Investors Bet on Change in German Nuclear Stance
Date: 24-May-05
Country: GERMANY
Author: Mantik Kusjanto
Chancellor Gerhard Schroeder on Sunday said he would seek general elections a year early after his party suffered a crushing defeat in North Rhine-Westphalia -- Germany's most populous state, whose economy is bigger than that of Australia, the Netherlands, Brazil or Russia.
E.ON and RWE shares rose and were top gainers of the German blue-chip DAX index, with E.ON rising 3.4 percent to 69.50 euros, and RWE up 2.6 percent at 48.38 at 1150 GMT.
"People are starting to factor in a change in government that would benefit both utilities," said Matthias Heck, analyst of Sal. Oppenheim, adding that his firm estimated that the opposition's chance of winning is 60 percent.
In a survey by ARD television on Sunday, 46 percent of respondents said they would vote for opposition CDU, compared to 29 percent for the ruling SPD.
Nuclear operators and the current central government agreed in 2000 to the closure of reactors by 2021. But the CDU opposition party had said it would allow the country's nuclear generators to operate beyond 2021 if it were elected.
Morgan Stanley said in a report last week both utilities would require very limited capital expenditures to extend nuclear stations' lifetime, while their replacement with conventional plants would require significant investments.
"If the replacement plants were 50 percent coal and 50 percent combined cycle gas turbine, we estimate this would result in about 4.1 billion euros of total capex for RWE and 6.3 billion for E.ON over an average period of about 15 years."
Germany's 17 existing nuclear plants have an installed capacity of around 20,600 megawatts, supplying about one-third of the country's electricity.
Germany is Europe's second-biggest producer of nuclear power after France, which meets nearly 80 percent of its electricity requirements from nuclear sources.
SOLAR SUFFERS
As nuclear-linked shares gained favour, solar energy stocks suffered on worries there would be fewer subsidies in case of Schroeder's defeat. SolarWorld plunged 10 percent to 102.50 euros.
About a third of E.ON's generating capacity is nuclear, compared with rival RWE's 19 percent. Others with exposure to nuclear power plants include EnBW and Vattenfall Europe.
Ralf Oberbannscheidt, a DWS fund manager, said: "(Lifespan) is important for both E.ON and RWE because a big portion of their power generation comes from nuclear plants."
JP Morgan said in a recent report: "The operating effectiveness and quality of the German nuclear plants is considered to be best-in-class and so a 15-year extension, for example, should be easily justifiable in operational terms."
French nuclear plants are given a lifespan of 60 years, nearly twice that of German ones because of the German decision to scrap nuclear. Scandinavian plants have a lifespan of about 45 years.
Oppenheim's Heck said E.ON's fair price target would increase by about 5.20 euros a share and RWE's by 4.50 euros each if the lifespans of their nuclear plants were extended by an average of eight years.
Nuclear plants are expensive to build and, despite producing virtually no greenhouse emissions, face fierce opposition from environmentalists on perceived safety grounds.
As the economic downturn continues, Germany is struggling to juggle the impact of shutting nuclear plants and its commitment to limit the emission of greenhouse gases.
"The German government is now almost alone on its path of exiting nuclear. Not many other countries are following the same direction. I should say there are none," E.ON Chief Executive Wulf Bernotat said recently.
