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Nuclear Decommissioning Surge Is Investor Guessing Game

Photographer: Toshifumi Kitamura/Pool via Bloomberg

A construction worker walks near water tanks at the Tepco Fukushima Dai-Ichi nuclear power plant in Okuma, Fukushima Prefecture, Japan. Germany’s government ordered an end to its atomic era after the earthquake and tsunami wrecked the Fukushima Dai-Ichi plant on the Japanese coast, leaving Japanese taxpayers with an estimated $137 billion decontamination and clean-up bill. Close

A construction worker walks near water tanks at the Tepco Fukushima Dai-Ichi nuclear... Read More

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Photographer: Toshifumi Kitamura/Pool via Bloomberg

A construction worker walks near water tanks at the Tepco Fukushima Dai-Ichi nuclear power plant in Okuma, Fukushima Prefecture, Japan. Germany’s government ordered an end to its atomic era after the earthquake and tsunami wrecked the Fukushima Dai-Ichi plant on the Japanese coast, leaving Japanese taxpayers with an estimated $137 billion decontamination and clean-up bill.

Nuclear utilities thrust into the spotlight after the Fukushima meltdowns have ordered 20 reactors shut, the most in a three-year span since Chernobyl’s aftermath, saddling the industry with a possible $26 billion in costs.

EON SE and RWE AG (RWE) are leading the biggest decommissioning project by European utilities ever, an effort to tear down 12 reactors in Germany over two decades. Edison International (EIX) said June 7 it will never restart its idled two-unit San Onofre Generating Station outside Los Angeles, bringing the number of U.S. reactors permanently closed in a year to a record four.

The global utility industry faces its biggest test to prove enough money was saved for shutdowns, having undergone numerous cost-overruns building atomic plants. A cautionary tale can be seen with government-owned facilities. In Britain, where taxpayers are on the hook to retire the Sellafield complex’s seven reactors and fuel-reprocessing stations on the Irish Sea during the next 100 years, the U.K. government this year doubled its estimate for the work to 67.5 billion pounds ($106 billion).

“There’s a lot of speculation how much these projects cost, but an exact estimate can only be given by utilities,” said Sascha Gentes, a Karlsruhe Institute for Technology professor specializing in atomic shutdowns. “The longer a nuclear decommissioning project takes, the more expensive it becomes.”

Photographer: Timothy Fadek/Bloomberg

The cooling towers at the EON AG nuclear power plant in Grohnde, Germany. Close

The cooling towers at the EON AG nuclear power plant in Grohnde, Germany.

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Photographer: Timothy Fadek/Bloomberg

The cooling towers at the EON AG nuclear power plant in Grohnde, Germany.

As China and India lead the world building reactors, with 35 under way, the West is ripping apart more than it’s erecting -- with just 11 reactors under construction in the Americas and Europe excluding Russia, World Nuclear Association data show.

Post-Chernobyl Dismantling

After the Chernobyl accident in 1986 in Ukraine, the number of global shutdowns increased, reaching 23 in the 1990-1992 period, with most of those still in various phases of multidecade dismantling.

After the earthquake and tsunami in 2011 wrecked the Fukushima Dai-Ichi plant on Japan’s coast, leaving Japanese taxpayers with an estimated $137 billion clean-up bill, Germany’s government ordered an end to its atomic era. Japan and Germany account for 12 of the 20 shutdowns decreed since the start of 2011, World Nuclear Association data shows.

In Japan, the country’s 10 nuclear plant operators would face 4.47 trillion yen ($47 billion) of extraordinary charges if the country’s 50 reactors were all decommissioned, a group of lawmakers calling for an end to nuclear power said last month in an e-mailed statement, based on data from an agency of the Trade Ministry. Investor-owned Kansai Electric Power Co.’s bill alone would be 680.3 billion yen, the group estimated.

Contract Opportunities

Shutdowns create decades-long contracts for atomic specialty companies such as Toshiba’s Westinghouse Electric Co., France’s Areva SA (AREVA) and Energiewerke Nord GmbH, a decommissioning company owned by Germany’s Finance Ministry.

Analysts generally don’t have enough data to produce independent cost estimates for closures, according to Daniel Seidenspinner, a B. Metzler Seel Sohn & Co. analyst.

“Decommissioning reactors that have operated for so long is uncharted territory, so it’s very difficult even for utilities to know much these projects will cost and how long they’ll take,” Seidenspinner said by phone from Frankfurt on June 7. “That can be an added risk for utilities.”

EON and RWE estimate individual projects may cost as much as 750 million euros to 1 billion euros ($1 billion to $1.3 billion), declining to reveal expenses for some work under way, in written replies to questions. At that rate, the total cost to the industry to close the 20 plants may reach $26 billion. Both companies say they’ve saved enough for their share.

Cheaper in U.S.

Germany’s four operators, including Vattenfall AB and EnBW Energie Baden-Wuerttemberg AG (EBK), have reserved an average 1.6 billion euros per reactor for decommissioning, a review of their balance sheets shows. EON, the country’s biggest atomic operator, with cash of 10.66 billion euros at March 31, has set aside about 13.94 billion euros for decommissioning and waste storage of its eight reactors, according to a 2012 company report, a “completely adequate and sufficient” sum, it said.

