Wind power |
Learning from losses: offshore at a turning point
In its new report, A turning point for offshore wind, Allianz Commercial, a major player in the insurance of renewables and low-carbon technology, highlights growth opportunities, innovations, risk trends, and loss patterns for the offshore wind industry as the sector prepares for global growth.
The potential of offshore wind as a viable source of clean power for the energy transition is indisputable, says Allianz Commercial, noting that investment in the sector is growing rapidly around the world, the installed capacity of installations is ramping up, and technological innovations are proliferating – from multi- purpose windfarms and floating installations to next-generation connectivity and drone- based maintenance. However, developers and their insurers need to manage a range of risks to successfully scale offshore wind globally, among them prototypical technology, economic pressures, more extreme weather conditions, cable damage, and collision perils, as well as environmental concerns.
Learning the lessons from past losses – which are primarily damage to cables and turbines – is “essential for the industry to continue to grow sustainably,” says Anthony Vassallo, Global Head of Natural Resources, Allianz Commercial. “Emerging risks need to be explored, too, as developers prepare for widescale deployment of offshore wind around the globe. The size of turbines is ever increasing, wind farms are moving further out into harsher marine environments where they are more exposed to extreme weather, and technological innovation is constantly progressing. Navigating biodiversity issues in coastal communities will also become more important as demand for ocean space is set to increase fivefold by 2050.”
China overtakes Europe as biggest market
More than 99% of total global offshore wind generating capacity is in Europe and Asia–Pacific today, but the US is investing heavily in this sector and China has overtaken Europe as the world’s biggest market, with half of the world’s offshore wind installations in 2023 expected to be in China. In 2022, 8.8 GW of new offshore wind capacity was added to the grid worldwide with global installed capacity reaching 64.3 GW. Around 380 GW of offshore capacity is expected to be added across 32 markets over the next ten years, according to the Global Wind Energy Council. While growth ambitions are huge, all is not plain sailing for developers, according to the Allianz report. Spiralling costs have halted major wind projects recently and the industry is impacted by inflation, capital expenses, rising interest rates, and geopolitical instability. The cost of materials and vessel hire have risen, while the supply of materials and access to contractors remains challenging. Supply chain bottlenecks,
Causes of offshore wind insurance claims. Based on 126 claims across Allianz Commercial’s offshore wind portfolio in Germany and Central and Eastern Europe from 2014 to 2020. Source: Allianz Commercial
lengthy permitting procedures and delays to grid connections are also exerting pressure. “The scale and scope of the global offshore wind roll-out is epic. It requires the expansion of manufacturing footprint, port facilities, and infrastructure. And it needs to be fast-tracked by all stakeholders in a joint effort – financial institutions, corporates, and governments,” says Adam Reed, Global Leader Offshore Renewables and Upstream Energy, Allianz Commercial.
Cables top cause of claims Both the energy sector and the insurance industry have considerable expertise when it comes to managing the perils of offshore wind activities. In one of its largest offshore wind insurance markets, Germany and Central Eastern Europe, Allianz Commercial has seen 53% of offshore wind claims by value from 2014 to 2020 relate to cable damage, followed by turbine failure as the second major cause (20%) (see graph, above). From the loss of entire cables during transport to the bending of cables during installation, cable losses have incurred multi- million-dollar losses in offshore wind as cable failure can potentially put a whole network of turbines out of commission.
“Cable risk is critical and therefore the quality of service is vital,” notes Reed. “Contractors need to provide assurance they have the required expertise to remedy incidents and that they can source replacement components quickly in order to contain losses incurred during downtime. From an underwriting perspective, with subsea cabling work insurers pay close attention to the type of cabling used, the kind of vessels involved, the communication between client and contractor, and how often qualified risk engineers will make site visits to oversee proceedings.”
Innovations that break the mould The sector has to carefully manage the deployment of emerging technologies at scale,
34 | November/December 2023|
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says the Allianz report. Novel approaches include so-called ‘energy islands’ which share power between grids and nations and multi-purpose wind farms that produce green hydrogen and/ or host battery storage facilities. Pilot projects such as the Offshore Logistics Drones of German utility company EnBW explore the deployment of drones for the maintenance and repairs of turbines, reducing the reliance on helicopters and humans. While most offshore wind power is currently ‘fixed-bottom’, the development of leading-edge floating wind technologies in deeper ocean waters is poised for commercialisation. Managing the increasing size of wind turbines is another key challenge. In the last 20 years they have nearly quadrupled in height – from around 70m to 260 m. Rotor diameters have increased fivefold in the past 30 years. Offshore wind turbines with capacities of 8 or 9 MW are common, but newer models reach 14 to 18 MW, with a wind farm project in Australia recently announcing plans to use 20 MW turbines. “With new technological approaches and an increase in turbine size comes a corresponding increase in risk. We are closely monitoring the many innovations in the offshore wind industry, which include prototypical technologies, pilot projects, and evolving standardisation. These new and unproven technologies often come with a lack of technical maturity and available data. By partnering with clients in the early stages of projects, and exchanging knowledge and learnings, all parties will gain a greater understanding of the exposures involved,” says Dr Wei Zhang, Senior Risk Consultant, Natural Resources, Allianz Commercial.
Vessels and collisions
Another pressing problem identified in the report is the availability of specialist vessels. A bigger fleet globally is needed that goes beyond Europe as its primary location, and includes installation, jack-up and support vessels.
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