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Going nuclear: The rise of the small modular reactor (SMR)

Net zero targets and energy security are driving global interest in SMRs.

04/01/2024 · 6 minute read

Net zero targets and energy security are driving global interest in SMRs

As nuclear power undergoes a revival, small modular reactors (SMRs) are generating a lot of interest among governments keen to economize and expedite nuclear deployment and quickly meet clean and secure energy goals. The OECD Nuclear Energy Agency estimates that the global SMR market could see a rapid rate of construction, reaching 21 gigawatts by 2035 and between 50 and 150 gigawatts per year after that.

While the pace of deployment is still subject to some regulatory uncertainties (for instance, pilot project successes and approved safety rules), SMR megawatt-sized technologies are increasingly seen as a way to mitigate the high costs of construction and long timelines associated with traditional, gigawatt-scale nuclear reactors. SMRs are also seen as an attractive option due to their smaller size, scalability, and ability to be deployed in various settings.

Many regions are considering SMRs not only for energy production, but also for district heating, desalination, hydrogen production, and industrial applications. Countries including the United States, Canada, China, Russia, and several European nations are actively pursuing the development and deployment of SMR technology for these and other reasons.

What is an SMR?

An SMR produces a large amount of low-carbon electricity on a reduced footprint. As described by the International Atomic Energy Agency, SMRs have a power capacity of up to 300 MW(e) per unit, which is approximately one-third of the generating capacity of traditional nuclear power reactors.

Advantages of SMR technology for infrastructure developers

1. Lower cost outlay

Due to their smaller size and ability to be manufactured off-site, SMRs are significantly more cost-effective and less time-consuming to build than traditional nuclear plants. As a result, SMRs can also generate a quicker rate of financial investment return.

2. Flexibility of deployment

The modular process for designing SMRs allows for easier manufacturing, transportation, and assembly, offering enhanced flexibility in deployment across geographical locations and energy needs. These reactors are more compact than their traditional counterparts, allowing them to be easily transported and installed at remote locations.

3. Positive political sentiment

Several governments are investing in SMRs to diversify their energy options and reduce carbon emissions, including research and development, regulatory frameworks, and deploying SMRs through funding programs and partnerships with private companies.

For example, the UK government backed the design of one of the world’s first SMRs with US$265 million of funding for Rolls-Royce SMR. Combined with private investment of more than US$315 million, the design helped further develop the regulatory processes to assess the suitability of potential deployment in the UK.

Additionally, as part of the France 2030 national investment plan, the government will invest US$1.1 billion in research and design activities aimed at developing domestic SMR technologies. And in 2021, the Canadian government announced a US$15 million investment in the development and commercialization of SMRs as part of its efforts to achieve net-zero emissions by 2050.

4. Increased financing options

Given the lower costs of SMRs relative to large-scale nuclear plants, more private finance opportunities are open to stakeholders, such as private capital equity investors and project finance lenders.     

Educating stakeholders about the sector-specific nuances of nuclear insurance procurement, particularly during construction, is critical to the success of the funding process.

Key risk and insurance considerations

As demand for SMRs increases, risk management and insurance strategies need to reflect the complexity of the construction and variety of potential risks during a project’s life cycle.

Several different policies are available for the range of risks involved with SMR technology and site development. Some types of insurance coverage you may consider include:

  • Construction all risks (CAR) provides cover for physical loss or damage to permanent and temporary works on site. It typically also includes cover during inland transit to the site (only for locally procured items) and during periods of off-site storage.
  • Third-party liability indemnifies the insured for legal liability for loss or damage to the property of third parties and/or for death or bodily injury caused by an occurrence happening during the period of insurance in connection with the project.
  • Delay in start up (DSU) insures the business for its financial loss following a delay in the scheduled commercial operation date(s) resulting from physical loss or damage indemnifiable under the construction all risks policy.
  • Marine cargo covers physical loss of or damage to materials, plants, and equipment intended for permanent installation in the plant while in transit from its point of manufacture to the site.
  • Terrorism provides cover for physical loss of or damage to the permanent and temporary works arising from acts of terrorism.

Driven by restrictions in reinsurance coverage available, these policies typically include a radioactive contamination exclusion so conventional construction insurers do not agree to absorbing losses from the ‘nuclear risk’. The nuclear risk is not present until the project moves closer toward testing and commissioning (i.e., when fuel becomes radioactive).

Many international conventions apply strict liability on operators in the event of a nuclear incident. This has triggered the growth in international nuclear pools that can cover the nuclear risk during the operational period.

Transitioning a project from construction to operational phase

With the above nuclear risk in mind, when considering SMR construction insurance, the approach to insuring the operational plant should be well-considered and understood. This helps to chart a pathway for the CAR policy to align appropriately with the operational program and to avoid or narrow any gaps in cover.

The phase of dovetailing the two policies is known as the ‘transition period’. The transition period will begin when fuel is inserted into the reactor and ends on the commercial operation date (COD). The reactor vessel and nuclear island are moved piecemeal into the operational insurance program during the transition period, requiring clear communication with all insurers and making input from experienced insurance and claims experts valuable.

Early consultation

SMR projects are an increasingly attractive prospect for owners and developers. However, construction insurance for such complex projects has specific requirements and should be carefully considered. In addition, the advent of SMRs could give rise to new and unique risk factors. It is important to discuss these factors with your local Marsh specialists at the earliest opportunity to begin developing the risk management and insurance strategy.

Our people

Sanjit Bassi

Sanjit Bassi

Client Executive, Construction, Infrastructure & Surety, UK

  • United Kingdom

Kate Fowler

Kate Fowler

Global Nuclear Energy Leader, Marsh Specialty

  • United States

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