Power

In this chapter of our Annual Insurance Review 2018, we look at main developments in 2017 and expected issues in 2018 with regards to power.

Key developments in 2017

The UK Government’s second Contract for Difference auction in September 2017 saw two developers win rights to build offshore wind farms for a record low of just £57.50/mwh.

This has been reported as a landmark event in showing that offshore wind is now cheaper than nuclear and gas power in the UK, and that offshore wind is a mature technology that can produce cost reductions.

It can certainly be seen as evidence that the UK Government is now looking at renewables as a major part of the UK’s power source mix, although it has also been noted that solar power continues to be excluded from the auction (despite securing a low price in the past).

The need to move away from fossil fuels to comply with the Paris Agreement (2017 also saw the annual COP Climate Change Summit take place in Bonn) and the underlying need to reduce C02 omissions can be expected to continue to drive a move towards renewables.

While progress is being made on price as a key factor in limiting the switch to renewables, as the technologies have developed, unreliability of supply remains an issue which can make renewables less attractive. It has consequences for other forms of power generation, which are being required to supplement the base load and to meet requirements for which they were not designed. As we move further down the renewable road, insurers will need to be aware of the increasing risks of turbine failure.

What to look out for in 2018

The move away from fossil fuels and the changing energy mix is also leading to governments around the world continuing to look at the role of nuclear power.

The recent trend has been that the construction of new reactors (either under way or planned) has been concentrated in China, India and Russia – and, to a lesser extent, Japan and South Korea. China and India face the most pressing question of how to generate sufficient energy to meet the demands of their expanding economies while reducing reliance on fossil fuels, and investment in nuclear is forecast to continue in non-OECD countries.

However, the construction of new nuclear plants remains under consideration in countries where the appetite for nuclear power has reduced in recent years.

In the United States, the passing of the Advanced Nuclear Technology Act of 2017 and Interim Consolidated Storage Act of 2017 (dealing with nuclear waste) may be seen as paving the way for new reactors, and President Trump’s administration might be expected to be sympathetic to a potential means to greater energy security.

The increased use of nuclear power also involves extending the life of existing facilities beyond the design life– an issue for countries such as France, Russia, the United States and the UK with their well-established nuclear sectors. For insurers this provides obvious risks, but more developments may be anticipated on this front.

Download our full Annual Insurance Review 2018 for more insights.