Any way the wind blows: underwriting Chinese offshore wind turbines

By Rebecca Delaney

July 10 - (The Insurer) - As escalating capex costs and supply chain squeezes force European offshore wind developers to look to Chinese turbine manufacturers, the London market faces the challenge of proactively learning the risk profile of these new assets.

Guangquan Xu, head of Scor’s new energy practice, told Sustainable Insurer that project developers have approached the London market in recent years to question the insurability of using Chinese original equipment manufacturers (OEMs) instead of European wind turbines.

“At the moment, for offshore wind farms in Europe, the cost of a turbine is almost half of the capex cost for the whole wind farm. It's a big chunk of the investment going to the turbine,” said Xu.

“The majority of London market underwriters are quite familiar with the European turbines, like Siemens or Vestas. We never really use any Chinese technology in European waters. There’s uncertainty around capability, the right level of quality control compared with European peers, and how they will behave in North Sea waters.”

In response to this growing client demand, the Lloyd’s Market Association’s joint natural resources committee (of which Xu is a co-chair) organised a trip earlier this year for 20 London market underwriters to visit various offshore wind industrial parks and operations centres in China to learn more.

The 20 individuals that attended the trip represented 13 separate markets with close to $1 billion capacity. The majority of attendees hold underwriting roles (such as lead underwriter, CUO, or head of offshore wind), with a handful of risk engineers.

The trip covered four cities (Beijing, Yangchen, Zhongshan and Yangijang) over five days, including visits to Chinese General Certification headquarters, blade testing centres, offshore training centres and turbine factories.

“It's not really a new technology, it's more a technology moving to a new location,” Xu explained.

“We wanted to understand, first of all, the unfamiliar turbine suppliers and their technology, and what they are planning if they sell their turbines in European waters – internal service plans, warranty providers, repairs, all the follow-on technical questions.”

Dele Fajimolu, senior executive, technical underwriting at the LMA, added that understanding the processes behind the technology – such as undertaking repairs, constructing materials and quality controls – was more transparent compared to European manufacturers.

“The Chinese OEMs were very open in allowing underwriters to see the technology and how they put things together,” he said.

“Not that it's going to be majorly different from European manufacturers, but it's not been seen by our members before. You wouldn't necessarily get that accessibility from European manufacturers, mainly due to commerciality and competition.”

Fajimolu continued that the trip served to cement the position of the London market as a specialist centre for large and complex risks.

“For those projects that are out there that are willing to use this technology, when they want coverage, they've got a marketplace closer to their home and jurisdiction that can take on their risk,” he noted.

This was affirmed by Xu, who added that the high demand for the trip underlined inherent innovation and willingness to proactively understand the risk and its underwriting challenges.

“We can't see any red flags to use Chinese turbines in the European market. This gives the London market confidence that if our clients bring the risk to us, at least we can start the underwriting process,” he said.

“That's quite positive news for the whole offshore industry, particularly in Europe. Bankability and insurability is a big tick box for any developer to use a Chinese turbine, even before they look at the purchase price.”

Xu added that as well as capex costs, European project developers are looking to use Chinese OEMs owing to supply chain issues across the sector.

“The problem for the whole offshore industry is the supply chain. If you don't open up the additional supply chain, we will have a problem meeting the net-zero target for the whole of Europe,” said Xu.

“Chinese turbines to the European market has become quite a geopolitical topic, but obviously that's outside of our underwriting process. We are really focused on the technology and risk itself.”

Fajimolu concluded: “There's a lot of projects to fulfill. Potentially using Chinese manufacturers is another tool in the kit bag so they don't have to rely on long lead times that they might incur because of unforeseen circumstances with the current manufacturers in Europe.”