Economical implications of shutdowns of nuclear power in Germany

Index

List of figures

List of abbreviations

1 Introduction
1.1 Public presentation of the problem
1.2 Goals of the assignment
1.3 Course of analysis

2 Nuclear power in Germany
2.1 Background information
2.2 Supply and demand
2.3 Investments and costs of nuclear power
2.4 Employment
2.5 Subventions

3 Efficient substitutes: Renewable energies
3.1 Background information
3.2 Supply and demand
3.3 Investments and costs of renewable energies
3.4 Employment
3.5 Subventions

4 Switching costs
4.1 Price effects
4.2 Investment costs

5 Economic impacts of nuclear power shutdowns
5.1 Cost and price effects
5.2 Production and employment effects
5.3 Total economic effects
5.4 Investments in renewable energies
5.5 Employment development
5.6 Ecological effects
5.7 Deduction of the implications of shutdowns of nuclear power

6 Conclusion
6.1 Recommendation
6.2 Future outlook

7 List of literature

8 List of world wide web sources

9 Affidavits

List of figures

Figure 1: Germany's energy mix, 2009

Figure 2: Overview of nuclear power plants in Germany, 2010

Figure 3: The correlation between supply and demand of nuclear power

Figure 4: Number of employees in German nuclear power plants, 2010

Figure 5: Electricity development from renewable energies, since 1990

Figure 6: Final energy supply from renewable energy sources, 2009

Figure 7: Employees in the renewable energies sector, 2009

Figure 8: Newly approved projects by the BMU, 2006-2009

Figure 9: Available funding and initiated investment volumes, since 2000

Figure 10: SWOT analysis of shutdowns of nuclear power in Germany

Figure 11: High consumer prices of renewable energies

Figure 12: Decreasing consumer prices of renewable energies

List of abbreviations

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1 Introduction

1.1 Public presentation of the problem

Worldwide, nuclear power is a common form of supplied energy. In March 2011 there were a total of 443 reactors; an additional 62 were under construction and 158 in the planning phase.^[1] In Germany 17 nuclear power stations supply most households and companies with cheap energy. These power stations are between 22 and 45 years old. Every year there are various accidents occur which have to be reported to the public. Nuclear meltdowns with wide-reaching consequences have happened in the past. A well-known meltdown took place in Chernobyl in 1986 causing long-term international contamination. The latest occurrence at the Fukushima power station in Japan in 2011, was stimulated a major global, public discussion on the future energy supply from nuclear power stations. In Germany, 7 of the oldest nuclear power stations are temporarily recaptured from electrical network. An important consideration regarding the economical shutdowns of nuclear power in Germany dominates public workaday life. The alternatives are renewable energies. However, they supply only a small amount of energy. There is a large growing market in this segment. Nevertheless, energy prices nowadays are much higher than the atomic prices and the infrastructures of these alternative energies have not yet been completed. An immediate shutdown of nuclear power is currently not economical. On the other hand, economical shutdowns offer a lot of opportunities and advantages.

1.2 Goals of the assignment

The goals of this assignment are to define the economic strengths, weaknesses, opportunities and threats of shutdowns of nuclear power in Germany. The focus is on the advantages and disadvantages of nuclear power compared to renewable energies. As a result of the difficulty in obtaining accurate, or in some cases any information in this area various sources are mentioned in order to attain a competent overview of these important economic topics. The end result is a solution offered by the authors of this assignment in which the timeframe of the shutdown of nuclear power is economical and in which future investment and production costs are relevant. The assignment is rounded off by an economic estimation of the impacts and pressures of the shutdowns of nuclear power in Germany.

1.3 Course of analysis

There are three parts mentioned in this assignment. In the first part background information and economic aspects, e.g., supply and demand, costs and prices and employment of the nuclear power and the renewable energies are defined. In the second part a calculation of the switching costs of moving from nuclear power to renewable energies gives the solution for which the shutdown of nuclear power is economical. In the last part, the national and international economic pressures and impacts of the shutdown are defined. At the end, a conclusion and a future outlook rounds off this assignment.

