Accumulation of the funds

There are arguable advantages for the external management of funds: a higher degree of transparency, protection against a shortfall of financial resources caused by the bankruptcy of operators, and improved public confidence. Beside the high costs for taxpayers, problems with competition policies of the EU could also arise, as financial support for the operators by the respective government could be seen as state aid.250

ACCUMULATION OF THE FUNDS

After the costs have been estimated (see section 6.2), the necessary funds need to be accumulated. Here, one crucial factor is timing, as the funds have to be available when they are needed. The main scenario is to build up a fund over the entire expected lifetime of a nuclear power plant or facility. However, shorter periods of time are also conceivable (for instance, 25 years in Germany). More and more reactors are shutting down before they reach the end of their license, for instance in the US, where many reactors have already or will prematurely close due to unfavorable economic conditions. In some rare cases, funds for decommissioning and decontamination of a nuclear power plant have to be fully collected by the start of operation, such as in France since 2006 (so it does not apply to the entire past and currently operating fleet).251 However, no reactor has gone into operation in France since that date.

The accumulation of the funds can either be achieved by a fee, a levy set on the sale of electricity, “internally” by the operators who set aside funds from the revenue obtained from the sale of electricity, or by the investment of the funds. As most of the costs only occur in the future, a crucial aspect is whether funds or future provisions are based on discounted or undiscounted costs.252 If the costs are not discounted, the operators have to set aside the full amount of the estimated costs. Only a few nuclear funding systems use undiscounted costs. If costs are discounted, the funds are expected to grow over time. Here the provisions are determined using the inflation rate until the due date and then discounted with an interest rate, which is supposed to represent the expected rate of return. The employed discount rates range widely (for example, 5.5 percent in Germany versus 1.5 percent in Spain). A cost escalation rate is not always assumed, in France decommissioning and waste management expenses are expected to grow with the general inflation rate, while in Germany a “nuclear-specific inflation rate” of 1.97 percent is calculated on top of the inflation rate. Applying only the general inflation rate could eventually lead to an underestimation of the costs and hence the amount of the funds.

Depending on the fund’s nature, a major source of resource accumulation is the investment of the fund. Here a conflict of interest arises between the operator and the regulator in choosing the investment strategy. The former will typically prefer riskier investment strategies with higher rates of return, while the latter will ideally prefer a more secure investment strategy and accept lower rates of return. In Sweden, for instance, following the financial crisis of 2008, the rate of return on long-term bonds was lower than expected, and concerns of underfunding grew, leading to a change of the investment strategy. Since 2017, the funds can now be put into less secure investments than government bonds. Small changes in the assumptions of the rates have tangible effects on the present value of the financial resources and hence the amount of funds that need to be set aside; in particular, when the rate of return (discount rate) is prone to overestimation and the cost escalation rate to underestimation.

250 Neri, E., French, A., Urso, M.E., Deffrennes, M., Rothwell, G., Rehak, I., Weber, I., Carroll, S. and Daniska, V. 2016, Costs of

Decommissioning Nuclear Power Plants (No. NEA-7201). Organisation for Economic Co-Operation and Development (OECD). 251 Ibid. 252 A provision is an account in the balance sheet of an operator but represents only liability; this does not mean that these funds are invested to finance decommissioning or waste management.