Court rules that Germany must pay utilities for nuclear shutdown

Germany accelerated the shutdown of nuclear plants in 2011, following the Fukushima meltdown. Though the move met with public approval, Germany's highest court ruled Tuesday that the utilities are entitled to compensation.

First Look

The German government’s 2011 plan to move away from nuclear energy following Japan's Fukushima meltdown disadvantaged the companies, the Federal Constitutional Court in Karlsruhe said Tuesday. Though it stopped short of describing the government’s behavior as expropriation, as the utilities had argued, the ruling allows German utilities E.ON SE, and RWE AG, along with Swedish power company Vattenfall AB, to seek damages in civil court.

It’s a boost for the companies, which have been struggling with falling revenues from traditional power sources and pressure to pay for decommissioning the plants. 

After an earthquake and tsunami hit Japan in 2011, causing the largest nuclear accident since Chernobyl in 1986, tens of thousands of Germans took to the streets to protest the country’s use of nuclear power. The government’s decision to accelerate the end of nuclear power generation – closing all plants by 2022 – met with widespread approval, boosting the popularity of Chancellor Angela Merkel.

Nuclear power had been a political issue since 2002, when the ruling coalition decided to cap the amount of power that could be produced by nuclear plants before they were permanently decommissioned. But in 2010, Chancellor Merkel’s government decided to extend the life of the nuclear plants, and the utilities invested billions of euros in the plants as a result. 

Months later, When the government reversed course, it was a financial blow for the companies, who lost investments made in “good faith,” the court ruled on Tuesday, as well as the potential for future revenues. More than that, they were stuck with the bill for decommissioning the plants. 

The win in court means the utilities are now entitled to compensation. Exactly what that looks like remains to be determined by civil courts – and it’s likely to be a lengthy process.

"Setting rules for compensation can take several years and it is unclear how much money the companies will be awarded," Roland Vetter, of PraXis Partners, a London-based utilities investment specialist, told Reuters.

Before the win, the companies had indicated they sought up to 19 billion euros ($20.4 billion) in damages. However, the payout may be less, since the court ruled that the government had not expropriated the utilities’ property, meaning "the billion-euro demands of the companies are off the table," Environment Minister Barbara Hendricks said, as Bloomberg reports.

But the ruling already seems to be making a difference for the companies. Shares of E.ON surged as much as 6.9 percent, while RWE jumped 6.3 percent following the verdict, Bloomberg reports.

In October, the government and utility companies agreed that the government will take on responsibility for storing nuclear waste from decommissioned plants. The utilities will financially support these efforts by contributing to a 23.6 billion euro fund. Some suggest that the compensation could be directed toward this fund.

The utility companies are likely to use the ruling “as a bargaining chip with the government,” Elchin Mammadov, an analyst at Bloomberg Intelligence in London, suggested to Bloomberg. “They may get some lenient decision in the commissioning of nuclear storage, in return they would drop the compensation claims.”

The court ordered the government to provide new legislation regarding the nuclear shutdown by June 30, 2018. The move remains popular with Germans, despite higher utility prices.