Arkadiusz Wicik, Director of Corporate Energy, Utilities and Regulation Fitch Ratings:

 — Deep economic recession in Lithuania had negatively impacted the nuclear project

Arkadiusz Wicik, Director of Corporate Energy, Utilities and Regulation Fitch Ratings:

The delays in nuclear projects are not uncommon (take the example of the ongoing nuclear plant construction in Finland) due to a number of reasons. These include the complexity of the projects at each stage (feasibility study, planning, approvals (in compliance with European Union regulations), funding and construction) as well as many parties involved, including governments, technology providers and partners in joint ventures. The financial and economic crisis and markedly lower power demand may have also postponed plans to build new nuclear capacity.

The delay in Poland is not substantial – the first nuclear plant is planned to be operational in 2022 compared with 2020 according to the initial plan. Poland’s largest electric utility, PGE Polska Grupa Energetyczna (PGE, rated ‘BBB+’/Stable) is the main entity involved in the nuclear projects. PGE plans to construct two nuclear plants of 6GW total capacity to be commissioned around 2022 and 2025. Fitch believes that the risks of the nuclear project — given no operational track record of the company in nuclear power — will be partly mitigated by the participation of experienced foreign players, which could own up to a 49% stake in joint ventures for the two plants. So far PGE has signed memoranda of co-operation in the nuclear area with the following partners: Electricite de France, GE Hitachi Nuclear Energy Americas and Westinghouse Electric Company LLC.

The Lithuanian government has recently said they plan to select a strategic investor to the Ignalina power plant project by the end of 2010 and to build the new plant by 2018–2020. There have been several issues with the nuclear project in the past few years, including long discussions with the neighbouring countries (Latvia, Estonia and Poland) regarding the shareholder structure and the off-take of electricity generation from the Ignalina project as well as the situation with Leo LT. Another issue is funding of nuclear investments, which was negatively affected by the financial crisis. The Lithuanian government plans initial public offerings (IPOs) of its state-owned electric utilities in order to co-finance the nuclear project. Timing of IPOs often depends on the conditions on the equity markets, which were weak during the economic crisis.

In Fitch’s view one of the most important issues for nuclear projects is support of governments (like in the Czech Republic, Slovakia or more recently in Poland). Many western European governments are less supportive of nuclear energy — they often prohibit new investments in nuclear plants. As we understand, the Lithuanian government fully supports the nuclear power plant project, which is an important element of the government’s policy. The new plant will replace the lost capacity following the closure of the old Ignalina plant in 2009.

Fitch believes that the deep economic recession in Lithuania (GDP declined by 15% in 2009), and also in Latvia and Estonia, had negatively impacted the nuclear project as the government had to focus on economic issues.

It seems that own nuclear plants are a priority for Poland. The construction of nuclear power plants by 2020–2025 is an integral element of the country’s energy policy through 2030. Thanks to nuclear plants Poland will diversify its fuel generation mix and lower its exposure to carbon dioxide (CO2) costs. As a result of its large coal-based generation portfolio (92% of the country’s fuel mix is coal or lignite compared with the European Union average of 30%), the Polish power sector is highly exposed to CO2 costs, especially after 2012, when auctioning of CO2 allowances will be gradually implemented. The government plans to reduce this exposure by diversifying away from coal to generation sources with no or limited CO2 emissions by 2020–2025 — including wind, nuclear energy, and (to a lesser extent) gas-fired plants.