A turning point for offshore wind

Summer temperatures reached record or near-record levels in Europe, the US and Asia this year amid a climate of instability that has ensured concerns about energy security remain high. With climate deadlines looming, the number of offshore wind installations is proliferating around the world as their potential to power the net-zero transition and bolster energy security is increasingly realized. With 8.8GW of new offshore wind capacity added to the grid last year, 2022 was the second highest year in history for offshore wind installations. Global installed offshore wind capacity at end 2022 reached 64.3GW, compared to just 5.4GW in 2012.

The Global Wind Energy Council (GWEC) expects 380GW of offshore wind capacity to be added across 32 markets over the next 10 years (2023-2032). Nearly half of that growth is expected to come from the Asia Pacific region, followed by Europe (41%), North America (9%), and Latin America (1%). [1]

Around 2,000GW of installed offshore wind capacity will be needed to limit global temperature rise to 1.5°C above pre-industrial levels, a key target of the 2015 Paris Agreement, and achieve net zero by 2050. [2] 

As the climate crisis continues to intensify, the role of offshore wind and other renewable power sources in the world’s power mix becomes increasingly urgent. In this report, we explore the full potential of offshore wind, discuss the emerging risks that could accompany its development, and explore some of the challenges facing the industry as it strives for deployment on a global scale.

Offshore wind will be integral to the energy transition, generating clean, renewable power in areas of the world’s oceans that have vast untapped potential. With long-standing experience in legacy offshore activities, Allianz Commercial has amassed engineering and underwriting expertise that we are now applying to offshore wind developments across the globe. We are committed to the sector’s expansion and supporting its development with significant underwriting and investment capacity, risk transfer solutions, and unlocking access to finance.

Allianz Commercial is insuring some of the most exciting offshore wind developments ever seen, projects that are breaking new ground in scale, ingenuity, and power potential. The insurance industry has a major role to play in supporting the growth of such trailblazing initiatives. Our underwriters and risk engineers are partnering with offshore wind clients to share their knowledge, exchange data, and develop bespoke insurance and risk consulting solutions. They collaborate continually to develop loss-control services that evolve with the sector’s fast-changing technologies – and a changing climate.

As well as providing insurance, Allianz has been investing in renewables since 2005, including Hollandse Kust Zuid (HKZ) 1-4 wind farm in the Netherlands, which will produce enough energy to power over 1.5 million households, and the NeuConnect direct power link between Germany and the UK, a project for which we are also a lead insurer. We are keenly exploring promising ancillary innovations that are developing alongside offshore wind, such as green hydrogen and carbon-capture, and we are empowering innovation in the sector, with representation on the judging panel of the Energie Baden-Würtemburg (EnBW) and German Aerospace Center’s exciting Offshore Drone Challenge.

The Natural Resources team at Allianz Commercial is aware that generating returns for our shareholders calls for careful underwriting and a keen understanding of the exposures we are taking on. By partnering with a willing client base and exchanging knowledge between all stakeholders, including governments, institutions, and between nations, we can ensure the turbines of the offshore wind industry keep turning in a cleaner, greener future.

This report celebrates the great strides already made by the industry, explores the challenges it faces as it prepares for growth, and discusses the emerging risks and hazards that must be mitigated as offshore wind rolls out to new territories across the world.

Both the energy sector and the insurance industry have considerable expertise when it comes to the perils of offshore wind activities. Although turbines are engineered to work within certain conditions, risks and challenges to the sector remain, including the known perils of the impact of hazardous marine environments and extreme weather. While the growth of offshore wind has been impressive, the rapid advance of technologies is introducing new risks across the supply chain. There is little technological maturity in new construction methods, operations, and turbines as well as a lack of real-world data concerning their use. This could affect the quality of installations if contractor expertise falls short.

The increasing size of wind turbines is perhaps the most striking change the industry has seen in recent years. In the last 20 years they have almost quadrupled in height, from around 70m/230ft to around 260m/853ft – nearly three times taller than the Statue of Liberty. Rotor diameters of wind turbines have increased fivefold in the past 30 years. This increasing size of turbines has introduced corresponding exposures, with larger components, machinery and vessels required for their installation. Faults in new technologies or manufacturing processes might take longer to come to light. The lack of standardization in floating offshore wind technologies could delay repairs or replacements as they require specific facilities, which are currently limited. In other respects, floating offshore wind turbines can reduce construction risk as they can be assembled in the relatively safe environment of a dry dock or near shore.

With the increasing size of wind farms comes a corresponding increase in cable length and complexity. Based on Allianz Commercial’s experience in one of its largest offshore wind insurance markets, Germany and Central Eastern Europe, 53% of offshore wind claims by value over six years related to cable damage or failure. From the loss of entire cables during transport to the bending of cables during installation, cable losses have incurred multi-million-dollar losses in offshore wind. The consequences of cable failure can be considerable, potentially putting a whole network of turbines out of commission.

Allianz Commercial’s experience of wind turbine losses, which accounted for 20% of offshore wind claims according to value over six years, shows the most common causes relate to rotor blades, main bearings, gearboxes and generators. As offshore wind expands around the world, particularly in the US and Asia, it will face new risks from harsh environments, natural catastrophe, and extreme weather events. This is likely to affect support vessels and ancillary activities more than turbines, potentially reducing the window of opportunity for installation and repairs.

The speed of the global rollout is creating supply-chain bottlenecks and placing pressure on infrastructure, the supply of materials and components, and the availability of vessels. Access to the right contractor expertise is also a potential challenge, with possible consequences for quality and workmanship.

A bigger fleet of specialist vessels will be required to support global deployment as most specialist vessels currently operate out of Europe. There is an urgent need to expand port facilities to accommodate the required increase in vessel numbers. Research indicates that $20bn of investment is needed globally to build 200 new ships if the renewables sector is to meet its 2030 targets for offshore wind. 

Novel approaches such as 3D-printed reefs and offshore fish farms offer potential solutions to ESG concerns, while disruptive technologies are heralding a new age of drone usage in operations and maintenance. Prototype technologies are also challenging traditional turbine design, giving a glimpse of what could come on stream in the years to come.

Offshore wind farms are highly complex projects requiring many different areas of expertise. The lessons learned from past losses are essential for the industry to improve and continue to grow more sustainably. It is important the technology is understood and that the risks are assessed across the whole marine spread. Risk identification of any project should include installation methods, independent verification/certification processes, quality control, safety procedures, and structural health monitoring. Ultimately, interface management and communication between all the various project parties is a critical success factor.