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'Bad bank' for nuclear energy not a good idea

German utilities are keen to let the state pay for the decommissioning of the country's remaining nuclear power plants. That's a bad idea, argues the head of DW's Business & Economics Department, Manuela Kasper-Claridge.

There's no corporate decision without any risk. This also applies to German utilities' bet on nuclear energy. For companies such as RWE or Eon, the risks seemed manageable, as subsidies sweetened the introduction of nuclear power to Germany. The total volume of subsidies that made it into companies' coffers remains unclear.

According to conservative estimates, up to 60 billion euros ($82.6 billion) in taxpayers' money were allocated to nuclear energy projects. Greenpeace claims that as much as 165 billion euros of public money were spent on nuclear industry subsidies since the 1950s. Clarity on subsidy figures is difficult to achieve, and perhaps not desired.

It's the utilities' shareholders who have profited most from those hefty subsidies. Electricity produced from nuclear reactors generated record profits. Construction costs for new power plants were amortized in just a few years, after which nuclear plants minted generous profits. Each amortized reactor generated about a million euros in profits per day, a study by Berlin's Free University claims.

Privatize profits, share losses

But utilities experienced a rude awakening in 2011, when the German government decreed the complete phase-out of nuclear energy. That was followed by the recognition that generating companies had not done justice to their risk management responsibilities. Up until then, financial provisions for reactors' decommissioning costs had been relatively low, even though it had always been clear that nuclear plants cannot be operated endlessly, even in the absence of political decisions to shut them down.

Germany's energy companies in crisis

It has never been a secret that the dismantling of such plants is technically challenging, time-consuming and costly. Companies apparently were counting on taxpayers to eventually foot the bill.

Privatizing profits and offloading any losses onto the public isn't a fair solution. But that's exactly what utility firms have in mind with their proposal to transfer ownership of currently operating nuclear plants to a public foundation - a kind of "bad bank" for the nuclear sector.

Risks and decommissioning costs would no longer appear in corporate books, and would have to be covered by the taxpayer. In compensation, utility companies have offered to channel the money they've already set aside for decommissioning costs into the public foundation. But that money is very unlikely to prove sufficient to cover the expenditures that will eventually be required.

Filing suits against higher electricity prices

Simultaneously, utilities are assuming a threatening posture. In a string of lawsuits, they're trying to get some 15 billion euros from the government in compensation for what they describe as an improper interference in companies' property rights, alluding to Berlin's decision to phase out nuclear reactors by 2022 in the aftermath of the Fukushima nuclear disaster in Japan.

They argue that without that decision, profits would have continued to flow for a much longer time.

One way or another, citizens are going to foot the bill. One possibility is that utilities will pass on any increase in their financial provision for the expected costs of decommissioning to households, through increases in monthly utility bills. Alternatively, the state will get stuck with the tab for decommissioning old reactors - costs that cannot be accurately estimated in advance.

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