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Spotlight: Energy transformation in the CEE

In many respects, the CEE is not a homogeneous whole, and matters of energy are no different. Despite that, we have identified three key trends and five associated risks facing businesses throughout the region. So what risks should firms prepare for amidst the energy transformation in the CEE?

Princeps Insights
  • Policy risks: CEE governments have changed course and stepped up efforts to boost energy transition, setting tangible goals for coal phase-outs and increasing the share of renewable and low-carbon sources in their energy production.

  • Regulatory risks: The retraction of the Polish “10h rule” as well as ambitious government plans for offshore wind development are promising significant growth in Poland’s wind power capacity.

  • Socio-economic risks: According to recent estimates published by Rystad Energy, the planned construction in the wind sector and other low-carbon areas of energy production could serve as compensation for the job loss which is expected from the decarbonisation of Czech and Polish energy.

  • Feasibility risks: The CEE is heading towards a “nuclear renaissance”, with the market due to become inundated with demands for large reactor construction in the upcoming years.

  • Security risks: While the Czech and Polish plans for nuclear power development are steering clear of the security risks constituted by commissioning a Russian construction provider, Hungary has placed its faith in the Russian state-owned company Rosatom.

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With the growing price of EU carbon permits as well as fossil fuels, the phase-out is now supported by both environmental and economic arguments. In light of the Czech EU presidency and its correlation with Russia’s aggression in Ukraine, the Czech government has adopted the stance that energy transformation and decarbonisation present intuitive solutions to the current energy crisis. Poland’s Energy Policy until 2040 lists the development of renewables as a specific objective, with a particular focus on wind energy. Slovakia has plans for wind power development as well as for harnessing its geothermal potential. And for several years now, Hungary has been experiencing a solar boom after it shifted the focus of its state energy policy to clean and smart energy sources in line with the goal of reaching net-zero emissions by 2050. While the region’s 2030 targets for the share of renewables in their final energy consumption are still circa 10% below the EU goal, the public and political climates have boosted efforts towards energy transformation. The local governments seem to be accepting that green technology will contribute to their long-term energy and market security.

A fresh wind

For a large part of the region, a lack of access to the seashore has significantly reduced access to and the active use of wind energy, especially in comparison to Western and Northern Europe. In 2021, Poland covered 9% of its average annual electricity demand by wind, the most out of the CEE countries. Slovakia, on the other hand, was left at the very end of the list with no wind-generated energy in its mix, due to having a mere five wind turbines installed in the entire country. However, the government has laid out plans to construct an additional 500 MW of wind capacity by 2030.

Despite its disadvantage formed by a lack of coastline, the Czech Republic has significant wind energy potential yet to be harnessed - like Hungary, it currently covers 1 % of its energy consumption through wind power. A study conducted by the Czech Academy of Sciences shows that in 2040 wind energy in the Czech Republic could produce up to 18.8 TWh of energy, corresponding to approximately 28% of the country’s total energy consumption in 2019. But more conservative estimates state only 9.3% of total energy will be wind generated in 2040. This is due to the lukewarm attitude of the Czech government, which has not been particularly supportive of using the country’s wind power potential. According to the government plan for climate and energy development, the Czech wind power capacity is expected to grow by 600 MW by 2030.

More striking, however, is the changing attitude towards wind energy in Poland. After a long period of resistance down to the infamous “10h rule”, the Polish government is backtracking on its restrictions and planning to ease the construction of onshore wind farms. Furthermore, the Polish Energy Policy for 2040 is placing great faith in offshore wind development, with the goals set for offshore installed capacity to reach 5.9 GW in 2030 and up to 11 GW in 2040. A report by WindEurope is less optimistic, expecting Polish offshore installations to reach a mere 0.9GW by 2026.

One of the challenges linked to the coal phase-out in the heavily reliant Czech Republic and Poland is managing the socio-economic impacts and related job loss. The rapidly developing wind power sector will provide a growing number of job opportunities, estimated to reach 868 thousand in Poland by 2030. For more about the challenges of the coal phase-outs, visit our Czech and Polish energy spotlights.

Going nuclear

Decisions concerning the future of nuclear energy are looming over Europe. Many country leaders are growing sceptical toward the source in light of the Russian attack in Ukraine; Russia holds a prime position when it comes to supplying nuclear fuel (having provided 20% of Europe’s consumption in 2021), the enrichment of uranium, and nuclear power plant construction. Furthermore, multiple reasons exist to discourage the consideration of nuclear energy as a “green” source and the way forward on the path towards energy transition.

On the other hand, the CEE seems to be headed for a “nuclear renaissance” reminiscent of the nuclear power boom following the 1970s energy crisis. According to Forbes, the high demand in the CEE as well as in other parts of Europe will place the local market under significant pressure to deliver and create ample opportunity for local providers.

The CEE countries are some of the greatest electricity generators using nuclear power: in 2022, Slovakia generated 53% from nuclear power (making it no. 2 in Europe), Hungary generated 48%, and the Czech Republic 37%. All three countries’ governments remain firmly committed to using and developing their nuclear capacity. Slovakia is currently completing the construction of two reactors with a combined capacity of 880 MWe. The Czech Republic is taking steps towards the completion of its existing Dukovany power plant which has generated the interest of three potential providers, Westinghouse (U.S.), Korea Hydro and Nuclear Power Company (South Korea) and EDF (France). Hungary is planning the construction of two new power reactors in its existing power plant Paks by the Russian company Rosatom, planning on a combined gross capacity of 2400 MWe which will begin generation in the late 2020s. And Poland is now jumping on the bandwagon with plans to build 6 new reactors with a combined capacity of up to 9 GW by 2040. The construction of the first power plant is to begin on the Baltic coast in 2026 by Westinghouse. Further negotiations are underway with the Korean company KHNP.

To conclude, the energy transformation is a go in the CEE region, bringing more than just a change of energy mix. Stable political support for low-carbon technologies is not a given, making policy and regulation an area to be closely watched in the future. This links to further security risks, especially the presence of Russian influence in the region, which may somewhat paradoxically increase with the construction of new nuclear capacities in Hungary. One also must not forget about the wider impacts of transforming the energy mix, which could include widespread job loss and regional underdevelopment, as well as market strains that could hinder the smooth transition of the region to low emissions. Navigating the situation will be no mean feat - but that is where we can help.

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