Central Eastern Europe and energy diversification

Central Eastern Europe and energy diversification

Since the outbreak of the crisis in Ukraine, the Central Eastern European (CEE) countries, namely the Czech Republic, Hungary, Poland and Slovakia, have been facing an increasing pressure to move away from Russia, both economically and politically. However, this has proven to be difficult to accomplish due to their shared history and numerous economic ties between the CEE and Russia, most importantly in the energy sector.

The political and economic interconnectedness between Russia and the CEE today is most visible in the energy sector. Although following the fall of Communism, contracts with Gazprom were renegotiated, liberalization of the markets was initiated and the CEE started to diversify and connect with Western Europe, Russia’s influence in the energy sector of the CEE is still significant. The four countries’ energy dependence on Russian natural gas is remarkable; therefore, if Russia decides to halt the gas transport to and through Ukraine, the region will face a serious shortage. Even if the countries have enough reserves for this winter season, gas shortage is a serious threat in the long run. In order to eliminate risks, energy source diversification has been an issue for years now, where different approaches have different implications for the four countries. In most cases, the extension of domestic nuclear energy plants seems to be the most viable alternative.

Poland: nuclear plant or alternative sources?

Whereas nuclear plants are supposed to be or already are being extended in the Czech Republic, Slovakia and Hungary, Poland does not have a functioning nuclear plant yet. The possible construction of nuclear plants in Poland has generated an ongoing debate, therefore the country maintains an open approach towards alternative energy options including renewables and shale gas (according to the new shale-gas law, red tape and bureaucracy shall be cut to ease the exploration of shale gas and attract investors). Diversification is a major issue for Poland; nuclear energy, shale gas and other renewable sources could be the solution for reducing dependence on Russian natural gas (81,3 % of total gas imports comes from Russia, 2012) and for cutting CO2 emissions.

The Czech Republic, Slovakia and Hungary: committed to nuclear energy

The other 3 countries in the region are continuously looking for options to extend their nuclear plants to reduce dependence on imported energy. In the Czech Republic, where about one-third of its electricity is generated in the country’s two nuclear plants, by 2060, 60% of its power shall be provided from nuclear plants, based on a 2011 legislation draft. Without a major extension, within 20 years, the Czech Republic will have difficulties satisfying the ever rising domestic energy consumption. Since the majority owner of the plants is the state, political issues, including elections and leadership change have affected and will continuously affect tenders.

The Slovak case is very similar, where the two nuclear plants – generating half of the country’s electricity – are state owned, and although there is a continuous strong governmental commitment to nuclear energy, political and economic issues have played a role in the realization of the extension and construction works. For instance, the government elected in 2010 decided not to finance the extension of the Bohunice plant, but the next government elected two years later, speeded up the works. So far, the construction and extension works have been mainly completed with the help of Western companies.

In Hungary, just like in the Czech Republic and Slovakia, nuclear energy plays a key role and enjoys long-term governmental support. The difference being that Rosatom was chosen to build the new reactors of the only nuclear plant Hungary has, and Russia agreed to finance 80% of the project’s total costs. Since financially, the Russian offer seemed to be the most competitive offer, Hungary decided not to proceed with an open tender, and signed a contract with the Russian company. The question remains: can Western companies compete with Russian offers in the future?

Russian influence remains

Regardless of the investors and successful bidders of construction or installation tenders, CEE’s nuclear energy plants are not completely independent from Russia. The plants were built during the Communist era with Russian technology, know-how and assistance, meaning that construction works, modernization, disposal of radioactive materials or fuel supply are still conducted with Russia’s help. Although increasing nuclear energy in the energy mix helps reduce dependence on Russia in most cases, in the short-term at least, it will not eliminate the Russian state’s and companies’ role in the production of domestic nuclear energy in the CEE. Nevertheless, nuclear energy still remains the best option to reduce reliance on exports, firstly, because of the capacity of the plants, secondly because of the costly and timely procedures of the exploration of alternative energy sources.

Investment in nuclear energy does not necessarily mean reducing dependence on Russia. The energy supply in the CEE countries will be dependent on Russia; therefore a long-term economic interconnectedness will remain up to a certain extent. The CEE countries, in line with the EU, have been condemning Russian illegitimate actions against Ukraine, and will most likely continue to do so. However, considering their dependence on Russia, mainly in the energy sector, the four countries will not be able to condemn Russia completely and isolate it in the long-term. At this point, what they can do, and seem to be doing, is look for alternatives to reduce dependence as much as they possibly can.


About Author

Orsolya Raczova

Orsolya specializes in the Central Eastern European region and European defense issues. She previously worked for the European Central Bank, the Berlin-based Institute for Cultural Diplomacy, and a Hungarian think tank. Orsolya holds an MSc in Politics and Communication from the London School of Economics.