Eon, RWE will manage nuclear phase out costs: German ministry

German energy giants Eon and RWE will be able to shoulder the nuclear dismantling costs demanded of the government as part of its nuclear phase out plans, according to the ministry of economic affairs and energy.

The German government said over the weekend that Eon and RWE – the parent companies of Eon UK and Npower – have passed their stress tests with “sufficient” financial provisions to take the multi-billion euro hit.

Concern over the future of the utilities has grown steadily in recent years as market conditions prove difficult for all energy companies. On top of this German firms face looming nuclear decommissioning costs after the government announced on 29 May 2011, after the Fukushima nuclear scare, that the country would close all of its nuclear power plants by 2022.

Since the announcement RWE’s share price has shed over 82 per cent to hit €9.60 on Friday 9 October while Eon’s share price fell over 70 per cent to €7.38 over the same period. Both companies have seen their share price climbed between 40-50 per cent from Friday’s close this morning, following the positive stress test results.

The government has agreed with the companies’ provisions which are set at €38.3 billion, based on an estimated total cost for the dismantling process of €47.5 billion or €857 million per reactor. And the stress test also found that overall costs could be reduced by €6 billion if efficient dismantling procedures are adopted.

Economic affairs minister Sigmar Gabriel said that the “companies are able to shoulder the costs of the nuclear phase-out” and that the “companies concerned have made sufficient provisions to cover all of the costs, in compliance with the relevant rules”.

Utilities analysts at Citi said the report was “clearly supportive” for the company’s case and “tends to reassure citizens and investors over the solidity of the energy company balance sheet”. But RBC Capital said that while the stress tests show a “clear positive” for the companies it is only an initial step in the on-going nuclear debate.

The next phase of the government’s stress tests will look at the operational aspects of meeting its decommissioning and dismantling targets, intermediate-storage, and final-storage obligations while remaining financially sound.

“This is likely to include debates around potential external funds, extended liability and ongoing legal claims by the operators against ‎the government in respect of forced early retirement,” RBC Capital said.

The final report is expected in early 2016.