A revolution in nuclear power is now under way. Small Modular Reactors (SMRs), units based on new and existing technologies, will radically change the economics of nuclear electricity. Now in advanced development, SMRs deliver power ranging between 10 and 300 megawatts (compared to 3,200 MWe for the planned Sizewell C, enough for 7% of UK electricity demand). The smallest SMR could be transported on a wagon. Manufacturers are currently experimenting with roughly 70 different designs.
Unlike conventional nuclear plants, SMRs will be manufactured, refurbished, and refuelled in factories. They may even be powered by the spent nuclear material of their larger predecessors. The OECD’s Nuclear Energy Agency says that “series construction” will become an imperative due to SMRs’ low output. In other words, multiple SMRs will be linked together to yield the desired power output.
They demand no huge infrastructure investment (the Hinkley Point C station cost £25 billion), and can be taken to remote areas and operated in situ. The reactors also benefit from shorter delivery times, reduced upfront investment and therefore lower financial risk, and flexibility which could provide nuclear energy to more regions and sectors, the NEA believes.
For nuclear insurers, SMRs are a game changer. At present the market offers limited scope for regional or operational diversification. That will change with SMRs. In the UK, for example, Rolls-Royce is leading a government-backed consortium to develop ‘UK SMR’ technology. The group has completed its feasibility work, and has begun to seek additional third-party investment. “One UK SMR will be able to power a city the size of Leeds,” Rolls-Royce says. It hopes to become a global SMR manufacturer of choice, and may build 15 reactors to support the UK grid. That would give the nuclear insurance market 15 additional sites to insure.
Controls will of course be tight – nuclear material cannot be permitted to fall into the wrong hands – but a mini proliferation of SMRs can be expected over the next two or three decades. Initially many units will be deployed on the perimeter of existing nuclear facilities. Later they are likely to be located on special designated sites. Like any power generation facility, SMRs bring unique risks, but they are relatively minor, especially since no refuelling is necessary, and some types consume, rather than generate, nuclear waste. Regulators will wish to establish the propensity for incidents, and forecast the damage they are likely to cause, to allow them to set limits of liability at prudent levels. However, until the number of potential operational designs diminishes, SMR risk will remain very difficult to assess.
While we wait for widespread SMR activation, increased nuclear liability limits will change the landscape for nuclear insurers. The amended Paris Convention enters into force from January 2022. Minimum insurance liability limits for operators of nuclear installations in the 16 signatory countries will rise to a minimum of €700 million. Later they will increase to €1.2 billion (against a current UK limit of just £140 million). The need to raise limits was cemented by the Chernobyl event, which showed that previous Paris limits were grossly inadequate (although it took 17 years to get all signatory countries to agree to the change, which was decided in 2004).
The amended Convention will also unify national regimes to ensure consistency of liability. New heads of cover clarify the intention of the Paris Convention, but also extend the strict liability of nuclear installations. Coverage – triggered by the presence of radiation – will include economic loss due to contamination, and the environmental clean-up costs of restoring land to its original state.
New heads of cover will also include loss of income deriving from an economic interest in the contaminated environment (for example if beach contamination prevents hotel bookings). Another is reasonable preventative measures during a grave and imminent threat. This could cover evacuation costs, which would be enormous when evacuating a 30+ km radius for years.
The final change extends the claims-reporting period for death or injury from 10 to 30 years. This will require insurers to hold large limits for much longer. Since reinsurance for nuclear risks is in the main unobtainable, they will be retained net. Although there is no real history of nuclear claims having been made after ten years, some nuclear pools have declined to insure the extension. To solve the challenge, some governments – including the UK and Spain – may insure the additional 20 years.
Together the new coverage limits and eventual widespread use of SMRs will reinvent the nuclear insurance sector. In combination, they will deliver an increase volume in premium income for both property and liability. Premium rates will also reflect the wider coverage to be granted under the new heads of cover, and the extra 20 years. While insurers, brokers, and MGAs like Northcourt work with nuclear installations to manage those increases, the inevitable increase in premium will attract new capacity to nuclear risk.
More slowly, the production and use of SMRs will make nuclear use more attractive by diversifying the scale and location of nuclear risks. No longer will every installation be a giant consumer of insurance capacity. For example, big plants have faced challenges finding sufficient capacity to cover operational risks on a full value. These limitations should ease as new capacity is attracted to the market with a larger, more diversified risk pool.