Offshore wind mandates gain traction in Asia Pacific

Offshore wind farms are growing in importance as output improves and costs come down, according to Guy Carpenter’s Tony Gallagher, who has highlighted their importance in addressing ESG concerns.

Gallagher, regional CEO for Asia Pacific, said that while these facilities have had a prominent presence in Europe (the UK and Germany especially) for more than a decade, the biggest growth in power generation as well as turbine construction projects resides in the Asia-Pacific region. 

He added that, as the nature of risk changes and the awareness of climate change increases, ESG (environmental, social and governance) mandates are continuing to gain traction throughout Asia Pacific, with the urge to step up and build resilience to the inexorable risk:

“As turbines continually become more efficient and capable of generating larger amounts of electricity, production costs have come down. For offshore wind, the cost of generating a megawatt hour of electricity went from $162 in 2010 to $115 in 2019, according to the International Renewable Energy Agency (IRENA).”

At the same time, Gallagher noted, wind generation also offers producers the opportunity to reduce carbon emissions significantly, though countries and territories in the region are at differing levels of offshore wind development:

“Taiwan has a strong pipeline of projects. South Korea, Vietnam and Japan have developed significant presences. India has the slowest progress in the region. Australia also has a lot of potential, but no actual development at this time.”

“Alongside the industry’s growth, there are risks and challenges in the development and operation of wind power that range from financing obstacles to turbine location and extend to insurance coverage. As wind power continues to expand, building and maintaining offshore facilities takes on greater importance and complexity. From a (re)insurance perspective, increasing exposure to risk among stakeholders means coverage needs to grow in parallel with the offshore wind power industry, ultimately supporting its long-term expansion and viability, and impact on ESG advancement.”

Gallagher said that the biggest challenge remains to be addressing the potential for natural catastrophe:

“As the technology of turbines evolves, they are expected to be more resilient regarding wind exposure. However, this is largely untested in the quantities and weather conditions that would be encountered by these facilities. The modelling of wind farms is work that has already started and will assist in quantifying the potential loss in any one event.”

He suggested that a potential solution could be to separate the natural catastrophe aspect into government pools supported by reinsurance, segregated from other property risks inherent in offshore windfarm development, noting that there is already extensive natural catastrophe capacity available for on-land exposures in the region.