Innovation Strategic Initiative
In 2009 CEZ Group added another element to its strategy – Innovation. This is in response to growing trends in the sector: strict environmental regulation in the emissions area, demands for increasing efficiency and roll-out of new technologies, with a clear focus on clean technologies. To stay abreast of these trends, advance preparation is needed, and we will endeavor to take a leading role in new technologies wherever we operate, and to leverage new business opportunities to strengthen our market position. This new strategy element also reinforces CEZ Group’s corporate social responsibility.
In order to fulfill and manage the Innovation initiative, the FutureMotion (Energy of Tomorrow) initiative was launched, consisting of four subprograms:
Research and development Environmental investment
Small-scale cogeneration and energy conservation Smart grids.
The FutureMotion initiative has become a platform for managing, coordinating, and executing innovation activities throughout CEZ Group. As such, it concentrates on long-term goals.
Through systematic support for science and research and support for bringing promising new technologies into everyday life, CEZ Group aims to achieve:
better utilization of resources in generation, distribution, and consumption alike
application of new technologies mitigating environmental impacts
expansion of consumers’ options for deciding on how they will use energy
utilization of electricity as the cleanest form of energy, for example in road transport.
FutureMotion Programs
Research & Development
Research and development (R&D) is crucial to innovation. CEZ Group’s R&D priorities include sustainable nuclear power, energy storage, increasing efficiency, and decarbonization, to name a few.
Goals:
to take a leading role in energy research and development in the Czech Republic and to become a major player in the field of energy innovation within the European Union as well
to financially support science and research
to systematically cooperate with technical universities and research institutes.
Environmental Investment
It is in CEZ Group’s best interests to diversify its plant portfolio and reduce its carbon exposure even more. Support for electromobility is an integral part of these initiatives.
Goals:
to become the leader in renewables in the countries of Central and Southeastern Europe
to become the biggest provider of electromobility in Central Europe
to increase the volume of solid biofuels by at least 500 kt beyond the current capacity of the Czech Republic.
In October 2009, ČEZ, a. s. acceded to a declaration on standardization of electric car charging infrastructure. That declaration envisions that all connectors for charging electronic vehicles will be the same. The declaration has already been signed by representatives of 50 European distribution companies and other power utilities.
In December, CEZ Group announced that it is preparing to build a network of automobile charging stations. The first charging stations are planned in Prague at shopping malls, buildings belonging to the Lord Mayor’s Office, town halls of individual city districts, and in Vrchlabí. Charging stations for electric cars represent a breakthrough project in the Czech Republic, the implementation of which will necessitate solving a number of aspects such as ensuring sufficient distribution capacity, metering, sales, equipment homologation, the electronic interface used, connection to the billing system, connection standards, alternative technical implementations, and the number of outlets per station.
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Small-scale Cogeneration and Energy Conservation
It is the intent of CEZ Group to add local generation to the traditional energy mix and to introduce energy conservation projects. Small-scale cogeneration technologies have significant potential for savings in primary fuels (over 20%) and CO2emissions. They do not require beefing up of
transmission and distribution grids, and during grid emergencies they provide possibilities for “island operation” (i.e. grid operation limited to a certain local area). Potential sites for application of these technologies include large buildings such as, for example, hospitals, shopping centers, large office buildings, hotel complexes, and the like.
Goals:
to gain a significant share of the small-scale
cogeneration market, which has potential to grow in the Czech Republic;
by 2012, to build in the Czech Republic an initial small-scale cogeneration portfolio with at least 50 MW installed capacity in industrial enterprises;
to conceive and roll out energy conservation projects.
Smart Grids
CEZ Group intends to integrate new technologies in the distribution grid, pioneer new methods for its operation and management, and give consumers more power to decide how they will use energy.
Smart grids enable alternative energy sources to be used to a larger degree by effectively combining them with
conventional power plants. A smart distribution grid can determine when it is being overloaded and prevent a power outage by rerouting the flow of energy. It monitors events in the grid and its technical condition, deals with faults and outages and provides suggestions for grid renewal. It communicates with customers in real time and optimizes their consumption with regard for price and the environment.
Goals:
within the framework of the Smart Region pilot project, by 2015 introduce the most advanced distribution technologies and interlink them with decentralized generation;
in the years 2010–2013, launch a smart metering pilot project with 40,000 smart meters in three selected localities.
CEZ Group has formulated a smart grids strategy and is preparing pilot projects. We have explored the technical parameters of smart meters by installing 2,000 of them in Dobruška, East Bohemia. In December, we announced the selection of the area around the city of Vrchlabí in North-East Bohemia as a Smart Region for use of smart meters with customer participation. In the Vrchlabí region, CEZ Group intends to find out how various new technologies can cooperate in a small area, including a substantial number of local generation facilities (some of them renewables-based), electromobile charging stations, and cogeneration facilities.
