Nuclear Phase-Out Commission Proposal: Operators to Contribute EUR 23.3 Billion Into Public Law Fund, Get Limitation of Liability

The Commission to Review the Financing for the Phase-out of Nuclear Energy (Kommission zur Überführung der Finanzierung des Kernenergieausstiegs – KFK) presented its final report on 27 April 2016. It included a proposal to establish a EUR 23.3 billion state operated fund to finance nuclear waste storage, initially paid for by the power plant operators of Germany’s four large utilities – RWE, E.ON, Vattenfall and EnBW. Responsibility for decommissioning and dismantling the nuclear power plants shall remain with the operators indefinitely.

1. Background

KFK is a government appointed commission. It was set up on 14 October 2015 to review the financing for the phase-out of nuclear energy. Its task was to present recommendations on how the financing of the decommissioning, dismantling and disposal can be designed, ensuring that the affected companies remain viable in the long term so that they can meet their obligations.

Presently, based on Sec. 9a para. 1 sent. 1 German Atomic Energy Act (Atomgesetz – AtG), the nuclear power plant operators have to assure that residual radioactive material as well as disassembled or dismantled radioactive components are utilised without detrimental effects or are disposed of as radioactive waste in a controlled manner. By contrast, the Länder (Federal States) shall establish state collecting facilities for the interim storage of the radioactive waste originating in their territories, and the Federation shall establish installations for the final safekeeping and disposal of radioactive waste (Sec. 9a para. 3 sent. 1 AtG). However, costs (fees and expenses) or consideration for the use of interim and final disposal facilities have to be borne by the nuclear power plant operators (Sec. 21a, 21b AtG, 21 Standortauswahlgesetz – StandAG).

Regarding decommissioning and dismantling, nuclear power plant operators are solely responsible to perform and finance this tasks.

To ultimately pay for decommissioning and dismantling as well as for disposal, the nuclear power plant operators made provisions on their balance sheets. By the end of 2014, these provisions amounted to EUR 38.3 billion.

2. Financing Concept of the Nuclear Phase-Out

According to the KFK proposal, the financing concept regarding the German nuclear phase-out shall be based on two pillars:

  • Pillar 1: The financing of nuclear waste disposal shall be done through a newly established public law fund, using (capped) financing from the nuclear power operators.
  • Pillar 2: Decommissioning and dismantling costs shall remain to be paid directly by the nuclear power plant operators.

a) Establishment of a Public Law Fund

The new public law fund shall be financed by transferring the existing provisions of the nuclear power plant operators, plus a EUR 6.1 billion risk premium. After contribution of the provisions plus premium, the operators will no longer be liable for disposal expenses should the transferred provisions ultimately turn out to be insufficient. Transferring the provisions to the fund shall ensure that the provision cannot be affected by an insolvency of a nuclear power plant operator.

KSK also debated – and rejected – two other possible concepts:

  • Private law fund, combined with release of nuclear power plant operators from liability;
  • Public law fund, combined unlimited continuing liability of nuclear power plant operators.

Conceptually, the proposed public law fund/liability termination concept would align the (already existing) state obligation to establish and operate interim and final nuclear waste disposal facilities (according to Sec. 9a para. 3 sent. 1 AtG) with the (ultimate) liability to pay costs. Financially, the nuclear power plant operators would be liable to supply the funds that – based on current estimates – will be necessary to pay for the disposal, plus a risk premium to cover the risk that current calculations turn out to be insufficient.

Under this concept, nuclear power plant operators shall pay EUR 23.3 billion into a newly established state operated fund by 2022. This sum consists of provision amounting to EUR 17.2 billion that nuclear power plant operators have set aside on their balance sheets for final and interim storage, plus a 35% risk premium (EUR 6.1 billion). The Commission’s report does not go into detail on how the 35% premium was calculated.

The nuclear power plant operators would have to pay the amount gradually until 2022. Upon full payment into the fund, nuclear power plant operators shall be released from their financial liability regarding interim and final storage. The state would then take on responsibility for residual financial risks associated with nuclear waste storage.

b) Responsibility for Decommissioning and Dismantling

Responsibility for decommissioning and dismantling shall remain with the nuclear power plant operators, without limitation regarding amount or time.  KFK proposes to leave provision currently amounting to EUR 17.8 billion with the nuclear power plant operators. In addition, they shall form additional provisions estimated at about EUR 400 million in the event that they shall be obliged to decommission immediately to a greenfield standard.

The commission points out that the nuclear power plant operators shall be more transparent about their provisions for plant decommissioning and dismantling, not only regarding the covered amount but also if the provision will be available when payments are due.

3. Reaction on Commission’s Proposal

E.ON, REW, Vattenfall and EnBW published a critical press release on the KFK proposal. The commission’s recommended risk premium would overburden the companies’ economic capabilities. The operators stressed that they have constructively supported the KFK commission, also by providing maximum transparency on the economic capabilities of the companies as well as technical feasibility assessments of possible solutions. Nevertheless, the energy companies said that they are still interested in achieving a consensual solution, and are ready to add in their suggestions to the upcoming political discussions.

4. Next Steps

The Federal Ministry for Economic Affairs and Energy will now review the proposal, and discuss it with the competent departments what measures shall be taken to implement the recommendations.

Sources: BMWi, KFK report, Wirtschaftswoche

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