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CYBER RISK – INSURANCE AS A RISK MITIGATOR IN THE ENERGY AND POWER SECTORS: PART II

Last week’s power cuts across England and Wales affected up to 1 million people.  The power cuts were a timely reminder of both the fragility and vulnerability of our critical infrastructure and although the cause of the outage was ultimately pinpointed to an almost simultaneous failure of two power supply sources, a spokesman for the UK grid operator (National Grid) nevertheless felt obliged to announce that the company was “very confident that there was no malicious intent or cyberattack involved”. This denial demonstrates the sentiment highlighted in our previous blog that cyber-attacks are now at the forefront of risks faced by businesses globally; since then yet another study (the BDO 2019 Global Risks Landscape Report) has put cyber-crime in the top 3 business risks.

The energy infrastructure is a critical part of our daily lives, which is why it has become a focus for concerns about cyber-security; we worry that a single malicious attack could cripple the power supply over a large area or cause a catastrophic explosion at a key petrochemical plant. Until recently, cyber-attacks were considered primarily an Information Technology (IT) problem (i.e. PCs, workstations, data security etc.); however factors as diverse as increasing labour costs, greater outsourcing of O&M work and regulatory oversight have driven digitisation of operational technology (OT) systems through devices such as smart meters and self-monitoring transformers, rendering these systems critically dependent on digital communications and computer networks (i.e. IT). This convergence of IT with OT systems has expanded the scope for malicious attacks on the  critical energy infrastructure, with both systemic and individual attacks (from an insurance perspective, a systemic attack would involve at least two separate facilities) made more likely because of greater interconnectivity between IT and OT and increased frequency of updates demanded by most IT systems. Consequently, awareness of cyber exposure has increased but quantification and categorisation of the exposure remains challenging for both the energy sector and its insurers.

Quantification of cyber-exposure is a key element of risk management; it helps to clarify cyber supply-chain accountability and allows the identification of the vulnerable parts of a production process so prioritising protection for critical assets. However, being a relatively new exposure, it is often only after an event that the vulnerabilities become apparent and can be calculated.

For example, in March 2018 an attack on Energy Service Group (ESG), a US utility services provider, caused five major energy suppliers, including Duke Energy Ohio, to sever their electronic connections with ESG.  Although energy supplies were not affected, the probable ransomware incident highlighted both the interconnected nature of today’s energy infrastructure and the vulnerability to attack of the electronic data interchanges that linked all these companies; the possibility that potential hackers could use these shared corporate networks to jump to key industrial control systems (ICS) and cause widespread energy supply failures was particularly concerning.

Categorisation of cyber-attacks also needs careful consideration. Individual attacks, such as localised ransom demands or data theft are criminal acts that can easily be attributed as such and thus mitigated by an insurance claim, whereas systemic or foreign attacks may be hastily identified as acts of terrorism or even war; such a categorical assertion can materially alter the insurability of the exposure. For example, several insurance claim disputes have arisen over losses resulting from the NotPetya cyber-attack of 2017; according to the US Government this attack was part of Russia’s campaign to destabilise Ukraine and it quickly spread from Ukraine to other countries and businesses, including the food company Mondelez. Mondelez had a general property insurance policy that included some cyber-cover, but which also had a war exclusion clause (this is a normal exclusion for most insurances). Mondelez’s claim has been rejected by the insurance company because the attack was an ‘act of war’, as declared by the US government, and is therefore excluded; several other claims have been treated in a similar way. This demonstrates that categorising a systemic cyber event could undermine the insurances purchased to mitigate exposure, but it also shows that a comprehensive assessment of cyber vulnerability coupled with carefully arranged mitigation measures must be part of the of any business continuity plan.

Click here to read the first article in this series

About the Author

Mark Tetley has wide experience gained from senior positions across the London insurance market as  both an underwriter  and a broker , in a variety of sectors. He provides advice and assistance on a wide range of insurance and risk issues, including comprehensive nuclear liability and property insurance assistance, complex infrastructure project programme design and review, claims and policy reviews, assistance with project insurance design and implementation in developing countries, and many other aspects of risk mitigation.

