When Germany announced its plan to phase out nuclear power stations last month, shares in the big four German power companies rose. The agreement made with the German government would see Eon, RWE, EnBW and Vattenfall pay a nuclear-fuel rods tax of €2.3bn until 2016 – but the market had been expecting worse.
The key issue is not the additional costs – the companies can cope with that in the long-run by mitigating taxes and changing their production mix – rather it is the short-term squeeze on their financial flexibility.
In Moody’s view, the nuclear tax absorbs financial flexibility, and therefore reduces the cushion available to protect utilities’ ratings if there are adverse variances from plan, or unexpected negative economic events.
But of more significance might be the ratings agency’s views on the overall policy trend:
Moody’s sees the nuclear tax in Germany as an example of the rising investment and political risks in the unregulated European electric and gas utilities sector, which is grappling with a difficult demand and price environment, as well as the investment consequences of policy commitments on energy security, affordability and climate change.