Czech largest power supplier CEZ, majority owned by the state, said on April 10 it decided to cancel a tender to expand its Temelin nuclear power plant citing falling electricity prices that make the project economically unviable without state support.

In a statement on its website, CEZ’s chief executive Daniel Benes said the European electricity sector has changed dramatically since 2009 when the tender was launched. “While originally the project was fully economically feasible given the market price of electricity and other factors, today all investments into power plants, which revenues depend on sales of electricity in the free market, are threatened”, Benes said.

Shareholders gain

After the news, CEZ shares gained 2.4% to CZK 558.9 in Prague, Bloomberg said adding that it is the biggest jump in shares since March 24. The scrapping of the tender indicates that CEZ might increase its dividend payment as it no longer needs cash for the new reactors. CEZ usually pays between 50% to 60% of earnings to shareholders but finance minister Andrej Babis has proposed the company to distribute its full-2013 profit in dividends.

No state guarantees

The cancelling of the project was expected by the market as the government refused to provide state guarantees on the price of electricity to be generated from the planned two new reactors at Temelin. CEZ, on the other hand, has said several times that the project does not make sense without state aid. The company was seeking the introduction of the British model under which the state steps in with payments if the power prices slip below the guaranteed level but CEZ would have to pay the state if prices are higher.

The remaining bidders in the up to EUR 11bn tender were US Westinghouse and a Czech-Russian consortium comprising Skoda JS, Atomstroyexport and Gidropress.

New tender?

Despite scrapping the current tender, CEZ has said it stays committed to nuclear power development since the country faces the risk of depending on imported power after 2030 if no new capacities are built.

One of the possible scenarios is the government to set up a wholly-owned company to be in charge of enlarging Temelin and to call a new tender, in line with a proposal by the industry minister Jan Mladek. Such a move will help CEZ get rid of the risks associated with the investment. Czech President Milos Zeman has urged earlier this week CEZ to scrap the tender and a open new one to attract more bidders that may eventually lower the price. Zeman has said that a new tender should bring into the contest besides the current bidders also France’s Areva and a South Korean company.