Offshore wind turbines have grown in size over the years, from 8MW to 18MW in a matter of a few years. However, this rapid scaling has led to an increase in mechanical breakdown issues, component failures and serial defects, according to a new report by renewable energy project underwriter GCube Insurance (GCube). The report titled Vertical Limit: When is bigger not better in offshore wind's race to scale?, compiled from 10 years of the company's claims data, warns of an unsustainable financial risk that may affect the entire offshore wind market.
“The push to rapidly develop more powerful machines is piling pressure on manufacturers, the supply chain, and the insurance market. Scaling up is an essential part of driving forward the energy transition, but it is now creating growing financial risks that pose a fundamental threat to the sector,” says Fraser McLachlan, Chief executive of GCube Insurance.
The report shows that 55% of all claims by frequency come from component failures during construction from 8MW+ machines, which now represent a larger share of Total Insured Values (TIVs). In addition, there has been an increase in average offshore wind losses, up from £1m in 2012 to over £7m in 2021, creating an unsustainable financial risk, right when scaling is needed to bring about the energy transition.
GCube Insurance argues that new entrants into the insurance market 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.
“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 and supply chain issues. New turbine equipment issues in the offshore market may be going unrecognised on account of other prominent sources of losses, such as cable failure,” the report states.
One of the major findings in the report is that 8MW+ machines are suffering from component failures within the first two years of operation, as opposed to the significantly shorter timeframe (five years) for component failures during operation in the 4MW to 8MW category of turbines. This points to the urgent need to address product quality and reliability – a key recommendation of the report.
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. The report recommends that developers 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,” McLachlan adds.
In conclusion, the offshore wind industry is facing an unsustainable financial risk, which poses a fundamental threat to the sector. It is crucial for 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. Furthermore, new entrants to the insurance market must build their knowledge and experience of the nuances of renewable energy technologies to better support offshore wind's ambitions to bring about the energy transition.