In order to understand the basic and current situation of nuclear power in Germany the past and present background situations and economic aspects like supply, demand, employment, costs and subventions are mentioned in the next chapter.

2 Nuclear power in Germany

Nuclear power in Germany is one of the most-demanded energy as a consequence of low energy costs for the consumers in contrast to other energy types. The following figure shows the current energy mix in Germany:

Figure 1 : Germany's energy mix, 2009^[2]

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In this chapter the background information in regard to the problems and risks of nuclear power, the supply and demand situation, investments, costs, subventions and the employee situation in this sector are mentioned.

2.1 Background information

At the beginning of the nuclear power in Germany, the electric power companies took a critical view regarding the building of nuclear power plants because of the high investment costs involved and also due to unresolved questions of atomic waste management.^[3] After political influence was exerted because of the general prevailing notion that atomic power was the key energy resource of the future, the first nuclear power plant was built in Germany in 1966. It was followed by 29 additional nuclear power plants being built up to 1989.

Currently in Germany 17 power plants are in operation.^[4] They are located in Baden-Wuerttemberg, Bavaria, Hessen, Lower Saxony and Schleswig-Holstein, operated by the companies EnBw AG, E.On AG, RWE AG and Vattenfall Europe AG.^[5]

In 1998 revision of the energy economic law came into effect, which allowed different electricity suppliers to compete against each other.^[6] During the operation time of all German nuclear power plants (NPP) currently in use, more than 4,400 incidents have been reported to the government.^[7] Incidents which have to be reported during the operation of an NPP are divided into three categories with a reporting deadline from immediate to five days according to their level of severity.^[8] They are also categorized according to the "International Nuclear Event Scale" (INES).^[9] An incident is given a classification by the nuclear safety officer in the NPP according to a predefined catalogue.^[10]

The following table shows the different NPPs, their location in Germany and operating companies, their electric charge, their first year of operation, the number of incidents occurring in each since the first operation year and the estimated shutdown year after the lifetime extension in 2010:

Figure 2 : Overview of nuclear power plants in Germany, 2010^[11]

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The above table implies an average of more than 150 incidents reported annually to the government in each of Germany’s nuclear power plants, which have an average operating time of 29 years.

In October 2010 the German government declared a lifetime extension of its enactment from the year 2002, to ensure an economic, low-carbon and secure electrical power supply.^[12] This extension enables operators of a nuclear power plant, which started operation prior to 1980, to run the power plant for about 8 more years. Nuclear power plants, which started operation after 1980, are allowed to be run for about 14 more years.^[13] The lifetime calculation is based on the energy produced by the power plant. Each operator is allowed to transfer the authorized electric charge from one nuclear power plant to another. Additionally, a resolution was passed by the German parliament to levy a tax on nuclear fuel, which has to be paid by the NPP operators, amounting to € 300 million for the years 2011 and 2012 and € 200 million from the years 2013 till 2016. Beginning from 2013 also the revenues from the emissions trade will be added to this fund. The revenues of the fund were intended to promote renewable energies and environmental protection measures.^[14]

The extension was suspended for the time period of 3 months by the German government in March 2011 in order to re-evaluate the risks of nuclear power following the nuclear disaster in Japan. As a result the nuclear power plants Biblis A and B, Neckarwestheim I, Phillipsburg 1, Unterweser and Isar I had to be shut down for this time period; Brunsbüttel is already shut down since Juli 2007.^[15] Afterwards the operators of the nuclear power plants stopped making payments into the fund because of the outstanding legal issues.^[16]

In conclusion the implementation of nuclear power technology as well as its phase-out is dependent on political positions. Currently in Germany, 17 nuclear power plants are in use, of which 7 had to be shut down after the suspension of the lifetime extension in March and April 2011. Germany’s nuclear power plants have an average operating time of 29 years and report more than 150 incidents per month.

