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Who should pay for the dismantling of a nuclear plant?

From afar a modern nuclear power station is a medium-sized industrial building, as the advantage of small modular reactors (SMRs) is that they are prefabricated to a standard design. This in turn significantly speeds up and simplifies the installation of the reactors on site. Although all nuclear power stations have a long useful life (30-60 years), it is pertinent to ask what will happen to a nuclear power plant when its work is done? Who will pay for the dismantling work in the future and who will cover the costs for the disposal and storage of spent nuclear fuel? 

Nuclear power station at Krśko, jointly operated by Slovenia and Croatia


Nuclear decommissioning is the process leading to the irreversible closure of a nuclear installation (usually a nuclear reactor) with the ultimate goal of full decommissioning of the nuclear installation. The process itself is carried out in strict accordance with a decommissioning plan established by the regulator, which includes the complete or partial dismantling and decontamination of the nuclear installation, and which is drawn up even before the construction of the installation itself.  

Ideally, the aim of decommissioning is to restore the environment to the pre-nuclear “pre-commissioning” green state. Worldwide practice to date has shown that such a process takes about 15 to 30 years, or even longer if an intermediate storage period is applied to ensure safe radioactive decay of spent nuclear fuel. After decommissioning, the remaining radioactive waste is either transferred to an on-site (interim) storage or to a disposal facility at another location.  

Interim storage can last for decades 

The disposal of nuclear waste arising from the decommissioning of past and future nuclear installations has so far been a problem without a good solution. On the one hand, there has been no rush to final disposal, as safe interim storage can last for decades, but on the other hand there has not been a good universal technical solution for final disposal either.  

Today it is hoped that a large proportion of spent fuel may, as a result of the rapid technological progress taking place in the industry, once again become useful fuel for new types of nucleat reactors, which will significantly reduce the amount of waste requiring disposal. A number of spent fuel disposal sites planned in the deep layers of the earth’s crust are also entering the design and construction phase, including the one with our northern neighbours in Finland. 

Decommissioning is largely administrative and technical process 

A nuclear installation is dismantled so that it no longer requires radiation protection measures. It also includes the decontamination and safety of radioactive materials, including the buildings and equipment of the nuclear plant, and if necessary, dismantling. Once a facility has been fully decommissioned, it is no longer a radiological hazard. The licence for the construction and operation of the nuclear installation is then terminated and the installation is released from regulatory control and the licence-holder is relieved of responsibility for nuclear safety. From then on a decommissioned nuclear facility may be used for whatever legal purpose the owner deems expedient and useful, just as any other industrial building. 

It is important to bear in mind that there are millions of small nuclear devices and facilities around the world, which in addition to electricity generation, are being used for medical, industrial and scientific purposes, which will also have to be decommissioned when they cease to be used for their intended purpose.  

Decommissioning costs collected in advance and kept in a separate fund 

Decommissioning costs are to be covered from the amounts foreseen during the design and construction of the nuclear installation and fixed in the decommissioning plan. The decommissioning plan is part of the licensing for any construction, testing and operation of a nuclear installation. The amounts accruing from the payments to be made by the operator of a nuclear installation, usually on a regular basis over the lifetime of the installation, may be held and managed in a dedicated decommissioning fund. 

The purpose of such a fund shall be to ensure that sufficient financial resources are available at all times and are maintained until the completion of the decommissioning programme, including to finance the institutional control of the post-closure supervision of the nuclear installation. In accordance with the ‘polluter pays’ principle, the nuclear waste producer shall contribute to the fund in order to cover all the financial resources necessary for the decommissioning of the nuclear installation. 

The decommissioning fund is financed by nuclear operators 

The amounts and schedule of payments to the fund by the nuclear operator must take into account the potentially very long duration of the decommissioning programme, from the initial financing of the project until the actual decommisioning costs are incurred.  

In setting the level of the contributions to the fund and the basis for their calculation, a ‘waste management charge’ approach based on the amount of electricity generated from nuclear fuel could also be considered.  

Another option would be to charge the generators of (nuclear) waste a one-off fee for the waste producer at the time of its transfer to the waste manager, by applying a system of waste tariffs to different categories of waste. Electricity generators and other institutional waste producers could be subject to a combination of both systems.  

Contributions should incentivise efficient electricity generation 

Applying the principle of a “waste tariff” to the fund contributions to the amount of waste generated should motivate waste producers to reduce their waste by maximizing the use, reuse and recycling of nuclear materials. In designing such “tariffs”, it is also reasonable to take into account other factors such as the radioactivity or toxicity of the waste.  

The most common mechanism used to finance nuclear decommissioning funds is a corresponding charge on electricity produced. For example, 0.1 ¢/kWh in the USA, 0.14 ¢/kWh in France or 0.2 ¢/kWh in Romania. In some countries, waste producers regularly pay larger lump sums into the fund (e.g. South Korea), while in some countries (e.g. Hungary) for historical reasons such a fund was set up on the basis of the national budget. 

Contributions to the fund should be periodically adjusted 

When setting up a decommissioning fund, the target amount of the fund must be determined, which is sufficient to cover all foreseeable future decommissioning costs and from which in turn the schedule of contributions to the fund can be derived. 

One of the most important uncertainties associated with the collection of the fund relates to the very long timetable of the decommissioning programme, as the timetable affects the discounted costs. In view of changing and refining of the initial assumptions over time, and in order to reduce the associated uncertainties, it is prudent to periodically review and, if necessary adjust the fund contribution plan over time. The fund manager and the institutions overseeing the fund should be legally empowered to do so on a mandatory basis. 

A more conservative approach is more expensive but safer 

Non-discounting of future costs may be a more conservative approach, as it leads to faster provisioning. In this case, the amount needed to cover the obligation is collected as soon as the respective obligation arises.  

However, the lifetime of the facility may be shorter than planned or future waste volumes may be higher than the forecast, resulting in inadequate size of the fund. The risk of inadequate funding can be reduced by planning the timing of contributions in advance on a prospective basis and for a shorter period than the planned useful life of the nuclear installation.  

It is also true that the costs of decommissioning a plant is not that significant until nuclear fuel is loaded into the reactor. Once the reactor is operational, the corresponding budget is several orders of a magnitude higher. It would be unreasonable to require the operator of the nuclear installation to deposit the entire financial cost of the decommissioning into a fund at this point at once, but consideration should also be given to allowing the use of reliable and liquid financial instruments (e.g. bank guarantees). 

The fund must be managed conservatively and maintain its liquidity at all times 

There are many different models of management for decommissioning funds used around the world. A distinction is made between internal funds (managed by the waste producers themselves) and external funds, which are managed by organisations separate and independent from the waste producer or by a government body. 

An external fund certainly offers a more transparent management model, which facilitates the monitoring of whether the funds collected continue to be available, sufficient and used for the intended purpose. It will also offer protection for the money collected in the event of the sudden cessation or winding-up of the nuclear operator. A good example of Estonian practice to date is the Guarantee Fund, established by law to protect depositors’ funds in the event of the insolvency of commercial banks. 

There is a risk that the return on investments made by the fund manager may be lower than expected. Another important aspect to be considered when investing the moneys from such a fund is the liquidity risk, as the resources of the decommissioning fund must be available at any time, if needed. Bearing all this in mind the fund should be allowed to invest only on the basis of a sufficiently conservative investment strategy. 

Tõnis Tamme
Attorney-at-Law, partner