President Biden issued an executive order to install enough offshore wind capacity off the Atlantic, Pacific and Gulf coasts, to produce 30,000 MWs of energy. Currently, there are just seven offshore wind turbines in the US, operating off the coast of Rhode Island and Virginia.
This proposal will create high paying jobs, reduce carbon emissions, and make the US a leader in the renewable energy industry. It will also create an opportunity in the insurance market to supply Property and Liability coverage for the construction and operation of Offshore Wind Farms (OWF) and specialty wind turbine installation vessels, and the construction, expansion and operation of ports and terminals.
To reach the goal of 30,000 MWs offshore wind capacity, an estimated 2,000 of the latest, state of the art, 15 MW Wind Turbine Generators (WTG) will have to be installed. At an estimated installed value of US$45M each, that would equate to US$90B in TIV needed in the OWF construction insurance market. If Delay in Completion coverage is included, that could add another US$20B in values.
A similar amount of insured values will be needed once the WTGs are operational. On May 11, 2021, the US government issued the final federal approval for the Vineyard Wind project, a utility-scale wind farm that has been over a decade in the planning. The wind farm developers plan to install 62 giant turbines in the Atlantic Ocean about 15 miles off Martha’s Vineyard, Massachusetts. In the beginning of 2022, after three days and 64 rounds of bidding, the federal government provisionally awarded six leases to developers who spent more than US$4 billion to obtain the rights to build offshore wind farms off the coasts of New Jersey and New York. Other states are soon to follow. To support the projects, there will be a need for marine surveyors to attend during construction to complete Marine Warranty Surveys, conduct cargo surveys, and inspect associated vessels and equipment.
To construct a fixed-bottom offshore wind farm, special Wind Turbine Installation Vessels (WTIV) are required. The advent of floating offshore wind, as compared to fixed bottom foundations, is likely to be more common off California and possibly in the Gulf and will present other challenges. The US currently does not have a WTIV capable of installing the new, larger offshore wind turbines.
Guided by the Merchant Marine Act of 1920 “Jones Act”, vessels operating of the coast of the US must be constructed in the US and sail under a US flag with a US crew. In December 2020, Congress made clear that this law applies to wind turbine construction, too. Currently, there is one Jones-Act compliant WTIV under construction in Brownsville, TX, which is expected to be completed by 2023. Owned by Dominion Energy, this US$500 million vessel will be based out of Hampton Roads, VA. To meet the goal of 2,000 offshore wind turbines, it is estimated that we will need at least four more WTIVs at a total additional cost of US$2B. There will be a need from the marine insurance market to provide construction and operating coverage for these new vessels. There will also be a need for project cargo coverage to support the delivery of billions of dollars of WTG components, manufactured in the US as well as overseas.
To support the construction of OWFs, there will be a need to upgrade and expand ports and terminals to support construction vessels and provide laydown or marshalling area for WTG components. It is estimated that US$16B in TIV will be invested requiring construction and operating terminal coverage for these increased values.
As the Biden Administration’s plan to install 30,000 MWs of offshore wind capacity comes to fruition, there will be a tremendous underwriting opportunity for the insurance industry. In addition to a boom for jobs and the overall economy, it will be a boom for the insurance industry and will test the capacity of the insurance market to supply the amount of coverage that this goal will require.
Charles Klehr
US Managing Director, Natural Resources, Charles Taylor
charles.klehr@charlestaylor.com
Expertise:
Energy & Natural Resources, Property, Business Interruption, Builders' Risk, Construction Defect
Location:
New York
