Bright Future for Offshore Wind Power, But High Rewards Come with High Risks

Fossil fuels are a major contributor to global warming, prompting nations to seek alternative energy sources. As traditional energy sources like coal, oil, and gas are phased out, the world is looking to alternative energy sources to fill the gap.

Wind power, in particular, is expected to take off. According to the International Renewable Energy Agency, onshore and offshore wind farms could generate up to 35 per cent – more than one-third – of global electricity needs by 2050.

However, wind energy comes with substantial risks, including large capital investments and the potential for high financial losses. These losses can arise from delays in repair works, which are unavoidable due to harsh working environments. There are also immense challenges involved in the manufacture, transportation, and installation of these large wind farms.

Nonetheless, effectively understanding and managing such risks will not only protect stakeholder interests, but ensure continued capital flow into the world’s renewable energy future.

Understanding risk

Offshore windfarms are composed of several key assets, ranging from wind turbine foundations to electrical cables to substations. Compromising the structural integrity of such assets could lead to significant delays and financial losses. Unfortunately, there are many opportunities for this to happen from manufacture to operation, and based on my experience, cables are most affected.

Submarine cables, essential components of offshore wind farms, transmit electricity generated by wind turbines to the grid. However, construction activities, anchor drag, and fishing – particularly in Southeast Asia – can lead to cable loss. Many wind farms are located in offshore areas that are hard to access, and natural events, such as typhoons or lightning strikes, could also potentially damage assets. Unfavourable weather conditions, such as typhoon season, can significantly delay repair works and cause business interruption.

When it comes to repairing offshore structures, it all comes down to the marine spread – the single most expensive cost item on any claim. Marine spread refers to marine vessels, equipment, and personnel, which charge day rates often in the hundreds of thousands per day and can only work within limited weather windows. In one case, repair work could only be conducted after six months, leading to significant business interruption losses.

Determining root cause

Precisely identifying when damage occurred is critical. Understanding the root cause often triggers the policy, but time of discovery may not be time of damage. Loss adjusters also need to understand that multiple events, multiple deductibles are sometimes subject to serial loss limits and it depends on the sequence of events as well.

For instance, a wind turbine’s blades may continue spinning after multiple lightning strikes, only to fall off a month or two later during a typhoon. Insurers must consider whether this indicates a Lightning Protection System has failed, while taking into account environmental complexities.

To determine when damage occurred, root cause analysis is typically conducted, but transparency is a big stumbling block. In past cases, drivetrains failed early into the wind turbine’s operation. The drivetrain, consisting of the gearbox and generator, is necessary for the wind turbine to produce electricity. However, since these components are often proprietary technology, critical information can be confidential, making liability assignment a lengthy and costly process.

Case study: When “loss” is hard to define Caption: The fallen monopile, embedded in the seabed and listing at an angle above water. During the construction of an offshore wind farm in the region, the crane that was lifting the monopile – a foundational element of the turbine – collapsed. The 2,000 tonne monopile fell and subsequently penetrated 30 to 40 metres into the seabed, requiring a vessel with a lifting capacity of 5,000 tonnes to remove it. Unfortunately, such a vessel was not available, and debris was scattered across the seabed. This posed several challenges for insurers. First, they had to determine if the monopile being embedded in the seabed constituted a loss, despite the monopile was remaining structurally sound. Beyond that, they needed to account for debris removal costs, given that both the owner’s assets and contractor’s equipment were part of the debris field. Finally, insurers had to assess whether the crane’s failure constituted a breach of contract by the crane contractor and factor that into subrogation costs.

Looking to the future

Just as how offshore wind farms evolved from onshore wind farms, the future will see floating wind farms evolve from their offshore cousins. Floating wind farms will expand possibilities for wind power by enabling installations in areas with higher wind potential and deeper waters.

In March 2024, Italian authorities approved the country’s first floating wind farm project. The 250-megawatt farm will provide around five per cent of Sicily’s total electricity consumption, and power over 70,000 homes.

The United Kingdom’s Labour Party has also announced plans to invest in floating wind farms to boost the UK’s energy security. According to Dr Zhang Xingang, an underwriter for offshore renewables from SCOR, over 30 floating wind farm concepts have been proposed. Time and market forces will whittle it down to the most viable and most profitable.

Location is a challenge. We are running out of space for offshore wind farms, necessitating floating wind turbines further offshore. Like all ventures, this involves risk. Insurers need to assess, understand, and manage these risks effectively.

About Dr Keith Lee, Regional Lead (Asia) – Natural Resources, Charles Taylor

Chartered Engineer turned loss adjuster with excellent analytical, influencing and negotiating skills. Keith specialises in conducting thorough and comprehensive investigations related to high value and complex insurance claims for the Energy and Renewables segments.

Since joining CTA in 2014, Keith has handled successful claims on construction and operation of Oil and Gas, Renewables and Conventional Power Generation facilities, including offshore drilling and production platforms, offshore windfarms, power and subsea cables, pipelines, seismic equipment, gas compressors and turbines generators and power stations.

Prior to working in adjusting, Keith worked as an electrical engineer and project manager on construction of major infrastructure projects, including inter alia underground train upgrades, power and cooling infrastructures, airport power & utility control systems, power infrastructure of national road traffic management technology schemes, tunnel monitoring & control systems in the UK.

Expertise

• Onshore/Offshore CAR & Operational
• Business Interruption
• Upstream Construction and Operations
• Conventional and Renewable Power Generation
• Engineering and Construction