According to the Department of Energy, the U.S. had a total project pipeline of 25,434 MW of offshore wind energy as of June 2018. This pipeline includes 3,892 MW of project-specific capacity and 21,542 MW of undeveloped lease area potential capacity. Out of this pipeline, project developers project that roughly 2,000 MW of new offshore wind capacity will be operational by 2023. States including Maryland, Massachusetts, Rhode Island and Connecticut have completed solicitations for nearly 1,770 MW of offshore wind energy, and additional solicitations are planned for the near future.
The Department of the Interior’s Bureau of Ocean Energy Management has issued 12 dynamic business wind vitality rents to date. Another four have submitted spontaneous rent applications to BOEM, while four showing ventures have acquired selective advancement rights to a site from government or state experts. While a larger part of the nearer- term movement has moved into the Atlantic off the northeastern coast, ventures have also been proposed off the southeastern coast, in the Pacific off California and Hawaii, and in the Great Lakes. With stable approaches set up, the Department of Energy found the U.S. could build up an aggregate of 22 GW of seaward wind capacity by 2030 and 86 GW by 2050. As we keep on building this homegrown asset, costs will drop, esteem to shoppers will develop, and the U.S. will see new employments and interests in assembling and port foundation.
Recent State Activities Driving Offshore Wind Demand
Massachusetts
- Massachusetts passed a law in August 2016 requiring utilities in the state to procure 1,600 MW of offshore wind power by 2027. The state passed new legislation in August 2018 that would double the offshore wind target to 3,200 MW by 2035.
- In May 2018, Massachusetts utilities selected 800 MW from Avangrid Renewables and Copenhagen Infrastructure Partners’ Vineyard Wind project as the winner of their first major offshore wind solicitation. National Grid USA, Eversource Energy and Unitil Corporation filed power purchase agreements to buy energy and renewable energy credits from Vineyard Wind at a total levelized price of 6.5 cents per kilowatt hour, the lowest offshore wind PPA price in the U.S. to date.
- In addition, the BOEM announced a proposed sale notice in April 2018 for two additional wind energy areas off Massachusetts.
New York
- In January 2017, New York Gov. Andrew Cuomo announced a commitment to develop up to 2.4 GW of offshore wind by 2030. Later that month, the Long Island Power Authority approved a 20- year power purchase agreement with Deepwater Wind for the 90 MW South Fork Wind Farm.
- In January 2018, Gov. Cuomo called for solicitations of at least 800 MW of offshore wind in two RFPs to be held in 2018 and 2019. The state will also invest $15 million to train workers for offshore wind jobs and develop port infrastructure.
- Also in January 2018, New York released its offshore wind master plan, which identifies areas for potential development and options for procuring offshore wind, among other things.
New Jersey
- In January 2018, New Jersey Governor Murphy signed an Executive Order outlining a goal to develop 3,500 MW of offshore wind by 2030, and directed his administration to develop an offshore wind plan.
- The state passed legislation in May 2018 to increase its offshore wind target from 1,100 MW to 3,500 MW by 2030, fulfilling the Governor’s Executive Order.
- In August, EDF Renewables and Fishermen’s Energy of New Jersey filed an application for approval of their 25 MW Nautilus Offshore Wind Project from the New Jersey Board of Public Utilities.
Maryland
- Maryland’s Offshore Wind Energy Act of 2013 amended the state’s renewable portfolio standard to include off e wind and to provide financial support for projects in the form of offshore wind renewable energy credits.
- The Maryland Public Service Commission completed the first large- scale solicitation of offshore wind in the U.S. in May 2017, awarding ORECs to US Wind and Deepwater Wind for two projects totaling 368 MW off the coast of Maryland that will start operations between 2020 and 2022.
Connecticut
- In January 2018, the Connecticut Department of Energy and Environmental Protection issued a generation-based RFP for renewable energy, including offshore wind. The state selected 200 MW from Deepwater Wind’s Revolution Wind project as a winner in June 2018.
- During his tenure, former Connecticut Gov. Dannel Malloy announced that the state will invest $15 million to revitalize a shipping pier to attract offshore wind developers.
Rhode Island
- In May 2018, Rhode Island selected 400 MW from Deepwater Wind’s Revolution Wind project through a competitive procurement process in collaboration with Massachusetts.
