Court leaves Swedish nuclear tax unchanged

01 October 2015

Sweden can continue to tax nuclear power production following a ruling in the government's favour by Europe's highest court. The European Court of Justice's seventh chamber decided that the tax does not fall within the scope of two European Council Directives and is therefore a national, rather than European Commission, matter.

OKG AB first contested the levy in 2009 in the Swedish courts, which in October 2013 sought the EU's preliminary ruling. The company, which turns 50 this year, owns and operates three nuclear power units - Oskarshamn 1, 2 and 3 - which together account for 10% of total electricity generation in Sweden.

The company announced yesterday that it will hold an extraordinary shareholders' meeting on 14 October to reach a decision on closing units 1 and 2. German EOn and Finnish Fortum own, respectively, 54.5% and 45.5% of the shares in OKG.

According to lobby group Swedenergy, a ruling in the company's favour could have removed an annual cost of about 4.6 billion kronor ($540 million) for the country's nuclear industry since the Swedish government increased the tax by 17% from 1 August.

The court document, published today on its website, says that levying a tax on the thermal power of nuclear reactors is not within the scope of Council Directive 2003/96/EC of 27 October 2003 that restructures the Community framework for the taxation of energy products and electricity. Nor is the tax an excise duty for the purposes of Council Directive 92/12/EEC of 25 February 1992 on general arrangements for, and the holding and movement of, products subject to excise duty.

Unfair tax

"This has been a long process and my understanding of the ruling is that the nuclear tax in Sweden does not fall under the Energy Tax Directive and therefore the Court has ruled in favour of no change. This means that the Swedish government can continue with its policy of taxing the thermal capacity of nuclear power plants," Esa Hyvärinen, senior vice president of corporate relations at Fortum, told World Nuclear News today.

"We will have to assess the ruling and see what can be done. There is also a discussion at the political level about whether the tax is too high."

He added: "The spirit and the word of the Energy Tax Directive is that the tax should apply when the electricity is delivered for consumption. We argue that if there is also a tax on production, then the electricity is being taxed twice. That was the basis of the complaint put forward by OKG AB."

According to the European Commission, the primary goal of EU energy tax legislation is to ensure that the Single Market runs smoothly and to prevent distortions in competition and trade within the EU. In addition, energy taxation can play an important role in achieving wider EU goals. In particular, the Commission says, it can help achieve Europe's objective of becoming a competitive, low-carbon and energy efficient economy.

Hyvärinen said:"We believe there should be more or less the same type of taxation on the different types of energy technologies because if there is a difference, then there is potential for a distortion of competition."

Fortum owns 4615 MWe of hydropower capacity and 3279 MWe of nuclear power capacity. Of these, 3088 MWe and 1820 MWe are in Sweden.


Oskarshamn (OKG)_460
Oskarshamn (Image: OKG)

Fortum said today that for Oskarshamn 1, closure would mean the reactor would be taken out of operation and transferred into service mode once an environmental permit has been issued. This is expected between 2017 and 2019. For unit 2, which has been out of operation since June 2013 due to extensive safety modernization work, a closure decision would mean it would not be returned into operation. The closure process for the two units is estimated to take several years.

Fortum estimates that the decision would have a one-time negative impact of about €700 million on its third-quarter 2015 net profit.

The total production capacity of Oskarshamn 1 and 2 is 2511 MWe, of which Fortum's share is 1,090 MWe. The biggest and newest unit 3, with a capacity of 1400 MWe, in which Fortum's share is 608 MWe, will continue its operation. Units 1, 2 and 3 were commissioned in 1972, 1974 and 1985, respectively.

OKG said on 20 July that it had for the first time in almost 15 years been ordered by its main owner to reduce electricity production at the plant, due partly to lower demand during the holiday period, but also as a consequence of national energy policy that discriminates against nuclear power.

The reduction was based on the fact that electricity demand was principally covered by hydro and wind power plants, the company said. Owing to the tax on nuclear power, it said it "could not compete" with these other types of electricity generation.

Johan Svenningsson, managing director of OKG, said at the time that when the supply of water and wind is good, and the power rate is subsequently low, "distorted competition becomes particularly noticeable". The nuclear power taxes amount to about 20% of OKG's revenue, he said. That means that its fixed costs are high in comparison with, for instance, "politically subsidized wind power”.

Svenningsson said the competitive advantage of nuclear power of being weather independent "does not even have any effect during other times of the year when demand is higher and the supply of wind- and hydro-based production happens to be lower."

The Nordic power market was deregulated nearly 20 years ago, he noted, and yet "continual energy policy actions" have prevented Sweden's nuclear industry from achieving the aim of deregulation, namely free competition on equal terms with other energy sources.

OKG announced yesterday that Svenningsson has been appointed the president of Uniper's Swedish operations and president of Sydkraft Nuclear Power AB, the new name from 2016 for EOn Nuclear Power Sweden AB. Uniper means 'Unique Performance'. EOn had planned to move its nuclear operations into Uniper, a company being established to operate conventional power, trading, exploration and production. EOn later decided the spinoff would proceed without its nuclear activities. OKG said Svenningsson will take up his new roles on 1 January, but that he will remain in his current position until a successor is appointed and has taken office. Svenningsson could not be reached for comment.

Researched and written
by World Nuclear News