Efektivita Program
The Efektivita Program is tasked with increasing performance, improving cost effectiveness of key processes, and making CEZ Group one of the most efficient electric utilities in Europe. In 2009 we began to see the full effects of optimization measures taken in the past, in particular in the following areas: improvements to ancillary and shared services, management of selected overheads, provision of optimized ICT services in the Group, integration of international equity holdings, and optimization of nuclear power plant safety and performance. When the economic crisis began, we conducted a review of all the project plans, as a result of which the outsourcing projects at ČEZ Distribuční služby and ČEZ Měření were postponed. The remaining projects and optimization measures planned for 2009 were executed as originally planned. The Efektivita Program’s contribution to EBITDA reached CZK 7.5 billion in 2009, exceeding the originally planned value by 8.7%.
Alongside the seven original key projects – Transformation of ICT, Streamlined Corporation, The Customer (already completed), Best Practices in Distribution, Integration of International Holdings, Safely 15 TERA ETE, Safely 16 TERA EDU – as of January 2009 an eighth project has been added: Extending the Operational Life of Dukovany Nuclear Power Station.
In 2009, the Transformation of ICT project was characterized by stabilization and improvement of the internal functioning of the ICT services provider and by implementation of the approved sourcing strategy. Within the framework of sourcing activities, as of December 31, 2009, services relating to terminal equipment are no longer provided and the entire function was outsourced. At the same time, feasibility studies were conducted on outsourcing data centers, telecommunication networks, and the technical protection system. Internal optimizing activities focused on “breaking in” the new organization of the company arising from the merger, optimizing the company’s management model, processes, and their performance. One successfully completed task in 2009 was the implementation of a competency center (in-house comprehensive support for SAP system users), for which certification was obtained towards the end of the year. The Streamlined Corporation project brought structural change, accompanied by optimization of the number of employees, particularly in purchasing and logistics, human resources, finance, property management, and road transport. The roll-out of a unified information system in CEZ Group will be made possible by the completed unification of ancillary and administrative processes. In 2010, the project will focus on transforming and
centralizing bookkeeping services and the ongoing review of all human resources processes with the aim of optimizing them. In addition, a plan for a new concept of CEZ Group unified safety practices, a project to optimize the number of distribution warehouses, and a number of other measures designed to improve internal performance are poised for launch. The execution of a substantial majority of the streamlining measures planned for the following year is conditional upon the successful and timely completion of the SAP program. Since being launched in 2007, the Streamlined Corporation project has so far brought CZK 1.1 billion in cost savings to the Group. The Customer project was completed and wound up in December 2009. One of its goals was to make CEZ Group one of the best companies in terms of customer services in the Czech Republic, within three years. This goal was accomplished. A wide array of measures was implemented to streamline processes, the introduction of communication standards made it easier to serve customers at a higher quality level, and numerous development programs for employees empowered them be more professional when in contact with customers. The Customer project’s one-off aggregate total benefit in the period 2007–2009 is valued at CZK 1.1 billion, although the project’s result in 2009 was CZK –0.1 billion due to the decline in electricity prices. When the project was wound up, activities commenced during its implementation passed to line management.
The Best Practices in Distribution project met the milestones set for its individual component activities in 2009 and in terms of the overall Efektivita Program benefits it was the biggest contributor (CZK 2.5 billion). The project’s goals and timeline were revised in accordance with the “ČEZ Against the Crisis” initiative and three new activities were added.
As part of the project, ČEZ Distribuční služby, s.r.o. underwent a fundamental reorganization.
The principal objectives of the Integration of International Holdings project are full integration of international equity stakes into standard CEZ Group structures, and process optimization. Currently being integrated are holdings in Bulgaria, Romania, and Poland. During the year CEZ Group acquired new assets in Albania and Turkey, and their inclusion in the integration project is at the planning stage. During 2009 the integration in Poland was completed for practical purposes: the most significant activities still underway are the completion of a feasibility study on the construction of a small-scale hydro power plant in Skawina, and optimization of biomass combustion. In Romania we completed a project to optimize distribution grid administration and at the same time we are meeting cost savings targets relating to outsourcing of shared services. In Bulgaria the process of eliminating non-technical losses (and achieving cost savings thereby) was changed and the overall number of employees is being steadily optimized. The “Safely 15 TERA ETE” project at Temelín Nuclear Power Station is going through a period of technical and organizational stabilizing with the aim of improving selected safety indicators up to levels seen among the top quarter of the world’s nuclear power plants and to generate 15 TWh of power in 2012 while laying the groundwork for this value to be met or even exceeded in subsequent years. In 2009, Temelín Nuclear Power Station generated a record amount of electricity – over 13 TWh. Important progress made in 2009 included finalizing the methodology for dealing with containment buildings and resolving technical issues with low-pressure components of the turbo-aggregate. Furthermore, the fuel loading machines were upgraded and a new device for tightening nuts on the main joint face was used for the first time. Preparations are underway for the switch to a new supplier of nuclear fuel, which will take place in 2010 on Unit 1 and in 2011 on Unit 2 of the plant. A program to improve human performance quality continued, as did the rolling out of a knowledge management program, as part of which Temelín Nuclear Power Station hosted an international seminar on process- driven knowledge management, organized in cooperation with the International Atomic Energy Agency in Vienna. In terms of expertise development, experience records were made and interviews with experts were utilized to create knowledge maps. The ETE Management Academy project was launched.
