Insurance and innovation are often conceived of as opposites; innovation inevitably introduces risk, while insurance is inherently risk-averse. However, the very fact that insurers work to minimise risk leaves them in a unique position to support innovation.

The global offshore wind industry is doing well – but its future success is contingent on recognising the benefits of close collaboration with insurers.

Having achieved a historically low strike price of £57.50/MWh in the UK in September of 2017, the global offshore wind sector is shifting its focus to emerging markets. Taiwan awarded a whopping 3.8GW of offshore capacity in a recent auction, and a number of ambitious pipeline projects in the US, catalysed by state-level support, are progressing towards the construction and installation phases.

As well as expansion into emerging markets, the industry maintains a continued focus on driving down LCOE (levelised cost of energy). These dual ambitions rely on technological innovation to streamline operations and maximise returns.

But with innovation comes risk, and the industry must learn how to mitigate against these risks effectively, if it is to prove successful in markets both new and old.

Capitalising on lessons learnt will prove key – and here, the insurance industry can offer unparalleled knowledge and insight. With access to in-depth claims data, insurers know which innovations have worked, which haven’t, and which are likely to work in the future. Developers who ignore this expert knowledge do so to their detriment.

GCube’s claims data, collected over a 10-year period, shows that the leading technical causes of losses to offshore wind farms are cabling incidents and issues with foundations. Our report Down to the Wire reported that cabling incidents accounted for 77% of global offshore wind farm losses handled by insurers in 2015, and this number has not decreased in the intervening years.

Two thirds of cable faults can be attributed to contractor error during the installation phases – many of which manifest during the first two years of operation. All too often these mistakes are made by repeat offenders, who complete a project under considerable time and cost pressure, only for failures to occur during routine operation a couple of years down the line.

Arguably, the seasoned developers with years of experience building offshore wind farms are repeat offenders too. It is these firms who are most at fault for allowing lessons learnt to become decentralised. Moreover, staff movement between these companies is extremely high, and the industry relies on burning new entrants in order to sustain the impetus to achieve a reduced LCOE.

Teething problems are part and parcel of innovation – but repeat errors ultimately undermine trust. This, not reticent insurers, is what causes innovation to be stifled.

In order to learn from losses and to prevent their reoccurrence in the future, OEMs and developers must learn from past mistakes, taking on board knowledge gained on previous projects and working with the insurance industry to ensure that risks are minimised and no mistake is made twice.

Collaboration between developers and insurers will prove particularly crucial to the success of new generations of projects, which make use of prototypical technology and face elevated risks.

In addition to changes to equipment such as the gearbox, two major areas of recent innovation in offshore wind are turbine size, and the development of floating technology.

In 1991, the world’s first offshore wind farm used turbines with a capacity of 0.45MW. Just compare this to GE’s mega-sized 12MW Haliade-X turbine, slated for shipping in 2021.

The bigger the turbine, the bigger the loss if it breaks.

Larger turbines allow wind farm owners to benefit from economies of scale, increasing efficiency and driving down the LCOE. However, they also increase risk.

Supply chains often lack the relevant infrastructure to support huge machinery and blades – meaning that accidents are more likely during construction and that, once operative, any necessary replacement parts for a larger turbine can take weeks to repair due to difficulty of transportation and installation.

In addition, the bigger the turbine, the greater the proportion of project revenue for which it accounts. In a farm of 40, 5MW turbines, a fault in one turbine will have much less of an impact than in a farm of 20, 10MW ones. The bigger the turbine, the bigger the loss if it breaks.

Another innovation – floating technology – introduces new risks. The world’s first utility-scale floating wind project, Hywind, came online off the coast of Scotland in late 2017 – marking a significant achievement for the offshore sector and opening up a multitude of otherwise inaccessible deep-water sites.

However, in the absence of any precedent, developers, OEMs and insurers are having to apply fixed foundation rationale to floating projects – an imperfect approach, by all accounts. New technology, by its very nature, lacks the benefit of years of experience and ‘lessons learnt’ which enable all involved to minimise risks.

Collaboration is Key

In this climate of risk and innovation, collaboration between insurers and developers is more important than ever. It’s time to stop pointing the finger at insurers for stifling innovation, and instead to look at tackling the shortfalls in risk management that are hindering project progress.

The insurance industry is in a unique position to support innovation in the offshore wind industry, by advising on lessons learnt on previous projects, and balancing risk and reward. Crucially, offshore wind insurers can offer a perspective spanning technologies, markets and sites; unlike individual companies throughout the supply chain, insurers are likely to cover the risks for an entire project, from initial planning stages through to the end of its life.

By capitalising on the knowledge offered by this holistic overview, OEMs and developers can be supported to push the boundaries and engage in ambitious projects, benefitting from previous knowledge and working with their insurers to ensure that risks to projects are minimised.

Insurance and innovation, far from being opposites, are intrinsically linked. In order to achieve its full global potential, the offshore wind industry must recognise this – and fast.

Jatin Sharma is president at GCube Insurance Services

This is part of a series of blog posts from RenewableUK in the run-up to Global Offshore Wind 2018.