Virginia
- In August 2018, Dominion Energy filed for approval to build the 12 MW Coastal Virginia Offshore Wind project. In the same month, Ørsted signed the first U.S. offshore turbine order with Siemens Gamesa to supply two 6 MW turbines for the project.
Case Study
On May 15, 2015, Gallagher’s energy practice successfully arranged and bound a comprehensive insurance program for the construction, installation, testing and commissioning, and operation of the first offshore wind farm in the United States. Not only will this wind farm supply most of the areas with power (currently supplied by Diesel Generators), but it will also lower energy bills by more than 40%, lower CO pollution by more than 40,000 tonnes per year, and add net benefits of more than $42 million to the local economy.
The wind turbine generators (WTGs) chosen were five Alstom Haliade 150-6 MW WTGs, which have a rotor diameter of ~ 150m. At the time, these state-of-the-art direct drive turbines were among the largest in the world. They were set on jacket foundations usually found supporting oil rigs, typically in water measuring a depth of 30 m.
Long considered a definitive expert in the field of complicated power project financing Gallagher’s energy practice was appointed to perform risk management and insurance brokerage services during the project’s development stage. Based in Oklahoma City, Gallagher’s energy practice has always punched above its weight in this category.
From the outset, Gallagher wanted to rewrite the rule book on insuring off e wind farms. The typical policy wording offered by insurers in this specialty field is the “2003 Windcar” form, which is an acronym for “wind construction all risk” and a play on “Wellcar,” the classic offshore construction wording. However, rather than choosing the path of least resistance and following the crowd, Gallagher identified a number of defects and coverage restrictions in this form. As one of America’s leading power construction brokers, Gallagher wanted to use its broad and well-understood onshore renewable construction all risk (CAR) wording and modify the language to include coverage for the offshore marine exposures associated with the risk. There were many sceptics who doubted that this could be done. The language was drafted by Gallagher and then vetted by our team in London. At the end of the day, our enhanced policy language was fully supported in the market, thus providing a superior product to our client and giving Gallagher a decided advantage over our competitors on future offshore projects in both the U.S. and Europe.
Another area for which Gallagher is justifiably well-known is the quality and detail of its underwriting information packs—especially important for the placement given the hostile offshore environment and associated complexity of the installation works, the fact that the project was the first offshore wind farm constructed in American waters and because the turbines themselves were considered “prototypical” by some insurers. These hurdles did not hinder Gallagher. The quality of the underwriting information the team provided was praised by a number of insurers and was a major reason for the success of this placement.
Once the underwriting information was completed, Gallagher called a meeting in Munich where a number of the top potential insurers for such projects were invited to attend. The following day, the same presentation was made in Paris to several French-based insurers.
Gallagher brought along senior key project personnel, and all technical queries and uncertainties that Insurers had were answered at these meetings.
The Gallagher team, then engaged with Alesco-London to ensure the client obtained the best possible deal in pricing, coverage and service. In addition, because all the insurers were based in Europe, Alesco worked in or near the same time zones as insurers where Gallagher was not and vice versa. Thus, between London and Oklahoma City, there were people working on this project for at least 18 hours a day when needed.
This is a great example of how Gallagher collaborates with colleagues across the globe to provide risk management consultation for complex risks, adds value to the insurance placing process and cross-sells into other areas of the group.
Lastly, the best compliment an insured paid the team was: “The leading provider of insurance coverage for renewable energy projects declined to participate because the terms were 40 percent below their benchmark and the policy form was, in their opinion, too wide.” Praise indeed!
The information contained herein is offered as insurance industry guidance and provided as an overview of current market risks and available coverages and is intended for discussion purposes only. This publication is not intended to offer legal advice or client-specific risk management advice. Any description of insurance coverages is not meant to interpret specific coverages that your company may already have in place or that may be generally available. General insurance descriptions contained herein do not include complete insurance policy definitions, terms, and/or conditions, and should not be relied on for coverage interpretation. Actual insurance policies must always be consulted for full coverage details and analysis. Insurance brokerage and related services to be provided by Arthur J. Gallagher Risk Management Services, Inc. (License No. 0D69293) and/or its affiliate Arthur J. Gallagher & Co. Insurance Brokers of California, Inc. (License No. 0726293).