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.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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“THE PREREQUISITES FOR NUCLEAR ENERGY”: AUSTRALIAN PARLIAMENT ANNOUNCES NEW ENERGY INQUIRY

Australia’s stance on civil domestic nuclear power has taken a surprising turn in recent days, with the announcement by the Energy Minister of a federal government inquiry into the “prerequisites for nuclear energy in Australia”.

Australia is the world’s third largest uranium producer (after Kazakhstan and Canada) but has traditionally steered clear of introducing nuclear as an energy source, instead relying on its reserves of coal and natural gas, which provide some 60% of its energy supply (33% is from oil, 4% biofuels, 1% hydro, 1% renewables). 

Previous Discussions

There have been several attempts to bring the nuclear discussion to the fore over the years, although these have never materialised. The last federal inquiry into the issue was held in 2006. Its chair, Dr Ziggy Switkowski, the retired chairman of Australia’s Nuclear Technology and Science Organisation (ANTSO), has now said that he thinks nuclear power could coexist with whatever “generation of renewables and batteries might exist into the future”.

In March 2015 the South Australian Government established the Nuclear Fuel Cycle Royal Commissionto undertake an independent and comprehensive investigation into the potential for increasing South Australia’s participation in the nuclear fuel cycle.” It reported in May 2016 on four main areas: exploration, extraction and milling; further processing and manufacture (of nuclear fuel); electricity generation and the management, storage and disposal of (radioactive) waste.

The idea of South Australia hosting an international disposal facility was found to deserve further analysis, plus the Commission recommended that existing prohibitions on nuclear power generation be removed. However, the Commission’s various proposals did not gain the bipartisan support necessary to be taken forward.

The New Inquiry

This is being held by the cross-party House Standing Committee on the Environment and Energy, and has to deliver its findings “by the end of the year”.

The background to the inquiry recognises that Australia has to fulfil its emissions reductions obligation, and that there continues to be a bipartisan moratorium on nuclear energy. However, it recognises the emergence of new technologies and changing consumer demand, with the Minister having specifically asked the inquiry to consider Small Modular Reactors (SMRs). Other aspects of the Terms of Reference include waste management; transport and storage; health and safety; environmental impacts; energy affordability and reliability; economic feasibility; community engagement; workforce capability; security implications; national consensus and “any other relevant matter”.

The inquiry will also have regard to the South Australian Nuclear Fuel Cycle Royal Commission and the 2006 Switkowski review.

The inquiry has very ambitious timescales and we will watch how it develops with interest!

About the Author

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.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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DIGEST OF UK ENERGY STATISTICS: LOW-CARBON SOURCES OF ENERGY

The new edition of the Digest of UK Energy Statistics (DUKES) for 2019, published by the Department for Business, Energy and Industrial Strategy (BEIS) on 25 July 2019 showed that in 2018, and despite outages, nuclear retained its place as the largest source of low-carbon electricity. This continued the trend from 2017, when it contributed 20.8% of all electricity generated, and low-carbon sources of electricity generated 50.1% of all power in the UK.

This is consistent with the findings reported in the Energy Trends: March 2019 Special Feature Article, which stated that in 2018 nuclear accounted for 18.7% of total electricity supplied to the grid, with fossil fuels supplying 47.7% and renewables 33.6%. The authors of this special report noted that the UK’s energy mix has changed completely since 1995, when nuclear contributed 25.3% and fossil fuels 72.5%.

The reports constitute recognition of the continuing need for, and contribution from, nuclear energy as a low-carbon ‘always available’ fuel and a vital part of the energy mix, essential to the UK’s commitment to net zero carbon emissions by 2050.

However, they also note that seven of the eight existing nuclear plants are due to be retired by 2030, and that despite the plans for plants at Sizewell and Bradwell, only the new reactors at Hinkley Point C are presently under construction. More needs to be done to reduce the costs of both construction and decommissioning. It is therefore significant that BEIS launched a new consultation on 23 July 2019 on a Regulated Asset Base model for nuclear financing.

