Stocks in German utilities are outperformers Monday, buoyed by hopes that victory for a center-right coalition government paves the way for an extension of nuclear reactor operating lives.
However, details of the concessions power firms would have to make in return for a lengthened nuclear operational timeframe remain uncertain.
The new government, set to be formed by Angela Merkel's CDU/CSU party and the business-friendly Free Democratic Party, or FDP, is widely expected to reconsider Germany's current plan to gradually phase out all of the country's 17 remaining nuclear reactors by around 2021.
This could prove very lucrative to Germany's four major utilities - RWE AG (RWE.XE), E.ON AG (EOAN.XE), EnBW Energie Baden-Wuerttemberg AG (EBK.XE) and Vattenfall Europe AG (VTT.XE). The companies have already written down the full value of their nuclear power plants and could book windfall profits if operating lives are extended.
Shares in DAX-listed E.ON and RWE were respectively up 3.9% at EUR29.31 and 3.4% at EUR64.30 at 1208 GMT. EnBW stock, which has a free float of 1.84%, was +2.5% at EUR41.
While the average operating lives of German nuclear reactors now look set to be extended beyond the currently agreed 32 years, analysts cautioned that the details of any lifetime extension are still subject to coalition negotiations between CDU/CSU and FDP, as well as talks with the operators of the power plants.
Analysts at brokerage Sal. Oppenheim, who have buy recommendations on E.ON and RWE shares, Monday said the next few weeks will bring more clarity on the expected lifetime extensions.
Details on the number of years by which nuclear reactor lives will be extended and the political price that utilities have to pay in return - possibly through claw-backs on windfall profits - remain uncertain.
Press reports in the last few weeks have suggested that utilities might have to give up at least half of the additional profits they would generate from longer reactor lives to relieve end customers' burden of high electricity prices and to support the expansion of renewable energies. Some reports also mentioned the possibility of a new tax on nuclear fuel or mandatory electricity auctions as claw-back mechanisms.
Industry experts have said they expect operators of nuclear power plants will be required to significantly intensify their investment into renewables in return for extended reactor life-spans.
Sal. Oppenheim analysts Monday added they have increased their fair values for E.ON and RWE to EUR33 and EUR79 respectively to reflect the expectations for longer reactor lives, assuming a 15-year extension as well as a pretax 50% claw-back on incremental free cash flows related to lengthened operating lives.
"I trust that the CDU/CSU and FDP will pave the way for an extension of the operating lives of nuclear power plants. This is an important step because, in addition to renewable energy and coal, we need nuclear power," said RWE Chief Executive Juergen Grossmann.
An EnBW spokesman noted the CDU/CSU and FDP said before the election they would consider extending the lives of nuclear plants. He added EnBW has never made any secret of its support of a reversal of the nuclear phase-out and the company is now ready to talk to the new coalition government about nuclear policy.
Equinet analyst Michael Schaefer said a nuclear extension is "in the cards" and the government will likely begin discussions on the issue rather soon. He added RWE may gain more in the short-tem as more of its capacity would have otherwise gone offline in front-end years.
Germany's 17 nuclear reactors have a generation capacity of around 21 gigawatts and account for nearly one quarter of the country's overall power production. Under the exit agreement this capacity will be lost over the next 12 years. In the next four-year legislative period alone, up to seven nuclear reactors with a capacity of more than 7 GW are due to be shut down.
The nuclear exit exacerbates an increasingly tight power supply as older conventional power stations are decommissioned but replacements fail to come on-stream fast enough.