By Beatrice Lo and Heeran Caselton

The Expert Finance Working Group on Small Nuclear Reactors (EFWG), an independent group convened in January 2018 by the Department for Business, Energy & Industrial Strategy, recently published its report with recommendations for a market framework to enable the development of small nuclear projects in the UK with private financing and investment. The report follows the publication of the UK government’s Nuclear Sector Deal (see Latham’s related blog post).

The EFWG report considered small nuclear projects ranging from micro-generation projects through to 600 MW reactors. In contrast to “megaprojects”, such as Hinkley Point C, which is estimated to cost almost £20 billion, the costs of small nuclear projects typically range from £100 million to £2.5 billion. Small nuclear projects can benefit from lower capital costs and quicker build times through modular construction and factory build (as opposed to on-site build) and are generally less complex than a GW nuclear project. These factors render a number of the risks more manageable, and the lower costs involved make the investment required for a small nuclear project within the range of a greater number of market participants (compared to larger projects).

Although the EFWG report focuses on small-scale nuclear new build projects, a number of the considerations and proposals may also be relevant for conventional large-scale nuclear power projects.

By Jörn Kassow and Alexander Wilhelm

On 7 June 2017, the Federal Constitutional Court of Germany (FCC) published a recent decision that declared the German Nuclear Fuel Tax Act (Kernbrennstoffsteuergesetz – KernbrStG) void due to the lack of legislative competence of the federal legislator (Bundestag) to enact the law constitutionally. The FCC argued that neither the Federation (Bund) nor the federal states (Länder) have the right to seek tax outside the competencies of the Basic Law (Grundgesetz). The court found that the tax on nuclear fuel cannot be allocated to the type of excise duty (Verbrauchsteuer) within the meaning of Art. 106 of the Basic Law.

The tax on nuclear fuel was imposed in 2010 as a measure for fiscal consolidation. From 2011 through 2016, each gram of fissile nuclear fuel loaded into a German reactor carried a levy of €145. The legislator deemed the tax to be an excise duty within the meaning of tax regulations. According to the Federal Ministry of Finance, the tax revenue amounted to nearly €6.3 billion.

The operators of nuclear power plants challenged the levy before several German Fiscal Courts. The Fiscal Court of Hamburg referred the case at hand to both the FCC and the European Court of Justice (ECJ). The Fiscal Court doubted the compatibility of the Nuclear Fuel Tax Act with national constitutional law and the law of the European Union. In 2015, the ECJ found the German law compatible with the European Directive (2003/96/EC) on taxation of energy products and electricity and rejected the claim that nuclear fuel must be exempted from taxation. The Directive exempts energy products for the production of electricity which are subject to harmonized excise duty. The ECJ noted that nuclear fuel is not included in the scope of this Directive.

By Alexander Wilhelm and Joachim Grittmann

The Federal Constitutional Court of Germany (FCC) on December 6 ruled that while the phase-out of nuclear energy (enacted in 2011) is in compliance with the constitution, Germany’s energy suppliers which operate nuclear power plants have to be compensated “reasonably”. Although the German legislator is primarily obliged by the court ruling to draw up new provisions by June 2018, energy suppliers have indicated their willingness to start negotiations with the Federal Government.

As a result of the Fukushima accident in March 2011, the legislator enacted fixed end dates for the operation of nuclear power plants in July 2011. It was an extreme reversal considering that the German government, only a few months before, put forth a modified energy policy in which nuclear energy should be prolonged as a “bridging technology” by an average of 12 years for each nuclear power plant. The law of 2010 increased electricity output allowances. Accordingly, energy suppliers challenged the withdrawn prolongation in their constitutional complaints against the recent amendment of the Atomic Energy Act (Atomgesetz). However, they did not object to the fundamental decision in favor of a phase-out of the nuclear energy taken in 2002 (Atomausstieg), nor were energy suppliers able to claim a concrete amount of compensation before the (FCC). Crucially, there was a gap between the guaranteed residual electricity volumes and the short-term operational lifetimes of the plants.

By Paul Davies and Michael Green

France adopted an ambitious energy transition package in August 2015 that sets out various targets designed to achieve the gradual de-carbonisation and increased sustainability of its economy.

The package includes consumption reduction targets, energy production cuts and provisions for a long-term programming scheme for public authorities to manage the country’s energy mix.

The Objective

Consistent with the EU’s energy strategy, France’s objective is to:

  • reduce its energy consumption by 50 percent by 2050 (with reference to 2012 energy consumption levels)
  • achieve an intermediate target of an overall 20 percent reduction by 2030
  • reduce fossil fuels consumption by 30 percent by 2030

In parallel, and perhaps more controversially, France aims to significantly reduce its production of nuclear electricity. France currently sources 75 percent of its electricity from nuclear energy – the highest worldwide – and is targeting a one third reduction of its nuclear energy sourcing by 2025.

By Antonio Morales and Rosa Espin

The news that the UK is to start construction on the first nuclear power plant to be built in two decades at Hinkley Point C has put nuclear energy firmly back among the headlines, but will this new £25bn investment signal a new Nuclear era in Europe?

It looks unlikely. Nuclear power plants currently generate nearly 30% of the electricity produced in the EU, yet there is a growing trend towards nuclear phase-out among member states. France is widely considered the leading nuclear power provider in the world and the largest net exporter of electricity, but the passage in France of the Energy Bill will result in a 25% decrease in nuclear energy by 2025. Similarly, Spain’s 1994 nuclear moratorium banned the construction of new nuclear power plants and suspended any ongoing construction works.

While the EU is, on the whole, phasing out nuclear power, emerging markets are increasingly turning to nuclear power to meet the ever-escalating energy demand from their growing populations. According to the World Nuclear Industry Status Report 2015, there are currently 62 nuclear reactors under construction worldwide, dominated by emerging economies such as China, Russia and India.