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The reality of the insurance problem makes nuclear power commercially not viable

several European states signed the Convention on Supplementary Compensation for Nuclear Damage, which is equivalent in spirit and intent to the ‘international tier’ of the Brussels Convention. Once fully ratified, it may provide up to an additional €360 million in the event of disaster.

The problem is that these amounts still fall well short of the total costs of larger disasters. Yet it appears the international community is moving towards a socialization, or internationalization, of disaster losses.

This is also the case, though with a slightly different approach, for the US, where the risk-sharing strategy is implemented through the Price-Anderson Act. Here the operator needs to have an insurance that covers €375 million per nuclear plant that he runs.

The true cost of disaster insurance makes nuclear power uncompetitive, Ecologist Ingmar Schumacher, 6th February 2014 The European Commission is assessing how it should augment its nuclear disaster insurance. Ingmar Schumacher calls for full transparency of insurance costs in the cost-benefit evaluation of the nuclear industry The continuing nuclear disaster at Fukushima has concentrated minds on the risks of nuclear catastrope in Europe – all the more so as estimates of Fukushima’s cost rise towards a giddying US$500 billion.

And so it is that the European Commission is considering whether, and how, it should amend the insurance of nuclear power plants on European territory. In the event of the unthinkable taking ….se claims of low CO2 emissions and cheap electricity, the potential for nuclear disasters cannot be ignored. Even Naomi Hirose, the president of Tepco, operator of Fukushima Daiichi, recently stated that “we have to keep thinking: what if … “….

Within Europe, these expected costs are currently partly covered by a compulsory disaster insurance that the nuclear operator pays. However, this disaster insurance is grossly insufficient to include the expected costs of disasters into the price of nuclear energy.

As a result, governments around the world socialize the damages that are not covered by this insurance. This is precisely the reason for which the European Commission is trying to reform the insurance of nuclear disasters.

And, obviously, since the impacts of nuclear disasters are not limited by national borders, it only makes sense to reform disaster insurance at the European level…..

Current approach to nuclear disaster insurance in Europe

Nuclear insurance within Europe is governed by the Paris Convention and the Brussels Convention. Most European countries have signed and ratified one or other, or indeed both.

The two conventions place full liability on the operator, who must also provide insurance. But they also limit the operator’s maximum liability.

If operators had to be insured for the whole potential damage, then, according to calculations by Versicherungsforen Leipzig GmbH for German nuclear power plants, this would lead to a price increase for nuclear energy of €0.139 to €2.36 per kWh. Calculations for France lead to a price increase of €0.047 per kWh.

This insurance cost would raise current electricity prices for the French nuclear industry by 60%, for the German industry by at least 100%, while electricity prices for households would increase by 25% in France and by 50% or more in Germany.

The certain result would be to make nuclear electricity uncompetitive. For this reason operator’s maximum liability tends to be capped, as in the UK.

Major accident costs – who pays?

Some countries, like Germany or Finland, by law have an unlimited operator’s liability. In the case of an accident in Germany, therefore, if the operator’s insurance of €2.5 billion is insufficient to cover the losses from an accident, then the operator would be liable with their own corporate equity.

However, even this may not be sufficient to cover worst-case disasters. For example, in Germany in January 2014, the nuclear power plant operator EnBW had a stock market value of €7.3 billion.

However estimated cost of Chernobyl amounts to €450 billion. The Fukushima bills are not yet in and the dangers remain live, but estimates to date range from around $200 billion up to about $500 million – many times the entire equity value of any nuclear power corporation.

As a result of Fukushima, the Japanese government had to partly nationalize Tepco, the operator of Fukushima. Future profits by Tepco will be used to repay society for the financial aid.

Whether a government can recuperate costs in this way depends on the extent of damages, versus the operator’s market situation. But in this instance Tepco, with all its liabilities, must have a large negative value.

As one operator is unlikely to be able to cover the total costs of a larger nuclear accident, the European Commission, through the Brussels Convention, decided to socialize the costs of a disaster – at least in part.

Apportioning liability

Based on the 2004 amendments, both the operator and installation state cover €1.2 billion, of which at minimum €700 million is provided by the operator, and a further €300 million are provided by an ‘international tier’ – meaning the other European states that signed the convention.

In addition, several European states signed the Convention on Supplementary Compensation for Nuclear Damage, which is equivalent in spirit and intent to the ‘international tier’ of the Brussels Convention. Once fully ratified, it may provide up to an additional €360 million in the event of disaster.

The problem is that these amounts still fall well short of the total costs of larger disasters. Yet it appears the international community is moving towards a socialization, or internationalization, of disaster losses.

This is also the case, though with a slightly different approach, for the US, where the risk-sharing strategy is implemented through the Price-Anderson Act. Here the operator needs to have an insurance that covers €375 million per nuclear plant that he runs.

In addition, in case an accident occurs, then all US operators need to pool up to €82 million per plant they own together. With currently around 104 US reactors running, this means that, in case of an incident, €9.2 billion will be available to cover damages.

Problems with current approach to disaster insurance

However, the socialization of disasters has two serious downsides attached to it, one of which is moral hazard. Under limited liability and risk-sharing, an operator will be inclined to under-invest less in the security of the nuclear plant. This would make accidents more likely.

So to minimize moral hazard and free-riding, operators should have unlimited liability. Limited liability was initially introduced in order to prevent bankruptcy of operators in case of disasters, and to provide incentives to develop the nuclear industry in the first place.

But there is no actual need for this clause in nuclear liability law – as is clearly shown by the fact that there are active operators in Austria, Germany and Sweden, who face unlimited liability.http://www.theecologist.org/blogs_and_comments/commentators/2265605/the_true_cost_of_disaster_insurance_makes_nuclear_power_uncompetitive.html

February 7, 2014 - Posted by Christina Macpherson | Uncategorized