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

2. 1 EU-WIDE DISCUSSIONS INCLUDE ENERGY SECURITY, BUT WITHOUT CLEAR PRIORITISATION „CARE“ – climate action and renewable energy package Liberalisation packages Diversification of Supply Liberalisation of electricity market Security of Supply Emissions reduction „Sufficient and secure electricity supply together with GHG emissions reductions“

3. 2 Generation capacity Power grids Will there be enough generation capacity to meet demand? Will power plants have uninterrupted delivery of fuels? Will the grids be capable of suppling enough power? MAIN POWER SUPPLY QUESTION MARKS Fuel supply

4. 3 EU-27 countries GW * Other Gas/Oil Hard Coal Lignite Nuclear Hydro Additional planned capacity Peak demand + 5% margin (CAGR 1,25%) * 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 EUROPEAN POWER GENERATION CAPACITY IS LIKELY TO FALL SHORT 320 GW Shortfall  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

5. 4 *coal 110 USD/t, oil 80 USD/bbl, CO 2 40 EUR/t Full costs of a new power plant* EUR 2008 /MWh CO2CO2 fuel and other variables fixed costs capex 81 90 78 47 FROM THE ECONOMIC POINT OF VIEW, BUILDING NEW NUCLEAR POWER PLANT LOOKS MOST ATTRACTIVE  Nuclear plant is the most commercially attractive option for electricity generation and a viable solution for large-scale CO 2 reduction  The economic evaluation of other sources is driven by CO 2 regulation, which is not clear in the long run

6. 5 Generation capacity Power grids Will there be enough generation capacity to meet demand? Will power plants have uninterrupted delivery of fuels? MAIN POWER SUPPLY QUESTION MARKS Fuel supply Will the grids be capable of suppling enough power?

7. 6 WITH THE GROWING DEMAND AND FALLING INDIGENOUS SUPPLY EU BECOMES INCREASINGLY DEPENDENT ON EXTERNAL ENERGY SOURCES Who can provide Europe stable and secure fuel deliveries? What are the energy options? EU´s Energy Import Dependency Source: Eurostat * Excluding uranium imports and nuclear power stations consumption

8. 7 COAL REMAINS THE MOST ABUNDANT FOSSIL FUEL IN THE EU Source: BP Statistical Review of World Energy June 2008, Euracoal 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.

9. 8 NON-EXISTING GAS MARKET EXPOSES THE GENERATORS TO SINGLE SUPPLY SOURCE IN MANY PARTS OF EUROPE  Import from outside the EU necessary - security of supply dependent on supplier reliability and market access  Price: high Source: BP Statistical Review of World Energy June 2008, WoodMackenzie

10. 9 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. 10 RENEWABLES ARE POPULAR CHOICE BUT COULD NOT BE DEEMED AS SECURE SOURCE  Fuel supply subject to laws of nature – potential for human intervention limited  Considerable amount of reserve capacity and new transmission infrastructure needed to balance the wind volatility  Lower heat rate of biomass creates logistical issues and potential fuel/food scarcity Source: EWIS, ETSO

12. 11 Generation capacity Power grids Will there be enough generation capacity to meet demand? Will power plants have uninterrupted delivery of fuels? MAIN POWER SUPPLY QUESTION MARKS Fuel supply Will the grids be capable of suppling enough power?

13. 12 Commercial cross-border flows in 2007 sum of cross-border trade vs. country’s consumption ratio 13% 14% 15% 37% 67% Source: ETSO, CEZ  External trade has become significant factor in securing supply and balancing the system  Greater interconnection capacity widens the market and thus increases generation competition and efficiency MARKET INTERCONNECTION IMPROVES GENERATION EFFICIENCY BUT ALSO CREATES GRID BOTTLENECKS 13% 68%68%

14. 13 Source: EWIS  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 GROWING WIND POWER GENERATION IN EUROPE IS ENDANGERING TRANSMISSION STABILITY

15. 14 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 are the keys to energy security and an efficient energy market – the necessity are fixed rules providing long-term investment environment (e.g. long-term CO 2 rules).  Need for ongoing 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