AXIS View on Offshore Wind
Jamie Fleming
Head of Offshore Wind
AXIS View on Offshore Wind Jamie Fleming
The offshore wind industry continues to be an engine for change and technological innovation. With expansion into new territories, projects and turbines continuing to grow in size, and developments in floating wind opening up access to the most powerful wind resource in the ocean – the growth potential of offshore wind is becoming much clearer.
As specialists in insuring the renewables sector, we share the optimism for the future of wind energy while being mindful of the risks and challenges the sector needs to navigate to realize its potential.
A challenge throughout 2022 and 2023 has been an unexpected increase in vessel collisions caused by both heavy storm and human error. While we hope this is not the beginning of a long-term trend, as the number of offshore wind farms increases, we are keeping a close eye on how this develops. Alongside this new issue the offshore sector has also continued to be affected by seabed cable movements due to issues with cable protection systems.
Head of Offshore Wind, London
One such issue that continues to cause consternation for insurers is the naming of contractors under insureds’ policies, absolving contractors of responsibility for claims made under that policy. This issue is compounded by the continuing race for larger, more productive turbines. As turbines change both in terms of models and “uprating”, contractors may not have a complete understanding of a model, which can lead to errors. Because the ability for contractors to claim under the project owner's main insurance contract reduces the incentive for contractors to reduce errors and improve risk management, the increased likelihood of claims instead can force stricter terms and conditions on a project owner's insurance policy.
The wind energy sector is not immune to global supply chain issues. In the US, for example, a shortage in locally flagged vessels means the industry is reliant on a small fleet of vessels and, as the industry grows, there is great concern about the availability of vessels to complete projects. Vessels can take several years to build and require investment of hundreds of millions of dollars and more. Add to that the need for port upgrades, Jones Act restrictions and the need for new local manufacturing facilities and it is clear there are challenges for the US to meet its 30GW by 2030 target. This situation is not unique to the US markets; emerging markets such as Australia, Brazil and the Baltics also need to solve this issue.
As turbines change both in terms of models and “uprating”, contractors may not have a complete understanding of a model, which can lead to errors.
Developments in floating wind technology hold much promise however some barriers remain from a risk perspective and questions are still to be answered: How many ports will be able to accommodate these floating structures? How much redundancy is necessary in the mooring systems? Will they need to be towed into port for repairs to be made? Because wind turbines need to be adapted 1 for floating projects to be most productive, what form will this adaptation take?
There are thought to be in the region of 60+ different designs including designs that position two turbines on the same floating platform, which is far removed from previous designs. While many new designs will simply fall away, a lack of consistent design, production and operational methods introduces uncertainty, which increases risk. Insurers will view these projects as prototypical, until they have a proven track record and therefore developers of floating project designs cannot expect similar terms and conditions to the fixed market.
While many new designs will simply fall away, a lack of consistent design, production and operational methods introduces uncertainty, which increases risk.
Despite the challenges and evolving risk landscape the future of the industry is clear: growth. Both floating and fixed offshore wind are expected to see rapid growth in the near future: the fixed market is expanding into new territories and, in the floating market, the ability to harness the power of the wind at depths of more than 60 metres will open up even more markets for expansion. According to the Global Wind Energy Council (GWEC) 80% of the world’s offshore wind resource potential2 is in waters that are below this depth, which allows for considerable projects in Ireland, Japan, Australia, Italy, Morocco, The Philippines, India and Brazil. GWEC estimates 130GW of offshore wind will be added by 2027,2 which, if correct, means the amount of wind added in the next four years will be twice as much as we have currently installed. Meanwhile Norway is thought to have potential for 338GW on its own.3
The future of the offshore wind industry looks very optimistic and, while there are still a number of open questions, the experience of the fixed industry provides a blueprint for its potential and new policy targets suggest long-term government support. As the sector moves forward, risk mitigation and learning lessons from the past experience in wind development must be central to its strategy. Standardization is also key but most important is collaboration between different stakeholders operating within the offshore wind industry. Whether it be overall project design or new prototypical turbines, insurers, brokers and the industry must be sharing perspectives and learnings to establish best practice and help to create the standards the industry needs.
As the sector moves forward, risk mitigation and learning lessons from the past experience in wind development must be central to its strategy.
1. https://www.rechargenews.com/wind/norway-could-switch-on-ten-times-more-wind-plant-power-at-sea-than-oslo-2040-target-report/2-1-14393262. GWEC Global WindReport 20233. https://renews.biz/85247/norway-has-potential-for-338gw-of-offshore-wind/
The AXIS Renewable Energy team provide expertise in insurance coverage and risk mitigation analysis and insights for every stage of renewable energy projects from development through operation, ranging from stand-alone projects to utility scale. This material is for general information, education and discussion purposes only. Statements contained herein are not professional or legal advice of AXIS or its affiliates. AXIS makes no representations as to the accuracy or completeness of the information contained herein and is under no obligation to update or revise the information as a result of new information, research or future events. Implementing any recommendations or ideas discussed in this document does not guarantee the fulfilment of any obligations under any contract, compliance with any law, rule or regulation, the avoidance of loss or that all reasonable preventative measures have been taken. AXIS assumes no liability by reason of the information within this material.
The future of the offshore wind industry looks very optimistic.