These costs have been lower in the U.S., with estimates ranging from $280 million to $612 million per reactor on the Nuclear Regulatory Commission’s website. That’s because the U.S. has streamlined licensing of its atomic wrecking and disposal of plant remnants, according to Lawrence Boing, decommissioning specialist with Argonne National Laboratory’s nuclear engineering division at Argonne, Illinois, outside Chicago.

Edison gave higher forecasts, $1.46 billion and $1.6 billion, to decommission each of the two San Onofre reactors it permanently retired this month. That’s about $317 million more than it expects to have on hand.

Lax Oversight

The Government Accountability Office in 2012 criticized the NRC for lax oversight of decommissioning reserves, including a funding formula based on 30-year-old data. NRC estimated costs to dismantle Duke Energy Corp.’s Crystal River plant at $753 million in a filing last year.

About $9 billion of the cost to decommission U.S. reactors remains to be collected from customers, according to the World Nuclear Association. U.S. residential consumers of nuclear plants pay about 0.1 to 0.2 U.S. cent per kilowatt-hour toward the procedure, according to the association. That’s an average $11.28 to $22.56 annually per household, according to data from the Energy Department in Washington.

French Response

The world’s biggest nuclear plant operator, Electricite de France SA of France, had set aside 12.6 billion euros at the end of 2012 for French plants compared with its estimated total cost of 23 billion euros, according to the latest annual report. The provisions are for transforming working reactors and those already shut down into original-state land that can be reused by industry.

As bills roll in, utilities learn if they’ve provisioned enough to break up and safely bury millions of tons of equipment and fuel that can be radioactive for at least 100,000 years.

Nuclear decommissioning “has been a growth industry on and off,” Margaret Harding, a self-employed nuclear industry consultant based in Wilmington, North Carolina, said in a phone interview. “Right now, it’s big business.”

About 145 prototype and commercial power reactors around the world had been permanently shut down as of March, the International Atomic Energy Agency said on its website. Only 16 them have been dismantled, another 50 are in the process of being torn down, while 60 are in “safe enclosure mode” with fuel rods removed and spent-fuel cooling pools drained.

Entombing Reactors

Three reactors are entombed, with radioactive material encased in concrete or other long-lived materials, and the rest haven’t specified a decommissioning strategy, the Vienna-based agency said.

After a reactor is unplugged, utilities typically have to wait about five years until its fuel rods have cooled before the nuclear part of the decommissioning can start, said Anja Lutz, a spokeswoman for Germany’s Federal Office for Radiation Protection.

Like nuclear construction, the business of dismantling atomic plants involves cutting-edge technology and can be fraught with unexpected setbacks and cost overruns.

Spills, pipe leaks and other radiological hazards that accumulate over a plant’s lifespan can tip projects over-budget, requiring special handling by demolition crews, said Boing of the Argonne lab.

125-Ton Casks

Germany closed eight units after Fukushima and will shutter another nine by 2022. Its four utilities have set aside about 33 billion euros for decommissioning their 21 reactors and handling the deadly waste from them. The utilities set up GNS, a company that supplies 125-ton Castor dry casks to store and transport spent nuclear fuel, and also employ in-house decommissioning staff.

EON is 10 years into the job on its oldest commercial-scale unit, the 672-megawatt Stade plant in Lower Saxony, slated for completion by 2014. It started tearing down its 670-megawatt Wuergassen reactor in 1995, and plans to also complete that next year.

RWE said tearing down its 1970s-era Muelheim-Kaerlich reactor will cost about 750 million euros; it didn’t give cost estimates for the two pressurized water reactors at the 2,525-megawatt Biblis plant, which was closed after Fukushima, citing a lack of permits for their deconstruction plans.

EON declined to reveal the individual bill for the Wuergassen and Stade projects. It said costs are at about 1 billion euros depending on the reactor type, citing a “benchmark report for Germany,” in an e-mailed reply to questions.

Questioning Budgets

The opposition Green Party, which was in government from 1998 until 2005 and helped draft Germany’s first nuclear phase-out agreement, has called for the money to be put in a government-administered fund.

“Projects are often more expensive and longer than anticipated,” Sylvia Kotting-Uhl, a lawmaker with the Greens, said in an interview. “The question is: Will the money be available when it’s needed? A public fund would ensure that.”

EON and RWE said the current system shouldn’t be changed in favor of a state-run fund. The German system of setting aside money via utilities’ balance sheets “has proven itself,” Lothar Lambertz, a spokesman for RWE, said in an e-mailed reply to questions.

Nuclear operators in the U.S., whose 100-reactor fleet is the world’s largest, have torn 12 units down to their foundations, scraping away radioactive soil and burying radioactive metal and concrete in low-level waste dumps, according to the nation’s Nuclear Regulatory Commission. Others are in the midst of such a process.

Another eight reactors are cooling in a state of long-term hibernation, emptied of fuel, reducing radiation to safe levels that will simplify demolition and lower costs. The NRC allows decommissioning to take 60 years. Duke and Dominion Resources Inc. plan this approach for the Crystal River and Kewaunee reactors closed permanently this year.

“Time is our friend, here on the nuclear side,” Harding said. “The longer you wait, the less activation there is in the structure. You don’t have to treat it as low-level waste: It goes straight to a landfill.”

To contact the reporters on this story: Stefan Nicola in Berlin at snicola2@bloomberg.net; Julie Johnsson in Chicago at jjohnsson@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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