Insurance and risk overview for Offshore wind farms · Aon Risk Solutions | Global Power Specialty...

Insurance and risk overview for Offshore wind farmsThursday, 24 January 2019

Aon Risk Solutions | Global Power Specialty

Proprietary & Confidential

Aon UK Limited is authorised and regulated by the Financial Conduct Authority. 2

Agenda

Aon’s involvement in offshore wind

Typical offshore wind insurance program

Implications of debt finance

Key risk considerations

Claims overview from Europe




Market leading capabilities

No.1

>16,000

MWof offshore wind

project experience

75%of all projects in

operation or under

construction

Settled

300offshore wind

claims

GBP160million

of claims recoveries

Debt financed

&balance

sheet JV

projects

Dedicatedoffshore wind

broking team in

the international

insurancemarket

Dedicated

claims

specialists

Insurance broker for

offshore wind

In-houserisk engineering

specialists

High

diversityof offshore wind

turbines ranging

from 2MW to

9.5MW

Extensiveplacementexperience

of the world’s

largest offshore

wind turbines

At the forefront

of innovation

including

foundation

design




Insurance market – offshore market overview

▪ EUROPE - GENERAL

▪ Prolonged ‘soft’ market conditions, pricing, cover and deductibles all to benefit of client between 2012-17, exaggerated for offshore wind

▪ General hardening of conditions over last 18 months – claims situation worsening

▪ Key trend – construction not profitable, operation

▪ PREDICTED - ASIA

▪ Will benefit from European experience and competition

▪ Expect loading from European insurers for new country developments, c. 10-15%

▪ Expect further loading for natural catastrophe exposure, c. 25%




Implications of debt finance on insurance design

Higher loss

limits

Longer periods

of cover

preferred to

increase cost

certainty

Full

Contingent

Business

Interruption

coverage

Delay in

start-up and

business

interruption

coverage

– obligatory

Design cover

for turbines

dependent on

breadth &

robustness of

warranty

Lenders

Insurance

Endorsements

Full deisgn

cover for

Balance of

Plant

Lower

deductibles




Owner Controlled Insurance Strategy

• A proven approach covering in

excess of 18GW+ of offshore wind

farms being built or operating;

• Bespoke and broad offshore wind

wording, well tested by paying in

excess of USD 350M of claims to

date

• Accepted and expected by

international lenders, insurers,

contractors and suppliers;




Developing a bankable insurance strategy




What's covered?

▪ Physical damage to project assets

▪ Revenue lost due to resultant delay

▪ Transportation through to installation and

ongoing operation

▪ Revenue loss due to key installation equipment

damaged on site

▪ All Parties agreed under contract

▪ Third party property damage (TPL)

▪ Design defect - LEG 2 vs. LEG 3

What's not covered?

▪ Non-damage

▪ Delay from schedule slippage

▪ Contractor’s plant and equip., inc. vessels

▪ Wear and tear

▪ Warranties and guarantees

▪ Assets not included in the Sum Insured

▪ Breach of the Marine Warranty Surveyor recommendations

Key Coverage Summary




Risk considerations: Wind Turbine Generators

INSURER CONSIDERATIONS

▪ Who is the Original Equipment Manufacturer (OEM)

▪ Historical performance of turbine model

▪ If new – certification and changes from previous models, testing (length and environment)

KEY RISK

▪ Design or manufacturing issue causing damage to the wind turbine and consequential damage to the other project equipment, and significant downtime to the turbine(s) / project

INSURANCE RESPONSE

▪ LEG2 = reinstatement of consequential damage and any associated delay

OEM RESPONSE

▪ OEM response – replacement of defective part and improvement in design




Risk considerations: Contractors


▪ Experience, experience, experience

▪ Previous issues on other projects, lessons learned

▪ Marine Warranty Surveyor – who, scope and overall role

KEY RISK

▪ Inexperience of contractors leads to significant delay in the project, resulting in a delay to anticipated revenue

