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Nov 2024

The challenges and risks of deep sea wind energy

Source: Asia Insurance Review | Nov 2024

Liew Boon TatNeil BestThe energy sector is undergoing a major transition into sustainability, with organisations and governments across the region exploring different alternative sources. Sedgwick’s Messrs Neil Best and Liew Boon Tat elaborate on the challenges.
 
 
The energy sector is preparing for a new surge of offshore wind development to meet global demand for green energy to meet their climate change commitments.
 
As the sector expands, operators are looking farther offshore due to the limited availability of viable wind catchment areas in shallower waters. According to the DNV 2022 Energy Transition Outlook, wind energy is expected to make up 33% of the global energy mix by 2050, with 13% coming from offshore wind.
 
But challenges can compound as development moves into riskier, deeper waters.
 
Offshore wind: Moving into deeper waters
Offshore wind farming started in the 1990s and early 2000s with near-shore projects in relatively shallow waters. Since then, many countries have developed and utilised economically-feasible nearshore wind resources. However, harnessing wind in these areas faces competing interests, such as shipping, fishing and recreational activities which vie for the same water spaces.
 
Moving further offshore offers promising wind resources, especially as traditional fixed-bottom wind turbines can only be built to a limited water depth and becomes economically unfeasible. Floating technologies therefore are the next frontier to harnessing wind energy in deep waters.
 
Challenges ahead for offshore wind development
Currently, there are only a few floating winds in operation. Wind turbine technology is therefore not mainstream particularly in the Asia Pacific region. Nevertheless, there is growing interest with ongoing research and development aimed at creating stable, robust and economically viable solutions for its adoption. Projections indicate that by 2050, floating wind could account for 2% of the global energy supply. While this may seem small, it represents a significant increase from the current output of 200 MW to an estimated 250 GW over the next 30 years, per DNV.
 
However, numerous challenges remain, including local regulations, supply chain limitations, and country-specific risks such as Nat CAT risks and political instability. Additionally, since these facilities are expected to be unmanned, response times and access during emergencies could become critical concerns for both operators and underwriters.
 
It’s crucial carefully to consider the design of floating facilities, focusing on mitigating station-keeping and stability issues.
 
As these technologies are developed, all stakeholders including claims professionals are advised to familiarise themselves with the challenges that come with insuring and mitigating such risks including: 
Installation and operation – the risks increase significantly as projects move further offshore. Marine environments are less predictable in deep waters: Even if the water is calm on the surface, conditions near the seabed can move rapidly and change unexpectedly. Developers plan to deploy specialty resources and vessels to install and operate on structures in this environment. The latter are becoming ‘scarce resource’ as countries rush to develop these projects.
 
Economic – because equipment is specialised to adapt to a dangerous and harsh environment, deepwater wind farms are significantly more expensive to develop, install, and maintain. Once a floating platform is built, developers also have to consider the cable infrastructure required for long-distance energy transmission. There are also new developments to meet the demands as projects go deeper. An example for subsea infrastructure includes the Aker Solution underwater substation technologies for the Outer Moray Firth wind project in Scotland. Whilst this is potentially a gamechanger, new technology has some inherent risk exposures: Having to be installed, then operated in deep subsea conditions.
 
More important are the capital investments required for these new technologies: While the early phases of development in floating technologies were supported with government funds, the cost of these technologies remains significant, even as they become more viable and develop commercially.
 
Supply chain – ports and supply chains are already under immense strain from the current global trade environment. Many ports are not currently equipped with the space or the infrastructure to handle or store the ultra large and odd-sized equipment. The heavy lift infrastructure is limited by capacity and reach. As the supply chain around offshore energy projects matures, experts advise that ports upgrade, expand, and evolve their infrastructure and logistics capabilities. There is a global shortage of suitable wind installation vessels and support vessels, such as barges to transport the wind turbine components; these require significant capital investment. Constructors may be riding on a profitable wave of project work. However, they are also cautious of overextending themselves and the potential redundancy of such vessels after the ‘construction rush’.
 
Regulatory – energy regulations are as complex as the systems they regulate.
 
Offshore developers are tasked with navigating regulatory challenges like permitting, environmental compliance, and concerns from other marine stakeholder groups like the fishing and maritime industry. Regulations change constantly; experts involved in energy projects would benefit from staying aware of changes as they happen.
 
Weather – one of the biggest compounding factors to the risks involved in deepwater wind farms is weather. Deepwater projects in North Asia and around the world face extreme weather conditions including strong winds, high waves, hurricanes, and unpredictable underwater movements. For example, the recent and devastating effects of typhoon Yagi caused significant damage to several nearshore wind turbines in Hainan, highlighting the severity of these types of weather events. Due to the unpredictability of Nat CAT events and the increasing intensity of windstorms there will be a need to reconsider the engineering design limitations, the installation methods and operability of these floating systems.
 
Steering the way forward for insurance experts
Despite these challenges, technological advances and growing interest in renewable energy are driving the development of deepwater wind projects. The transition to green energy is a globally recognised incentive and, though it is vying with the transient concerns associated with energy security, this transition will likely gain momentum over the next decade.
 
The research and development process for deep sea wind projects is rooted in traditional technology and infrastructure already in use onshore and in shallower waters. The wealth of experience accumulated from traditional oil and gas is relatable and transferable to the renewables sector. Sedgwick, like many other stakeholders, has experience in the traditional energy space to guide the transition to new territory in renewables. Augmented by our team of specialists, we are dedicated to strategically adding value to our service for our clients through this transition.
 
Stakeholders can learn from past incidents involving similar floating technologies utilised by traditional offshore losses such as floating production vessels, moorings, anchors, and other offshore assets to prepare for the future of offshore energy projects. The vulnerabilities and risk factors involved in onshore and near-shore wind farms have many areas in common with deeper sea projects. With a better understanding of the risks, stakeholders can adopt preventative measures to prevent and mitigate loss incidents.
 
Insurers can also benefit from R&D to improve their risk exposure. Contractors like DOF have invested deeply in research and development to create better ways of building and storing components on an offshore wind project, like lighter, easier-to-store ropes and chains.
 
Complementing new technologies and solutions with the use of analytical tools will also reduce risk exposures. AI has promising uses in its predictive analytics capabilities: With properly honed and trained insurance technology, predictive tools could be helpful in anticipating and mitigating issues related to mooring systems in offshore wind projects.
 
Overcoming the obstacles of deep waters will be crucial to unlocking the vast potential wind energy has for our planet. It takes a network of risk experts and experienced energy professionals to help make that vision a reality. Should a fortuitous event occur, experts – including Sedgwick’s team – will be ready to support with efficient solutions. At Sedgwick, we have the expertise to offer solutions and value-added services and are committed to making a positive difference towards the energy transition. A 
 
Mr Neil Best is the director of energy, Asia and Mr Liew Boon Tat is executive energy adjuster at Sedgwick.
 
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