New York State's abundant wind resources and strong government backing for renewables make it ripe for expansion in offshore wind. But its Atlantic coastline, a prime site for wind farm installation, also offers special challenges for development – and special considerations for the insurance industry.
Wind Energy in New York State
The wind energy sector has become increasingly attractive to investors in recent years driven by higher demand for clean energy and the impact of cost-reducing technologies, such as rising turbine capacity and efficiency, which has allowed previously sub-commercial projects to become commercially viable. According to the IMF, the renewables sector as a whole has benefited from cost declines of 50% or better since 2008, making it more economical than ever to invest. As reported by the Global Wind Energy Council, total installed wind power capacity reached 539 GW globally in 2017, with newly added wind capacity of 52 GW last year.
This push for cleaner energy production has resulted in significant upscaling across the wind energy sector, with average turbine sizes globally for offshore wind projects increasing from 3.4 MW for projects in 2015, to 4.7 MW for 2016 installations. The Block Island Wind Farm project, notably the first commercial offshore wind farm in the United States (Rhode Island), began commercial operations in December 2016 and has turbine capacity of 6 MW and total project capacity of 30 MW. Whilst relatively small in comparison to European wind farms in operation across the Atlantic, it is indicative of a drive towards sea-based renewable energy in the region. Other states on the East Coast are also making inroads into their offshore wind capacity, with Massachusetts setting a target of an additional 1,600 MW of electricity by 2027.
The state of New York in particular is an attractive location for development of wind energy, especially offshore. The state is rife with natural wind resources - the National Renewable Energy Laboratory estimates that the state could technically produce up to 614 TWh of offshore wind and 64 TWh of onshore energy and NYSDEC ranked it as the fifteenth windiest state. Of particular interest for development is the region off the coast of Long Island, which has the benefit of Atlantic winds and more than 1,000,000 acres of shallow waters. There is also adequate demand for such electricity derived from the densely populated cities which occupy the Northeast coastline.
In addition to its natural resources, New York also benefits from strong support for renewables from the state government which aims to rely on 50% renewable energy, including 2,400 MW of offshore wind energy, by 2030. This announcement by New York Governor Andrew Cuomo on 10 January 2017 came shortly after the award of rights to Equinor (formerly Statoil) for the Bureau of Ocean Energy Management lease area off the coast of New York for what has since been described as an unprecedented bid value of USD 42.5m. Overall progress, however, has been slower than anticipated. A 2017 study found that only one in seven wind projects proposed in the previous 15 years has actually been built and that expansion will need to increase eight-fold for the state to meet its 2030 target. Nonetheless, the future for wind in New York is promising, with Governor Andrew Cuomo recently issuing a request for proposals ("RFP") for an additional 800 MW of offshore wind by 2019.
As with any project, public resistance to wind farms can be an obstacle to development. Offshore development in New York is likely to face the usual scrutiny over noise pollution, disruption to air quality and impact on local wildlife from the local population. New York's coastal region, with its considerable tourism industry and high-value real estate (some of the most expensive in the country), will also likely restrict wind farm development to distances from shore where the aesthetic of coastal views will not be disrupted. Other industries dependent upon the Atlantic coast, such as fishing or recreational boating, may also be impacted by offshore wind farm developments.
Despite these difficulties, with two RFPs issued in 2018 and 2019 and further RFPs likely if New York is to meet its 2030 goal, the New York coast may see significant expansion in offshore wind in the near future.
Considerations for the insurance industry
New York's Atlantic coast offers abundant shallow, windy waters, but also presents potential barriers to easy development; areas of deep water, for instance, will require floating foundations, and areas with uncertain seabed conditions or other challenging environments at sea may create delays or uncertainty in planning. Legal and regulatory requirements, such as procurement and compliance of wetland permits and endangered species permits, also have the potential to complicate planning and construction.
Further, New York's season coastal climate presents special risks for equipment damage. Beyond the usual adverse weather that it sees year round, New York has suffered from severe weather incidents in recent years, including 2018's infamous winter 'bomb cyclone' and Hurricane Sandy in 2012. These superstorms put expensive equipment, such as the fragile turbine blades, at risk from high winds or precipitation; catastrophic losses may be unavoidable in conditions with abnormally high wind speeds outside a project's design parameters. In these harsh weather environments, insurers will require greater assurance on the management of the project and the contingencies in place in the event of failure either during installation or operation of the offshore asset.
