GCube Insurance, an underwriter for renewable energy projects, recently conducted research that suggests the offshore wind sector must take action to address mechanical breakdown issues, component failures and serial defects ensuing from the deployment of ever-larger offshore wind turbines.
GCube’s new report, entitled “Vertical Limit: When is bigger not better in offshore wind’s race to scale?” is 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 commercialization 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.
Among the findings of the report, underwriters are concerned that 55 percent 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). This, combined with an increase in average offshore wind losses, up from 1 million GBP in 2012 to over 7 million GBP in 2021, is creating unsustainable financial risk, right 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 two years of operation. This is juxtaposed against the time frame (five years) for component failures during operation in the 4 MW-8 MW category of turbines and 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. 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, they 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 supply chain issues. The report states how new turbine equipment issues in the offshore market may be going unrecognized on account of other prominent sources of losses, such as cable failure.
“The push to rapidly develop more powerful machines is piling pressure on manufacturers, the supply chain and the insurance market,” says Fraser McLachlan, CEO of GCube Insurance.
“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,” he adds.
The full report is available to GCube’s insured clients and to brokers. To request a copy, please visit GCube’s website.
