In its latest report titled “A turning point for offshore wind,” Allianz Commercial underscored the industry’s potential for growth, delving into opportunities for expansion, technological breakthroughs, evolving risk patterns, and loss trends within the offshore wind sector.
The undeniable potential of offshore wind as a clean power source for the global energy transition is leading to a rapid surge in investment in the sector, Allianz noted. Installations are scaling up in power capacity, driven by a wave of technological advancements including multi-purpose windfarms, floating installations, and cutting-edge connectivity solutions alongside drone-driven maintenance.
However, developers and their insurance partners face a gamut of risks as they work towards the global scaling of offshore wind. These risks, according to the report, encompass emerging technology prototypes, economic pressures, increasingly severe weather conditions, cable damage, collision hazards, and ecological considerations.
Presently, Europe and the Asia-Pacific region account for over 99% of the total global offshore wind installations. However, there’s a notable shift as the United States is making substantial investments in the sector, and China has emerged as the world’s largest market, expected to host half of the world’s offshore wind installations in 2023. Last year, the grid saw an addition of 8.8GW of new offshore wind capacity, contributing to a global installed capacity of 64.3GW.
Looking ahead, ambitious growth plans are set, but the journey is far from smooth for developers. The sector is facing significant challenges, including soaring costs that have recently led to the haltingof major wind projects. The industry also grapples with inflation, capital expenses, escalating interest rates, and geopolitical instability.
The costs related to materials and vessel rentals have surged, and securing necessary materials and contractor availability remains a persistent challenge. Moreover, supply chain bottlenecks, protracted permitting procedures, and grid connection delays are further intensifying the industry’s pressure.
“Offshore wind is poised to play a pivotal role in Asia as economies decarbonize their power supply. The sector is still relatively young and rapidly growing, and it is essential that projects are conceptualized, designed, and engineered for the known risks ahead that they will face, such as natural catastrophes, supply chain challenges, and other emerging risks due to technological advancements,” Allianz Commercial Asia Natural Resources and Construction regional head Trent Cannings said.
The energy sector and the insurance industry possess significant expertise in effectively navigating the risks associated with offshore wind ventures. Allianz Commercial, in one of its prominent offshore wind insurance markets covering Germany and Central Eastern Europe, observed that 53% of the offshore wind claims by value from 2014 to 2020 were attributed to cable damage. Following closely, turbine failure accounted for 20% of major claims.
Cable damage in offshore wind operations has proven to be a costly issue, ranging from the complete loss of cables during transport to their bending during installation. Such cable failures have resulted in substantial multimillion-dollar losses, capable of incapacitating an entire network of turbines.
“Cable risk is critical and therefore the quality of service is vital. 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,” Allianz Commercial Offshore Renewables and Upstream Energy global leader Adam Reed said.
The industry must also navigate the careful integration of emerging technologies on a larger scale. Innovative strategies encompass “energy islands,” effectively distributing power across grids and nations, and versatile wind farms that generate green hydrogen or accommodate battery storage.
Experimental initiatives like the Offshore Logistics Drones by the German utility firm EnBW are exploring the use of drones for turbine maintenance, reducing dependency on helicopters and human intervention. While the majority of offshore wind power presently utilizes “fixed-bottom” installations, the progression of cutting-edge floating wind technologies in deeper ocean waters is on the verge of commercialization.
Effectively handling the escalating size of wind turbines stands as a significant challenge. Over the last two decades, their height has nearly quadrupled, surging from approximately 70m to 260m — a height nearly three times that of the Statue of Liberty in New York. In the past 30 years, rotor diameters have grown fivefold. Although wind turbines with 8 or 9MW capacities are prevalent, newer models boast 14 to 18MW capacities, with an Australian wind farm project recently announcing plans to deploy 20MW 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 standardization. These new and unproven technologies often come with a lack of technical maturity and data available. 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,” Allianz Commercial Natural Resources senior risk consultant Dr Wei Zhang said.
The report highlights another critical challenge — the scarcity of specialized vessels. There’s a growing necessity for a more extensive global fleet, moving beyond Europe, which currently serves as the main hub for installation, jack-up, and support vessels.
Concurrently, collisions between vessels and wind turbines, as well as offshore structures, pose significant risks, with a noticeable increase in incidents in recent years, as outlined in the report. While these incidents have typically involved smaller vessels due to human errors, larger vessels have also been involved, raising concerns considering the plan to install 2,500 wind turbines in the North Sea alone by 2030.
While Europe’s offshore sector possesses substantial expertise in managing operations within challenging marine environments, its global expansion will bring forth new challenges in territories exposed to varying weather conditions and natural disasters.
Despite its crucial role in facilitating the transition to net-zero, the offshore wind industry must prioritize responsible development and environmental stewardship, as emphasized by the Allianz report. This involves effectively mitigating its impact on biodiversity, marine wildlife, and responsibly sourcing essential raw materials like rare earth elements and lithium.
“Offshore wind farms are highly complex projects,” Allianz Commercial Natural Resources global head Anthony Vassallo said. “The lessons learned from past losses – which are primarily damage to cables and turbines – are essential for the industry to continue to grow sustainably. 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 five-fold by 2050.”
What are your thoughts on this story? Please feel free to share your comments below.
