investment, are now
By Gregory DL Morris
A swell of nuclear decommissioning projects is creating an emerging market for conventional insurance.
Nuclear power plants built in large numbers in previous decades are nearing the end of their licenses in the same
large numbers. Many operators
are choosing to decommission the
facilities, rather than try to renew
the licenses for a variety of economic and political reasons. These current
and near-future projects create an emerging market for both conventional
insurance and new risk-management approaches.
Companies with expertise in construction and waste-handling bring economies
of scale and operational efficiencies. Increasingly, operators hire them, and even
transfer to them ownership of retired facilities and the decommissioning trust
funds that, by law, are funded by every plant operator.
“We’ve spent a lot of time talking to customers in the construction industry
that focus on nuclear. They believe what we believe: decommissioning capacity in
the U.S. will be necessary in fairly swift order — the next 12 months to five years.
There is tremendous opportunity beyond typical insurance such as property and
casualty to financial lines. There is interest in the management and security of
decommissioning trust funds in the U.S.,” said Tom Grandmaison, executive vice
president and construction casualty leader at AIG.
Standard lines are required as part of a decommissioning, as they are for any
large construction project, but the difference is this is a deconstruction project on
the order of $1-4 billion. A wrap policy that protects owners and contractors on
the job is necessary. That usually includes general liability, auto liability, workers’
comp, some builders’ risk and continued non-nuclear property coverage. Some
carriers are hesitant cover a nuclear facility — even if they are not offering
nuclear-liability protection. As a result, the markets are somewhat limited.
“It’s psychological, the word nuclear,” says Ted Joy, senior vice president, and
nuclear practice leader at AIG. “It’s the fear of going up the chain of command
seeking authority to quote projects when historically ‘nuclear’ has been a
disqualifying word related to risk. Though if you study the issue, actual risks are
minimal compared to perceived risks. The safety culture is first class, the work
force is better-trained and -educated than similar industrial facilities, and the
regulations are intense. Actual risk does not live up to perceived or implied risk.”
Upcoming decommissioning projects align into two models of management
and financing, says Joy. “Regulated utilities, with their continued reliance on a
ratepayer base, are largely self-managing decommissioning projects. They hire a
contractor to perform the decommissioning work and fund it with the balance of
the Nuclear Decommissioning Trust. Funding shortfalls are handled by delaying
the project, which regulations allow up to 60 years, or assessing utility ratepayers.”
In contrast, deregulated utilities look at market opportunities to rid themselves
of shuttered nuclear plants and their associated liabilities. “Without a ratepayer
base as a fallback,” Joy explained, “these utilities have sought buyers that
will purchase the plant, its decommissioning liabilities and its trust fund and
perform the project as a profitable venture. This new model presents additional
opportunities for the insurance industry beyond standard lines, as financial and
risk management become more absolute and the backstops available to regulated
utilities are limited.”
There are 102 licensed reactors in the U.S., a third which may shut in short
order, states Dan McGarvey, managing director of the power and utility practice
at Marsh, and a multiple Power Broker winner. “It is a growing trend and an
opportunity for third parties to take over facilities and their decommissioning
trust funds. Utility operators acknowledge that they are not experts on demolition
and waste disposal. Most decommissioned plants are put into a status called
‘safestor’ in which they are secured for up to 60 years, but not demolished. Some
stations are completely demolished with waste stored on-site or removed. The
decision to mothball or dismantle depends on many factors, and is in many ways
an educated guess depending on regulations and finance.
“This is about health and physics,” said McGarvey. “The best move for an
operator is to form a partnership with a contractor that has a relationship with a
waste disposal site. Someone who knows how to section large pressure vessels, and
also can deal with fuel and radioactive
Some of these contractors are
saying they will assume the risk of
ownership of the facilities. Now
that several such projects have been
completed safely and under budget, the
industry is getting more comfortable
with that approach.” &
GREGORY DL Morris is an independent
business journalist based in New York. He
can be reached at email@example.com.
“This is all about health and
physics. The best move for
an operator is to form a
partnership with ... someone
who can deal with fuel and
— Dan McGarvey, managing director of the power
and utility practice at Marsh.
• Some carriers see opportunity in
nuclear decommissioning projects.
• Taking over decommissioning
trust funds may be a viable option
for investors, including insurers.
• Nuclear’s start-up costs are so
massive as to be uncompetitive in