2.2 Supply and demand

All electricity producers in Germany produce more electricity than is consumed. Hence in 2009 14.3 billion kWh more were exported than imported.^[17] Nuclear power had a share of 128 billion kWh which represents 29 per cent of the total energy capacity of the total 561 billion kWh produced in Germany. The total electricity production increased by 43 billion kWh compared to 1999. In the same time period, 8 per cent less nuclear power was produced in Germany, mainly to the benefit of renewable energies and natural gas.^[18] Nuclear power plants in Germany are used for producing the base load which means the constant power requirement evenly throughout the day.^[19] In Germany, nuclear power has the highest capacity utilisation compared to all other power plants.^[20]

In 2009, 512 billion kWh without pump leads, power losses and statistic differences were consumed in Germany.^[21] This was 24 billion kWh or 4.67 per cent more than in 1999. Around one third of the electricity was consumed by 40 million private households; two thirds were consumed by German industry and other commercial sectors.^[22]

After the revision of the economic energy law in 1998 the electricity rates for the industry and commercial sectors fell significantly because of rationalisations in the electricity industry. After 1998, prices increased again up to 2008 according to rising demand. In 2010, because of decreasing demand the prices for electricity stabilized almost at the same level as they were in 1998 at around 9 cents per kWh without VAT for a consumer of 70 to 150 gWh.^[23] The overall demand of German industry remained at the same level as it was in 1999.^[24]

For private households electricity rates also fell after 1998, but after that they rose steadily to a price of around 20 cents per kWh.^[25] The demand of private households rose to about 5 per cents between years 1999 and 2009. In Germany the electricity rates contain taxes and public charges. For private households this amounts to about 41 per cent; for the industry and the commercial sector 22 per cent of the electricity rate. The following figure shows the importance of the correlation between the demand for this energy and the low price level for consuming it.

Figure 3 : The correlation between supply and demand of nuclear power^[26]

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Germany’s electricity industry produces more electricity than required by the German market. Total production increased by about 8 per cent; in the same timeline the demand from the German market increased by about 5 per cent. Hence 14.3 billion kWh could be exported in 2009, when nuclear power had a share of 23 per cent of the German energy mix.

2.3 Investments and costs of nuclear power

The investment costs for a new nuclear power plant are difficult to calculate, because very few new nuclear power plants are being constructed today and the future costs for safety and other requirements are difficult to estimate.^[27] A nuclear power plant which is under construction today is the “Olkiluoto 3” power plant in Finland. The investment costs for the power plant were estimated in 2002 at € 3 billion at the beginning of the project; the current estimation for the investment amounts to € 5.3 billion. Also the time for its completion is rising from an initially estimated 2008 to 2013.^[28] The estimated life time of a nuclear power plant constructed today is 60 years.^[29] The production costs for nuclear power are also difficult to determine. Different sources offer conflicting results:

- The German Federal Ministry of Economics and Technology currently indicates the production costs for a nuclear power on its website at 2.65 cents per kWh.^[30] This concurs with the information from AREVA, the producer of the NPP in Finland. In 2006 AREVA indicated the production costs to be at around 3.00 cents per kWh for a new nuclear power plant.^[31]
- In the year 1998 the “Öko-Institut e.V.” came to the conclusion that the production costs for one kilowatt hour are about 3.7 cents.^[32] This corresponds with the current information of the “Frankfurter Allgemeine Zeitung” which indicates the present production costs at 5.2 cents per kWh.^[33]
- In 2005 the new economics foundation calculated that the production costs fall within the range of 6.3 to 7.7 cents per kWh.^[34]

The reasons for these diverging results seem to be different bases of calculation according to the investment and the material costs.^[35] A price of 3 cents per kWh can be assumed to be a credible estimation of the minimum production costs for a nuclear power plant.

In Germany the risk provision for a nuclear incident amounts to a maximum of € 2.5 billion by all operating companies per block. Further risk is covered by the German State.^[36] Hence no further insurance costs must be considered in the price calculation for nuclear power.

