The financial fallout of abandoning 9 German nuclear units
Germany’s Grafenrheinfeld nuclear power plant, owned by E.ON, operated from 1981 until June 2015.
(Bloomberg) - Germany faces a choice between extending the lives of reactors or paying hundreds of millions in cash to some of the nation’s biggest utilities.
The government’s dilemma, the latest twist in the nation’s ambivalent relationship with atomic energy, comes after the Constitutional Court in Karlsruhe said last week the government must compensate RWE AG and Vattenfall AB for output lost since Chancellor Angela Merkel’s decision to shut reactors after the 2011 Fukushima disaster.
“We’re at the start of long, long negotiations that will last well into next year,” Andreas Kuebler, an environment ministry spokesman in Berlin, said by phone. “We’re really just at the start of trying to assess what the ruling means.”
The judgment is finally some good news for Germany’s utilities and comes at the end of what’s been a pivotal year for the industry. Outmaneuvered by the renewable energy revolution and the slump in wholesale power prices, they’ve been forced to write off assets to the tune of billions of euros and scrap outdated business models by either splitting up or selling off old-style fossil fuel plants.
The ruling states that the government will have to compensate the utilities for about 80 terawatt-hours of lost output, or roughly eight years of production from one reactor.
Germany has shut nine reactors since Fukushima, which triggered Merkel’s u-turn on nuclear. Just months after extending the lives of reactors in 2010, she initiated an exit plan and closed some plants almost immediately. Germany’s remaining eight reactors owned by RWE, EON SE and Energie Baden-Wuerttemberg AG all have to close by 2022.
The court gave the government until June 2018 to amend a nuclear law to compensate utilities financially, or allow reactors to operate longer. This second option is complicated as the two reactors operated by Vattenfall have already been decommissioned, while RWE units have to close before they can use up an allocated amount of electricity assigned under previous phaseout rules for atomic plants.
“Our red line is that the nuclear phase out will not be extended, nor will reactors run longer than has been set in legislation,” Kuebler said.
A third alternative would be that unused power rights allocated to RWE and Vattenfall could be passed to other utilities with free production capacities. The government would need to compensate companies for the remaining power that can’t be generated, but not necessarily fully. Utilities may already transfer production time from old to newer plants.
in gigawatt-hours EON EnBW RWE Vattenfall Unused generation after transfer Government estimates* 51,560 16,440 -36,980 -45,890 -14,870
Source: Federal Constitutional Court ruling, note: 327 * Positive figures stand for free capacity, negative means unused generation
Greenpeace estimates RWE and Vattenfall could get as much as 300 million euros ($319 million) if their unused generation is transferred and the utilities are reimbursed for the rest. Becker Buettner Held, a German law firm that specializes in the energy industry, sees compensation in the hundreds of millions of euros area after operating costs.
RWE’s claim from the ruling is worth 500 million euros, or 0.70 euros per share, Ingo Becker, an analyst at Kepler Cheuvreux, said in an e-mailed note. The utility’s shares have dropped 4.1 percent since the court ruling to 11.43 euros in Frankfurt.
“It is up to the lawmaker to think about adequate possibilities, we’re willing to talk,” RWE Stephanie Schunck, an RWE spokeswoman in Essen, said by phone. The position was echoed by Vattenfall spokeswoman Sandra Kuehberger. EON and EnBW said they are still analyzing the court decision.
Government forecasts in the ruling show EON and EnBW could take over as much as 82 percent of production rights from RWE and Vattenfall within the running time of their remaining reactors.
“The government will try to use available capacities of EON and EnBW as this will cause less money to flow to the utilities” and lower cost to the taxpayer, Olaf Daeuper, a lawyer at Becker Buettner Held, who represented three German states at the court hearing, said by phone from Berlin.
The government is mulling alternatives to financial compensation to RWE and Vattenfall, Deputy Environment Minister Jochen Flasbarth told Berlin’s Inforadio on Wednesday. Any compensation would be “a case of very small sums,” he said.