German utilities to pay for nuclear waste disposal | Business| Economy and finance news from a German perspective | DW | 27.04.2016
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German utilities to pay for nuclear waste disposal

In October, Germany set up a high-level commission to decide how to finance the country's nuclear phase-out. It has now recommended that power companies pay into a multi-billion euro fund managed by the government.

In October, Germany set up a high-level eleven-member commission, KFK, to review the financing of the nuclear phase-out. The government's goal was to ensure comprehensive safety, decommissioning and waste disposal processes, and see to it that their costs would be borne by nuclear power companies, not by taxpayers.

"The tasks of interim storage of radioactive waste, manufacturing of waste containers, and construction and operation of final repositories, and transfer of waste from interim storage to final repositories should be transferred to the state," the KFK said in a statement released Wednesday in Berlin.

The estimated costs are to be covered by power companies paying a total of 23.3 billion euro ($26.4 billion) into a state-owned fund, with partial payments to be made in tranches over the next few years. In exchange, the state will take on all the residual financial risks associated with radioactive waste management - so if disposing of radioactive waste ends up costing more than 23.3 billion euro, the government, not the companies, will be on the hook for those cost overruns.

The 23.3 billion euro is composed of the current all-in 4.7 billion euro cost estimate of processing, enclosing and transferring high-level waste to final repositories, plus a 12.4 billion euro estimate for the costs of selecting, building and operating final repositories, plus a 35 percent "risk premium" - which is less than the risk premium of at least 50 percent that environmental groups had proposed, but more than the companies want to pay.

Grafenrheinfeld nuclear reactor

E.ON's nuclear reactor at Grafenrheinfeld was shut down in June 2015. The nuclear power era is ending in Germany, sixty years after it began

Compromise deal

The deal was characterized by the KFK's three co-chairs as a compromise aimed at ensuring decommissioning costs wouldn't lead to the insolvency of the four power companies that own nuclear reactors in Germany. Their balance sheets have been under heavy pressure in recent years due to price competition from solar and wind power suppliers in wholesale electricity markets.

The four large power-generation companies that own Germany's 17 commercial nuclear reactors are E.ON, RWE, EnBW, and Vattenfall, a company owned by the Swedish state. Eight of the 17 reactors are still in operation, but the last of them is due to be shut down by the end of 2022. Nuclear power accounted for 14 percent of Germany's total electricity production in 2015.

The 23.3-billion-euro deal only covers interim storage, transport and final disposal of high-level radioactive waste - including the spent fuel rods currently sitting in pools at nuclear reactor sites, as well as low- and medium-level radioactive waste such as machinery and buildings from decommissioned reactors. Packaging the waste for interim storage as well as dismantlement of reactor buildings and equipment and site remediation will remain the technical and financial responsibility of the four power companies.

Until now, the companies had been given the option of either removing reactor equipment and buildings, disposing of waste, and remediating reactor sites, on the one hand, or securely and permanently fencing off the sites and preventing unauthorized access. The KFK has now recommended that fencing-off will no longer be an option: All sites are to be dismantled and remediated. The commission said the government should speed up the permitting process to enable faster site decommissioning.

Jürgen Trittin, Berlin

A former leader of the German Green Party, Jürgen Trittin, is one of the three co-chairs of the KFK commission. Ending the nuclear power era in Germany was one of the main reasons the Green Party formed in 1980, and Trittin was there from the beginning. Now at the end of his career, he's met his goal

Companies claim unhappiness with deal

The KFK was structured to include representatives from politics, industry, civil service and environmental groups to ensure a broad consensus, and Wednesday's report and recommendations were unanimously endorsed by the 11 commissioners.

Nevertheless, three of the four companies - E.ON, RWE and EnBW - released statements on Wednesday afternoon suggesting they aren't happy with the proposed deal.

"The proposals [of KFK] burden the power generation companies in excess of their economic capacity," E.ON said in a statement, so it was "unable to accept the proposals" in their current form, but the company would refrain from taking a firm position until it had done a thorough analysis.

However, this may be mere posturing. The KFK's proposals still need to be approved by the German Cabinet and an appropriate law must be passed, presenting the companies with another opportunity to try to reduce the price tag the KFK has proposed by pressuring politicians.

Yet the stock market's reaction suggests that analysts consider the KFK's proposals to be very favorable to the companies - E.ON's stock price shot up by five percent, and RWE's by eight percent, in the wake of the KFK's press conference on Wednesday.

Lawsuits not affected

E.ON, RWE, Vattenfall and EnBW had previously launched lawsuits against the government in Germany's highest court, the Constitutional Court, claiming that Chancellor Merkel overstepped her constitutional authority when she abruptly decided to phase out Germany's nuclear industry in 2011 in the wake of the Fukushima nuclear meltdown in Japan.

The companies are claiming compensation for lost profits in the double-digit billions of euro. The CEO of E.ON, Johannes Teyssen, said the company's lawsuit would go ahead, as he saw "no relationship" between the lawsuit and the final settlement of the decommissioning costs.

But EnBW recently lost its lawsuit against the government, so E.ON's prospects of winning a similar lawsuit has uncertain prospects.