Although the price ranges for atomic power differ greatly between different studies, the price for atomic power is not expensive compared to other energy sources. The reason for this is that the high investments costs for nuclear power plants can be allocated over the long operating time of the power plant. At the same time the variable costs do not raise the production costs significantly to an unattractive level.^[37]

2.4 Employment

In the German nuclear power industry there are approximately 35,000 employees working for about 30 different companies such as Siemens or AREVA.^[38]

Most of the companies are autonomous firms with contracts with the nuclear power industry. In this case the nuclear power industry is one of the customers of these companies. Around 6,879 employees work directly in the nuclear power branch, of which less than 20% are engineers, physicians and chemists and 20% are foremen and technicians.^[39] In 2010 the average salary of an engineer in Germany was about 54,400 euros per year.^[40]

The following figure shows the number of employees in the currently operating nuclear power plants:

Figure 4 : Number of employees in German nuclear power plants, 2010^[41]

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In the year 2009 several hundred new employees were hired in the nuclear sector. For example, the producer of nuclear power plants AREVA was looking for 800 new employees during that year because of a rising global demand for nuclear power.^[42]

Even if a nuclear power plant is shut down, its deconstruction will take several years. For example, the deconstruction time of the nuclear of the “Stade” power plant is projected to be approximately 12 years.^[43]

According to the rising global demand for nuclear power this industry sector in Germany has a rising demand for employees in Germany. Only about 20 per cent of them are working in Germany’s nuclear power plants.

2.5 Subventions

For the production of nuclear power no direct subventions were paid in Germany.^[44] However, the nuclear power industry in Germany gets benefits from the German State and the European Union. A survey of the German Institute for Economic Research commissioned by the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety in 2007 produced the following results:

- Adjusted for price changes more than € 44 billion in public expenditures were spent on nuclear research and technology between 1956 and 2007 by the German State.^[45] This equates to 0.97 cents per kWh of the produced nuclear power in Germany.^[46]
- In 2006 the Federal Government spent more than € 460 million or 0.28 cents per kWh on nuclear power including expenditures for radioactive waste repository projects and excluding expenditures for international nuclear projects and German unification charges.^[47]
- The expenditures for police operations for transport of the used nuclear fuel elements are projected at € 20 million per year only for the Federal State Lower Saxony.^[48]
- The nuclear-power-plant-operating companies are able to make provisions for deconstruction and radioactive waste management. Like with other companies, these provisions reduce the tax load for the companies. This effect is projected at € 175 million per year.^[49]
- Since 2005 CO2 emission permits have been traded to advance lower CO2 emissions. The NPP-operating companies are able to gain earnings from the trade of emission permits. But in Germany no additional resources for nuclear power will be provided. For that reason the earnings have not caused the desired effects.^[50]

In addition to the points mentioned above, also the limited risk provision in Germany for nuclear power incidents is mentioned. Also mentioned is that the complete risk of a nuclear power incident cannot be insured by an insurance company because the insurance contributions would make nuclear power production unattractive.^[51]

Although nuclear power never received direct subventions from the government, it was supported by different benefits which caused high governmental expenditures.

In the following chapter the renewable energies in Germany are defined along with their economic advantages and disadvantages, risks and opportunities.

3 Efficient substitutes: Renewable energies

In this chapter the efficient substitutes of renewable energies in Germany are defined along with background information including significant energy laws, the supply and demand situation, the development of investments, costs effects, different subvention-types and the employee situation in this relatively new and growing branch.

3.1 Background information

The development of renewable energies first came into focus after the first oil crisis in 1973-74, when the German Federal Government started promoting the R & D support for wind turbine development.^[52]

After the second oil crisis in 1979-80 and the meltdown in reactor one of block IV in the Ukrainian nuclear power station in Chernobyl on 26th April 1986, a high awareness of the unforeseen risks of nuclear power energy was created and rejuvenated the discussion regarding introducing renewable energies into the market.^[53]

But the real emphasis on considering the development of renewable energies in Germany did not begin before the early 1990s when environmental concerns, such as climate change, arose.

