Gundremmingen nuclear power plant Source: RWE

 Supporters of nuclear power won a year-long battle to extend the life of Germany’s 17 remaining plants when the Bundestag voted by a narrow margin to keep them for an average of 12 years more than previously planned. But their victory came at the cost of crushing fuel taxes for the three main utilities left operating reactors in Europe’s biggest economy. 

Chris Webb

It is little more than ten years since the German government reached its historic agreement with domestic energy companies for the gradual closure of the country’s nuclear power stations, which then numbered 19.

Germany became the first leading economic power to unequivocally renounce nuclear power with an intended phase-out. The then Chancellor Gerhard Schröder confirmed the agreement in June 2000 after terse negotiations with the chief executives of Germany’s four leading power utilities.

The country’s nuclear power plants were slated to be closed after a lifespan of 32 years, a term longer than Schröder’s coalition partners the Greens wanted, but less than the industry had so vehemently demanded. What it meant back then was that the country could see its last nuclear power plants go off-line by 2020.

Shell-shocked industry leaders on the one hand slammed the early closures, while stoically accepting what they called “the primacy of the political system” on the other. Considered a ‘done deal’ at the time, the ruling fulfilled an election pledge by the Social Democratic Party (SPD)–Green Party coalition government as it eagerly sought a platform for power on a ticket that tackled one of Germany’s most controversial political issues.

CRACKS IN THE PHASE-OUT PLAN

But the cracks in Germany’s resolve soon began to show, even before the ink was dry on the agreement. In May 2007, the International Energy Agency (IEA) warned that Germany’s decision to phase-out nuclear power would limit its full potential to reduce carbon emissions “without a doubt”, and urged the government to reconsider its policy in the light of “adverse consequences”.

Less than ten years after the Schröder government’s landmark ruling, another election pledge was to set in motion a process that would overturn the early closure decision. This time it was the turn of Chancellor Angela Merkel’s Christian Democratic Union (CDU) administration, proposing a nuclear “bridge” that would help Germany meet tough carbon emissions targets and fund a programme of renewables.

The last decade has been a roller coaster ride for nuclear power by any standard, and the recent reprieve is hotly contested by factions from across the political spectrum. Among many dissidents is Environment Minister Norbert Röttgen, at the very heart of Merkel’s ruling centre-right coalition, who has called for a rethink of his government’s new policy. Röttgen told the Munich-based national newspaper Süddeutsche Zeitung: “Even after 40 years there is no sufficient public backing for nuclear energy.” He added that his party “should carefully consider whether we want to make nuclear energy our unique feature”.

Michael Kretschmer, the CDU deputy leader, countered the argument, saying he was “speechless over such nonsense”. Kretschmer asked in the Welt am Sonntag newspaper: “Do we really want to switch off the world’s safest nuclear reactors and then have to import electricity from foreign reactors that might not be as safe?”

The pro-nuclear movement is aghast at Röttgen’s outburst. The World Nuclear Association (WNA) warned that, if Germany were to proceed with its nuclear phase-out policy and maintain carbon emission reductions, by 2020 it would need to import some 25 GW of electricity as baseload, calling on its already significant interconnections with France, Netherlands, Denmark, Poland, the Czech Republic and Switzerland, and possibly even importing from Russia in the future.

Nuclear Fuel Tax – A Poison Pill?

Yet it is the poison pill of a new tax on nuclear fuel, meant to reduce a ‘windfall’ profit from nuclear plant life extensions, that has most riled the big three German power utilities: RWE, E.ON and EnBW.

While the two amendments to the country’s Atomic Energy Act approved in October will see the country’s 17 reactors operate for longer – nuclear plants built before 1980 will be allowed to operate for a further eight years beyond limits set in 2002, while newer reactors will gain 14 years – the new tax will savagely dent profits and starve future investment, they say.

Both publicly and in the boardrooms of the big utilities, nuclear power remains a controversial subject in Germany, and the new nuclear policy was nudged through by the narrowest of margins as part of an overall ‘Energy Concept’ meant to steer the country to a generation mix dominated by renewables (80 per cent) in 2050.