About the Author

William Wilson is a specialist environmental, regulatory and nuclear lawyer with over 25 years experience in government, private practice and consultancy. He worked as a senior lawyer at the UK Department of the Environment/DETR/Defra, and helped to build up the environmental and nuclear practices at another major law firm. William has experience of all aspects of environmental law, including water, waste, air quality and industrial emissions, REACH and chemicals regulation, environmental protection, environmental permitting, litigation, legislative drafting, managing primary legislation, negotiating EU Directives and drafting secondary legislation.

Prospect Group is an award winning Multi-Disciplinary Practice combining the legal services of Prospect Law with the consultancy services of Prospect Advisory. Our lawyers and technical experts provide a single point of reference for clients involved in energy, infrastructure and other development projects.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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WHOLESALE ENERGY PRICES: MARCH – JUNE 2019

Crude Oil

Having eclipsed the $70/bbl mark at one stage, the Brent contract fell back to finish the second quarter 8% down, as fears of an US-Iran war eased for at least for the time being. Nevertheless, the Persian Gulf remains a tinderbox, one which could cause crude oil prices, and petroleum product prices in particular, to snap upwards at some point. If recent history can tell us anything, perhaps it is that military campaigns in the Middle East can last longer and have far further-reaching consequences than initially imagined. So this latest stand-off with OPEC’s second highest oil producer in terms of proven reserves, could equally affect the forward markets for gas and electricity, not just prompt prices.

Natural Gas

In this context, Gazprom of Russia and NIOC (National Iranian Oil Company) together hold some 80% of global gas reserves which are economically-recoverable at current prices. Although no Iranian gas to speak of is exported to Europe in significant volumes, certainly not yet, conflict with the US could have all sorts of impacts across energy commodities markets.   

Leaving geo-political issues to one side, it may be worth looking at the supply & demand fundamentals. In particular, consensus industry estimates of the break-even (long-term marginal cost (LRMC)) of bringing new gas supplies to the European border over the next decade, as existing 25 year gas and LNG contracts (many signed in the late 1990s) expire.

One of many expressions bandied in trading circles is the one that “the market is well supplied”. By itself, this statement is perfectly true. The day-ahead market always clears after all. But it is not so much prompt market availability which affects wholesale or industrial gas prices. It is the ‘break-even cost’ (LMRC) of mobilising new gas supplies and bringing them to market.

The consensus industry estimates now put the LRMC for new gas supplies, those destined for North West Europe over 2020-2030, at between $8.00/MMBTU (for West African, Siberian and low-case North American shale) and $10.00/MMBTU (including Frontier LNG and high-case North American shale). Even were we to assume the lower-case eight dollar MMBTU figure and assume gas is delivered at or close to the break-even price (so no risk-premium and low supply margin), then at current exchange rates the UK wholesale gas price could still rise past 70 p/th, i.e. a third higher than today with the Annual Contract just closing the second quarter up 6% at 49 p/th.

So, notwithstanding Climate Change Emergencies and Zero Net Carbon 2050 targets set in Westminster, no demand side reduction or perceived ‘abundance’ will altar what the financials are suggesting: that gas prices may not fall far from here and even if they do it will not be for very long. No major producer will export at a loss. So, if our ‘cost plus’ valuation is accepted, then gas prices could start to rise as more legacy long-term contracts expire, replaced by higher-cost/ LMRC supplies.

For all its merits, renewable electricity does not offer reliable base-load supply. And it actually increases relative demand for peak-load generation. Given that all 14 operating reactors in the UK bar two at Sizewell will be decommissioned over the next ten years, today’s ca. 80 TWh demand call from gas-fired power stations looks very unlikely to fall. Indeed the share of gas in the UK’s generation mix may need to rise at some point. The combined domestic heating & industrial quotient for gas is much higher, at circa 250 TWh and there are measures to phase out use of gas in homes past 2025. However, this demand tail-off will be gradual. As the economics stand (and are unlikely to change) an impending deficit in flexible/peak-load electricity looks very plausible. Perhaps it can only be properly addressed by new forms of fossil generation, be it domestic gas-fired generation or brown- coal generation, imported from Poland or Germany through interconnectors. Either way, the consensus LMRC figures suggest in future, Forward Market gas prices will be higher.