In 1991, the German government implemented the Federal Electricity Feed Act (Stromeinspeisungsgesetz = StrEG), whose function was to commit grid operators to purchase and pay for electricity from renewable energy sources, such as hydropower, wind energy, solar energy, land mill gas, sewage gas or biomass plants in their respective areas on a yearly fixed rate based on the utilities average revenue per kWh.^[54]

In 2000, the Electricity Feed Act was replaced by the Renewable Energy Sources Act (Erneuerbaren Energien Gesetz = EEG)^[55] ; nevertheless the general idea of the Act remained the same. Although the Electricity Feed Act was effective, it needed updating as the uptake of renewable generated electricity at a special rate was limited to 5 per cent of the overall production, the national distribution of costs were limited to the respective regions, and planning and investment securities were lacking.^[56]

Furthermore, the commitments that Germany had agreed to, in the Kyoto Protocol in 1997, needed to be reflected in the Renewable Energy Sources Act.

The Kyoto Protocol’s goal is to reduce greenhouse gas (GHG) emissions by at least 5 per cent below 1990 levels over a 5-year period from 2008 to 2012.^[57] Germany itself has agreed to a reduction of greenhouse gases by 21 per cent as part of the overall commitment of the European Union.^[58]

The Renewable Energy Sources Act reflects this goal by investing into renewable energy sources:

“The purpose of this Act is to facilitate a sustainable development of energy supply in the interest of managing global warming and protecting the environment and to achieve a substantial increase in the percentage contribution made by renewable energy sources to power supply in order to at least double the share of renewable energy sources in total energy consumption by the year 2010, in keeping with the objectives defined by the European Union and by the Federal Republic of Germany.”^[59]

The main idea of the Act is to ensure that electricity is firstly drawn from renewable sources and therefore obligates the grid operators to purchase these forms of energy and pay a compensation rate to the suppliers for a time period of 20 years in accordance to the type of renewable energy, plant size, date of commissioning and location.^[60] The compensation rate is reduced by a certain percentage rate on a yearly basis. This does not mean that the supplier of renewable energy plants will receive a lower compensation rate from year to year when it is already connected to the grid.^[61] The yearly reduction of the compensation rate only applies to the length of time suppliers of renewable energy plants take to connect to the grid. The aim of this regulation is to reduce the costs of renewable energy by developing newer and more efficient technologies as well as introducing them to the market as quickly as possible.

[...]

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^[1] Cp. World Nuclear Association (2011), w.p.

^[2] Cp. Bundesverband für Energie- und Wasserwirtschaft e.V. (2010), p. 16

^[3] Cp. Zeitverlag Gerd Bucerius GmbH & Co. KG (2010), p. 1

^[4] Cp. Federal Office for Radiation Protection (2011), w.p.

^[5] Cp. MITTELDEUTSCHER RUNDFUNK (2010), w.p.

^[6] Cp. RWE AG (w.y.), p. 1

^[7] Cp. [b] Federal Office for Radiation Protection (2011), w.p.

^[8] Cp. [a] Federal Office for Radiation Protection (2010), w.p.

^[9] Cp. [c] Federal Office for Radiation Protection (2010), w.p.

^[10] Cp. German Federal Ministry of Justice (2010), p. 4 f.

^[11] Own construction, adopted from Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit (2011), w.p.; [b] Federal Office for Radiation Protection (2011), w.p.; MITTELDEUTSCHER RUNDFUNK (2010), w.p.

^[12] Cp. [a] Deutscher Bundestag (2010), p. 1

^[13] Cp. [b] Deutscher Bundestag (2010), w.p.; [a] Deutscher Bundestag (2010), p. 1

^[14] Cp. [b] Deutscher Bundestag (2010), w.p.; [c] Deutscher Bundestag (2010), p. 3

^[15] Cp. [c] Frankfurter Allgemeine Zeitung (2011), w.p.; Zeitverlag Gerd Bucerius (2011), w.p.

