Offshore wind industry needs care in risk management
A new report by Allianz Commercial highlights growth opportunities, tech innovations, risk trends and loss patterns for the offshore wind industry as the sector prepares for global growth . . .
SINGAPORE -- "Offshore wind farms are highly complex projects," says Anthony Vassallo, Global Head of Natural Resources at Allianz Commercial, a leading insurer of renewable energy and low-carbon technology solutions.
"The lessons learned from past losses - which are primarily damage to cables and turbines - are essential for the industry to continue to grow sustainably," he says.
"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."
The Allianz report says China has overtaken Europe as the world's biggest wind market.
More than 99% of the total global offshore wind installation 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, the report says, 8.8GW of new offshore wind capacity was added to the grid, with global installed capacity reaching 64.3GW. Around 380GW of offshore capacity is expected to be added across 32 markets over the next 10 years, according to the Global Wind Energy Council, with half of that growth expected to come from the Asia-Pacific region.
"Offshore wind is poised to play a pivotal role in Asia as economies decarbonise their power supply. The sector is still relatively young and rapidly-growing, and it is essential that projects are conceptualised, 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," says Trent Cannings, Regional Head of Natural Resources and Construction, Allianz Commercial Asia.
While growth ambitions are huge, all is not plain sailing for developers, according to the report. Spiralling costs have halted major wind projects recently and the industry is impacted by inflation, capital expenses, rising interest rates and geopolitical instability. Costs of materials and vessel hire have risen, while the supply of materials and access to contractors remains challenging. Supply chain bottlenecks, 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%).
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. 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," says Reed.
"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."
The Allianz report says the sector also needs to carefully manage the deployment of emerging technologies at scale. Novel approaches include so-called 'energy islands' which share power between grids and nations and multi-purpose wind farms that produce green hydrogen or house battery storage facilities.
Pilot projects such as the Offshore Logistics Drones from German utility company EnBW explore the deployment of drones for the maintenance and repairs of turbines, reducing the reliance on helicopters and humans, the report says.
"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 260m - almost three times taller than the Statue of Liberty in New York.
Rotor diameters have increased fivefold in the past 30 years. Wind turbines with capacities of 8 or 9MW are common, but newer models reach 14 to 18MW with a wind farm project in Australia recently announcing plans to use 20MW turbines.
Availability of specialist vessels and collision incidents also pose challenges, the report says. A bigger fleet of specialist vessels globally is needed that goes beyond Europe as a current primary location including installation, jack-up and support vessels. Meanwhile, vessel collision with turbines and offshore infrastructure can also result in significant losses, with an uptick in incidents seen in recent years, the report also notes.
Although, to date, these have typically involved smaller vessels, often as a result of human error, there have also been a number of incidents involving larger vessels, an increasing concern given 2,500 wind turbines are due to be installed in the North Sea alone before 2030.