Offshore wind remains 'highly competitive' in London market

By Rebecca Delaney

May 19 - (The Insurer) - London market underwriters are maintaining a strong appetite for offshore wind exposures despite inflation-related challenges and supply chain issues in the sector, energy sources canvassed by The Insurer said.

Zoe Massie, head of offshore at GCube, told The Insurer that offshore wind risks placed in London remain highly competitive.

"It's incredibly soft. At the moment, everybody wants to write offshore wind," she said.

The challenges facing the offshore wind sector were highlighted by renewables developer Ørsted's recent decision to halt construction on its Hornsea 4 project.

The Danish company announced in its first-quarter results that it was discontinuing the windfarm project off the coast of Yorkshire "in its current form".

The decision was attributed to increased supply chain costs and high interest rates.

Renewable energy market sources told The Insurer that since the project was in the development phase, it had not yet been formally insured on a large construction policy. Coverage in place would have been limited to third-party liability.

Massie said the postponement of Hornsea 4 "brings to the surface" existing challenges in the UK offshore renewables market around inflation, permitting and supply chain issues, but was unlikely to change the market's appetite for writing offshore wind.

"The more offshore projects that are constructed, the more that we have to insure – therefore, the less competitive the market will be on every account that comes in as, naturally, there'll be a greater pool to underwrite.

"That particular project wasn't within the insurance market. It was a few years away from us seeing it, so in terms of implications for today, there aren't many," she said.

"It's the nature of the game. Construction risks get delayed, they get cancelled, they get paused. We see this all the time and it's to be expected to an extent. When we're making premium predictions, you're taking into account that not all of the constructions you were told may happen will actually happen."

DIP IN APPETITE?

Rob Bates, partner and head of claims at Nardac, said that the decision may lead to a "dip" in underwriting appetite, particularly if other projects in allocation round six of the UK government's Contract for Difference scheme face a similar pullback.

He affirmed that fixed offshore wind business remains competitive and attractive, but added that interruption or cancellation of projects may see underwriters pivot to other areas.

"If this project really does get fully cancelled, I think some people might take it as a bit of a bellwether. There's an Iberdrola project from this round, East Anglia 2 – if that gets pushed back or delayed, then that might indicate a trend to some underwriters," said Bates.

"There will be more projects coming in the not too distant future, but it'll be quite a period of frustration for underwriters who would have submitted budgets including projects like this one, and now they're going to have to revise those budgets and probably get a telling off from their senior management."

Bates continued that there is currently a general negative sentiment around offshore wind, particularly from investors in developers.

"The economics need to make more sense. It might be part of bigger trade-offs that we as societies need to make," he said. "Are we willing to spend more money to decarbonise than we're currently spending? How do we incentivise capital to deploy for offshore wind? I think that it does need bigger subsidies to get these projects going again."