By Paul Davies, Joern Kassow and Alexander Wilhelm

In early July 2017, operators of German nuclear power plants initiated the next step in the process of decommissioning by transferring €24 billion to the new state-owned fund for nuclear power plant waste disposal.

The German state established the Fund for the Financing of the Nuclear Waste Disposal (Fonds zur Finanzierung der kerntechnischen Entsorgung) to transfer the nuclear waste management liabilities from the plant operators to the state. In return for their release from these liabilities, the operators agreed in a public law contract to make a significant cash payment to the fund. The total payment includes a base amount already set aside for this purpose by the operators in their accruals, plus a risk premium aimed at covering the risk of cost increases for the disposal in the future. The operators now benefit from long-term legal certainty, taking into account that the amount paid to the fund was based on the best cost estimates currently available and that the German federal legislators (Bundestag and Bundesrat) have not yet decided on a location for the final repository for nuclear waste.

Background

Due to the 2011 decision to phase out the production of nuclear power in Germany, the operators will not generate any revenue from nuclear power plants after 2022. In December 2016, the German legislators adopted a law that enabled a transfer of the nuclear waste management liabilities to the state. The detailed terms and conditions of the payment were subject to the contractual agreement with the operators. The contract — contrary to law — cannot be modified unilaterally. The operators remain responsible for and in charge of dismantling the nuclear power plants, as well as safely packaging the nuclear materials. While the interim storage of nuclear waste has already started in Germany, the process to find a long-term solution is ongoing and unlikely to be completed before 2030.

The European Commission’s approval

The entry into force of the law was dependent upon the European Commission’s (EC’s) approval of the regime under European Union state aid rules. As the transfer of liabilities could result in an advantage for the operators, state aid rules apply in this case to preserve competition. In June, the EC concluded that the state support is proportionate to the objective.

Last pending proceedings

Apparently, the relevant parties and stakeholders are clarifying the open issues regarding the German nuclear phase-out. The ongoing arbitration between Vattenfall and Germany brought under the Energy Charter Treaty might well be the last pending proceedings in the hard-fought struggle for billions.