Nuclear resurgence

Nuclear power is once again the talk of the town, offering exciting possibilities for the global insurance market.

Nuclear power continues to make the headlines across the world, with the war in Ukraine forcing countries such as Germany to reassess their reliance on Russian gas, while a country which has been traumatised by nuclear disaster, Japan, is now also set to restart long idled power plants, according to a recent address to parliament by the Prime Minister.

Naturally, the nuclear sector is also not without its problems. This week the owner of one of the UK’s six nuclear power plants has said it will not extend its life beyond a planned shutdown in summer, despite officials raising concerns over the danger of blackouts in the months that follow.

The French-owned EDF Energy sent a memo to staff in which it said it would not postpone the closure of the two reactors at Hinkley Point B in Somerset, which are scheduled to be shut down on 8 July and 1 August.

Unique opportunity

Yet for all the difficulties associated with nuclear energy, there can be little doubt that it offers enticing possibilities for the market, as a recent report from Lloyd’s futureset, Greener Energy, makes clear, noting that the global insurance industry has a unique opportunity to further expand the coverage it provides to the nuclear industry in order to meet demands for additional insurance capacity.

Driven by anticipated regulatory changes, the introduction of new technologies and the development of new nuclear capacity, this sector offers enticing possibilities, the report adds:

“As the second largest source of low-carbon energy, nuclear energy now provides around 10% of global electricity supply, generated from around 440 power reactors across 31 countries. Predictions from the 2020 World Energy Outlook suggest electricity generation from nuclear could increase by almost 55% by 2040 in its sustainable development scenario.”

“Nuclear energy provides many developed and developing countries with a reliable source of energy that complements more intermittent renewable energy which relies on external conditions such as weather. A blend of both nuclear and renewable energy sources therefore enables cities and countries to achieve a stable supply of low-carbon power to their electricity grids.”

Development of global nuclear capacity

According to the report, the US is currently leading the nuclear energy market, accounting for more than 30% of worldwide nuclear generation of electricity, closely followed by France. Nuclear power capacity worldwide is increasing steadily, with around 50 reactors currently under construction, in countries including China and the United Arab Emirates. In the UK, nuclear power stations are amongst the highest performing in the world, generating 20% of the country’s electricity. This impressive output provides carbon savings equivalent to taking one third of all cars off UK roads. This nuclear power capacity is being further developed through new large-scale nuclear projects, including Hinkley Point C, the first nuclear power station to be built in the country in over two decades.

However, the Lloyd’s report notes, the nuclear industry has traditionally been excluded from the mainstream insurance markets of most countries, creating the specific need for bespoke coverage. A significant proportion of this is provided through the Lloyd’s market, with a number of syndicates providing specialist coverage for civil nuclear installations, property damage, machinery breakdown, business interruption, nuclear third-party liability, nuclear transit liability and construction.

The Lloyd’s market also remains involved in the provision of insurance on new projects such as Hinkley Point C in the UK and other builds internationally, during construction through to operation and eventual decommissioning.

Future development

The report suggests that there is an opportunity for insurers to support the future development of low carbon nuclear projects through the provision of cover for tranches of construction risk relating to new nuclear capacity.

With statutory third-party liability cover for the nuclear industry expected to increase substantially due to a pending change in regulations, combined with new nuclear capacity being developed, it says, there is demand on the non-mutual insurance market to alleviate some of these pressures by providing the requisite additional capacity. Given the scale of the risks, this will likely need to be in parallel with government support packages

Insuring the future of nuclear technology

Nuclear power technologies have been evolving in recent years and new innovations such as passive safety systems and digital continual plant assessment are significantly reducing nuclear risks, it adds:

“Small Modular Reactors also contribute to lowering risks, as they contain smaller quantities of radioactive materials and are designed to rely more on inherent safety characteristics rather than operational measures and human intervention.”

“Another emerging technology is nuclear fusion which, in contrast to nuclear fission, carries no risk of nuclear reactor meltdown (as it produces no chain reaction) or high activity, long-lived nuclear waste. As a result, the type and level of third-party liability insurance will inevitably need to be tailored. Critically, there will be a need in the immediate term for innovation and customised solutions to provide protection for such new technologies, from construction through to operation.”

To read the full Lloyd’s report on greener energy, click here.

According to the report, the US is currently leading the nuclear energy market, accounting for more than 30% of worldwide nuclear generation of electricity, closely followed by France. Nuclear power capacity worldwide is increasing steadily, with around 50 reactors currently under construction, in countries including China and the United Arab Emirates.

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