Electricity

Base-load power prices followed natural gas, rising 5% over this last period April to July.  There was also the announcement that, for the first time in the UK’s industrial history, ‘clean electricity’ had exceeded fossil generation.

Amid the fanfare, it needs repeating that the Whitehall’s definition of clean electricity includes nuclear power. And while last month may have been a trailblazing one for renewables, the tail end of June saw day-ahead power prices spiking up to £375/MWh or 38 p/kWh. This was partly attributable to cloudy skies and low-wind speeds which severely cut renewable generation. More ominous perhaps (since such imports are being relied on more to fill any supply gap) was the wanting performance of Nordic and Northern Europe inter-connectors. The general reliability of such cables was discussed in recent editions of EH. In the event, it was domestic gas-fired generation that the system ultimately had to fall back upon on, come the day itself Monday 24th June.

This tale relates as much to nuclear power as it does to gas. The mainstream political parties remain opposed to any new-build gas programme and with no new-build nuclear reactors bar Hinckley on the horizon, the UK power market does appear to have a forward supply & demand picture that doesn’t stack up – or certainly the consensus in the Energy Highlight bunker just now. What this could mean is two fold. First, perhaps we should brace ourselves or hope for some change in government policy. Even it no change is announced any time soon and this can has been kicked many times before. Inter-connectors alone, even if/when the power supply is firm, will not compensate for GW output lost by retiring UK reactors. Second, it we assume there is no government money left for significant new subsidies and limited stomach either for new levies on households, then our energy authorities may well feel inclined to sit back, watch the market mechanism do its work and see wholesale power prices rise and so quell the energy demand to help the UK reach the new and somewhat fiercer ‘Zero Net Carbon’ emissions target announced last month.

Looking short term, power prices could rise if French, Benelux or German reactors shut due to lack of cooling water from reservoirs amid the European heat-wave. On the downside, renewables output is currently strong and across energy markets generally there are concerns over the global economy which may dampen both gas and electricity demand.

About the Author

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues. 

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.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way. 

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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EPR PROJECTS: WILL HINKLEY POINT C MEET ITS MILESTONES?

China recently released a positive update on the second EPR reactor at Taishan, some 90 miles to the west of Hong Kong, with the announcement that it had achieved criticality. This follows on from the first unit becoming operational in December 2018, which marked a world first for the design.

Why is this important?

The EPR design (originally the European Pressurised Water Reactor) is under construction at Olkiluoto in Finland, Flamanville in France and, of course, Hinkley Point in Somerset.

The Finnish and French projects have been subject to significant delays: Olkiluoto 3 construction began in 2005 and was initially due to be commissioned in 2009. However, fuel loading is expected in the near future and power production is expected to start early next year, concluding a 15 year project. In France, Flamanville 3 construction began at the end of 2007 and was due to become operational in 2012. Nevertheless, fuel loading is now due towards the end of this year, 13 years later.

Similarly, construction of the Taishan EPR units began in 2009 and 2010 respectively and were supposed to complete in less than four years each, instead becoming 10-year projects. Therefore, while there have been significant improvements in construction schedules, delays and cost overruns have still been significant.

The nuclear industry is not known for delivering big projects to time and cost. Each of these ventures has had its own reasons for delays and cost overruns.

How does this reflect on Hinkley Point C?

Construction of the two EPRs here officially started in December 2018, following significant groundwork preparation, and the first reactor is expected to be connected to the grid in 2026. This appears to be a more realistic 7-8 year project timescale than the overly ambitious four-years of Taishan and it is to be expected that EDF will apply the learning from its other projects to Hinkley Point C.

