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Offshore Wind – Growth and Opportunity

Dele Fajimolu
Senior Executive, Technical Underwriting

“In the face of these complexities and uncertainties, one word encapsulates the essence of offshore wind – opportunity. Embracing advanced technology is crucial for mitigating environmental changes. It's essential that stakeholders recognise the potential benefits and seize them for a sustainable future.”

Dele Fajimolu, a Senior Executive in Technical Underwriting at the Lloyd's Market Association, delves into the intricate landscape of offshore wind, offering valuable insights into this burgeoning field and its implications for insurers.

The offshore wind sector is experiencing exceptional growth across the globe. One key development that has increased interest in the sector is the US Inflation Reduction Act, which offers substantial rebates to organisations and entrepreneurs venturing into renewable offshore power production. This act has generated enthusiasm within the industry as capital is now being channelled into fostering offshore wind, as well as other renewable energy types. Especially, now as the cost of producing renewable energy continues its downward trend.

In the effort towards net zero, the global growth of the industry has led to rapid advancements in the technology supporting the energy market. An example of such is the scale in size and power production of offshore wind turbines which has increased significantly in the last few years. As the technology evolves, insurance risks expand in tandem. While bigger turbines mean greater power generation and energy provision, they also represent more challenges for the industry. 

Difficulties persist in much of the offshore wind supply chain, which has not yet caught up with the developments surrounding newer turbines. For example, the infrastructure required to transport and install these turbines has not grown at the same rate and consequently, the ships, trucks and cranes which are used to transport and construct these turbines at their destination have not been manufactured to move with such big equipment. 

The disconnect between the scale of turbines and the logistical capacity for transportation has the ability to hinder or delay the construction and onlining of various projects for offshore wind farms. As the scales of balance between renewable and fossil fuel industries begin to tip in favour towards renewables, infrastructure, such as ships, which were once locked into coal and oil, could now be retrofitted and utilised for the purpose of offshore wind transportation. 

Beyond the technology, infrastructure and supply chains, there are other factors which are evolving at an exponential rate. The world is witnessing increased frequency and severity of severe storms, intensified by the effects of global warming, which pose significant risks to the offshore wind and solar industry. Global warming introduces unpredictable variables, as do the location and project stages of the location identified for these operations. To account for these challenges, carriers can employ models to predict potential exposure which are frequently updated with new data. 

The lack of historical data on these emerging technologies also makes risk assessment a daunting task. It shifts the onus from research and development to insurance risk, as insurers step into uncharted waters. There's a need for cautious underwriting to avoid unforeseen losses and a constant drive to mitigate the risks associated with these novel technologies. To update its analysis, the industry must focus on forging partnerships, and investing in research and development to address these evolving challenges.

Collaboration and knowledge sharing among industry players are key in navigating these unknowns. Sharing data is another critical aspect whereby a unified approach to gathering and analysing data can enable a more comprehensive understanding of offshore wind's performance. An example of data sharing would involve comparing it to fossil fuels using risk code data and agency data. This would be pivotal in demonstrating the growth potential and performance of offshore wind. While this might attract more players to the industry and potentially lower rates, it could also make offshore wind more accessible and encourage greater insurer participation.

The offshore wind sector represents an opportunity that demands attention from insurers. While there are a number of challenges and uncertainties, the rewards are equally substantial. Adapting to advancing technology, navigating the ever-changing risk landscape and sharing data are necessary steps in capitalising on this untapped opportunity. As we venture into this new era of offshore wind energy, insurers must remain agile, collaborative and forward-thinking to harness its full potential to assist the global need for a greener future.