'Contractor error and defects on the rise in offshore wind': insurer

Contractor errors and defects now cause almost two-thirds of insurance claims for offshore wind, although a surge in extreme weather losses could be on the horizon, warns a new report from specialist underwriter GCube.

Contractor error and defects – in design, materials, manufacturing and workmanship – continue to be the “major root causes of offshore wind losses,” the renewables insurer found in its report.

Having accounted for 55% of claims in the sector in 2020, GCube said they rose to 63% by 2022.

GCube has “witnessed first-hand how boom and bust cycles” in the renewables sector put pressure on the supply chain and culminate in contractor error and defect issues, said GCube CEO Fraser McLachlan.

This has partly been driven by a “shortage of skilled workers and specific installation equipment, like vessels and cranes,” he said, and has led to a “more cautious approach from underwriters.”

Following “booms” in offshore wind investment (outside of China) in 2016 and 2020, the report said that there has since been a “plunge” in financed capacity due to rising interest rates and higher materials costs.

GCube said this raises the question: “How can we tackle issues related to contractor errors and defects before the next construction boom?”

Addressing avoidable “human error” during construction must it said be an "area of ongoing focus as offshore wind continues its global expansion."

GE Vernova has recently been in the spotlight for a series of mishaps involving the installation of its Haliade-X turbines on both sides of the Atlantic.

Mechanical breakdown issues are also becoming more prevalent as larger, newer turbine models are brought into operation, found GCube. These issues are manifesting “during installation, as well as operation.”

While offshore projects have yet to experience the full brunt of extreme weather events during construction, the insurer said it remains a “looming possibility.”

This is “especially as ventures expand into new regions in Asia and the US, where hurricanes and typhoons are more prevalent.”

Extreme weather the prime cause of onshore claims

Indeed, GCube found that extreme weather events and natural catastrophes are the primary drivers of onshore insurance claims for wind and solar – behind 48% of losses.

These are not just an issue once facilities are up and running, said GCube, with wind and solar farms “particularly vulnerable to natural perils” when under construction, as was reportedly the case for the Hainan wind farm.

“Climate change could exacerbate these risks as extreme weather increases in frequency and severity,” said GCube.

Contractor error is the second most costly root cause of onshore construction claims – representing 16% of total claims cost, said GCube.

Josh Shimali, head of onshore at GCube, said this “stems from a shortage of skilled and experienced personnel, exacerbated by the rapid growth in renewables.”

“Essentially, the shortage has resulted in lower-tier contractors being chosen due to availability rather than skill level, leading to various problems such as improper installations and damage.”

“Additionally, the pursuit of higher profit margins has prompted contractors to opt for cheaper labour, which is further exacerbating the issue.”