The recent federal approval of the first wind farm (“Cape Wind”) to be built in United States’ waters marks a new era for renewable energy projects, said Peter Mavraganis, recently appointed leader of Marsh’s U.S. Renewable Energy Practice.
“It’s a great new area for all of us, carriers and brokers,” Mr. Mavraganis said. Mr. Mavraganis further explained that “[t]hese are very complex, very expensive projects.” “It multiplies the difficulty when you are constructing roughly 20 miles off shore versus on shore. The logistics of the construction itself become more difficult.” To hear the full A.M. Best interview with Peter Mavraganis of Marsh, click here.
EAPD’s insurance and reinsurance energy team has been closely following this emerging area as well and believes the “risk issues” associated with offshore wind energy are both numerous and diverse, and affect every stage of development and operation.
For example, during project inception, understanding the various wind and wave force loadings; grid interconnection; economic, political, and legal risks, are all key from an insurance perspective. As the project progresses, technology; construction; collision; the potential for delay-in-startup; and perpetual natural catastrophe risks all come into play.
Although offshore wind is attractive in terms of premium, fewer insurance markets are currently able to participate in offshore wind farms due to the increased marine exposure and the requirements for specialist marine reinsurance protection. To this end, many underwriters often reference the prototypical technology and technical perils, faults in design, material and workmanship as being a major concern for offshore wind energy, especially wind farms located in remote and harsh conditions.
EAPD has indentified the following as possible risks which all parties must be mindful of as offshore energy opportunities continue to grow in the U.S. and globally:
• Delay in start-up/repairs risk — key bottlenecks such as long lead-times, availability of vessels and contractor equipment, access to the construction sites, and damage in transit can cause delay associated risks
o Building and operating risks
o Replacement and repair risks
o Maintenance risks• Transmission cabling risk — the type, number, length, burial depth, and method of installation of export cables can cause a number of associated risks
• Offshore wind force and wave load disruption risk — impact of sea and wind conditions on all types of offshore work can cause major disruption to work on, and the eventual operation of, an offshore wind farm
• Weather/storm related risk
o Sea ice – colliding into ships and wind generators
o Atmospheric ice – causing damage to the blades and turbine
o Hurricanes
o Tornados
o Tsunamis/Tidal waves• Offshore collision risk — vessels colliding with each other and/or the wind farm itself lead to a myriad of collision risks
• Subsurface condition risks –- geological conditions (e.g., earthquakes and soft/weak sea bed) can lead to a number of risks involving foundation/piling and cable laying risks
• Technology and cyber risks — technology is a pertinent risk issue for offshore wind projects as turbine models have limited operating experience and track records in these conditions. Furthermore, cyber risk becomes an issue as more and more of the energy infrastructure is handled remotely by wireless connections
o Terrorism risks –- wind farms are high valued remote targets often owned by state energy companies
