Assessing the Long-Term Funding Adequacy and Generational Equity of State Funds under Uncertainty: A Stochastic Model for the German Nuclear Waste Fund KENFO

The German selection process for a site for a deep geological repository for high-level radioactive waste was due to conclude in 2031. In recent years, the responsible organizations have independently published their doubts on this ambitious target, postponing the date for a site selection back by several decades, now ranging from 2046 to 2074 (BGE 2022; Krohn et al. 2024). With this procedural delay come not only organizational but also financial questions relating to the provision of sufficient funds until the closure of the repository itself which is now, if the site is selected on the second half of the 21^st century, not expected to happen within the next century. German nuclear waste management activities are funded via the external segregated fund KENFO whose purpose is to generate sufficient returns on investments to fund the whole waste management process, from interim to final waste storage of high-level wastes, but also the storage of low- and intermediate level wastes (von Hirschhausen and Wimmers 2023). Recent market turbulences and the procedural delays place doubt on KENFO’s ability to fulfil its purpose over the coming decades. This work aims to assess the risks of KENFO’s funds running short by applying a stochastic approach to long-term funding in nuclear waste management in Germany. We determine that to ensure sufficient funding and avoid future taxpayers having to provide funding for German waste management activities, KENFO must either achieve sufficiently high returns on the investments made, or the current fund volume must be increased with a lump sum cash injection. Using a Monte Carlo simulation to determine the scenario ranges of site selection dates, we estimate the minimum returns that KENFO must achieve to consistently exceed the current target return of 3.7% by several percentage points (see Figure 1). We also find that even if the site selection process went as plans, would are unlikely to suffice, necessitating a cash injection of at least €31.07 billion at 3.7% average returns. The assessment is limited by two main components. First, the uncertainty regarding the development of investment returns, cost developments, and other relevant parameters, such as inflation, is substantial over the long time period of several decades. Second, nuclear waste management costs are largely unknown. The cost assessments used in this work depend on a 2015 costing study which in turn relied on the utilities’ provisions (WKGT 2015), and since then, there has been no independent cost study of nuclear waste management (Irrek 2023). Consequently, policymakers must address the looming challenge of funding shortfalls for German nuclear waste management. They can either address the “costs” of nuclear waste management by accelerating the site selection process, improving efficiencies, and learning from other countries’ approaches, after approximating the expected costs, or they can address KENFO’s investments and fund strategy by, .e.g, aiming for higher returns from potentially riskier investments.

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