Hinkley Point C itself was on track to achieve “Jalon Zero” at the end of May; this being a French term meaning “milestone zero”. This was intended to mark the final pour of concrete to construct the nuclear island on which the reactors will be built, which required some 5.6 million m3 of rock to be excavated and 9,800m3 of concrete to be poured.

Only time will tell if Hinkley Point C will achieve all of its milestones and budgets. In future articles, we will look more closely at the reasons for the cost and schedule overruns inherent in this family of EPRs.

About the Author

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.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way. 

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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BREXIT: AN UPDATE ON THE EU SETTLEMENT SCHEME

Despite Brexit feeling like an ever-receding dream (or fast approaching nightmare depending on your political perspective), the EU Settlement Scheme is up and running and applies to all EU citizens and their family members currently living in the UK. The deadline for EU citizens and their family members to apply to the Scheme is 31 December 2020 if the UK leaves the EU without a deal, or 30 June 2021 if the UK leaves with a deal.

EU citizens and their family members who, at any point before the deadline, have been continuously resident in the UK for five years are eligible to apply for “settled status” enabling them to remain living in the UK indefinitely. EU citizens and their family members who arrive before the deadline, but who have not yet been continuously resident here for five years, are eligible to apply for “pre-settled status”, enabling them to remain living in the UK until they have reached the five-year threshold. They can then also apply for settled status.

Some of the key features and ‘benefits’ of the Scheme are as follows:

  • Pre-settled status and settled status are granted primarily on the basis of a simple test of residence in the UK. There is no requirement for the EU national to be “qualified” which, under the previous EEA regulations, meant working or a student or self-sufficient with private health insurance. This is good news for the many non-EU nationals who, under the previous rules, could not have applied for leave to remain in the UK solely on the basis of their relationship with their EU family member where that EU family member was not “qualified”;
  • Compared to other UK visa application routes, the Scheme is relatively user friendly and, in our experience so far, caseworkers do seek to grant status rather than refuse it (which is as promised when the Scheme was introduced);
  • The application process is online and normally no original documents need to be submitted to the Home Office. If they do need to be submitted, they are normally returned very quickly;
  • Decisions are currently being made within a couple of days or at most within a month;
  • The EU Settlement Resolution Centre has a telephone number which works and a person on the end of the telephone with whom an applicant can discuss an application in detail and seek advice;
  • Applications under the Scheme are free.

However, the government has been criticised for many aspects of the scheme, including the following:

  • Calls to the EU Settlement Resolution Centre, whilst helpful, are not free – this undermines the goodwill extended to EU citizens through the scrapping of the application fee;
  • Why does the application deadline in a no deal scenario need to be sooner than if the UK leaves the EU with a deal? A no deal scenario in October would leave EU citizens with only 14 months within which to regularise their status;
  • Under the current provisions of the Scheme, a right of appeal following an unsuccessful application under the Scheme will only be available in the event that the UK leaves the EU with a deal – we see no good reason why such a right should not be available in the event that the UK leaves without a deal as well;
  • There is no clarity as to what will happen to EU citizens and their family members currently resident in the UK who fail to confirm their immigration status through the Scheme before the deadline. In giving evidence to a recent parliamentary committee, the Home Secretary himself appeared unsure what their status and rights would be;
  • It is also unclear whether the Home Office would automatically contact or pass on information to any agency, Government department or individual (such as an employer or landlord) following an applicant’s unsuccessful application to the Scheme;
  • Failing to confirm in primary legislation the right of EU citizens, resident in the UK at the time of its exit from the EU, to remain in the UK. No-one should be left without rights because they have not made an application under the Scheme;
  • Failing to provide all EU citizens who successfully apply to the Scheme with hard copy written confirmation of their status; applicants currently only receive electronic confirmation.

Despite its shortcomings, given the fact that applications under the Scheme are free and decided quickly, we recommend that EU nationals and their family members do make an application under the Scheme as soon as possible. This might give some reassurance in the uncertain political climate. Please do not hesitate to contact us if you have any questions at all regarding your status under the Scheme, or the status of someone you know. We would be delighted to assist you with your application should one be required.   

