Exit economics: The relatively low cost of Germany’s nuclear phase-out

By Felix Chr. Matthes, November 1, 2012

The decision of the German government, post-Fukushima, to phase out the country’s nuclear power sector by 2022 builds on legislation in place since 2002. This earlier legislation was amended in 2010 to extend the lifetime of the nuclear plants, but the German parliament reversed this extension in the summer of 2011, slightly accelerating the original phase-out schedule; therefore, the market and the nuclear operators were prepared for the shutdown schedule. In this context, it is not surprising that the observed price impacts from the shutdown of 40 percent of the German nuclear power capacity in 2011 are smaller than some modeling exercises had projected. When empirical observation is analyzed in light of a range of economic models, the price effect of the nuclear phase-out can be expected to peak at 5 euros per megawatt-hour or less for a few years around 2020, a reasonably small increase compared with the uncertainties created by other fundamental determinants of Europe’s electricity prices. The macroeconomic effects attributable to the complete shutdown of nuclear power also appear likely to be relatively small, peaking at perhaps 0.3 percent of gross domestic product or less a few years before 2030. In the end, the management of the German transition to an energy mix dominated by renewable energies—and not the use of the existing nuclear reactor fleet for a decade more or less—will be the key determinant of whether that shift has larger or smaller effects on electricity prices or on the German economy overall.

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