The dramatic fall in the cost of offshore wind has resulted in more failures and a rise in insurance claims that mean problems in insuring projects is becoming a barrier to delivery, according to a new claims report from GCube Insurance.
The underwriter says national requirements for localisation in the supply chain for offshore wind farms has made the problem worse. It has limited sharing of experience and data, so that the fast-growing industry has less opportunity to learn lessons from in-service experience.
In the report, Uncharted Waters, GCube says cost-cutting in the design, manufacture, construction and operation of offshore wind has come at the expense of quality control, increasing the frequency and severity of insurance claims in the sector. It says combined market losses grew from £124 million in 2010-2015 to £500 million by 2020, with the average insurance claim nearly doubling from £1.67 million to £3.08 million in the same period.
Contractor error and component defect have accounted for 55% of these claims by frequency and 83% of total claims spend. The report says, “ Serial losses due to manufacturing or installation error are becoming more apparent, while volatile weather affecting repair schedules is leading to increased downtime.”
GCube says ‘ corrective action’ is needed to incentivise quality control and accountability for financial losses throughout the offshore wind supply chain, making use of international standards.
It warns that claims for the costs of installation errors arising from cutting corners during construction, or claims for replacement of defective parts under insurance policies, “are already leading to long legal battles – and is clearly not what both clients and insurers signed up for.” It says risk should be shared across all the parties, not only insurers involved with offshore wind projects. Fraser McLachlan, CEO of GCube, said: “Put simply, the insurance sector must take a more unified approach to writing offshore wind insurance, and the supply chain must accept its share of accountability on offshore wind claims.”
It seeks action now, because risks – including weather related issues and natural catastrophes – will increase as offshore wind moves farther offshore and new players from industries such as oil & gas are entering the market.
McLachan said, “The cable protection system issues unearthed earlier this year have hopefully brought to attention the fact that action on quality control needs to be taken if the industry is to prevent further losses down the line”.
Subsea cables account for the most frequent and expensive losses between 2010-2020, totalling 30% of claims incurred and over 50% of total claims spend.
Operator Orsted highlighted a systemic issue when it warned that it would have to make investments of up to £350 million required to fix cable problems over the next two years at its wind farms. The cables had deteriorated because of a decision not to lay rocks to stabilise inter array and export cables. That saved just 0.5-1% of capital costs but GCube said other developers had taken a similar approach and similar deterioration would require hundreds of millions in inspections, rock laying and cable fixes in the coming years.
Request a copy of the report here
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