GCube’s new report, titled “Vertical Limit: When is bigger not better in offshore wind’s race to scale?” shows how offshore wind turbine scaling creates unsustainable market risks. The report compiles 10 years worth of company claims data and draws on evidence from experts across the offshore wind sector to show how the risk of offshore wind is changing in coast, as manufacturers push to make bigger machines, faster.
The offshore wind sector has been called to action to address increasing issues of mechanical breakdowns, component failures and defects in series following the deployment of more offshore wind turbines, reports GCube, a leading underwriter for renewable energy projects.
Over the past five years, the race to scale turbine technologies has seen the jump from 8MW to 18MW turbines taking place in a fraction of the time it took to go from 3MW to 8MW.
Today, even if it can be considered a “technological breakthrough,” such rapid commercialization of “prototypical” technologies now leads to a portion of the number of losses, and subsequently increases the financial pressure of manufacturers, supply chain and insurance market, warns Gcube.
Fraser McLachlan, the CEO of GCube Insurance, said, “The drive to rapidly develop more powerful machines is putting pressure on manufacturers, the supply chain, and the insurance market. Scaling is a important part of pushing forward the energy transition, but now it creates increasing financial risks that pose a fundamental threat to the sector. We advise manufacturers to focus on improving the quality and reliability of a reducing the number of products to put themselves back on a sustainable development path.
The report states that underwriters are concerned that 55% of all claims by frequency come from component failure during construction from 8MW+ machines, which now represent a larger share of Total Insured Values (TIVs). This, coupled with the increase in average offshore wind losses, from GBP 1 million in 2012 to over GBP 7 million in 2021, creates an unsustainable financial risk, if scaling is required to energy transfer can be carried out.
The cost burden of ‘long tail’ claims has not yet emerged, but is set to drive the frequency and severity of claims to historic highs, posing risks to inexperienced entrants. in the insurance market, GCube said.
GCube urges a renewed focus on quality and reliability in a reduced number of turbine products to put the industry back on a sustainable path
8MW+ machines suffer component failure within the first two years of operation, while 55% of all turbine claims today are from 8MW+ component failure during construction. This is coupled with a much shorter timeframe of 5 years for component failures during operation in the 4-8MW category of turbines. A key recommendation of the problem is the urgent need to address product quality and reliability.
The situation could create issues for the insurance market as traditional energy underwriters deploy capacity in the renewables market by offering a wide range of policies and low premiums. GCube argues that new companies should learn from the challenges of the offshore renewables market by developing a more realistic approach to pricing and T&Cs, otherwise they risk more losses. which will exacerbate the current instability in the onshore wind markets.
The warning shot comes at a time when the insurance market for onshore renewables continues to tighten after a string of costly losses from Nat Cat and supply chain issues. The report notes how recent turbine equipment issues in the offshore market may go undiagnosed due to other prominent sources of losses, such as cable failure.
McLachlan also commented, “At the same time, developers need to support manufacturers by sharing the risk of large machines more fairly and opening up their lending books to supply chain companies. The ships can be one of the biggest bottlenecks in the construction of offshore projects, and developers are in a strong position to invest in supply chain companies to the benefit of the entire sector. New entrants to the market in Insurers need to build on their knowledge and experience of the nuances of renewable energy technologies. In doing so, they will be pushed to develop a pricing approach and T&Cs that are based on the growing risks within the sector – and more well supporting the ambitions of offshore wind to make the energy transition.