The offshore wind industry is facing a critical problem in the form of mechanical breakdown issues, component failures, and serial defects caused by the deployment of ever-larger turbines. A new report by GCube Insurance, a leading underwriter for renewable energy projects, entitled “Vertical Limit: When is bigger not better in offshore wind's race to scale?”, highlights the need for the industry to take action to address this issue.
The report draws on evidence from experts across the offshore wind sector and is compiled from 10 years of the company's claims data. The study shows that the risk landscape for offshore wind has significantly shifted as manufacturers push to develop bigger machines faster. 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 technological achievement, the rapid commercialization of prototypical technologies is leading to a concerning number of losses, which is subsequently piling financial pressure on manufacturers, the supply chain, and the insurance market. Underwriters are concerned that 55% of all claims by frequency come from component failures during construction from 8 MW+ machines, which now represent a larger share of Total Insured Values (TIVs).
Fraser McLachlan, CEO of GCube Insurance, said, “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. 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.”
One of the key recommendations of the report is the urgent need to address product quality and reliability. The report found that 8 MW+ machines are suffering from component failures within the first 2 years of operation, compared to a significantly shorter timeframe of 5 years for component failures during operation in the 4-8 MW category of turbines.
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. New entrants to 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.
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. The report also states that new turbine equipment issues in the offshore market may be going unrecognised on account of other prominent sources of losses, such as cable failure.
