In December, it will be 70 years since the first power plant produced usable electricity through atomic fission. Like all industries, nuclear power has had its growing pains but, after seven decades, it is finally coming of age.
World governments are a key driver of renewed interest in nuclear power, and this goes hand in hand with their efforts to decarbonise their economies and meet ambitious net zero targets. A report entitled Net Zero Needs Nuclear, published in June by the Nuclear All-Party Parliamentary Group, articulated why the industry is ideally placed to support the UK government with its twin goals of levelling up the UK economy and cutting emissions: 78% by 2035 and net zero in 2050.
For many countries, if nuclear power is to play a pivotal role in the move to greener energy, governments will need to devise new financing models to incentivise investment. Some governments may also need to address public scepticism about nuclear power as a safe means of producing clean and efficient energy. There’s no escaping the fact that nuclear waste is highly toxic, yet due to nuclear energy’s importance as an enabler of zero-carbon economies, this has spawned a raft of innovation in the development of repositories and deep geological storage facilities. Also, while toxic, nuclear waste is extremely low volume, with the amount of energy consumed by the average person in their lifetime producing waste the size of their finger.
It is partly by virtue of its complexity that mistrust and misconceptions surround nuclear power; a lingering one being that Fukushima happened because the plant was old and due to be decommissioned. In fact, despite its age, when the earthquake hit triggering a tsunami which flooded its generators, its safety systems shut the plant down correctly. Even though this validated the robustness of nuclear safety systems in use today, all 443 power plants worldwide still underwent Fukushima approved testing to ensure their safe-continued operation or shutdown should they also be hit by a nine-metre wall of water.
Improvements such as this are made constantly in the nuclear power industry and not just following an incident. The World Association of Nuclear Operators comprises groups that operate same-specification reactors, so when one finds a way to optimise safety or performance it is shared with the relevant users. This is just one example of a long-established culture of information sharing and best practice in an already highly regulated industry, but one which knows it cannot afford another disaster, especially at such a pivotal time.
In fact, in insurance terms, the industry’s strong safety record is why nuclear power is such an attractive class of business, with its low-loss history making it one of the top-10 performing classes at Lloyd’s during the last 15 years. This is just as well as very soon the industry will need considerably more insurance capacity, with the minimum liability limits for nuclear power plants set to rise dramatically in January 2022 under the amended Paris Convention 2004. Statutory liability limits, which in the UK are currently a maximum of £140 million, will increase to a minimum of €700 million across all signatory countries. This will further rise to €1.2bn in time, although some nations will adopt this higher limit from January. Added to the increasing political will among world leaders to adopt nuclear power to achieve their net zero ambitions, this means the growth potential for nuclear insurance markets is substantial.
All of this is highly unusual for an industry used to a far more incremental pace of change. It also comes at a time when insurers are under increasing pressure from investors and climate groups wanting to know what their ESG policy is, when they will divest their books of fossil fuel related risks and demanding their support for carbon-neutral power. This convergence of such significant events means there has never been a more favourable time for insurers to deploy capacity to the nuclear power industry. By doing so they stand to play a leading role in profitably supporting nuclear power’s coming of age and the global transition to green energy, while enhancing their reputations in the process.