PRAGUE--Czech power company CEZ AS is canceling the $10 billion tender for two new nuclear reactors at its Temelin power plant, citing the unfavorable economics of the project, a lack of financial guarantees from the government, and uncertainty over the European Union's future energy and climate policy.

CEZ, which is 70% state-owned, said Thursday it discussed the cancellation with the Czech government and has since informed the three companies that made it into the final round of bidding: France's Areva SA, Russia's Rosatom and Pennsylvania-based Westinghouse Electric Co, a unit of Japan's Toshiba Corp.

CEZ and the Czech government said they would comment later in the day, while Areva--which in 2012 was excluded from the bidding due to commercial and legal flaws in its offer, according to CEZ--had no comment.

Westinghouse and Rosatom weren't immediately available to comment.

CEZ said, however, it remains committed to zero-emission nuclear energy and that by the end of this year it would announce a new strategy for the expansion and modernization of its nuclear power facilities.

The company has two nuclear power plants: Temelin has two reactors and a total installed capacity of 2,100 megawatts, which would have been doubled had the tender gone forward; and the Dukovany plant, which has four reactors and a total installed capacity of 2,040 MW.

The effort to expand Temelin began in earnest in 2009 when CEZ started official work on the tender. Since then, however, the project has become economically unviable due to wholesale electricity prices tumbling to historic lows as a result of Europe's economic crises and slowdown, and a surge in new, heavily subsidized electricity-generation capacity from renewable energy sources, such as photovoltaic and wind power.

The process was cast into further doubt when Russia annexed Crimea from Ukraine this year, prompting some Czech ministers to say Rosatom should be eliminated from the bidding.

The cancellation of the tender frees up future dividends for CEZ shareholders, cash payouts that would have been used for capital expenditure if the new reactors were built. The decision also prevents the company from having to take on significant amounts of additional debt to finance the project.

Consequently, CEZ shares soared Thursday and were outperforming the overall market in Prague.

Write to Sean Carney at sean.carney@wsj.com

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