About the Author

Alice Boyle is a solicitor with extensive experience in all areas of immigration law. She can assist both corporate and individual clients with any immigration, nationality or asylum matter and possesses a sound understanding of Tier 1 Investors, Tier 1 Entrepreneurs and Tier 2 matters. Alice has substantial experience of challenging UK Home Office decisions, regularly representing clients in appeals at both the First-Tier and Upper Tribunal and also by way of Judicial Review applications in both the Upper Tribunal and UK High Court.

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.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way. The above is only a very brief summary of some of the principal changes the Home Office has announced. Please contact us for further detail, or if we can assist you in connection with any of the applications mentioned in this article.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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NUCLEAR RISK: THE INSURANCE PERSPECTIVE (PART III)

This article is published further to the Prospect Group seminar held at the Centre, Birchwood Park, Warrington, on Tuesday 30th April 2019.

Please click here to see the event flyer.

The seminar addressed gaps in the world of nuclear contracts, with a focus on insurance and the gaps to look out for in nuclear contracts and insurance arrangements, as well as the options available to minimise or remove these gaps. This is the final of three sequentially linked papers that summarise the seminar’s content.

This paper will consider some of the more obscure gaps that can occur, some resulting from the radioactive contamination exclusion (RCE) clause found on most non-life insurance policies, which was described in the first of these papers.

Insurance policies for nuclear contractors and operators

  • Normal liability insurance policies (for example directors and officers, or products and professional indemnity policies) purchased by any business will contain an RCE clause. This will exclude any ‘nuclear’ work.
  • Any contractors working on nuclear sites, especially if only occasionally or if nuclear consists of a small part of their work, will need to ensure that nuclear liability is properly allocated.

Claim investigation, defence, management and settlement costs

  • The liability Conventions require operators to have financial security to cover nuclear damage to third parties; these funds cannot be used to cover any costs incurred during or after a nuclear incident that causes damage. The Conventions are also silent on how these costs might be allocated. 
  • Operators, transporters and contractors must consider these costs and their allocation; insurance is available to cover them.

Counterparty Risk

  • The nuclear liability Conventions and national legislation leave nuclear site operators with long-term liabilities. Therefore, the solvency and durability of the financial security provider is an important consideration. 
  • The prevalence of RCE clauses and nuclear insurance complexities can increase counterparty risk.

Seminar Key Points

  • Insurance policy RCEs and interfaces can be the source of many coverage gaps.
  • Most of these and other gaps are avoidable or transferable with analysis, though sometimes at a cost.
  • Scopes of warranties, polices and contracts should all be subject to experienced review, to help minimise any lack of cover.

About the Author

Mark Tetley has wide experience gained from senior positions across the London insurance market as  both an underwriter  and a broker , in a variety of sectors. He provides advice and assistance on a wide range of insurance and risk issues, including comprehensive nuclear liability and property insurance assistance, complex infrastructure project programme design and review, claims and policy reviews, assistance with project insurance design and implementation in developing countries, and many other aspects of risk mitigation.

Prospect Group is an award winning Multi-Disciplinary Practice combining the legal services of Prospect Law with the consultancy services of Prospect Advisory. Our lawyers and technical experts provide a single point of reference for clients involved in energy, infrastructure and other development projects.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk

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NET ZERO: THE UK’S CONTRIBUTION TO STOPPING GLOBAL WARMING

The UK Committee on Climate Change ‘CCC’, established by the Climate Change Act 2008, has been recommending 5 yearly carbon budgets and seeing them enacted as law by the constituent Parliaments of the UK for 10 years.

In May 2019 the CCC, reflecting on the latest science from the Intergovernmental Panel on Climate Change, and perhaps sensing a shift in the tectonic plates of public opinion on climate change, produced a new report for the Parliaments of the UK, Wales and Scotland – ‘Net Zero – the UK’s contribution to stopping global warming.’

