THE CHALLENGES OF EUROPEAN ENERGY SECURITY

1. THE CHALLENGES OF EUROPEAN ENERGY SECURITY Jiří Feist, CEZ Group

2. EU-WIDE DISCUSSIONS INCLUDE ENERGY SECURITY, BUT WITHOUT CLEAR PRIORITISATION Liberalisation packages Liberalisation of electricity market „Sufficient and secure electricity supply together with GHG emissions reductions“ Security of Supply Emissions reduction Diversification of Supply „CARE“ – climate action and renewable energy package

3. 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 the grids be capable of suppling enough power?

4. EUROPEAN POWER GENERATION CAPACITY IS LIKELY TO FALLSHORT EU-27 countries Peak demand + 5% margin (CAGR 1,25%) • Extra 320 GW has to be built till 2030 outside of current planning • EU could be short of electricity as soon as in 2013 even when considering small demand growth • New additions come mostly from gas and wind, but wind´s disponibility is rather low 320 GW Shortfall Additional planned capacity • Other GW* • Gas/Oil • Hard Coal • Lignite • Nuclear • Hydro * 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

5. FROM THE ECONOMIC POINT OF VIEW, BUILDING NEW NUCLEAR POWER PLANT LOOKS MOST ATTRACTIVE Full costs of a new power plant* EUR2008/MWh • CO2 • fuel and other variables • fixed costs 90 81 • capex 78 47 • Nuclear plant is the most commercially attractive option for electricity generation and a viable solution for large-scale CO2 reduction • The economic evaluation of other sources is driven by CO2 regulation, which is not clear in the long run *coal 110 USD/t, oil 80 USD/bbl, CO2 40 EUR/t

6. 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 the grids be capable of suppling enough power?

7. WITH THE GROWING DEMAND AND FALLING INDIGENOUS SUPPLY EU BECOMES INCREASINGLY DEPENDENT ON EXTERNAL ENERGY SOURCES EU´s Energy Import Dependency Who can provide Europe stable and secure fuel deliveries? What are the energy options? * Excluding uranium imports and nuclear power stations consumption Source: Eurostat

8. COAL REMAINS THE MOST ABUNDANT FOSSIL FUEL IN THE EU EU´s Proven Fossil Fuel Reserves* Total: 822 TJ • Domestic coal available in many EU states • High security of supply • Diversification of suppliers possible • Price: low * Reserves that can be with reasonable certainty can be recovered in the future from known deposits under existing economic and operating conditions. Source: BP Statistical Review of World Energy June 2008, Euracoal

9. NON-EXISTING GAS MARKET EXPOSES THE GENERATORS TO SINGLE SUPPLY SOURCE IN MANY PARTS OF EUROPE • Import fromoutside the EU necessary - security of supply dependent on supplier reliabilityand market access • Price: high Source: BP Statistical Review of World Energy June 2008, WoodMackenzie

10. FUEL SUPPLY FOR NUCLEAR POWER GENERATION IS WELL DIVERSIFIED World uranium supply • Small quantities of fuel, easy to import • Diversification of suppliers • Long-term stockpiling possible • Price: very low Source: IEA

11. RENEWABLES ARE POPULAR CHOICE BUT COULD NOT BE DEEMED AS SECURE SOURCE • Fuel supply subject to laws of nature – potential forhuman intervention limited • Considerable amount of reserve capacity and new transmission infrastructure needed tobalance the wind volatility • Lower heat rate of biomass creates logistical issues and potential fuel/food scarcity Source: EWIS, ETSO

12. 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 the grids be capable of suppling enough power?

13. MARKET INTERCONNECTION IMPROVES GENERATION EFFICIENCY BUT ALSO CREATES GRID BOTTLENECKS Commercial cross-border flows in 2007 • External trade has become significant factor in securing supply and balancing the system • Greater interconnection capacity widens the market and thus increasesgeneration competition and efficiency 67% 68% 13% 37% 14% 15% 13% sum of cross-border trade vs. country’s consumption ratio Source: ETSO, CEZ

14. GROWING WIND POWER GENERATION IN EUROPE IS ENDANGERING TRANSMISSION STABILITY • Volatility of wind power requires increasing reserves in grid capacity to absorb changing power flows when wind starts/ stops blowing • Decrease in available cross border capacity reduces trading opportunities Source: EWIS

15. CONCLUSIONS AND RECOMMENDATIONS • The EU has created strong tools to promote emission savings, similar measures are desirable for security of supply (gereration, fuels, grids) • Sufficient capacities of generation resources and transmission grids arethekeys to energy security and an efficient energy market – the necessity are fixed rules providing long-term investment environment (e.g. long-term CO2rules). • Need forongoing open discussion about nuclear energy as one of indispensable sources in the European energy mix • “Secure” generation capacities can´t be dependent on the will of God (the role of renewables, while important, should be complementary to the need for secure sources in the overall energy mix). • The EU needs a strong common foreign energy policy to strengthen its position in strategic fuel supply negotiations. • Energy security should be a clear priority!

16. THANK YOU