from Slovakia start increasing y-o-y from 2020
- In 2021 Czech directional exports to Germany and Austria each fall by around 2.6TWh y-o-y. In addition, in the same year directional exports to Poland drop by 0.5TWh/a y-o-y
- Conversely, as a result of the commissioning of two new nuclear reactors of 471MW each, Slovakia switches to net power exports 2021-2025
- Coal and lignite phase-out combined with limited RES growth and rising demand sees Slovakian power prices tighten to trigger a switch back to net power imports from 2026
- Czech Republic will turn into a net
importer both after a decrease in
directional exports, and an increase in
directional imports
FORECAST RISKS
-
Political changes
- In the Czech Republic, Prime Minister Andrej Babiš is facing corruption charges, protests, and calls to resign
- However, a change in government would have limited impact on Czech energy policy as most of the other parties which provide information on their energy policy are similarly pro-nuclear and endorse the building of further nuclear capacity at Temelin and Dukovany
- In addition, most political parties would also be less ambitious on renewables, as they are against any rise in energy prices for consumers, despite stating their support for a higher share of renewables in the generation mix
- The next Slovak parliamentary election is due by March 2020
- More renewable ambition
- Both countries may increase renewable
energy ambition compared to the current
assumptions because of pressure from the
European Commission
- After reviewing draft NECPs of all member states, the European Commission called on the Czech Republic and Slovakia to increase their ambition in terms of RES share in final energy consumption by 2030
- The Commission recommended Czech RES ambition be raised from 20.8% to 23% while the Slovak NECP was thought to be even less ambitious and prompted a recommendation of raising the RES target 6 percentage points, to 24%
- However, the leader of the Czech delegation countered in the 26 June meeting of the EU Energy Council that to achieve 2030 climate goals, the Czech Republic and Slovakia would need to use nuclear energy as one of the main tools to meet their emissions reduction targets
Vija Pakalkaite is Analyst – EU Carbon & Power Markets at ICIS, responsible for the Czech Republic forecast. She can be reached at Vija.Pakalkaite@icis.com
Anise Ganbold is Senior Analyst – EU Carbon & Power Markets at ICIS, responsible for the Slovak forecast. She can be reached at anise.ganbold@icis.com
Ellie Chambers is Deputy Editor – European Daily Electricity Markets at ICIS, reporting on the Czech Republic and Slovakia. She can be reached at Ellie.Chambers@icis.com
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