Floating Offshore Wind Unlocks New Opportunities and Challenges

Floating Offshore Wind Unlocks New Opportunities and Challenges
April 23, 2024 9 mins

Floating Offshore Wind Unlocks New Opportunities and Challenges

Floating Offshore Wind Unlocks New Opportunities and Challenges

While there are similarities in the risk profile of floating offshore wind and bottom-fixed offshore wind, challenges like unproven technology and tow-to-port strategies for maintenance require a collaborative approach between owners/developers and their insurance partners.

Key Takeaways
  1. There is a pipeline of floating offshore wind projects equal to 244 GW in capacity.
  2. One key area of risk where there is divergence from bottom-fixed offshore wind is in major component repair or replacement.
  3. Engage with partners as early as possible to guarantee the best value insurance coverage solutions needed for floating offshore wind projects.

In the race to net zero, wind energy will play a critically important role in the production of clean, green energy. Offshore wind has already made its mark. But as the industry looks to make a greater contribution to national electricity grids across countries, attention has turned to the exploitation of more consistent and reliable winds in waters too deep for traditional bottom-fixed offshore wind turbines.

Consequently, the evolution of floating offshore wind is already unlocking new, hugely valuable opportunities for wind generation. In Europe alone, the industry association WindEurope1 forecasts up to 10 gigawatt (GW) floating offshore wind generation will be in operation by 2030. This is enough to power more than three million households.2 Globally, the trade body RenewableUK reports a pipeline of floating offshore wind projects equal to 244 GW in installed electricity capacity.3

Diagram - New Installations in the EU - WindEurope's Outlook

New installations in the EU – WindEurope's Outlook4

Potential barriers to the floating offshore wind industry delivering on these targets include risks related to unproven/prototypical technology and the possibility of towing turbines to port for maintenance. Managing these risks effectively will be key in securing the overall insurability and feasibility of this developing technology.

As the world turns to floating offshore wind to help further unlock the potential of offshore wind energy, the insurance industry has a vital role to play in facilitating successful project deployment and generating sustainable investment returns. That means helping to deliver insurability of projects, unlocking capacity within insurance markets and, ultimately, providing effective, economical and comprehensive insurance coverage.

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The risk management submission process remains rigorous, but markets are finding greater efficiencies through increased consistency of questions among insurers and partnerships with external vendors.

Lorraine Monaghan
Global Renewable Energy Technical Services Leader

Floating Wind — an Unproven or Prototypical Technology?

Floating wind has had many labels applied to its new and emerging technology. Two terms consistently mentioned are unproven and prototypical.

Unproven refers to something that is new, original or innovative, often implying a departure from established conventions or traditions. By contrast, prototypical refers to something that serves as a typical or idealized example of a particular concept or category.

Floating wind as a technology is a dynamic blend of both unproven and prototypical elements. The unproven nature lies in its transformative role within the renewable energy sector, challenging conventional offshore wind norms and enabling the expansion of wind energy into deeper waters.

Simultaneously, the technology carries a prototypical legacy from its successful application in floating oil and gas facilities, showcasing the adaptability of proven concepts across diverse industries. The intersection of innovation and historical precedent positions floating wind foundation technology as a powerful force, driving change in the broader landscape of offshore energy. But to deliver on its potential, participants will need to understand where the correlations exist with traditional upstream applications and where the floating wind risk profile differs.

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Identifying the right insurer who understands your risks, has a proven track record of paying claims, and is willing to customize policy wording to address your exposures and incident response strategies is critical to manage future volatility.

Daniel Sim
Global Strategic Account Manager Natural Resources

A useful tool to bridge this gap is that of type certification, typically carried out by leading class societies. Not only does this process draw on the copious experience from upstream energy floating foundations, but it is also a crucial piece of the risk exposure puzzle for insurers. Recognizing that impartial industry experts have considered the floating solution from the basis of design upwards should give insurers comfort that design flaws have been mitigated as far as possible.

The benefit is the ability to secure insurance at premiums that can support projects on tight financial margins, while delivering wider, more comprehensive coverage and protection.

A Changing Risk Profile

One key area of risk where there is divergence from bottom-fixed offshore wind is in major component repair or replacement (MCR). Bottom-fixed offshore wind and floating offshore wind projects share many commonalities, including wind turbine models. However, when executing on-site MCR campaigns, the use of a jack-up vessels (JUV) for floating offshore wind is generally impossible due to the water depths at these locations. Therefore, until floating-to-floating solutions are developed further, floating offshore wind projects will likely require a tow-to-port strategy for MCR campaigns. This approach presents new risks in terms of operational “all risk” and business interruption (BI) insurance for offshore wind, as well as operations and maintenance challenges.