Such a target is, according to the WNA, unachievable. “No serious energy or environmental planner believes that a major economy like Germany’s can be largely reliant on renewables within the next 40 years,” it warned. Merkel stands firm, however, insisting that renewables can meet demand if nuclear power acts as a ‘bridge’ that will lead to “better electricity prices and faster CO2 reductions”.

Angela Merkel’s view is endorsed in ‘Roadmap 2050: a practical guide to a prosperous, low-carbon Europe’, a study by the European Climate Foundation (ECF), which says that by deploying technologies already commercial today or in a stage of late development, Europe could reduce greenhouse gas emissions by that magic figure of 80 per cent by 2050 compared to the 1990 benchmark, and still provide the same level of reliability as the existing energy system.

THE COST TO UTILITIES

What troubles the nuclear operators, however, is the high price to be paid for hanging on for an extra few years to what is inevitably still being seen as an outgoing technology. Nuclear plants generate a quarter of the country’s power.

Under the new fuel tax system, companies will begin paying some €145 per gramme of nuclear fuel, or around €2.3 billion ($3 billion) a year, to pay for Merkel’s renewables ambitions. The money will be paid into Germany’s central budget, but will also support development of the radioactive waste repository site at Asse, near Remlingen.

Kernkraftwerk Isar 2 nuclear power plant Source: E.ON

Furthermore, the nuclear utilities are unhappy with having to shell out annual payments of €300 million in 2011 and 2012 to support renewable energy developments, though this sum is set to decline to €200 million for the period to 2016. A tax on every MWh of nuclear energy produced will also be placed in a ‘renewables fund’.

Last August, Merkel stood by the nuclear fuel tax and openly challenged the disaffected plant operators to come up with alternatives. She said the government needed the €2.3 billion in annual revenue. Both E.ON and RWE had earlier threatened to close nuclear plants ahead of schedule if the tax went ahead.

Meanwhile, leading industrial companies, including Siemens and ThyssenKrupp, joined the utilities in expressing concerns at the fuel tax, signing an open letter to Merkel urging her to show “courage and realism” by extending nuclear power and ditching the fuel tax. Energy firms should not have to fix the budget deficit, they said.

IMPACT ON UTILITY INVESTMENT

Together, E.ON and RWE are set to invest some €17 billion in power plants and natural gas pipelines and other energy assets this year alone to use more cleaner burning fuels. But they believe that the life extension and fuel tax mix are a poison chalice. The companies warned that such spending may fall in coming years as the tax could cut yearly earnings at RWE by €1 billion and at E.ON by €1.5 billion. But observers note that one good thing to come out of the deal will be Germany’s ability to retain key nuclear skills, which could stand it in good stead as the wider world embraces the technology.

Undoubtedly, the power utilities had hoped for a longer life extension. And it is easy to see why. Earlier this year, Landesbank Baden-Württemberg, a state-owned bank, estimated an extension of 25 years, at a price of €80/MWh, would mean the four energy companies stood to rake in a staggering €233 billion, with most of the profits coming in around 2014 after appropriate plant upgrading with modern safety technology.

As for the immediate future, proposals to extend the operational lives of nuclear power plants could still face a test in the Bundesrat, the upper house, where Merkel’s coalition government lost its political majority in May, and the opposition SPD also plans to challenge the government in the Federal Constitutional Court.

EnBW, Germany’s third biggest power company, recently said it was on course in implementing an ambitious €5.1 billion growth and investment programme for 2010 to 2012, financed from current cash flow, but warned the introduction of the nuclear fuel tax would cost the company dear – about €500–700 million as of 1 January 2011.

Announcing third-quarter results in November, CEO Hans-Peter Villis said the fuel rod tax will cost EnBW about €440 million a year over a period of six years. The prepayments to the fund to promote renewable energies will amount to €65 million for each of the next two years and €43 million per year in the four years thereafter. “These are incisive cuts, and they mark a turning point,” he said.

E.ON WELCOMES NUCLEAR ANNOUNCEMENT

In September, an E.ON statement said Germany’s largest utility welcomed, in principle, the agreement reached by the German government on a compromise concerning an extension of the operating lives of nuclear power plants in Germany.