INSURANCE RESPONSE

▪ If contractors cause damage, the project insurance policy will respond to any delay as a result

CONTRACTOR RESPONSE

▪ If no damage is caused, project needs to make contractors contractually responsible for the delays caused




Risk considerations: Cables


▪ Main cause of insurance losses and delays

▪ Experience of cable supplier and contractor

▪ Proposed methodology, role of Marine Warranty Surveyor

KEY RISK

▪ Damage during manufacture, transportation or installation, resulting in damage and / or delay

INSURANCE RESPONSE

▪ If cable is damaged, the project insurance policy will respond to any delay as a result

CONTRACTOR RESPONSE

▪ If no damage is caused, project needs to make contractors contractually responsible for the delays caused




Risk considerations: Natural Catastrophes


▪ Location of project and exposure to natural catastrophe exposures – e.g. Typhoon risk in Taiwan

▪ Design parameters of turbine, cables and foundations –suitability for location and exposure

▪ Mitigation measures in place when there is an imminent threat

▪ Construction schedule which manages factors in anticipated weather seasons

KEY RISK

▪ Catastrophe event causing major damage and outage / delay to the project. Equipment does not respond as per manufacturers guidelines

INSURANCE RESPONSE

▪ Insurance policy will respond but subject to an increased project deductible (often including co-insurance for project) and potentially to a reduced limit of indemnity




Construction claims

13

143

9

34

34

3

51

2

8

21

78

CAR claims 2013 - 2018

Blade

Buoy

Contractors Tools

Export Cable

Foundations

Gearbox

Inter-array Cable

Liability

Nacelle

Substation

Transformer

Vessel

Row Labels Count of INCURRED

Blade 14

Buoy 3

Contractors Tools 9

Export Cable 34

Foundations 34

Gearbox 3

Inter-array Cable 51

Liability 2

Nacelle 8

Substation 21

Transformer 7

Vessel 8

Grand Total 194




Construction claims

14

930,000 07,295,000

57,100,000

71,300,000

300,000

46,650,000

1,000,000

3,000,00019,480,000

800,000 34,000,000

CAR (EUR - 2013 to 2018)

Blade

Buoy

Contractors Tools

Export Cable

Foundations

Gearbox

Inter-array Cable

Liability

Nacelle

Substation

Transformer

Vessel

Row Labels Sum of Total

Blade 930,000

Buoy 0

Contractors Tools 7,295,000

Export Cable 57,100,000

Foundations 71,300,000

Gearbox 300,000

Inter-array Cable 46,650,000

Liability 1,000,000

Nacelle 3,000,000

Substation 19,480,000

Transformer 800,000

Vessel 34,000,000

Grand Total 241,855,000




Operating claims

15

9 2

21

317

7

3

1 3

8

OAR Claims 2013 - 2018

Blade

Buoy

Export Cable

Foundations

Gearbox

Inter-array Cable

Main Bearing

Nacelle

Substation

Row Labels Count of INCURRED

Blade 9

Buoy 2

Export Cable 21

Foundations 3

Gearbox 17

Inter-array Cable 7

Main Bearing 3

Nacelle 1

Substation 3

Transformer 8

Grand Total 74




Operating claims

16

1,380,00026,000

48,200,0000

1,335,000

19,260,000

0 00 700,000

OAR (EUR - 2013 - 2018)

Blade

Buoy

Export Cable

Foundations

Gearbox

Inter-array Cable

Main Bearing

Nacelle

Substation

Transformer

Row Labels Sum of Total

Blade 1,380,000

Buoy 26,000

Export Cable 48,200,000

Foundations 0

Gearbox 1,335,000

Inter-array Cable 19,260,000

Main Bearing 0

Nacelle 0

Substation 0

Transformer 700,000

Grand Total 70,901,000




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Insurance and risk overview for Offshore wind farms · Aon Risk Solutions | Global Power Specialty...

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