Categories:Investments

Angst over the cost of Germany’s non-nuclear policy

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Questions are being raised about the potentially huge costs that Germany’s decision to close all its nuclear power plants by 2022 could entail.

The decision revived a policy that was debated under Gerhard Schröder, the previous chancellor, but never implemented. The present government under Angela Merkel initially supported the nuclear programme but reversed its policy after the disaster at Japan’s Fukushima Daiichi nuclear plant. The event revived memories of the nuclear accident at Chernobyl in Ukraine in 1986, in which central European countries, including Germany, suffered from radioactive fallout.

Germany’s new energy plan deliberately avoids clauses that would allow the nuclear shutdown to be reversed. However, the life of three reactors could be extended for one year to avert a shortfall in power production. This option was added to the first draft after the Federal Network Agency warned of possible energy shortfalls in southern Germany this winter.

Germany’s nuclear power companies - E.on, EnBW, RWE and Vattenfall - have protested. The Federation of German Industry says the objectives as outlined by the government are attainable, but has warned that the move will be more difficult and costly than ­initially assumed. It has also expressed misgivings over its effect on the electricity supply and the environment.

Nuclear power still provides 23% of Germany’s electricity. As the country weans itself off nuclear generators, efficiency measures are earmarked to cut energy use by 10%. The proportion of energy generated from renewables is targeted to rise from 17% today to 35% in 2020. A decade ago it was only 7%. (News analysis continues below)

“Germany can become an international pioneer, the first nation to manage to move away from traditional energy sources to renewables,” Merkel said in
a statement.

The government has promised economic incentives, including tax breaks and subsidies, for both companies and private consumers. It will provide up to €200m (£178m) to finance research and development of renewable energy over the next three years. It will also double its €1.5 billion building refurbishment programme and double its research programme into electrically powered cars to nearly €2 billion.

Most of the programmes will be run by KfW, the government-owned development bank, which, as part of the Marshall Plan, financed the reconstruction of Germany after the second world war, as well as reunification after 1990.

The bank sources more than 90% of its borrowing from the capital markets through bonds guaranteed by the government. This allows it to raise funds at advantageous conditions.

The government has promised it will neither import more energy, nor exceed its carbon emission targets.

 


However, to compensate for growing economic activity, Germany would have to improve the efficiency of its electricity consumption by 2.2% a year for every unit of economic output. This compares with an average annual increase of 1.47% at present, according to the International Energy Agency. Energy consumption per unit of output has fallen by an average of 1.7% a year over the past two decades.

Meanwhile, the European Commission has agreed on the scope of the safety review of 143 nuclear plants across the European Union, which started this month. Plants will undergo “stress tests” to prove their safety.

Moody’s, a research and rating agency, says it will monitor the outcome of the tests but warns of “the implications they may have for nuclear plants across Europe, including the additional costs from more stringent safety measures”.

In its latest report on Germany, published this month, Moody’s says: “The German government’s actions highlight differences in the social and political acceptance of nuclear generation across Europe. The British and French authorities are in the process of carrying out industry safety reviews.”

Italy, which abandoned nuclear power in 1987, decided last week to hold a referendum on its re-introduction. Other countries, including Belarus, Britain, France, Poland and Russia, are reconsidering plans to extend their nuclear power operations.

After the Japanese disaster, the economic cost of abandoning or retaining nuclear power is becoming less and less certain.

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