Offshore Wind Industry Poised for Growth, but Economic Pressures and Tech Innovation Need to Be Managed
The potential of offshore wind as a viable source of clean power for the energy transition is indisputable. Investment in the sector is growing rapidly around the world, the power capacity of installations is ramping up, and technological innovations are proliferating - from multi-purpose windfarms and floating installations to next-generation connectivity and drone-based maintenance. Developers and their insurers need to manage a range of risks to successfully scale offshore wind globally, among them prototypical technology, economic pressures, more extreme weather conditions, cable damage, and collision perils, as well as environmental concerns.
In its new report, A turning point for offshore wind, Allianz Commercial, as a leading insurer of renewable energy and low-carbon technology solutions, highlights growth opportunities, tech innovations, risk trends, and loss patterns for the offshore wind industry as the sector prepares for global growth.
"Offshore wind farms are highly complex projects," says Anthony Vassallo, Global Head of Natural Resources, Allianz Commercial. "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 fivefold by 2050."
China has overtaken Europe as biggest market
While growth ambitions are huge, all is not plain sailing for developers, according to the report. Spiraling costs have halted major wind projects recently and the industry is impacted by inflation, capital expenses, rising interest rates, and geopolitical instability. The cost 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
"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," explains 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."
Tech innovations breaking the mold
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.
"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," says Dr Wei Zhang, Senior Risk Consultant, Natural Resources, Allianz Commercial.
Availability of specialist vessels and collision incidents also pose challenges
Navigating harsher environments
Despite its invaluable contribution to the net-zero transition, the offshore wind industry needs to be mindful of responsible development and environmental stewardship, the Allianz report points out. This includes managing its impact on biodiversity and marine wildlife or the sourcing of required raw materials such as rare earth elements or lithium.
Allianz is supporting some of the most exciting offshore developments, whether as an investor or insurer. In its recently launched Net-Zero Transition Plan, Allianz Commercial committed to a revenue growth of 150% for renewable energy and low-carbon technology by 2030. In addition, Allianz committed to €20 billion in additional investments for climate and clean-tech solutions. As an investor, the company is contributing to about 100 wind farm and green energy projects such as Hollandse Kust Zuid in the Netherlands, He Dreiht (Germany), or NeuConnect (UK/Germany). Allianz Commercial provides insurance coverage solutions across all stages of offshore wind development, construction and operations and is the insurer of many developments, among them Revolution Wind (US), Dogger Bank Wind Farm (UK), NeuConnect (UK/Germany) and Jeonnam 1 (South Korea).
About Allianz Commercial
These assessments are, as always, subject to the disclaimer provided below.
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