Greater understanding of risk profile needed to commercialise fusion energy: roundtable

By Rebecca Delaney

June 24 - (The Insurer) - The insurance industry’s engagement with fusion energy remains nascent at present amid limited understanding of the risk profile for the class.

However, recent technological advancements have geared up the fusion value chain for commercialisation over the next decade, which will require greater understanding of its risk profile among underwriters.

Fusion energy combines lighter atoms rather than splitting heavier atoms (as in nuclear fission). Heating two forms of hydrogen at extreme temperatures forms a plasma and fuses together to produce helium and release carbon-free energy.

Fusion energy production is not based on a chain reaction, which eliminates runaway risk that is prevalent in fission. However, there remains a general lack of understanding of these key differences between the two processes and how this impacts the risk profile.

“From a risk perspective, while fusion technologies currently being developed may be new, many of their component processes are already proven and well understood,” said Patrick Davidson, director of class underwriting performance and solutions at Lloyd's.

“The overall risk profile of a fusion plant is likely to be similar to that of a traditional industrial or power generation asset.”

Davidson delivered the welcoming remarks at a Lloyd’s event co-hosted by Beazley and the Sustainable Markets Initiative on Tuesday as part of London Climate Action Week.

Fusion has the potential to provide energy security while also producing low-carbon energy that can be used to generate electricity.

It is described as low-carbon as although it is carbon-free at the point of generation, keeping hot plasma confined and stable enough to produce fusion requires the construction and manufacture of a tokamak reactor, which is not a carbon-free process.

Davidson’s comments on fusion energy’s risk profile were affirmed by Marsh managing director Matthew Kendle, who highlighted that regulatory, financial and safety risks are similar to those seen in more traditional power generation projects.

“A lot of the risks that are associated with this are the same as you would get in any other power generation project. You've got mechanical failures, fire, construction, drop losses, all those standard risks that can be managed,” said Kendle.

“There is then a component around the tokamak that is different and does bring slightly different risks. Within reason, that's not beyond the capability of the insurance market to keep their head around those and to insure them as they would any other power generation plant.”

Kendle therefore urged the industry to become more comfortable with providing insurance at earlier stages of fusion energy projects in order to facilitate commercialisation.

“I think we are an enabler when we're comfortable. Actually, to get this working and drive it forward, it needs people to insure it at an earlier stage,” he said. “The speed at which the insurance market gets involved and actually promotes the industry and drives it forward is what will in part determine its success.”

This includes work on the part of the commercial insurance market to understand how to underwrite and price fusion energy, rather than labelling it as uninsurable or hard-to-insure.

“Part of what I want to do is to bring fusion out from the insurance community putting it in a’'too difficult’ box and leaving it to the pools and the mutuals and the nuclear insurers,” he said.

“I want the commercial market to step up to bring a competitive process to this and to treat it as a standard power generation plant. I can't see a reason why it shouldn't.”

The U.S. and UK are currently leading the way from a regulatory perspective, with both governments having looked to clarify a path on how to licence a fusion energy plant that treats it more like a particle accelerator rather than as nuclear fission.

In December 2024, the UK and U.S. launched a 40.5 million pound ($55.2 million) joint fusion project with Tokamak Energy in a move that the UK government said would “unlock near-unlimited clean power”.

This policy drive to encourage fusion energy development mirrors the journey undertaken by offshore wind and solar over the past 20 years, said Glenn O’Halloran, underwriter at Oak Re.

“If we look back at the history of the insurance market being in similar positions before, there are other technologies that were first of a kind at their time,” he said.

“With fusion, you've got this very intricate web of component pieces, which in some cases are highly engineered. As this really starts to take off, the insurance market needs to be embedded within that ecosystem in order to bring it all together and understand the risk that we're taking. The same thing would have happened with wind, solar and other technologies before that.”

O’Halloran added that insurability often serves as a strategic indicator of a project's financial health, quality and investability.

“Quite often, if a project can't get insured, it's sending a signal that it's not ready for mainstream debt and investment capital,” he said.

“It comes back to industry collaborations and being part of that journey and feedback loop to improve the investability and attractiveness. We in part can do that through deploying technology-agnostic insurance products to make those projects financeable. That comes down to innovation within this market.”