The offshore wind sector must take action to address a rising tide of mechanical breakdown issues, component failures and serial defects arising from the deployment of ever-larger offshore wind turbines, according to a study by GCube Insurance, a leading underwriter for renewable energy projects.
The warning shot comes at a time when the insurance market for onshore renewables continues to harden after a string of costly losses from Nat Cat (natural catastrophe) and supply chain issues. The report states how new turbine equipment issues in the offshore market may be going unrecognised on account of other prominent sources of losses, such as cable failure.
GCube’s new report, entitled ‘Vertical Limit: When is bigger not better in offshore wind’s race to scale?” has been compiled from 10 years of the company’s claims data, and draws on evidence from experts across the offshore wind sector to demonstrate how offshore wind’s risk landscape has significantly shifted as manufacturers push to develop bigger machines, faster.
Over the past five years, the race to scale turbine technologies has seen the leap from 8 MW to 18 MW turbines occurring in a fraction of the time it took to go from 3 MW to 8 MW. While this is a fantastic technological achievement, such rapid commercialisation of ‘prototypical’ technologies is now leading to a concerning number of losses, and subsequently piling financial pressure on manufacturers, the supply chain and the insurance market.
55% from component failures
Among the findings of the report, concerning to underwriters is the finding that 55 % of all claims by frequency from component failures during construction, come from 8 MW+ machines, which now represent a larger share of Total Insured Values (TIVs). This, combined with an increase in average offshore wind losses, up from GBP 1 million in 2012 to over GBP 7 million in 2021, is creating unsustainable financial risk, just when scaling is needed to bring about the energy transition.
Another major finding is that 8MW+ machines are suffering from component failures within the first 2 years of operation. This is juxtaposed against the significantly shorter timeframe (5yrs) for component failures during operation in the 4 – 8MW category of turbines and points to the urgent need to address product quality and reliability – a key recommendation of the report.
Issues for the insurance market
The situation may create issues for the insurance market as traditional energy underwriters deploy capacity into the renewables market by offering broad policies and low premiums. GCube argues that new entrants must learn from challenges in the onshore renewables market by taking a more realistic approach to pricing and T&Cs, otherwise risk substantial losses that would further exacerbate the current instability in offshore wind markets.
Fraser McLachlan, CEO, GCube Insurance, said: “We advise manufacturers to focus on improving the quality and reliability of a reduced number of products to put themselves back on a sustainable path of development. At the same time, developers must support manufacturers by sharing the risk of larger machines more equitably and open their lending books to supply chain companies. Vessels are going to be one of the biggest bottlenecks in building offshore projects, and developers are in a powerful position to invest in supply chain companies at the benefit of the entire sector.”
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