GCube Offshore Underwriter Rob Bates explores how more sustainable approaches to risk management and insurance are required to ensure that the changing risk profile of offshore wind does not impact project delivery and successful long-term operations.
Offshore wind is starting to deliver on its promise to become a global proposition. Recent weeks have seen a huge number of positive announcements from the East Coast as the United States aims to kick start supply chain growth and build new capacity.
Elsewhere, Taiwan – despite a recent wobble relating to the domestic Feed-in Tariff – has already taken off, Japan is making steady headway, and prospects for commercial-scale floating wind development have received a boost, with the recent Engie / EDP Joint Venture targeting the technology as a key growth area.
Meanwhile, key European markets have renewed their commitment to supporting offshore wind development. The UK Offshore Wind Sector Deal has identified offshore as the technology to drive forward the UK energy transition, and French auctions have led to competitive results.
However, coupling global expansion with cost reduction in Europe means that asset owners and investors are at risk of becoming increasingly exposed to technical and supply chain risks, alongside external perils.
More sustainable approaches to risk management and insurance are required to ensure that this changing risk profile does not impact project delivery and successful long-term operations.
GCube’s claims data from the past 12 months highlights several key trends that must be carefully managed in order to ensure project success.
A number of costly subsea inter-array cable faults, including those caused by an electrical interaction between the metallic tube surrounding the fibre optic core and the power cores, have been identified. Cabling losses account for 55% of total claims handled by GCube in the past 12 months and about 75% of total claim value.
There has been a rise in the frequency and severity claims relating to foundations – particularly monopiles installed at deep water sites. Foundation-related losses now account for 35% of total claims and around 15% of total claim value.
Large defective design and material losses have been incurred at all but one of the floating wind installations currently in operation worldwide.
There is a much larger exposure to natural catastrophe (Nat Cat) in East Asian and US offshore wind markets. Furthermore, insurance capacity for East Asia is very limited, and insurers will have strict limits on the amount of coverage they can provide in these markets.
There have been ongoing issues related to contractor error as the industry drives to reduce the Levelised Cost of Energy (LCOE) in established markets, putting pressure on the supply chain, and begins to work with inexperienced local teams in emerging markets. Human error is involved in 70% of total claims over the past 12 months.
Many of these claims trends could be chalked up as ‘growing pains’ linked to the sector’s global expansion and the drive for grid parity. However, if they are not properly managed, they will put these goals at risk.
The fact is, if the industry continues to squeeze the supply chain, while at the same time commercialising new technologies in new global markets, it will become increasingly vulnerable to large-scale financial losses that dent investor confidence and put projects at risk.
A long-term, responsible outlook is required – both from offshore wind asset developers and owners, and from insurance providers – to ensure that lessons are learnt quickly, accounting for the changing risk profile of development and operation.
GCube will be bringing together leading offshore wind asset owners, risk managers and insurance brokers at our invitation-only Offshore Wind Risk Seminar in London this September – and we invite you to get involved.
For more information, please visit: http://www.gcube-insurance.com/events/gcube-offshore-wind-risk-seminar-2019/