“With this decision,” said the statement, “the German government has made it clear that nuclear energy will continue to be needed for some time as one of the main pillars of our energy policy. This compromise will allow nuclear energy to make an important contribution to affordability, security of supply and climate protection on the way to tomorrow’s energy supply.”

E.ON said the agreed extension of the operating lives of nuclear power plants and investment in renewables would make it possible to achieve the ambitious climate change target of halving carbon emissions for each kWh by 2030. Yet for E.ON, also, taxes and charges are a major issue. “The implications still need to be examined for each plant,” the statement continued. “The government decision means that the operating lives of E.ON’s nuclear power plants Isar 1 and Unterweser will be extended by eight years each, and those of Grafenrheinfeld, Grohnde, Brokdorf and Isar 2 by 14 years each.”

But, said E.ON, the different extension periods for old and new plants were quite arbitrary and essentially a political decision operators would have to accept. “There is no technical justification for this decision because, regardless of their age, all plants meet the same stringent safety standards. Moreover, the average operating life extension of 12 years is a considerable challenge because it is too short a period to allow nuclear energy’s ‘bridge’ function to be used in an optimum way.”

The nuclear “compromise”, as E.ON called it, also brought with it some considerable economic burdens. “Even though the tax rate for the nuclear fuel tax is a little lower than originally planned, the tax has to be paid for six years instead of four. Moreover, the tax also applies to existing residual quantities. And there are permanent charges that are paid into a fund to promote renewable energies. On the whole, the government has tightened the screws quite considerably and will skim off most of the windfall profits.”

In the view of E.ON, the energy plan rightly recognizes the growing importance of electric power. Laws and regulations concerning the continued operation of nuclear plants are also a significant part of the plan. The state will collect significantly more than half of the additional profit from longer service lives. Berlin has also called for additional requirements for the retrofitting of nuclear plants, posing a considerable challenge for operators given pressures on a stretched nuclear skills base from the industry’s global revival.

THE VIEW OF RWE

RWE, Germany’s No.2 utility, agreed that recent events pointed towards establishing a broad energy mix. “We are pleased to see that nuclear energy is included; it is necessary to fulfil the demands of security of supply, environmental and economic needs. So we of course welcome the decision of the lifetime extension, which affects our plants in Biblis, Gundremmingen and Lingen.”

RWE also expressed bemusement at the intention to single out older reactors for earlier closure. “Our reactors, in terms of safety, are among the best in the world. With huge investments we are continually modernizing our plants, raising safety above all other considerations. Biblis and Lingen operate PWRs (pressurized water reactors), while Gundremmingen has BWRs (boiling water reactors); they are recognized as amongst the safest in the world.

“Nuclear energy brings many benefits associated with mitigating climate change, because it is almost completely carbon-free. German plants reduce CO2 emissions by more than 100 million tonnes per year compared to conventional plants. Furthermore, nuclear power reduces our dependency on energy imports, because there are a lot of countries where uranium is mined. Last but not least, the customers will benefit. A study by the BDI (an association of industrial companies in Germany) found that by 2020 the average household will save €90 a year directly as a result of the nuclear power plant lifetime extensions. And we shouldn´t forget that every year millions of euros are spent on modernization and maintenance, so that many companies and their employees benefit from this important work.”

FORCED TO GO ABROAD FOR NEW BUILD

The recent deal precludes the building of new nuclear capacity in Germany. Unable to build new nuclear at home, both RWE and E.ON are actively pursuing opportunities abroad, notably in the UK, where they have the Horizon Nuclear Power joint venture, which plans 6 GW in new capacity. Separately, RWE has worked towards two new reactors at Belene in Bulgaria, and E.ON has taken a leading role in the Fennovoima project in Finland.

But, as the recent events played out in Germany have shown, just a few years after nuclear power seemed dead, anything could happen in the future, given the political will to change, and the appetite for nuclear remaining strong.

Chris Webb is a freelance journalist, who writes on energy-related issues and is a regular contributor to Power Engineering International.

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