German government ordered to pay damages for nuclear phase-out

Germany’s constitutional court on Tuesday ordered the government to compensate energy companies for losses incurred because of its phasing out of nuclear power. While the decision could lead other governments to slow their transitions to renewable energy, green campaigners say the decision is actually a positive development.

Demonstrators cross the Rhine into France to demonstrate against the Fessenheim nuclear reactor in 2011 Christian Hartmann/Reuters

The Fukushima nuclear disaster in Japan in 2011 prompted Germany’s government to make abrupt changes to its energy policy.

It had committed to using nuclear power until at least 2036 but the Fukushima accident inspired it to shut down eight reactors immediately and phase out the nine others by the end of 2022.

The move prompted German power giants EON and RWE, as well as Swedish company Vattenfall, to take legal action over what they called an “expropriation” of their assets.

The Karlsruhe court gave the policy shift its clear endorsement.

“It was permissible for lawmakers to take the accident in Fukushima as a prompt to speed up exiting nuclear energy to protect the health of people and the environment,” said senior judge Ferdinand Kirchhof.

Amount of compensation unclear

What is less clear from the ruling was the nature of the compensation to be provided to the companies.

The court ruled that “appropriate” compensation was in order, given that the government did not recompense for planned investments or guarantee how much power the plants could still generate, but it did not define any amounts or any criteria for what it felt appropriate compensation was.

Instead, it gave the government and the plaintiffs a June 2018 deadline to reach a settlement and writing it into the phase-out law.

“It will be left to out-of-court settlement, probably negotiations around the exact amount of the compensation,” says Catherine Banet, associate professor of energy law at the University of Oslo.

“The criteria will be interesting to follow in terms of a precedent, and then, in any case, the parliament has to amend the legislation by June 2018, so that will be the other direct consequence of the decision.”

Anti-nuclear campaigners hailed the decision and said the court rejected so many of the companies’ arguments that the ruling could only be considered a positive development for the phase-out of nuclear energy.

“The compensation that companies expected, something like 20 billion euros, is not on the table anymore,” says nuclear physicist Heinz Smital, who took part in proceedings on behalf of Greenpeace Germany.

“There’s only a small correction for Vattenfall and RWE,” he argues. “It’s just electricity production rights that have to be more clear and detailed, so just making a clear regulation on how this transfer is done would cut the main compensation RWE and Vattenfall is expecting. So it’s very clearly in favour of a vast nuclear phase-out in general.”

A precedent for energy transition?

The ruling raises the question of repercussions in countries in regions where governments are also changing their energy policies.

“The decision was taken quite quickly after Fukushima to close the plants, and perhaps all the ramifications weren’t thought through fully at that time,” says Stephen Thomas, professor of energy policy at the University of Greenwich, making the point the accelerated phase-out in Germany was a particularly ambitious example.

“Where we have phase-outs, then there will have to be negotiations with companies to make sure they are happy with the arrangements,” he adds. “For example in Britain, where we’re planning to build a plant, there is an explicit clause that says compensation will be paid if the plant is closed early, for political reasons.”

Banet agrees that governments will likely see the ruling as a precedent to make sure they do not get into similar situations with investors.

“My guess is that we will be more careful in the speed of the energy transition, and we have different examples of that,” she says.

“You have the winter energy package presented by the European Commission, which is reflecting all those concerns: speeding up or not speeding up energy transition, protecting investments made, ensuring security of energy supply but continuing support of renewables. And we have had a case in Spain and other cases pending, where there have been some retroactive changes made to support schemes, and foreign and national investors complaining about that.”