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News Extra - German energy giant E.ON’s restructuring programme faces nuclear doubts

01 April 2015

Germany's largest power supplier E.ON is quitting conventional and nuclear energy generation to focus entirely on renewables. To achieve this transition successfully, the group will need to decommission its existing nuclear power plants safely and economically at a time when debt levels are rising and the future energy landscape is far from clear. 

E.ON's Grohnde nuclear plant is due to shut in 2021
E.ON's Grohnde nuclear plant is due to shut in 2021

In December 2014, E.ON announced plans to spin off its nuclear, oil, coal and gas operations, allowing it to focus on green energy, distribution networks and customer solutions. "We are convinced that it is necessary to respond to dramatically altered global energy markets," the group's CEO Johannes Teyssen said in a statement.

"E.ON's existing broad business model can no longer properly address these new challenges," he added. "Two separate, distinctly focused companies offer the best prospects for the future."
The move is in part a response to the German government’s decision to close all the country’s  nuclear power plants by 2022, taken soon after Japan’s Fukushima nuclear disaster in 2011.
E.ON has already shut down two nuclear power plants, which are in a post-operational phase. One more plant is scheduled to close at the end of 2015, while the remaining three will cease operations in the early 2020s.

E.ON’s investor base has reacted positively, reflecting hopes that the strategy will pump new life into the group, which currently faces a 31-billion-euro mountain of debt and uncertain conditions in many of the international markets in which it operates.

But critics expressed concern that the group is now trying to offload its bad assets and that the new offshoot would not be able to generate sufficient green energy revenue to finance the phase-out and demolition of its nuclear plants. These critics also say there are many uncertainties as to the cost of the liabilities and that there is limited experience when it comes to shutting down nuclear reactors over a span of a decades.

The influential German Green party accused E.ON of creating a 'bad bank' for its six nuclear plants, which would ultimately become the responsibility of the German taxpayer.

E.ON's Teyssen rejected the criticism, saying the new business would enter the market debt-free and with the 14.5-billion-provision that the company has currently reserved for its 2022 nuclear exit. E.ON shareholders would continue to own a majority stake in both companies and are expected to sign off on the deal, which is scheduled to take effect in 2016.

The four operators of nuclear plants in Germany - E.ON , RWE, EnBW and Sweden's Vattenfall - have set aside total provisions of around 36 billion euros for the dismantling of the plants and the disposal of nuclear waste, which certain observers think will be far too small a sum to complete the job.

Der Spiegel has reported that government experts predicted a possible immediate shortfall of 3.5 billion euros for the clean up, as costs have risen sharply.

Some, including senior spokespersons for the Greens, have urged the government to consider creating a taxpayer-backed public foundation to take over responsibility for nuclear decommissioning. This route has been taken by other EU countries such as the UK, with its Nuclear Decommissioning Authority.

The German government has made clear that the companies should retain ultimate responsibility for the costs of closing the plants and disposing of related nuclear waste, but others see the possibility of a deal whereby the utilities would drop their many lawsuits over the country's new energy policies, in return for federal involvement in a decommissioning body.
Germany's utilities have filed several such lawsuits, most notably against the 2022 nuclear shutdown proposals. E.ON alone has said it is suing for 8 billion euros, while other nuclear operators forced to close their plants early are claiming at least 6.7 billion.

Sources told Reuters in May 2014 that utilities and the government were in talks about handing responsibility for dismantling the plants to a new state entity.

"If the government came to this conclusion tomorrow ... we wouldn't refuse to enter such a discussion," E.ON's Teyssen told Der Spiegel in an interview published in December. "But so far we haven't received an invitation."


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