A Q&A with senior underwriter, Jonny Allen
Offshore wind is quickly gaining momentum in the United States. The last year brought a wealth of new news stories related to offshore auctions and state commitments to developing wind farms, particularly in the Atlantic. Although the focus has been on siting and environmental permitting, one critical aspect of new wind project development is insurance.
Offshore wind turbines are at greater risk of component failure and downtime because of the stronger winds, higher moisture, and harsher conditions compared to land-based turbines. There are also risks to wind technicians and workers requiring vessel trips to and from a project site, which presents additional challenges — such as taller towers typical of offshore wind turbines and less stable platforms when moving from vessel to turbine.
To answer questions related to insurance and offshore wind, we spoke with Jonny Allen, Senior Underwriter and Head of Offshore Wind at Travelers, a global insurance company. Here Allen shares his insight on the industry based on his years of wind experience in Europe.
Q. What considerations should project developers give to insurance for offshore wind projects?
A. Each offshore wind project brings unique challenges and complexities based on several factors, including size, scope, location, and type of stakeholder. We learned early on that the offshore wind claim process is different from that of onshore wind, particularly given the marine element.
When something goes wrong, there can be several potential root causes and pinpointing which one caused the loss can be difficult. For this reason, it is critical to have a solid insurance policy in place.
This is in part why the role of the underwriter is so important. Underwriters understand the industry, the claim process, and the coverage options and can work with customers to make sure their specific issues and needs are being addressed while helping to mitigate their risk.
Q. As interest in offshore wind grows in the U.S., what are some of the biggest challenges you foresee?
A. Some of the biggest challenges we see relate to factors like scaling technology, construction methods, geography, climate and weather, natural disasters, regulations, and conservation policies.
Some of the more significant challenges include:
- Wind events: Parts of the U.S. experience hurricanes, a weather-related scenario the industry has yet to face. As such, there is a lack of modeling to pull from or consensus on data because these geographic areas are newcomers to offshore wind. No one fully understands how wind turbines can stand up to those heavy winds in the U.S. Will a typhoon-class turbine work in hurricanes, or will further design changes be necessary? While the wind season is relatively defined in the U.S. and a developer could plan to install turbines outside of that timeframe, and what happens if your project is delayed?
- Local content: In the U.S., many questions remain for the industry. For example, will future offshore wind projects have workarounds, such as using non-U.S. vessels to perform installations and U.S. vessels to ship items to the site? Will the country build its own specific vessels, or be granted waivers to the Jones Act? How will the inland transit of large items be handled? Finding a balance between cost-effectiveness and stimulating the economy are key.
- Contractor experience: Experience is an extremely important factor when selecting a contractor but finding one can be challenging in an emerging territory. While Europe has contractors that are specific to offshore wind, it did not begin this way. The U.S. will have to decide carefully on an approach: work with smaller contractors with specific offerings or established energy operators that are adapting their existing offerings for offshore wind installations?
Q. How would local supply-chain requirements for offshore wind projects impact insurance risk?
A. While the demand for minimum local content supports development, it’s important for offshore developers to balance cost-effective procurement with project risks. We have seen claims as a result of inadequate supply chain factors such as poor-quality materials, inexperienced subcontracting, and incorrect transport and storage.
Underwriters would rather charge less to support a project if risk management through quality supply and contracting can be demonstrated at all levels. Underwriters can help with this by communicating what this can look like well before the project breaks ground.
Q. What’s driving the increase in turbine size and how does it impact insurance?
A. Today, we’re seeing wind turbines six to nine megawatts in size, some of which have a wingspan the size of the London Eye. In the next five years, capacity will more than double to 15 to 20 megawatts, with tower sizes that exceed 250 meters. Larger rotors harvest greater wind energy and can reach stronger, steadier winds at higher altitudes.
Bigger turbines can produce greater outputs and maximize ROIs. Additionally, such projects can use fewer turbines, which can result in shortened, cost-effective installation timeframes.
However, the growing size of turbines is leading to engineering challenges and new insurance considerations, including larger limits and additional exposure. For example, taller towers and bigger blades are more difficult to transport and install, requiring specialized vessels and crew.
For some offshore projects, this can also mean engineering plans that are costly, project-specific, and dependent on a single piece of equipment (such as a specialized vessel or crane). If lost or damaged, this can cause major delays. Moreover, insurance companies have little data to project how these turbines will stand up to major windstorm events.
Q. Are there lessons that can be learned from the wind farm installations in Europe?
A. Absolutely. The U.S. wind industry can benefit from understanding how Europe has dealt with technological challenges, offshore turbine installations, cable and power transmission issues, and costs.
Consider a German model, for example, which clusters multiple project sites and uses a separate company to provide the transmission networks for the wind farms back to the main electric grid. This encourages competitive bidding for the wind projects and reduces risk by removing the requirement for each developer to build long and costly grid connections for each project.
Interestingly, many of the problems encountered in the industry’s early days are still prevalent 10 years later given the inherent complexities of offshore conditions and the composition of the seabed. This makes the lessons that have been learned to date important as the industry continues to develop.
Q. Any final tips for choosing an insurance plan for offshore wind farms?
A. Choose an insurer with experienced offshore wind underwriters who have spent time in the field, going on to vessels and up turbines, speaking with people involved in the projects and getting to know the assets they’re insuring. Underwriters that truly understand the business of wind energy can help developers find the right balance of coverage based on their specific needs.
Filed Under: Financing, Insurance, News, Offshore wind, Policy