The layout of the coast presents special dangers for subsea cables and should be given consideration at the underwriting stage. Subsea cables account for a strong majority (70-80%) of the total global cost of offshore wind farm losses, despite only accounting for 10% of the costs of a project. According to a report by GCube Underwriting Ltd, high voltage subsea cable losses led to claims totalling more than EUR 60 million in 2015. With the possibility of many of New York's offshore wind farms being placed farther from shore for aesthetic reasons, the lengths of cable - and therefore also the associated risks, such as anchor strikes and dragging fishing nets – is also likely to grow.
More significantly, the Atlantic coastal region is a busy waterway for fishing and recreational boating and already contains many existing subsea cables from third parties. Processes are available to "cross" the new wind power cables with existing cable infrastructure, but each crossing will increase costs and the possibility of snags. This crossing of cable increases the risk of damage and also impacts on the complexity and expense of any future repair works.
A 2017 report by the New York State Energy Research and Development Authority advises that nearby cable owners and operators should be consulted in the early stages of development in order to reduce these risks; risk assessments and defined buffer areas with adequate protective measures were also recommended. Insurers may want to consider specific wording requiring this level of proactive planning from assureds. Considering the time pressure likely to be involved in these projects, especially with New York's 2030 clean energy target, it will be important for assureds to engage in adequate preparation at the planning stage to avoid losses arising at a later stage of the project. Cable losses, aside from the obvious property damage, may also result in high value claims for delays in start-up and business interruption with expensive daily indemnities for offshore wind farms.
Operational life extension
One of the benefits of New York being a relatively recent entrant to the market is the ability to learn from other operators' experiences, particularly across Europe. Older European wind farms are now reaching the end of their lifespan and some operators are actively seeking life extension of operational assets. The alternatives to lifetime extension are either repowering the wind farm or decommissioning the turbines.
Extending the life of offshore projects is an attractive proposition since it brings with it a higher return on investment and the ability to maximise favourable energy tariffs. However any operational extension to a wind farm project requires careful consideration of the fatigue strength of the relevant structures and the impact of site conditions and applied loads over an elongated period on design safety margins. The durability and health status of the turbines in question will need to be carefully assessed, as will the impact of the new design parameters on those components to ensure that any extension is viable without the risk of turbine failure and possible collapse of ageing infrastructure.
Insurers will want to carefully consider any extension proposals by wind project owners and review thoroughly the maintenance programmes, and corresponding operation and maintenance contracts, in circumstances where the life of a wind farm is extended beyond the intended design life stipulated by the manufacturer. For owners, whilst project life extension will inevitably result in increased operational expenditure, undertaking technical lifetime extension assessments and expanding the scope of maintenance works will assist in the avoidance of early termination, turbine downtime and the likelihood of claims deeper into the lifespan of the project.
With its natural wind resources and government support, New York offers a unique opportunity for expansion in offshore wind. In turn, this expansion should provide ample opportunity for insurers to write new risks in an emerging sector. However, this expansion is not without its challenges and insurers and assureds would benefit from careful planning at each stage of development and increased knowledge-sharing during project redesigns such as operational life extensions.
 Cherif, Reda et. al., IMF Working Paper: Riding the Energy Transition: Oil Beyond 2040, May 2017.
 US Department of Energy, Offshore Wind Technologies Market Report (2016).
 4C Offshore Wind Database: https://www.4coffshore.com/windfarms/windfarms.aspx?windfarmId=US12
 Wind Energy in New York State, Physicians, Scientists, and Engineers (PSE) for Healthy Energy, October 2017.
 NYSDEC, "Wind Power" at http://www.dec.ny.gov/energy/40966.html
 US Department of Energy, Offshore Wind Technologies Market Report (2016).
 Wind Energy in New York State, Physicians, Scientists, and Engineers (PSE) for Healthy Energy, October 2017
 Anderson, Chris. “Submarine Power Cable Losses Totalling over EUR 350 Million in Claims.” 4c Offshore, 5 Jan. 2017, http://www.4coffshore.com/windfarms/submarine-power-cable-losses-totalling-over-eur-350-million-in-claims-nid5127.html.
 NYSERDA, New York State: Area for Consideration for the Potential Locating of Offshore Wind Energy Areas, September 2017