As HMG grapples with challenging decisions on how best to sustain energy security in the UK through potential investment in new nuclear power generation, ultimately it is appropriate risk management approaches that should remain at the heart of such decisions.
Risk Management & Nuclear New Build
There are few major infrastructure projects which share the fiendish complexity, costs and regulatory matrix of a new build nuclear power station. Whether the UK public purse (and electricity consumers) end up supporting directly (or indirectly) SMRs or large-scale reactors (or a combination of technologies), the allocation and management of risk is a fundamental driver of how these projects should be developed.
The risk allocation is not simply between public and private balance sheets but also between the UK and overseas governments. As part of a comprehensive risk management approach, insurances can play an important role in this process, during design, construction, commissioning, operation and decommissioning phases.
In common with other safety critical industries, nuclear power developments are very closely controlled through national and international regulations, which govern all critical safety and security aspects. However, even the most comprehensive legislation and stringent supervisory regimes can prove susceptible to human error, poor management culture and inappropriate behavioural standards. No amount of insurance can remove these risks. Indeed, continuing corporate governance and accounting failures in non-nuclear industries, such as at Carillion and Tesco, demonstrate that the poor general business risk management lessons of the past need to be relearned with greatly sustained and continuing effort. The apparent or proximate cause of a failure of risk management processes may not in fact be the root cause.
So, against a more dynamic risk environment, whether arising from emerging cyber, domestic terrorism or climatic risks (or simply the changing nature of traditionally well understood nuclear risks), what risk management approach might HMG now adopt?
The environment for high risk investments in new nuclear (as indeed in many other infrastructure sectors) can increasingly be characterised as being “VUCA” (i.e. volatile, uncertain, complex and ambiguous). As both promoter and steward of the UK’s industrial strategy, it is encouraging that HMG recognises the place for new nuclear developments in the National Policy Statement. Nevertheless, a more holistic, less industry specific and non-siloed approach to nuclear risk management would seem appropriate for the modern age.
Whistleblowing & IT Security
For example, whistleblowing policies in nuclear projects will only prove effective if staff have the moral courage to challenge openly their leaders’ decisions where they believe such decisions clearly erode the integrity of risk management, safety or security standards. Further, the risks of embedded design faults, malevolent IT technology malware or inadequate staff background checks may require closer integration with national cyber security strategy and relevant expert agencies such as GCHQ.
New nuclear is certainly no exception to the typical infrastructure risks such as construction delays and cost overruns. These are present in all major infrastructure projects. However, nuclear project risks increasingly exist alongside other, complex and emerging societal risks, which demand a more sophisticated analytical understanding and approach, especially so where the public purse is the ultimate risk taker.
About the Author
Mark Vickers is an experienced public and private sector complex risk consultant, with a focus on financing projects in energy and infrastructure. He was Director of Project Finance for NuGen’s planned 3.8GW new nuclear plant in Cumbria in the UK and is a director of a new energy start up technologies platform. Mark was previously a commercial & investment risk advisor at The Crown Estate, focused on new marine energy technology investments in UK waters, such as wave & tidal power, floating wind turbines and offshore transmission grids.
Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.
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