German nuclear revenue boost - a sting in the tail?

FRANKFURT Tue Sep 21, 2010 9:39am BST

General view of the Kruemmel nuclear power plant operated by utility company Vattenfall in Geesthacht, about 30 km (20 miles) south-east of Hamburg, September 7, 2010. REUTERS/Christian Charisius

General view of the Kruemmel nuclear power plant operated by utility company Vattenfall in Geesthacht, about 30 km (20 miles) south-east of Hamburg, September 7, 2010.

Credit: Reuters/Christian Charisius

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FRANKFURT (Reuters) - Extending the life of Germany's 17 nuclear power plants will give the government billions of euros of additional income -- but it could leave it a hefty bill for disposing of nuclear waste in years to come.

The coalition has agreed that utilities may operate their nuclear plants 12 years longer in return for a new tax and levies that will earn the government 30 billion euros (25.3 billion pounds), according to Economy Minster Rainer Bruederle.

But costs for decommissioning the plants and for finding a location to store the highly radioactive waste are already set to dwarf the money energy providers are putting aside for the task, calculations from German and international agencies show.

That might leave a bill for the government that might hurt its finances in the longer term, despite the billions it expects to earn.

The costs "are an open question we are studying", said Jan Keppler, an economist in Paris at the Nuclear Energy Agency of the Organisation for Economic Co-Operation and Developoment, an association of 33 of the richest countries in the world.

"It's difficult to put a number to those costs," the German Federal Office for Radiation Protection said. "It depends on the size, on the amount of waste that has to be stored, on the operation of the site."

Costs in the nuclear industry are notoriously high and hard to calculate -- a nuclear power station in Olkiluoto in Finland cost at least 80 percent more than expected and took three years longer than planned to build.

In Germany, the longer operation of the nuclear plants will increase highly radioactive waste by 4,400 tonnes to 21,600 tonnes. That is one of the reasons why the government might eventually have to pay for the source of its 30 billion euros of extra income.

The government has been looking for new sources of income and savings for its stretched budget.

WASTE COST OVERRUNS

The U.S. Department of Energy said that a 25 percent increase in waste -- proportionally similar to the one expected in Germany -- was the prime reason it had to increase its estimates for waste disposal costs by 38 percent in a 2008 report.

Any cost overruns would occur only in coming decades. Germany's nuclear plants might go offline one by one by about 2040 and dismantling can only take place after a cooling down period of years.

But even excluding any costs for the storage of the waste, the money provided by utilities might be eaten up by other expenses, studies show.

The funds might not even be enough to decommission the 17 nuclear power plants, according to a 2002 study from the International Atomic Energy Agency.

That study puts the costs to decomission a nuclear power plant in Germany with a capacity of 440 megawatts at $1.4 billion (900 million pounds), while those in operation now have at least twice the size of the Russian plant being studied.

Legally German utilities E.ON (EONGn.DE), RWE (RWEG.DE), the German unit of Sweden's Vattenfall and Energie Baden-Wuerttemberg (EBKG.DE) are responsible for financing the handling of all expenses relating to the operation and decommissioning of the plants.

But how easily even billions of euros end up on the government's budget even though power providers should foot the bill is demonstrated by the search for a final storage site.

More than 6.4 billion euros have been spent on that with utilities so far only paying a fraction of that sum, the Office for Radiation Protection said, without being more specific.

Utilities could easily accumulate higher provisions during the remaining decades of operational life of the power plants, said Georg Erdmann, head of the Department of Energy Systems of the Technische Unversitaet in Berlin.

They would favour higher provisions for which they do not have to pay taxes, so it should be up to the government to negotiate higher provisions, Erdmann said.

"I expect the disposal to be expensive," he said.

The government said that its agreement with the utilities does not "fundamentally change the situation" regarding the storage of the nuclear waste, without elaborating further on costs.

The association of German nuclear energy providers argued that its provisions were sufficient as they were based on calculations approved by the government.

NO BIG CUTS TO BILLS

The public will likewise see few benefits from the agreement, which German states threaten to challenge in court and which still has be passed into legislation by parliament.

In theory, nuclear power can dampen power prices as it can generate electricity cheaper -- thanks to beneficial regulation -- than other power sources and therefore lower the overall price for power.

But according to a study commissioned by the German economy and environment ministry power, on which the decision to extend the nuclear lifetime is based, prices for households would at best be 3 percent below where they would be without an the deal.

Power providers are not promising their customers more benefits either. Tuomo Hatakka, chief of Vattenfall Europe, Germany's fourth-largest utility, told German paper Bild-Zeitung that power prices were set to increase less thanks to a nuclear extension, without being more specific.

"Rising household prices over the last two years despite falling wholesale power prices have demonstrated clearly that production costs do not have anything to do with prices for end customers," said Aribert Peters from the association of household energy consumers.

(Editing by William Hardy)

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