The economic costs of the nuclear phase-out in Germany

In the immediate aftermath of the March 2011 TEPCO Fukushima Daiichi nuclear power plant accident, the German federal government decided to temporarily halt the operation of the country’s eight oldest energy-producing nuclear reactors. This was accompanied by a cabinet proposal to phase out all 17 of the country’s nuclear reactors, which have a combined capacity of 20.5 GW, by 2022. On 31 July 2011 the proposal became law, and the temporary shutdown of the eight reactors was converted into a permanent shutdown by 6 August 2011. Shutting down reactors with an average lifetime of 33.5 years (compared to an industry standard of at least 40 years and in some countries, such as the United States, of 60 years) imposes significant costs on German power producers, electricity consumers and the German economy. This article estimates the direct costs linked to the shutdown of Germany’s nuclear power reactors before the end of their operational lifetimes. These are costs that are immediately passed on in the form of higher costs for electricity producers or higher prices for electricity consumers. The direct costs of the shutdown take on three forms: a) the costs for constructing and operating replacement capacity on the supply side, b) higher electricity prices and a concomitant loss of consumer surplus on the demand side, and c) increased electricity imports. The costs for replacement capacity can be subdivided into additional investments costs, higher operating costs and higher costs for transport and distribution to the extent that replacement capacity is composed of decentralised renewables located far from final consumers. Higher electricity prices are due in the short term to a reduction of capacity margins (which means that equipment with higher operating costs will need to be employed), and in the long run due to an increase in the prices of gas, coal and carbon due to additional demand. A crucial element in determining the cost of the decision of the German government to phase out nuclear power is the baseline against which the costs of the electricity system resulting from the phase-out decision need to be assessed. This exercise takes the situation immediately preceding the phase-out decision in March 2011 as its baseline