^[16] Cp. [c] Frankfurter Allgemeine Zeitung (2011), w.p.; Spiegel online (2011), w.p.

^[17] Cp. Bundesverband für Energie- und Wasserwirtschaft (2010), p. 9

^[18] Cp. Bundesverband für Energie- und Wasserwirtschaft (2010), p. 16

^[19] Cp. Bundesverband für Energie- und Wasserwirtschaft (2010), p. 18

^[20] Cp. Bundesverband für Energie- und Wasserwirtschaft (2010), p. 19

^[21] Cp. Bundesverband für Energie- und Wasserwirtschaft (2010), p. 8

^[22] Cp. Bundesverband für Energie- und Wasserwirtschaft (2010), p. 35; Appendix 6

^[23] Cp. Bundesverband für Energie- und Wasserwirtschaft (2010), p. 43; VIK (2009), w.p.

^[24] Cp. Bundesverband für Energie- und Wasserwirtschaft (2010), p. 35

^[25] Cp. Bundesverband für Energie- und Wasserwirtschaft (2010), p. 42

^[26] Own construction (2011)

^[27] Cp. Prognos (2008), p. 1

^[28] Cp. [b] Frankfurter Allgemeine Zeitung (2010), w.p.; Prognos (2008), p. 8 ff.; Financial Times Deutschland (2011), w.p.

^[29] Cp. Prognos (2008), p. 14

^[30] Cp. Federal Ministry of Economics and Technology (2011), w.p.

^[31] Cp. AREVA (2006), p. 9

^[32] Cp. Öko-Institut e.V. (1998), p. 85

^[33] Cp. [c] Frankfurter Allgemeine Zeitung (2011), p. 35

^[34] Cp. new economics foundation (2005), p. 34-35

^[35] Cp. new economics foundation (2005), p. 34-35

^[36] Cp. Verlag Der Tagesspiegel (2011), w.p.

^[37] Cp. AREVA (2006), p. 9

^[38] Cp. [a] Handelsblatt (2009), p. 1

^[39] Cp. [a] Handelsblatt (2009), p. 1; Monster Worldwide Deutschland (2009), w.p.

^[40] Cp. VDI (2010), w.p.

^[41] Cp. EnBW Energie Baden-Württemberg (2011), w.p.; E.ON Kernkraft (2010), w.p.; E.ON Kernkraft (2011), w.p.; Kernkraftwerk Gundremmingen (2011), w.p.; RWE Power (2011), w.p.; Vattenfall Europe (2011), w.p.

^[42] Cp. [a] Handelsblatt (2009), p. 1

^[43] Cp. E.ON Kernkraft (2008), p. 19

^[44] Cp. Deutsches Atomforum (2009), w.p.

^[45] Cp. German Institute for Economic Research (2007), p. 17-21

^[46] Cp. German Institute for Economic Research (2007), p. 21

^[47] Cp. German Institute for Economic Research (2007), p. 24-27

^[48] Cp. German Institute for Economic Research (2007), p. 28

^[49] Cp. German Institute for Economic Research (2007), p. 39

^[50] Cp. German Institute for Economic Research (2007), p. 44-46

^[51] Cp. German Institute for Economic Research (2007), p. 51

^[52] Cp. Runci (2005), w.p.

^[53] Cp. Runci (2005), w.p.; German Wind Energy Association (1998), w.p.

^[54] Cp. [a] International Energy Agency (2010), w.p.; [a] Juris GmbH (2000), p. 1

^[55] Cp. [a] Federal Ministry for the Environment (2000), w.p.

^[56] Cp. [a] Federal Ministry for the Environment (2000), w.p.

^[57] Cp. United Nations (1998), p. 4

^[58] Cp. Runci (2005), p. 4

^[59] Cp. [a] Juris GmbH (2000), p. 1

^[60] Cp. [b] Federal Ministry for the Environment (2004), p. 2-3

^[61] Cp. [b] Federal Ministry for the Environment (2004), p. 2-3