As heatwaves become more frequent across the UK, insurers are being urged to reassess how they underwrite power generation risk, with a US emergency this month offering a stark preview of the balance sheet exposure at stake.
Alistair Moodie, chief product officer at SAMP Risk, the insurtech subsidiary of Asset Performance Partners, said the National Energy System Operator (NESO) will be watching closely how other grid operators handle extreme summer loads. "In the UK for example, as heatwaves become more frequent, the National Energy System Operator will be looking at how other operators manage extreme summer loads and at the tools available to them, including formally declaring an emergency to bring more generation capacity online," he said.
Two emergency orders issued by the US Department of Energy over the July 4th weekend authorised PJM Interconnection, the largest power grid in the US, to curtail data centres and waive power plant pollution limits as a severe heatwave pushed forecast demand towards an all-time record. PJM had projected peak loads of approximately 159,563 megawatts on July 1 and approximately 162,860 megawatts on July 2, prompting the Department of Energy to declare a statutory emergency under Section 202(c) of the Federal Power Act.
For SAMP Risk, the episode crystallised an underwriting problem that applies just as much to UK generators as it does to their US counterparts. Extreme heat events raise the likelihood of power generation and backup plants being called on to generate on an emergency basis. When a plant fails to deliver in those circumstances, the generator becomes liable for buying replacement power at open market prices, an exposure that PJM's own capacity market shows can escalate sharply.
PJM's capacity auction cleared at US$329.17 per megawatt-day for the 2026-2027 delivery year, up from US$28.92 just two delivery years earlier, roughly a tenfold increase reflecting how tight the region's supply margin has become. Wholesale power prices on PJM averaged US$136.53 per megawatt-hour in the first quarter of 2026, up 76% from US$77.78 a year earlier, with independent market monitor Monitoring Analytics attributing 63% of that increase to data centre load.
The UK's own data centre demand growth, combined with an ageing generation fleet and increasingly frequent extreme weather, means the same structural pressures pushing up US replacement power costs could plausibly build here too. A static survey conducted before such a shift cannot capture the replacement power cost exposure that now exists, whether the grid in question is PJM or NESO's.
The financial exposure for generators runs in two directions. Plants miss out on significant revenue during high demand, low supply periods when they cannot increase output or suffer a failure. More seriously, if a plant cannot deliver committed power to the grid, it must buy replacement power at prices that can spike dramatically during an emergency, a liability generators currently carry largely on their own balance sheets or transfer only partially through business interruption and capacity cover.
That exposure is compounded by a supply side dynamic that extreme heat creates simultaneously. Higher temperatures typically bring lower wind speeds, reducing output from wind farms, while conventional power plants become less efficient in extreme heat, a combination that makes emergency conditions more likely and replacement power costs more severe when they occur, a dynamic just as relevant to UK wind dependent generation as to any other market.
Moodie's proposed response is connected insurance using telematics data from the site to give operators and insurers a live view of asset performance. "Problems are caught before they become losses, and risk is priced on real operating conditions rather than assumptions," he said. "This is a real and growing balance sheet risk for power generation businesses, and one the insurance market has an opportunity to respond to properly, through connected insurance."
The gap between what static survey underwriting assumes and what live grid conditions actually cost is the mismatch SAMP Risk is describing, and one that UK insurers may need to start pricing for before, rather than after, NESO faces a comparable emergency.
