Adaptation to risk
Fixed-bottom offshore windfarms have been built at scale since the turn of the century. Over time, the risks have become widely understood and the insurance market has started to show signs of maturity in its approach to policy coverage and risk allocation. When breaking down the costs of claims, insurers are therefore well-versed with the issues, such as, maintenance delays due to weather conditions, availability of specialist offshore vessels and experience of crews, the continual evolution of technology, evolving supply chains, natural catastrophe exposures, and emerging markets. Unfortunately, some of the most common insurance claims that have persisted — especially with regard to sub-sea cables — continue to reveal manufacturing issues and installation-related losses.
These risks impact floating turbines too, and have the potential to be amplified. For example, turbines further off shore could require longer tow times back to the harbor when repairs are required. Insurers’ perception of “tried and tested equipment” varies, and gray areas remain around cover for consequential property damage from defective components. Another example relates to “interface risk” — which is the compatibility of the wind turbine with the floating platform technology — which may result in uncertainty around warranties and performance guarantees.
In addition, insurers have raised concerns about suitable “remote monitoring” solutions for the dynamic components of turbines — such as moorings lines and the sub-sea cables — to ensure that fatigue and corrosion are managed and learnings are carried into future projects. A lack of remote monitoring can increase risks exponentially.
Natural partners
Companies in the oil and gas sector have experience working with some areas of the floating offshore wind supply chain, and they have a developed and standardized approach to contracting, risk allocation, and insurance. Such companies can take lessons from the past (especially with regard to remote monitoring) and leverage their knowledge of floating technology and dynamic offshore structures. When you consider that they are also looking to invest in renewable energy as a means to decarbonize, it is not too surprising that this traditional energy sector is showing a strong interest in diversifying into floating offshore wind farms.
Improving insurability aids project financing
If a project can demonstrate a robust and well-structured insurance solution, it’s easier for lenders to back it. Such solutions can lead to greater inflows of capital and ultimately growth of this expanding industry. In order to maximize the availability of insurance for a floating offshore wind farm, the following actions should be considered:
- Early alignment of all the stakeholders in any given project including contractors, floating technology suppliers, and joint venture partners. Striking a fair allocation of risk at the beginning of the process will save time and money as the insurance placement starts to gather pace.
- Careful assessment of the quality and experience of the supply chain. Consider working with as many “tier one” contractors as possible. Insurers will assess the contractors you work with, and their experience and quality of work will be a key differentiating factor for your project.
- Appointment of a marine warranty surveyor at the earliest opportunity. Consider using them to participate in your early engineering process.
- Ensure that a recognized certification body (such as DNV or ClassNK) has confirmed that the design process complies with performance objectives.
- Early engagement with risk management brokers and pre-selection of an insurer to work closely with your project team. The insurance placement process will need to be carefully managed with a lead time of between six and nine months to ensure that the risks are properly defined and mitigated.
These actions are also recommended for controlling the cost of the insurance coverage, as the premium rates are usually higher for floating offshore wind farms when compared with fixed bottom offshore wind farms (due to the factors discussed above).
If you have any questions regarding offshore windfarm risk, please contact your Marsh Specialty advisor.