Energy Transition

Nuclear Shut-Down Costs Draw Scrutiny

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What a waste.
  • Why it matters

    Why it matters

    The government wants Germany’s four biggest energy companies rather than taxpayers or electricity customers to foot the bill for closing down nuclear power plants and the disposal of nuclear waste.

  • Facts

    Facts

    • Germany in 2011 announced a program to phase out all nuclear energy in the country by 2022 and draw at least 80 percent of energy from renewables by 2050.
    • The German chancellor, Angela Merkel, made the move after the Fukushima nuclear disaster in Japan.
    • By February, a government committee is supposed to propose how payment of the costs of nuclear phase-out can be ensured.
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    Audio

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At a meeting in the German Federal Ministry for Economic Affairs and Energy in Berlin, energy consultant Harald Rubner gave what he thought was the best solution in the debate about who should pay the billions associated with the nation’s phase-out of nuclear energy.

The expert from corporate consulting firm Boston Consulting Group (BCG) said the solution was to set up a foundation similar to the one being used to oversee the gradual end of the mining activities of German group RAG.

The RAG-Stiftung foundation will shoulder the costs for pumping out water from coal mines. The mines are set to close in 2018 and, in case the foundation doesn’t have enough money to do the job, the government would jump in.

Although the four nuclear operators – E.ON, RWE, EnBW and Vattenfall – hold responsibility for it, it became clear to the nuclear committee that the companies’ reserves of €38 billion aren’t sufficient.

In the same way, a foundation would take over the nuclear reactors of E.ON, RWE, EnBW and Vattenfall and their reserves to the amount of €38 billion ($41.7 billion). To mitigate liability, the government could take shares in E.ON and RWE and profit from possible rises in stock prices.

But BCG consultant Mr. Rubner’s summation about the saving of RWE and E.ON through nationalization wasn’t well received by the 19 members of the German government’s appointed nuclear committee. “The BCG absolutely didn’t do the nuclear power plant operators any favors with that,” one committee member said.

By February, the committee is supposed to propose how payment of the costs of nuclear phase-out can be ensured. Although the four nuclear operators – E.ON, RWE, EnBW and Vattenfall – hold responsibility for it, it became clear to the nuclear committee that the companies’ reserves of €38 billion aren’t sufficient. “The gap between debit and credit is widening,” said a high-ranking committee member.

The committee’s co-chairs are: Jürgen Trittin, a Green party member and former Federal Minister for the Environment; Matthias Platzeck, Brandenburg’s former Minister-President and member of the center-left Social Democratic Party of Germany (SPD); and Ole von Beust, Hamburg’s one-time First Mayor and member of the center-right Christian Democratic Union (CDU). The SPD and CDU help make up Germany’s right-left federal coalition government, headed by Chancellor Angela Merkel.

There are two models circulating in the nuclear committee about how the corporations’ reserves can be secured and the risk for the government minimized: liability for demolition plus final disposal or liability for disposal only.

In the first model, the corporations would bring their reserves of €38 billion into a foundation or fund for the demolition of nuclear power plants and the final storage of the radioactive waste. For this, they must hand over assets to this amount. They can do it over a long period of time, for example 10 years, since the cost will accrue over many years. The foundation or fund would pay these costs. RWE, for example, has set aside around €10 billion for the costs resulting from the phasing out nuclear power, so RWE would have to bring in a maximum of €1 billion yearly of it.

In the second model, the corporations put smaller amounts of reserves in a fund or a foundation so that it assumes only the difficult-to-predict final disposal costs. The utility companies remain fully responsible, both operationally as well as financially, for the demolition of the nuclear power plants. For this, the corporations must bring in less assets – according to estimates of some committee members, around €20 billion. Compared with the first model, it would cost RWE barely half, or €5 billion.

The big question to be solved politically is the same in both models: who is liable if the divested assets are not enough? There are thoughts about this in the committee that the companies could buy their way out of a subsequent payment obligation.

Switzerland could serve as a model. The Swiss require for their liability a flat rate surcharge payment of 30 percent on top of the decommissioning and disposal costs calculated by the Swiss nuclear power plant operators. This is designed to be the equivalent of an expected additional cost increase of 1.5 percent in nuclear costs over 18 years.

Such a buy-out in the form of a 30 percent surcharge would mean for the German nuclear power plant operators, on the basis of their present-day nuclear reserves, that they would have to come up with around another €10 billion in addition to the €38 billion to bring the nuclear era in Germany to an close. Especially with RWE, most likely the shareholders or new investors would have to pay for this by way of a capital increase.

The goal of the committee is arriving at a solution agreeable to all. Wolfgang Irrek, a professor for Energy Management and Energy Services at the University of Applied Sciences Ruhr West, doubts it will happen. The committee must decide whose interests they are giving priority, Mr. Irrek said, those of the shareholders or those of the taxpayers and electricity customers. “Both at the same time won’t work.”

 

This article originally appeared in German business weekly WirtschaftsWoche. To contact the author: angela.hennersdorf@wiwo.de.

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