Thursday, August 25, 2005


Dow Jones Newswires, 12 Aug 2005


By Nina Sovich

LONDON (Dow Jones)--The costs of retiring the U.K.'s oldest and dirtiest
nuclear plants could be a third higher than initially estimated, the
U.K.'s Nuclear Decommissioning Authority said Thursday, throwing a cloud
over prospects for a new generation of nuclear power plants across

The NDA, a government-run body in charge of safely retiring 20 nuclear
sites across the U.K., said cleanup could cost more than GBP66 billion
over the next 50 years if plutonium and enriched uranium stores are also
disposed of.

This is up from an estimate of GBP48 billion made three years ago.

If nuclear decommissioning costs spiral out of control, companies could
be hard pressed to find the funds to build a new generation of power
plants, just when sky-high oil prices are making nuclear power a more
attractive energy source.

The U.K. has one of the oldest nuclear programs in Europe and is among
the first countries to retire plants built in the 1940s and 1950s.
However, Germany and France will also have to begin retiring their
nuclear fleet soon and unexpectedly high decommissioning costs could
spell trouble for large nuclear operators such as E.On AG (EON), RWE AG
(RWE) and Electricite de France (EDF.YY) as they look to build new
nuclear power plants.

"Some of these companies could be in trouble if decommissioning costs
are unexpectedly high," Joseph Pospisil, a nuclear analyst at Fitch
Ratings said. "Some also don't have dedicated funds and this could be a

The European Union Commission has made no recommendations on how nuclear
plant decommissioning should be funded, leaving governments and private
companies to deal with the issue on a case-by-case basis. In the U.K.,
the NDA has assumed the costs for British Nuclear Fuel Ltd. (BNF.YY)
reactors, and many expect it will pick up the tab for British Energy PLC
(BGY.LN). But France and Germany have left the costs to private

Some observers say these companies have little incentive to prepare for
the future.

Although Electricite de France has EUR26.8 billion set aside on its
balance sheet for nuclear liabilities, that money is neither in cash nor
ringfenced. E.On, Europe's second largest nuclear operator after EdF,
has only EUR13.8 billion set aside, and the company is scheduled to
retire all its plants in just over nine years, according to a recent
report by Fitch Ratings. "The E.U. has so far not done enough to ensure
decommissioning finance is being properly provided for," said Mark
Johnston, an energy campaigner for Friends of the Earth.

Friends of the Earth estimates nuclear decommissioning for all of Europe
will cost upwards of EUR500 billion in nominal terms over the next 50
years. Continent-wide figures are hard to come by, however, and a recent
report by UBS simply says there is "surprising uncertainty and
ambiguity" surrounding nuclear decommissioning.

"Traditionally the nuclear industry been asked to fight the Cold War,
develop power stations of various designs to produce electricity," said
Ian Roxburg, chief executive of the NDA. "About 18 months ago they were
asked a different question - what will it cost to decommission nuclear
power plants...only now develop tools necessary to answer that

The question of decommissioning costs is equally pertinent since nuclear
power has returned to vogue with oil prices hover near $65 a barrel,
pushing up the cost of natural gas which generates much of Europe's
electricity. Nuclear power also doesn't produce much carbon dioxide, the
gas commonly thought to cause global warming.

However, exorbitant decommissioning costs could stall a new generation
of nuclear build, which would have to go up in a deregulated market
without government aid. Already government assumption of nuclear
decommissioning costs is drawing scrutiny from the European Union
Competition Commission, which is investigating whether the U.K.'s NDA
constitutes illegal state aid. The U.K. government's recent bailout of
British Energy also drew a prolonged review from the Competition

"Recent cases, where large subsidies have been granted to firms in
distress, have caused the issue to be looked at more closely." Johnston

But some experts say nuclear power will always remain a national
security issue, and therefore above the scrutiny of the E.U. They also
say that when push comes to shove, governments will step in rather than
allow their nuclear operators to go belly up.

"It's probably a fair assumption to say these companies are not too
worried about these costs because government will likely step in rather
than leave old nuclear plants just laying around," Pospisil said.


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