The CCC has now proposed that the UK can end its contribution to global warming within 30 years, by setting an ambitious new target to reduce greenhouse gas emissions to zero by 2050. It proposes that Scotland could reach net zero emissions by 2045, with Wales achieving 95% reductions by 2050.

Introducing the new recommendations, the CCC said –

“The CCC’s recommended targets, which cover all sectors of the UK, Scottish and Welsh economies, are achievable with known technologies, alongside improvements in peoples’ lives, and should be put into law as soon as possible.”

This target, and the political will to meet it, will create major and immediate challenges, whilst also opening up major new opportunities, across many sectors including –

  • The automotive sector
  • Construction
  • Manufacturing industry
  • Carbon Capture and Storage technology
  • Low carbon hydrogen
  • The waste industry
  • Aviation
  • Shipping
  • Farming
  • Low carbon power
  • Banking, finance and insurance

In fact, of course, as the CCC has said, this will affect all sectors of the economy. In an article for the Guardian in April 2019, Mark Carney, Governor of the Bank of England, Francois Villeroy de Galhau, Governor of the Banque de France, and Frank Elderson, Chair of the Network for Greening the Financial System, wrote that –

“The catastrophic effects of climate change are already visible around the world. From blistering heatwaves in North Africa to typhoons in south-east Asia and droughts in Africa and Australia, no country or community is immune…

Carbon emissions have to decline by 45% from 2010 levels over the next decade in order the reach net zero by 2050. That requires a massive reallocation of capital. If some companies and industries fail to adjust to this new world, they will fail to exist.”

Major changes in environmental and other laws and regulations will be needed at the UK level and in each of the devolved Parliaments, and we expect to be involved in advising some of the many businesses and industries affected by the changes.

About the Author

William Wilson is a specialist environmental, regulatory and nuclear lawyer with over 25 years experience in government, private practice and consultancy. He worked as a senior lawyer at the UK Department of the Environment/DETR/Defra, and helped to build up the environmental and nuclear practices at another major law firm. William has experience of all aspects of environmental law, including water, waste, air quality and industrial emissions, REACH and chemicals regulation, environmental protection, environmental permitting, litigation, legislative drafting, managing primary legislation, negotiating EU Directives and drafting secondary legislation.

Prospect Group is an award winning Multi-Disciplinary Practice combining the legal services of Prospect Law with the consultancy services of Prospect Advisory. Our lawyers and technical experts provide a single point of reference for clients involved in energy, infrastructure and other development projects.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

THE NUCLEAR INDUSTRY AND BUSINESS GROWTH OPPORTUNITIES: CURRENT TRENDS

Business within the nuclear industry is notoriously fraught with a series of many and varied challenges, from manufacturing standards to regulatory hurdles and long-term framework-based relationships. However, considerable opportunities exist both domestically and internationally, and each organisation needs a robust medium and long-term strategy and plan if it intends to pursue these opportunities effectively.

In the UK, the HMG Energy White Paper, due for publication around July 2019, is expected to continue to support the case for new nuclear, both the large conventional plants and the modular variety. However, widespread concerns remain over the funding model for long-lived infrastructure projects, and a resolution over the current impasse related to government funding is urgently required in order to provide a stable platform for business growth. Perhaps the increased groundswell of opinion to tackle greenhouse gas emissions will turn out to be the trigger.

The UK Nuclear Decommissioning Authority (NDA) is undergoing further change as Magnox Ltd becomes a wholly owned subsidiary. The NDA has declared its intention to reduce the cost of decommissioning, suggesting that the collaborative sharing of expertise and knowhow across the NDA estate will bring major cost and programme benefits. Furthermore, the confrontational approach to contract award and monitoring processes will be under review, fostering a partnership relationship with the supply-chain. This concept was in evidence at the recent Sellafield Ltd Directors Forum event, where the major framework holders were encouraged to talk openly with the Supply Chain companies about forthcoming business opportunities.

