- Floating offshore wind (FOW) is set to be key in energy transition
- But FOW project sponsors may struggle to get insurance cover on favourable terms
- FOW project leads and insurers need to engage early
Floating offshore wind (FOW) will have a crucial role to play in the global transition to a greener economy.
Yet its potential is a long way from being fully realised.
According to WindEurope, FOW “holds the key to an inexhaustible resource potential in Europe.” A total of 80 per cent of Europe’s offshore wind resource is located in waters 60 metres deep or more. Unfortunately, these are depths at which traditional bottom-fixed offshore wind is not economically attractive.
And this point about economic viability is a key issue for FOW projects. One of the reasons why the figures may not always stack up is that it could be difficult to get insurance cover for such projects.
Project sponsors must engage insurers
Consequently, it is vital that FOW project sponsors proactively engage with insurers, so insurers can better understand possible risks and mitigations.
“There are some fundamental differences associated with designing, installing and operating a FOW farm compared to fixed-foundation projects which insurers will need to become acquainted with,” says Daniel Stevens, renewables risk engineer at AXIS. “Failure of developers to fully explain the new aspects of the technology and the measures taken to mitigate the risks around them could lead to insurers viewing them as prototypical.”
The key to getting around this problem is clear lines of communication between insurers and project leads.
Stevens says the onus is on offshore wind project sponsors to demonstrate that a “robust approach has been taken to project risk management at the design, construction and operational stage, in order to achieve the cover they require from their insurers”.
Learn from fixed foundation mistakes
The level of premium, as well as the deductibles payable by the insured on a damage claim, in addition to any exclusions or endorsements, are very project-specific – the effect being that it would be a mistake to assume they will be the same as that currently seen on fixed-foundation projects.
“Applying offshore wind’s 20-year learning curve to the new challenges of fabricating, installing and operating FOW projects can boost market confidence, and early and close communication between insurers, technical advisors and project leads will help insurers to be more comfortable, when it’s time to place insurance cover,” says Stevens.
One of the main issues is that, in some cases, the fundamentals around how major component repairs and replacements will be carried out are still not decided. Unfortunately, this will work against effective risk pricing.
“Conversely, it is likely insurers can add valuable insights on how different options chosen may affect pricing of operational cover, so early engagement with the industry will be beneficial,” Stevens adds.
Yes, the FOW market is primed for substantial growth but, in order for the sector to meet its LCOE [levelized cost of energy] targets, it is vital that it shows how lessons from fixed-foundation failures have been applied to FOW and that adequate measures have been taken to mitigate the risks presented by this new technology.
In doing so, project sponsors should “benefit from the increased understanding that insurers have, help FOW meet its ultimate LCOE targets”, according to Will Terry, floating wind engineer at Frazer-Nash Consultancy.
Is project certification suitable for FOW?
Insurers have also been warned that existing tools they use such as type and project certification, the marine warranty surveyor (MWS) process and supply chain reviews will “need careful attention to ensure they are still fit for purpose when applied to FOW”, says Terry. He adds that this process cannot be conducted in a vacuum and early engagement between project sponsors and insurers to ensure the key differences are understood is critical.
To ensure appropriate operational cover is obtained, it is vital that insurers are fully briefed about what is excluded from warranties and service agreements, as well as the availability of replacement parts and vessels required to tow the FOW turbines back to shore or replace major components.
Terry stresses that the level of commercialisation for new technology will also be of interest to insurers, particularly when considering the level of defect cover afforded to a project.
“Innovations for FOW are required in mooring, dynamic cabling and foundation fabrication processes, either to adapt previous technology to FOW applications, or start entirely from scratch,” he says. “It will be important to clarify to insurers what projects represent extended testing of said technology, and which are genuinely commercialised to achieve the optimum balance of risk-sharing.”
With governments around the world banking on FOW to play a crucial role in the transition to a greener economy, it is vital that project sponsors and the insurance industry facilitate early engagement on projects, enabling the industry to meet its full potential.