Over the past years the cost of building offshore wind projects has fallen dramatically.
What impact does this price drop have on the sums insured required for offshore wind projects and does it bear any consequence on existing contracts where the prices were in excess of USD 168/MWh?
Only this July Dong Energy won an offshore wind contract worth USD 81.5/MWh in the Netherlands. This was swiftly followed by the announcement by Vattenfall winning a Danish nearshore wind tender for a record low bid of just over USD 67.3/MWh. 10 years ago this would have been more than double the price.
The dramatic fall in price has been primarily attributed to the larger number of windfarms and volume of turbines being built and suppliers embedding supply chain and technology efficiencies combined with larger turbines coming to market. Can we therefore continue to see the price per MWh drop?
The graph below shows how the levelised cost of energy (LCOE) has dramatically dropped over the past years with future goals already being achieved:
Source: BVG Associates 2015
For new projects this should equate to lower sums insured per MWh. The same could be said for older operational projects for replacement cost valuations. Premium is a function of value.
It is therefore vital for companies to get the correct insurance cover with the right sums insured. This will minimise the cost of insurance and the risk of substantial financial hits being added to the cost of operating in the offshore wind industry.
We recommend that project owners undertake a valuation of their assets with their insurance broker to ensure that the sum insured remains accurate.
For further information, please contact Jonny Martin, Account Handler, Renewable Energy on +44 20 7558 3905 or email firstname.lastname@example.org