Offshore wind farms off the US and Asia could become uninsurable if a hurricane or typhoon causes major damage to the first projects, according to one of the world’s leading renewables insurance companies.
“[The risk from typhoons] is a big concern for us and, frankly speaking, that's why the Taiwanese projects are costing twice as much to insure than the European projects,” says Robert Bates, underwriter at GCube Insurance Services, adding that US projects are a third more expensive than North Sea ones. “The capacity to insure that risk is there now, but will it be there in a couple of years' time when a huge super typhoon has smashed all the construction sites? Time will tell.”
It’s also not yet known if any of the so-called typhoon-class range of wind turbines will actually be able to withstand a cyclone, Bates points out.
“They’re not proven yet because we haven't seen a typhoon go through a wind farm with typhoon-class turbines,” he tells Recharge.
“A lot of the underwriting expertise and insurance expertise generally has been based in the EU for offshore wind. In the EU, we might get the odd big North Sea storm, but nothing [like] Hurricanes Harvey and Maria that hit the US and Puerto Rico in recent years. Those were really, really big storms, 150 miles per hour [240km/h], that kind of speed. We've never had to deal with that, but now, with Taiwan and the US, we do. So it's been quite a big learning curve for everyone in the underwriting centers, London, Munich, etc, to try to learn how these turbines will survive in those kind of areas.
“So at the moment the insurance market is coping with the demand. But we'll have to wait and see as more stuff goes in to Taiwan and the US east coast.
"[But] there’s a limit to what the insurance market can do. In Taiwan, there are a number of projects that are going to be right next to each other. So you might have $50m of exposure on one and then another $50m exposure on another. But because they're next to each other, they aggregate. And if a big storm comes through and knocks them both out, then you've got a $100m loss."
Premiums are likely to skyrocket if a hurricane or typhoon knocks out even a few turbines, adds Bates.
"Some insurance companies — not so much us cause we've got quite a big underwriting capacity — will have big reinsurance programmes and a lot of the pricing for stuff like Taiwanese [projects] will be driven by their reinsurers. And they will have aggregate exposures on a scale much larger than the direct insurance company."
Bates explains that despite all the uncertainties around weather risk in these new offshore markets, GCube currently feels “comfortable” enough to insure them.
“We have done a bit of due diligence on [typhoon-class turbines], and the manufacturers have made some key adjustments. So they've done things like lower the hub height. The higher the hub height, the more exposed you are to the more turbulent, stronger winds. So you reduce the hub height, then you're less likely to get major damage to the turbine.
“The other thing they're doing is thicker steel on the towers, shorter blades. And so all of those ideas are good. And when they, when Siemens for example, when they are looking to have their project insured, they'll provide a fact sheet about their turbine. You know, these are the maximum wind speeds they can withstand. And we've, we've been able to get comfortable with all that information.”
Lower hub heights, shorter blades and thicker towers will increase the levelised cost of energy, compared to North Sea projects, but this is not necessarily a big problem, Bates explains
“In places like the Taiwan Straits, you've got such good wind resource that you're probably getting better capacity factors then a lot of North Sea locations,” he says. “So I think for the developers going into Taiwan, they probably think, ‘yeah, there is an exposure to typhoon and earthquake, but the feed-in tariff's very good. And we can mitigate that risk with help from insurance. And also the wind resource that we're getting in Taiwan is better than a lot of North Sea locations anyway, so let's, let's put our money in in Taiwan’.”
Bates adds: “It's quite an interesting and exciting time to be in insurance, which is something that people have rarely, if ever said.
“There's a lot of construction going on and there are some big risks that people are taking on. Time will tell how it pans out.”