EON, RWE Avoiding Nuclear Tax Cuts Supply as Demand Peaks

  • German nuclear production is at lowest level since 2011
  • RWE, EON, EnBW halted more reactors during winter to save tax

EON SE and RWE AG delayed the refueling of some reactors to this winter to avoid paying a tax that has cost them billions of euros in the past, damping supply just as cold weather increases demand.

As a result, the nation’s nuclear production is at the lowest since 2011 and is expected to remain subdued through next month as the utilities postponed refueling until after the expiry of the fuel rod tax on Dec. 31. Freezing weather has strained electricity supply in Europe to the point that France had to persuade homes and offices to turn down heating and lights to save power.

The cold snap and reduced production from nuclear plants, which normally operate around the clock, helped drive month-ahead German power prices to their highest seasonal level since 2013, also boosting profits at coal and gas-fired plants needed to plug the gap. The tight situation is set to continue until at least the middle of this week, pushing German next-day power prices to the highest since 2008 amid freezing, wind-still conditions.

“The lack of nuclear availability has amplified the upsides in a market context already bullish,” said Bruno Brunetti, managing director of global power at Pira Energy Group in New York, an analytics unit of S&P Global Platts. “Traditionally, nuclear refueling has been scheduled during the months of low demand” in the second quarter.

Under the expired tax, nuclear operators had to pay about 3.5 million euros ($3.8 million) to change one fuel rod in a reactor core. To avoid paying, the utilities pushed back refueling of some plants until this year, saving more than 400 million euros. The operators are also claiming about 6 billion euros of nuclear fuel levy paid to the government from 2011 to 2016 in a case that will be ruled on by the constitutional court later this year.

The high burden of the fuel rod tax was one reason for waiting with reactor reloads, Almut Zyweck, a spokeswoman for EON’s nuclear unit, said by e-mail.

RWE AG’s refueling of its Gundremmingen-C and Emsland reactors “was timed to the expiry of the nuclear tax for economical reasons,” Jan-Peter Cirkel, a company spokesman in Essen, Germany, said by phone.

German Reactors Halted to Change Fuel Rods This Winter

UNIT HALTEDOWNERCAPACITY (MW)
Currently haltedIsar-2Jan. 14-Jan. 25EON1,410  
Philippsburg-2Dec. 21-March 30EnBW1,402 
To be halted BrokdorfFeb. 4-Feb. 24EON1,410 
Gundremmingen-BFeb. 3-Feb. 26*RWE1,284
Rod changes complete Gundremmingen-CDec. 11-Jan. 12RWE1,288 
EmslandDec. 26-Jan. 7RWE1,366 

* Scheduled work before unit shuts at end of year
Source: Data compiled by Bloomberg; RWE, EON, EnBW websites

January will be one of Europe’s coldest months for the past five years, according to Marex Spectron Group Ltd. in London. Temperatures have plummeted in France, causing surges in power demand at the same time as hydro reserves dropped to the lowest in 20 years. Germany has responded to higher demand in France by activating standby plants until Tuesday.

In a sign of current tight supply, French and German power prices for Tuesday settled above 100 euros a megawatt-hour at a daily auction, while hourly German prices jumped to as much as 650 euros per megawatt-hour for 11 a.m. to noon on Monday.

German nuclear output dropped to 1.1 terawatt-hours in the week to Jan. 22 compared with 1.8 terawatt-hours in the same period last year and a December total of 6.3 terawatt-hours, according to data by the Fraunhofer ISE Institute. Availability fell as low as 6.3 gigawatts at the start of January and is expected to be 6.4 gigawatts for most of February, 20 percent below forecast availability for March, according to European Energy Exchange AG data. One gigawatt is enough to supply about 2 million European homes.

Germany plans to exit nuclear power by 2022. Eight reactors shut in 2011, one in 2015 and eight are operational.

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