ENERGY SECURITY IN THE EU

1. ENERGY SECURITY IN THE EU II ENERGY FORUM 2007 Martin Roman Vice-President of the Confederation of Industry, Czech Republic, Chairman of Board, CEZ Group

2. RECENT EUROPEAN EXPERIENCE: BLACKOUTS, GAS SUPPLY INTERRUPTIONS, GRID COLLAPSES… • Shortage of generation capacity in extreme weather conditions in a number of regions (summer 2003 and 2006, winter 2006) • Interruptions of gas supply to Central Europe (2005) and oil and coal supplies toEstonia (2007) for political reasons • Increasing incidence of large blackouts due to grid failures (Italy 2003, Germany 2006) • Growing difficulties in managing grids due to increasing proportion of wind power

3. ONGOING EU-WIDE DISCUSSIONS INCLUDE ENERGY SECURITY, BUT WITHOUT CLEAR PRIORITISATION • Main topics of EU policydebate with impact on energy security • Limiting global climate change by reducing greenhouse gas emissions • Support for technological innovation • Source diversification • Internal energy market and its liberalisation; unbundling • Consumer protection • Support for economic growth • … and other issues • Many competing topics • Priorities not clear enough • Energy supply • Sufficient energy generation • Distribution to consumers

4. MAIN POWER SUPPLY QUESTION MARKS Generation capacity Will there be enough generation capacity to meet demand? Fuel supply Will power plants have uninterrupted delivery of fuels? Power grids Will supplies of power be disrupted by grid failures?

5. GW* Peak demand Additional planned capacity Coal Lignite Gas/Oil Other Hydro Nuclear EUROPEAN POWER GENERATION CAPACITY IS LIKELY TO FALLSHORT EU-27 countries 320 GW Shortfall * 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

6. ENERGY EFFICIENCY MEASURES MAY SLOW DOWN CONSUMPTION GROWTH, BUT FUTURE DEMAND IS UNLIKELY TODROP BELOW CURRENT LEVELS Projection: GDP and Power Consumption in EU Indexed to 2005 Options for reducing power consumption GDP Power demand Reduce economic growth Reduce energy intensity • Reduce overall (GDP) growth • Reduce share of industry in GDP • Use more efficient technologies • Develop more efficient appliances for households • Energy efficiency can potentially be improved by up to 25% • Nevertheless, it is unlikely that power consumption would ever return below its current level unless economic growth is limited Source: Eurelectric

7. CO2 Fuel costs Fixed costs Investment FOR SUFFICIENT ENERGY SUPPLY IN THE FUTURE, INVESTMENT DECISIONS NEED TO BE MADE NOW New generation full costs* EUR/MWh • It is extremely difficult to decide on new plant projects as cost position of individual technologies is driven by CO2 regulation which is not clear in the long run 73 72 71 53 Lead time from investment decision to full operation *assumptions: hard coal 62 USD/t, crude oil 65 USD/bbl, CO2 25 EUR/t,plant life expectancy 40 years thermal / 60 years nuclear

8. SECURITY OF FUEL SUPPLY • Domestic fuel available in many EU states • High security of supply • Diversification of suppliers possible • Price: low • Coal • Import fromoutside the EU necessary - security of supply dependent on supplier reliabilityand market access • Price: high Gas • Small quantities of fuel, easy to import • Diversification of suppliers • Long-term stockpiling possible • Price: mostly high, depending on demand Nuclear • Electricity supply subject to laws of nature – potential forhuman intervention limited RES

9. THERE IS NO CLEAR CHOICE; CRITICAL SCRUTINY OF ALL OPTIONS IS NEEDED, WITHOUT ANY PREJUDICE Nuclear • Coal Natural gas Renewables Energy efficiency • Can it eliminate the anticipated shortage? How high will the power price need to be for energy efficiency to make a difference?

10. TRANSMISSION NETWORK INTERCONNECTIONS CALL FOR TRUE EUROPE-WIDE COORDINATION AND ENGAGEMENT OF THE EU Source: DG TREN - Trans-European Networks: Electricity Projects of European Interest, January 2007

11. GROWING WIND POWER GENERATION IN EUROPE IS ENDANGERING TRANSMISSION STABILITY • Due to EU renewables promotion, wind generation capacity is expected toreach almost 70 GW in 2008 • Regional concentrated wind farms could lead to temporary large local overloads in transmission system – these unscheduled flows will reduce system stability and increasingly affect trading • Long distance transmission is needed as wind generators are often far away from the main consumption centres – network losses increase • New transmission lines/cross border capacities are necessary to maintain system adequacy and security • Considerable amount of reserve capacity needed tobalance the volatility, and it should grow proportionally with wind power capacity Source: EWIS, ETSO

12. SECURITY OF SUPPLY – KEY CONCERNS • Due to interconnection of transmission grids, security of supply is an EU-wide topic. • “Secure” generation capacities must beindependent of weather and other unpredictable conditions (the role ofrenewables, while important, should becomplementary to the need for secure sources in the overall energy mix). • Certain proposed EU regulations or policies might, in fact, limit energy independence of some member states*. • Need for open discussion about nuclear energy as one of several equal sources in the European energy mix. *Uncertainty regarding the commercial use of CCS, for example, might prevent the States from effectively using lignite and subsequently orientating them towards gas

13. CONCLUSIONS AND RECOMMENDATIONS • The EU needs an efficient hierarchy of goals for energy policy anditsenforcement. • Sufficient capacities of generation resources and transmission grids arethekeys to energy security and an efficient energy market. • The EU needs a strong common foreign energy policy to strengthen its position in strategic fuel supply negotiations. • Security of supply should be a long-term priority of the EU.

14. THANK YOU

15. BACK UP

16. TRANSMISSION CAPACITIES BETWEEN MEMBER STATES WILL NEED TO KEEP UP WITH THE GROWING CROSS-BORDER EXCHANGE TO AVOID CONGESTION

17. TRANSMISSION NETWORK: THE EXAMPLE OF CENTRAL EUROPE ILLUSTRATES THAT THE CONTINENTAL SYSTEMS ARE OFTEN OVERLOADED Bottleneck inside thenetwork Bottleneck at the inter-connector Who controls the TSO’s calculation to ensure that their capacity constraints are only those absolutely necessary?

18. NUCLEAR – THE NEED FOR OPEN DEBATE • The need for open discussion about nuclear energy as one of equal sources inthe energy mixis growing: • President of the EC J. M. Barroso in Madrid (October 1st): „I also believe that the Member States cannot avoid the question ofnuclear power. There has to be a full andfrank debate about the issue“. • European Nuclear Forum – November 26th in Bratislava under the auspices ofEuropean Commission, objective facts-based discussion about nuclear energy andits role in the EU energy mix