"The contract may extend beyond 2060; therefore, in the currently very uncertain times for energy market players, the contract brings a major element of stability - not only to both contracting parties, but to the entire region as there will be plenty of jobs available, which will further the local economic development. At the same time, we can now focus on large capital projects aimed to improve the operation of the Počerady power plant as well as the Vršany surface mine," said Daniel Beneš, Chairman of the Board of Directors and Chief Executive Officer of ČEZ.
"It is good news for the entire region of Northern Bohemia that has so far been critically jeopardized by the highest unemployment rate in the Czech Republic. The Agreement brings long-term job prospects for 1,300 employees directly in the Czech Coal group. Another roughly 3,200 people will find jobs outside the group in the tertiary sector and with suppliers. It is a one-of-a-kind guarantee of job opportunities for many decades to come," says Vladimír Rouček, M.Sc., Chief Executive Officer of Vršanská uhelná a.s.
The Počerady power plant will undergo the first major upgrade project by 2016. That is also the earliest date when ČEZ can agree with Czech Coal on the power plant's sale. The contract foresees another chance to reach such an agreement in 2024. The price has been pre-negotiated and is at the level of the offers made last year, when ČEZ, as part of its proposal for a settlement agreement with the European Commission, offered several of its power plants for sale.
In the upcoming 10 years, Vrsanska uhelna intend to invest some CZK 10 billion, in particular in relocating engineering systems in the Hořany corridor and in comprehensively upgrading and renewing our mining equipment. This work will represent great opportunities for suppliers in our region but also from the entire Czech Republic.
On the other hand, the contract will secure a permanent demand for the brown coal mined by Czech Coal. However, the demand will be a bit lower than in the previous years, and will drop from the current 8.5 million to 5 million tons, i.e., by more than 40%. ČEZ is thus going to surrender all high-calorific coal used for heat generation, and negotiations only continue in respect of the low-calorific coal from Vršany for the nearby plants. Heating plants have never used this type of coal. We have been reconstructing our heating plants primarily to use a greater portion of alternative fuel types.
The price per 1 GJ has been set at CZK 38.8, which corresponds to the prices common in the Czech market and is comparable to the price at which heat plants also buy coal in the long run. Until 2023, the price is gradually going to reach 65% of the black-coal price on European exchanges (ARA). This year, this price would be roughly 48 CZK/GJ.
After 2024, the contract secures coal supply even to a potential new source in the location of Počerady, with a permanent advantage of 0.35 ARA compared to rival power sources in Germany. At the same time, it gives ČEZ an option to sell the Počerady location if the situation in the energy markets is not favorable toward building a new coal
power plant.
Background on the ARA Price and Its Relation to the Price of Power:
ARA is an acronym for the price of black coal used for energy generation, delivered to the ports of Amsterdam, Rotterdam, and Antwerp (ARA). This coal comes primar ily from Australia and South Africa, but its prices are decisive for the entire Germany and Central Europe. The price is set in USD per ton. ARA is very closely linked to the price of
electricity in Germany and, more or less also in the Czech Republic since the German black-coal power plants are most of the time the marginal sources of power that significantly determine the price of electricity.