Nuclear Levy Will Bring in Less Than Half What Auction Would, Author Says

German Chancellor Angela Merkel opted for a levy on nuclear-power plants that will raise less than half the revenue of an alternative proposal to auction licenses to the industry, one of the authors of the plan said.

Auctioning off licenses allowing nuclear-power plants to operate for longer could raise 5 billion euros ($6.5 billion) for every extra year the lifespan is extended, Manuel Frondel, who heads the Environment and Resources Department of the Essen, Germany-based RWI economic institute, said in an interview. That compares with a 2.3 billion-euro annual levy on the industry approved by Merkel’s government regardless of an extension.

“We find it more than legitimate that well over half of the profit gets skimmed off” as part of an auction, Frondel, one of three co-authors of the auction proposal, said by phone from Essen yesterday. He compared the plan to the government’s auctioning of UMTS mobile-phone network licenses 10 years ago, a three-week process that generated 50.5 billion euros in revenue.

Merkel’s coalition announced the nuclear tax last month as part of an 81.6 billion-euro program of budget cuts and revenue- raising measures to reduce the deficit and shore up the euro. The chancellor opposes the idea of a license auction because it would take too long to set up and doesn’t address the central matter of extending plants’ lifespan, the Sueddeutsche Zeitung reported on July 14, citing unnamed government officials.

‘Fair Share’

Under the auction proposal, the government would sell nuclear licenses by the terawatt hour, with energy providers reaping about 6 billion euros in extra profit per year of extension. In addition to the levy, the government has said it will take a “fair share” of the extra profit generated from any extension, though it hasn’t specified how much that might be. The coalition is set to unveil its detailed energy policy by the end of September, including its plans for nuclear power.

RWE AG, EnBW Energie Baden-Wuerttemberg AG and Vattenfall AB have declined to comment on the auction proposal, citing a lack of information. E.ON AG spokeswoman Petra Uhlmann didn’t immediately respond to an e-mail seeking comment.

Merkel won re-election in September on a platform that includes reversing a decision by her predecessor’s government to shut down all 17 nuclear plants in Germany by about 2022. Members of Merkel’s Christian Democrats including Joachim Pfeiffer favor an extension of 20 years for the life-cycle of nuclear reactors, yielding an estimated 25 billion euros in windfall profit.

The auction proposal gained currency last week when Environment Minister Norbert Roettgen suggested the government would consider it, then stepped back.

“It’s not an option for this year,” ministry spokesman Thomas Hagbeck said yesterday. “Whether such a proposal could arise at a later point, we’d have to look at that.”

Auctioning would be an alternative to the nuclear levy if energy companies challenge the government tax in court, Frondel said. It’s also more efficient, with the potential to raise some 40 billion euros in one go for an eight-year extension, he said.

While the proposal “isn’t loved right now,” it will come back into play “later in the summer or in the fall,” he said.

To contact the reporter on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net.

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