Risks in renewables report: Offshore wind

As noted in the economics section, offshore wind faces a difficult environment in the coming months and its future growth prospects rely greatly on a normalisation of the financial environment.

In the US, the Trump presidency has put any future growth plans for the US offshore market on hold, as he promised prior to being elected. Although this will delay the rise of the US offshore market, the growth projections for the rest of the world remain strong even under the current financial environment. Energy security remains one of the strong drivers behind this, apart from trying to meet climate pledges.

Despite the fact we are not yet seeing Chinese manufacturers entering this sector at the pace they are in onshore wind, we do believe that the current financial environment provides a significant opening. Developers have already started to explore the sentiment of insurers on Chinese manufacturers during informal discussions, and the main reason given has always been cost reduction.

Contrary to onshore wind – where insurers have experience with several projects located outside of China that are using Chinese wind turbines – offshore wind outside China is very much dominated by European manufacturers, so there is no operational experience. There is also concern regarding the ability of Chinese OEMs to provide adequate operations and maintenance services under long-term agreements when their supply chain is solely within China.

We see installation vessels as a persistent limiting factor while wind turbines continue to grow. We do believe though that this is an unsustainable trend due to the financial implications.

As with all renewable energy technologies, major component lead times are an increasing concern. Sub-sea cables and other major electrical infrastructure (such as transformers) are the most critical in our opinion due to the prevailing stretched supply chains. Subsea cables could carry lead times of well over a year if the developer does not have sufficient spare cable available, while main power transformers can take more than two years to be replaced.

Offshore wind turbines were tested under what can be considered an extreme weather event off the coast of China in 2024, when Typhoon Yagi directly impacted several wind farms. The limited public information that is available paints a picture of offshore wind turbines coming out unscathed from this event.

Although it is not the only type of extreme event that can affect an offshore wind turbine (earthquakes and tsunamis are other examples), a typhoon or hurricane is the most likely worst-case scenario for offshore wind in terms of a large loss event.

However, we can't base our offshore wind risk modelling on one or two reference points. And to make things worse, the frequency and strength of these storms has been steadily increasing in recent years. The reality is that these structures have only just begun to be installed in regions that are affected by these types of storms.

As more wind farms are installed, we foresee a higher probability of damage due to these events. Depending on their location, two scenarios will play out which will impact the cost to owners and insurers. In the more developed Asia region, there is limited availability of vessels capable of performing lifts of large rotor-nacelle assembly (RNA) components. Therefore, it is very likely that these vessels will need to be brought from Europe, which translates into very high mob/demob costs. Furthermore, as there is a limited pool of these specialist vessels, securing them for such a long repair campaign will be a challenge due to tight schedules.

In the US, the Jones Act requires that all vessels are built in the US, are American-owned and are crewed by Americans, and there is only one Jones Act vessel, the Charybdis, that will allow port-to-point transfers. This would therefore require the use of other more risky and expensive logistical arrangements such as sailing from the EU or Canada directly to a site, or the use of feeder barges.

The bottom line is that both regions present a very high risk of repair delays if an extreme event damages several assets within one or a group of wind farms in the region.