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Tested and proven: The role of nuclear power in the future energy mix

Nuclear energy is experiencing a resurgence of interest and investment as a resilient, proven, and zero-carbon electricity source.
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By Kate Fowler , 

Global Nuclear Energy Leader, Marsh Specialty

07/02/2024 · 5 minute read

Once dismissed as the energy source without a future, nuclear energy is experiencing a resurgence of interest and investment as a resilient, proven, and zero-carbon electricity source.

Today, more than 30 countries still rely on nuclear baseload assets, and technological advances in small modular reactors are making it even more viable for nuclear to be an integral part of government energy policies going forward. Nuclear science is also advancing, with significant breakthroughs in fusion technology that could enable even safer and larger scale energy production to aid global ambitions in the transition from fossil fuels to clean energy sources.

Yet despite its advantages, nuclear energy is sometimes misunderstood and the sector has historically struggled to overcome negative public and stakeholder perceptions. Real or perceived concerns over safety and nuclear waste management, credit risks, and significant building and operating costs can impact operators and investors.

The promise of nuclear as a clean energy source is a big incentive for overcoming these challenges. Perception is changing as stakeholders gain a better understanding of nuclear technology, the key risks involved, and how these risks can be effectively managed.

Fission versus fusion

Both fusion and fission are reactions that produce large amounts of energy that can be used to produce electricity.

Nuclear fission has a proven track record as a low-carbon, baseload energy source. Today, more than 400 nuclear power plants around the world generate 367 gigawatts (GW) of power.

Many existing plants in advanced economies are nearing the end of their designed lifetimes (typically 40 years). But climate goals and rising global energy needs mean countries are extending operating licenses for existing reactors to 60 or 80 years rather than decommissioning these assets. And worldwide, more than 60 new power reactors are under construction, mostly in India and China, with a further 110 planned globally.

Fusion is another energy-dense process, releasing several times the energy generated by fission, and is the same reaction that powers the stars. Fusion is challenging and the process is not yet commercialized for power production. However, many well-capitalized companies with robust physics underpinning their respective technologies are promising to deliver commercial fusion power in the late 2020s and early 2030s.

Advantages and challenges

With global electricity demand set to double between now and 2050, both fission and fusion will be needed to achieve lower-carbon energy goals.

There are various advantages to nuclear (fission) power. For instance:

  • It produces no or low carbon emissions.
  • It is an extremely reliable energy source, ideal for meeting baseload generation and displacing fossil fuels.
  • The International Atomic Energy Agency (IAEA) has confirmed that nuclear power plants “are among the safest and most secure facilities in the world”.
  • Strict regulation systems are adhered to (such as those governing waste), and the industry places the highest value on health and safety standards.
  • Compared to other forms of energy, nuclear power is cost-competitive and less affected by volatile trading prices.
  • Directing heat from nuclear reactors toward industrial operations could help rapidly decarbonize energy-intensive manufacturing processes such as oil refining and fertilizer production.

Despite these merits, both sources of nuclear energy present challenges:

  • Fusion and fission produce activated materials. The activated materials produced in fusion reactions are short-lived. Nuclear fission reactions produce long-lived by-products, some of which are radioactive for thousands of years and require careful handling and storage.
  • Constructing large-scale nuclear plants is challenging and expensive, mainly due to financing, upfront capital requirements, and labor costs.
  • There is a need for a more robust supply chain to meet the sector’s anticipated growth, particularly for nuclear fuel, as well as skilled resources to build and operate nuclear plants.
  • Somewhat complex or inconsistent regulatory environments exist globally for both fission and fusion.

The advancements in small modular reactors (SMRs) — which are simpler and safer in design and lower in cost — are helping to overcome some of these challenges.

Private investment, policy support or reform, and ongoing research will be critical to support the scaling-up of the sector. In the US, the Inflation Reduction Act (IRA) provides production tax credits for existing nuclear plants and investment tax credits for new nuclear plants. And in March 2024, the US Nuclear Regulatory Commission signaled proposed rule and draft guidance to establish a licensing process for commercial nuclear power plants that is risk-informed, performance-based, and technology-inclusive.

In the UK, the government has established Great British Nuclear, the Nuclear Energy Financing Act, the Advanced Nuclear Fund, and the Future Nuclear Fund; all mechanisms established to support development of new nuclear facilities and remove barriers to financing.

Nuclear insurance pools: Liability and cooperation

Historically, the risk transfer mechanism for the nuclear sector has almost exclusively been provided by nuclear underwriting pools. Because of the low-frequency but high-severity nature and uniqueness of nuclear hazards, as well as mandatory financial security requirements, nuclear pools were established to provide large amounts of insurance capacity exclusively for nuclear risks.

Over time, nuclear utilities formed mutual associations as an alternative to the insurance capacity offered by the pools. As interest and demand for nuclear energy have grown, commercial insurers have started to develop an underwriting appetite for nuclear risk, but this participation needs to expand rapidly to align with and enable the mobilization of investment capital for projects currently in planning.

The current regulatory position in both the US and the UK is that fusion technology (and, by association, risk) is distinct from fission such that established licensing and insurance requirements for fission should not apply to fusion. Insurance markets outside of the nuclear pools are well positioned to offer standard construction and operational coverages given the inherent difference in the fusion risk profile. While the nuclear pools could treat fusion power generation, the risks are more akin to conventional power generation and treatment in these markets offers the additional insurance capacity needed to support the industry’s growth potential.

Risk management and insurance can support fission and fusion sector growth

To ensure projects and investors can capitalize on the nuclear energy opportunity, it’s critical to consider the role of risk transfer. Given demand signals from both the fission and fusion sectors for new, unallocated capacity, Marsh continues to lead in educating traditionally non-nuclear insurance markets about coverage requirements for developers and operators of both technologies.

Marsh engineers and risk advisors are highly experienced in supporting nuclear companies, with detailed knowledge of the international legal and regulatory frameworks underpinning related risks and a deep understanding of the complexity involved in the engineering, procurement, construction, and maintenance of nuclear plants. Our specialists bring this experience to bear for the benefit of the fusion industry by extension of related concepts and a broad, technical understanding of the differences in the fusion risk profile.

Bringing together fission and fusion operators, investors, and insurance markets is critical to accelerating the development of clean power and the global race towards net-zero targets.

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