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A tow-to-port approach for main component repair campaigns presents new risks in terms of operational ‘all risk’ and business interruption insurance for offshore wind.

Stephen Hall
Global Account Executive Offshore Wind

When incidents occur, the cost of a MCR for a bottom-fixed offshore project is heavily influenced by the availability and cost of a JUV, as well as a suitable weather window. For a floating offshore wind project where a tow-to-port campaign is required for MCR for one or multiple wind turbines, there are additional cost factors to consider. These include:

  • The cost and availability of a suitable port and crane
  • The right weather conditions for disconnection and reconnection from the array
  • Tow times to and from port
  • The inherent risk of losing one or several wind turbines during tows
  • The risk of leaving array cable and moorings disconnected at the site

Working Collaboratively with the Insurance Industry

Due to the limited track record of floating offshore wind when compared to fixed bottom offshore wind, the insurance market is on a learning journey.

Aon has been working closely with insurers and clients to accelerate this educational process and exchange information on topics such as technology, supply chain, construction and operations strategy, as well as associated risks. Project experience and resultant policy claims also naturally lead insurers to a greater understanding of floating offshore wind risks, which can in turn lead to the development of insurance policy terms to suit the new risk profile.

A project’s operations, maintenance strategy and business continuity planning can impact the amount of revenue insurers will be prepared to insure. Business interruption deductibles, for example, are set based on project risk profiles and loss experience with higher deductibles. This therefore impacts the level of indemnification to developers, potentially eroding margins. Deductibles will depend heavily on project plans for the supply of port and facilities, and crane and vessels in the event of an indemnifiable event requiring tow-to-port for remediation.

In addition, seasonal variations in weather windows have the potential to significantly impact offshore disconnection/reconnection works. Towage times for the units may also be affected, potentially leading to tiered deductibles for different scenarios.

Balancing Contract Risk

From a contractual perspective, risk allocation between the parties involved — in particular, between the original equipment manufacturer and the developer of the floating offshore wind project — is key to enhancing the insurability of projects and reducing the risk for project stakeholders.

The extent of warranties, indemnity provisions and long-term service maintenance agreements will also be closely reviewed by insurance markets. These will have an impact on the insurance terms and conditions.

This task can be challenging since legal teams generally have a strong knowledge of indemnity and warranty provisions, but more limited insurance knowledge. Insurers, on the other hand, are familiar with insurance clauses but generally not as experienced with contractual language. This knowledge mismatch furthers the need to work with a risk partner to close the gap and ensure the contract negotiations result in a balanced risk allocation.

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Contractual Risk Management shall be critical to ensure a balanced risk allocation is agreed between different stakeholders, enhancing insurability and bankability of project/technology.

Jose Angel Pagola
Co-Leader Offshore Wind, Spain

Impact on Understanding Insurance Losses

The role of risk engineering is also critical in understanding the technology involved in floating offshore wind and to ensure appropriate estimated maximum loss (EML) and probable maximum loss (PML) scenarios are modeled.

Compared with bottom-fixed offshore wind projects, floating wind offers several differences that will impact on EML and PML modeling. This sparks new scenarios and considerations for construction all risks and operational all risks insurance policies.

In addition to the tow-to-port risk, other scenarios for floating offshore wind include the failure of some aspects of the station keeping system. New risk scenarios for floating wind, and the costs associated with these, require careful consideration in EML and PML studies, as well as good quality discussions with risk engineers.

Engage Early with Insurance Partners

Building and fully understanding the risk profile of floating offshore wind technology will take time, but leveraging the experiences with floating structures from the oil and gas sector, lessons learned from bottom-fixed wind projects and the invaluable insights gained from various floating offshore wind demonstrator projects, will help complete that profile.

Most importantly, though — for businesses involved in floating offshore wind projects — the message is clear. Engage as early as possible with insurance partners to gain the optimum insurance coverage solutions needed for floating offshore wind projects to deliver on their significant potential.

Aon’s Thought Leader
  • Stephen Hall
    Global Account Executive Offshore Wind
  • Lorraine Monaghan
    Global Renewable Energy Technical Services Leader
  • Jose Angel Pagola
    Co-Leader Offshore Wind, Spain
  • Mark Potter
    Power and Renewables Industry Practice Leader, EMEA
  • Daniel Sim
    Global Strategic Account Manager Natural Resources

1 https://windeurope.org/newsroom/news/floating-wind-is-making-great-strides/
2 https://www.carboncollective.co/sustainable-investing/gigawatt-gw
3 https://www.renewableuk.com/news/654282/Global-floating-offshore-wind-project-pipeline-grows-by-one-third-over-12-months-.htm
4 https://windeurope.org/intelligence-platform/product/wind-energy-in-europe-2023-statistics-and-the-outlook-for-2024-2030

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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