International opportunities also exist globally, with many nations now looking seriously at large nuclear to meet their political obligations, as well as providing power generation, district heating and water desalination. Additionally, the demolition of old plants and the rehabilitation of existing nuclear sites present major opportunities. Whilst there are many press announcements about ‘new’ opportunities, the pursuit of international business requires careful thought and planning. It is not for the faint-hearted, with resources and a 2-year Executive commitment arguably the minimum obligation.

To begin that long journey, early discussion with technical legal and regulatory experts is a prerequisite in order to help define the appropriate long-term strategy and key business objectives.

About the Author

John Ireland is an internationally experienced energy specialist and senior business executive skilled in the development, negotiation, and management of businesses and technically complex contracts within both the Government and private sectors.  John has grown complex businesses in Asia and the Middle East, and assisted international organisations to develop business in and from the UK through joint ventures and partnerships.

Prospect Group is an award winning Multi-Disciplinary Practice combining the legal services of Prospect Law with the consultancy services of Prospect Advisory. Our lawyers and technical experts provide a single point of reference for clients involved in energy, infrastructure and other development projects.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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NUCLEAR RISK: THE INSURANCE PERSPECTIVE: PART II

This article is published further to the Prospect Group seminar held at the Centre, Birchwood Park, Warrington, on Tuesday 30th April 2019.

Please click here to see the event flyer.

The seminar addressed gaps in the world of nuclear contracts, with a focus on insurance and the gaps to look out for in nuclear contracts and insurance arrangements, as well as the options available to minimise or remove these gaps. This is one of three sequentially linked papers that summarise the seminar’s content.

Part I outlined the insurers’ role in the development of the nuclear liability channelling principle, through the introduction of the radioactive contamination exclusion clause. This clause is used to manage the exposure and insurance availability from specialist insurers to cover a severe nuclear accident.  This paper looks at some specific gaps in cover that can affect contractors, operators and/or buyers of insurance.

Financial security requirement for third-party liability

  • Nuclear site operators need financial security for specified amounts to cover liability for nuclear damage; both the financial amount and the scope of cover will change when the 2004 Protocol to revise the 1960 Paris Convention is ratified. In the UK the Nuclear Installations Act will be amended to introduce these changes into UK law, probably in 2020.
  • At present insurance capacity will be available to cover the new financial amount, but insurance for the full scope of the revised nuclear damage cover is not available.
  • Governments (including the UK) are considering providing some form of insurance or reinsurance to fill some of the gaps, if the insurers cannot do so when ratification occurs.

Liability assumed by contract

  • The nuclear liability Conventions permit reallocation of liability by contract; therefore, site operators can try to pass liability to contractors.
  • Although this undermines the principle of strict liability, several options exist to mitigate this exposure, including insurance.

Onsite operator or contractor property damage

  • The liability Conventions are unclear on the final liability for onsite damage (i.e. not 3rd party).
  • Insurance contracts must be crafted carefully to ensure no gaps remain and any contractors’ nuclear liability is re-allocated.

Liability arising outside the geographical scope of the nuclear liability Conventions

  • Once ratified, the Convention revisions will reduce this exposure; however, transporters can be exposed to additional liability. Insurance solutions for this are available.
  • Possible gaps in cover can arise in the complex world of nuclear transport liability and insurance. A thorough review and understanding of the whole voyage is essential.

New build and onsite construction

  • Construction insurance policies generally exclude nuclear exposure; gaps in cover can occur both with new build (as nuclear exposure increases) and with onsite projects.
  • Gaps or overlaps between insurance and warranties must also be carefully analysed.

About the Author

Mark Tetley has wide experience gained from senior positions across the London insurance market as  both an underwriter  and a broker , in a variety of sectors. He provides advice and assistance on a wide range of insurance and risk issues, including comprehensive nuclear liability and property insurance assistance, complex infrastructure project programme design and review, claims and policy reviews, assistance with project insurance design and implementation in developing countries, and many other aspects of risk mitigation.

Prospect Group is an award winning Multi-Disciplinary Practice combining the legal services of Prospect Law with the consultancy services of Prospect Advisory. Our lawyers and technical experts provide a single point of reference for clients involved in energy, infrastructure and other development projects.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.