Gwynt y Mor OFTO reveals battle to insure offshore wind cables: 40% premium hike and scores of providers decline

Concern over outages in cables connecting the UK’s offshore wind farms to the onshore network have been laid bare by the company that owns the link to Gwynt y Môr wind farm, which argues that a series of repair outages required following a cable failure in October 2020 should be underwritten by consumers because insurers are leaving the market. The company notes that the cost of insurance has risen 40% in the past two years and many insurers have declined to provide cover.
Offshore wind farm cables have been under the spotlight for outages to repair cable problems, due to manufacturing faults, accidents and other issues. In April this year, wind farm operator Orsted said it had put aside £350 million to repair or replace cables within its wind farms that had been damaged due to interaction with the sea floor.
In GB, links between wind farm and the onshore network are owned not by the wind farm but by so-called OFTOs (offshore transmission operators) who bid for a licence to own and operate the links. The OFTO revenue depends on the availability of the link, but some events that cause interruptions are considered beyond the OFTO’s control or unforseeable and can be classed by Ofgem as ‘Income adjusting events’ (IAEs).
At Gwynt y Môr (15km off the North Coast of Wales with 160 wind turbines totalling 570MW) a consortium of Balfour Beatty Investments and Equitix owns and operates the wind farm link as Gwynt y Môr OFTO (GyM OFTO), which comprises four 20km subsea export cables, and associated onshore cables 11km connecting to an onshore substation at Bodelwyddan, near St. Asaph.
A recurring problem for OFTOs has been faults in the cables’ power core caused by failures in the fibre optic cables, which are also carried within the cable.
The repair will require a lengthy outage and will be delayed because it involves more spare cable than an OFTO would normally hold (see below), but the Gwynt y Môr OFTO’s argument that it should get credit for the period rests on the fact that it could not fully insure against the issue.
The OFTO says costs exceeded the £1 million threshold for IAEs.
After an earlier event – also in a part of the Gwynt y Mor connection – Ofgem confirmed in 2018 that it would give credit where OFTOs were unable to get insurance, subject to the usual tests for an IAE. In a detailed history, GyM OFTO argues that is the case. It said that in 2018 it was able to source insurance for a two-year period with the risk split between nine insurers (Chaucer 10%, Delta Lloyd 23.5%, GCube 10%, Canopius Synd 4444 15%, Allianz 10%, Axis 6%, Swiss Re 10%, Pioneer 10% and Codan 5.5%).
At that time several companies said they had “no appetite for OFTOs” or their cover was too limited, according to GyM OFTO. Those includes Travelers, Talbot, Helvetia, RCA, Gothaer, Macquarie and
In the following two years “The insurance market significantly hardened” the OFTO said, and although companies maintained their two-year commitment several (including Canopius, Pioneer, Delta Lloyd and Axis) otherwise decided to withdraw from insuring OFTOs or subsea cables, and some (eg Swiss Re) became “more selective of the OFTOs they were prepared to write, only accepting the ones that they perceived not to have adverse issues”.
In its 2020 renewal, GyM OFTO saw companies providing 64.5% of its cover decline to renew the policy – not least because the renewal in October came immediately after the failure of the subsea cable.
To renew, the OFTO had discussions with eight of its previous pool of insurers (Chaucer, Codan, Allianz, GCube, Swiss Re, Axis, Canopius, Nat Nederlanden and Pioneer) along with 26 other insurance providers: China Life, PICC, CPIC, Taiping, Sompo, HDI, Travelers, Talbot, IGI, Scor, Markel, Berkshire Hathaway, Munich Re, Helvetia, Zurich, Generali, Chubb, Albus, Risk Point, Perse, Aegis, Aviva, Gothaer, Basler, VIG and AXA.
It is not clear which now form part of the insurer pool but the OFTO says “the insurers that remain have taken the opportunity to increase premiums and require more onerous terms and conditions,” with premiums increased by 40% even with a much higher offshore deductible.

Fibre causes power faults
By 31 March 2021 GyM OFTO said it had paid out more than £1 million to repair the cable failure.
The failure was caused by a fault originating in one of two fibre optic cables contained within the offshore power cable.
A series of faults developed in the fibre optic, used for communications, but the OFTO was able to use the second (backup) fibre and eventually, when that also developed faults, the fibre in another cable. Eventually, the fibre optic fault caused a fault in the power cable and the cable went out of service.
The OFTO says, “It is now clear that any of the fibre optic faults could cause power core faults and the offshore cable containing them should be removed.” However, that would require more cable than it could reasonably be expected to hold in its strategic spares or procure with a short delivery time. In response, the OFTO had to limit the export capacity of the cable as a precaution to avoid more power faults until more cable can be delivered. New cable is due to arrive in the UK in November 2021.

Further reading
Moody’s downgrades Gwynt y Mor Ofto to Baa1, saying uncertain cable repair costs will drain reserves

Longread: take a deep dive into offshore cable risks

Ørsted warns of £350M bill to repair array cables in its offshore wind farms

Ofgem’s 2018 consultation on uninsurable risks

From the archive: OFTO performance examined