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The objective of the “Safely16 TERA EDU” project is to increase Dukovany Nuclear Power Station’s electricity output to 16 TWh/year starting in 2013 while maintaining the current level of plant safety and reliability. This effect is being achieved by reducing outages for refueling and increasing the output of the plant’s reactor units. Increasing output is being achieved through modifications to the main generating equipment to take advantage of the plant’s design potential. An upgrade of low-pressure turbine components at Dukovany Nuclear Power Station was the final step in increasing the output of all four reactor units to 456 MWe. By retrofitting components such as reactor unit transformers and high-pressure turbine components in 2009, Unit 3 achieved its target output of 500 MWe (installed capacity is higher). By 2013, the same modifications will have been made on the plant’s other units. The new standards for planned outages were successfully put into use.
The “Extending the Operational Life of Dukovany Nuclear Power Station” project aims to prepare plant equipment, personnel, documentation, and processes for a renewal of the operating license after 2015, as well as to carry out the measures necessary to extend plant operation until 2025 with an outlook for further extension of operation up until 2045. The project includes integration of long-term operation of Dukovany Nuclear Power Station’s existing reactors with the construction of new capacity at the same site. In 2009, the project team began operating and began addressing the principal tasks: i.e., the plant’s ongoing modernization and renewal of its equipment, including safety improvements, meeting the nuclear safety
requirements set by the State Office for Nuclear Safety for operation after 2015, introducing operational life
management, and renewal of personnel, including the knowledge management area.
Brief Power Industry Development Forecast from the Perspective of CEZ Group
Like other sectors, European energy was affected by the impacts of the financial crisis in 2009. Electricity
consumption fell substantially, accompanied by a massive surplus of natural gas and CO2emission rights and
a decline in black coal prices in the global marketplace. All of these factors led to wholesale electricity prices tens of percent lower compared to price levels reached in mid-2008. While it is uncertain how quickly the European economy will return to a growth trajectory, it can be expected to be a rather slow process since banks and industrial enterprises alike continue to exhibit aversion to commercial risks and are taking a careful approach to financing and executing new projects. The major shortfall in industrial production – the main factor determining electricity consumption – will be made up only gradually, in correlation with the recovery of industry.
Over the shorter term, electricity prices will be influenced by the depth and duration of the financial and economic crisis. Once that ends, commodity prices and electricity consumption are expected to grow significantly and, in the medium term, electricity prices are expected to grow once again. Long-term, however, there remains material uncertainty as to prices of CO2emission rights and natural gas.
The fact that growth in renewables is an important feature of today’s energy sector is eloquently expressed by over 100 GW of new installed electrical output after 2000 in the 27 European Union Member States. In general, this trend can be expected to continue.
Lower consumption of electricity in Central and
Southeastern Europe staved off the threat of a shortage in generation capacity available for satisfying electricity demand. Decommissionings in the region’s aging production portfolio in combination with the gradual recovery of consumption will, over the longer term, lead to price convergence between Western, Central, and Southeastern Europe.
The Czech power market is fully liberalized. Access to the transmission and distribution grids is regulated. The deadline set by legislation for unbundling electricity distribution, a regulated activity, from other businesses was January 1, 2007, and all affected players completed the unbundling process in advance.
The wholesale market in the Czech Republic is a part of the larger Central European market, thanks primarily to extensive cross-border transmission capacities between the Czech Republic and the transmission grids of neighboring countries. The region’s primary price-setting market is Germany and its exchange in Leipzig. Prices in the wholesale market are set on the basis of supply and demand, through trading on the Power Exchange Central Europe (PXE), established in 2007 in Prague, and through bilateral contracts. The instruments that can be traded on the Czech Republic’s exchange range from one-year contracts down to one-day contracts. Anonymous trading on a daily basis can also be realized through the organized markets of OTE, a.s. In addition to one-day trades, the organized markets of OTE, a.s. also enable intra-day trading. Over 30 traders and 6 brokers actively operate in the wholesale market. As of September 1, 2009, OTE, a.s. teamed with a Slovak partner to launch the “Czech-Slovak” joint, interconnected single-day electricity market. This brought increased liquidity to the single-day market organized by OTE, a.s. andde facto “coupling” of Czech and Slovak wholesale electricity prices.
Over 10 traders actively operate in the retail market, supplying electricity to end customers. The number of customers that switch to a different supplier is rising every year. Although substantial numbers of residential
customers were already changing their supplier in 2008, this trend gathered steam in 2009. Thanks to the capacities of other producers outside CEZ Group and those of cross-border transmission lines, more than half of Czech Republic electricity demand can be met through sales by suppliers other than CEZ Group. CEZ Group’s share in the developing retail market is approximately 44%, as new suppliers other than the three traditional ones (ČEZ, E.ON, and PRE) have now occupied nearly one quarter of the market. While, in 2008, it was typical for non-tariff, individually managed customers to enter into multi-year contracts – most frequently for two years, but in some cases for three years – in 2009 this trend changed significantly as a result of lower electricity prices in the wholesale market, as many customers returned to single-