Renewable projects exposed to the risk of contractor errors and defects, natural cats and extreme weather

Construction of renewable projects continues to be jeopardized by contractor errors and defects, natural disasters and extreme weather events – onshore and offshore challenges that could delay start times and increase construction demands.

That’s the claim from a new report, which says claims are among the most complex for insurers and asset owners to deal with.

GCube Renewable Energy Insurance’s report, “Arrested Development: complex claims in the boom-and-chest world of renewables construction,” shows that construction claims have increased over the past decade, driven by a correlation between the rapid growth of renewable energy projects and construction losses.

The report details findings from $1 billion in construction all risk (CAR) and delayed start up (DSU) claims broken down to $275 million for the onshore sectors and $725 million for the offshore sectors.

The report attributes the largest offshore claim losses to contractor errors and faulty manufacturing, which accounted for nine of the top 10 claims.

Contractor error accounts for about a third of all claims by frequency (32%) and total cost (36%). Defects account for 15% of claims by frequency, but higher complaint severity (27%), the report said.

“Construction activity in the offshore wind market over the past decade has been characterized by ‘boom and bust’ cycles,” the report said. “These cycles have coincided with fluctuating levels of subsidy support, as well as European and global tender schemes, which have driven waves of construction activity.”

Weather events and natural disasters account for 48% of losses in onshore renewable energy construction. Contractor error and defect was the next most common loss in this category at 16%. Mechanical failure was the most common cause of loss during construction (23%), but these failures produced a lower damage severity (10%).

Flooding and heavy rain are the most costly, accounting for 18% of total damage by frequency but 46% of total damage cost.

Key findings from the report include:

• Contractor error and failure were the leading causes of offshore wind losses – accounting for 63% of claims by frequency in 2022, up from 55% in 2020.
• Historically, increased offshore construction activity has been accompanied by increased insurance claims, forming a cyclical “boom and bust” pattern.
• Among weather-related losses, floods and heavy rainfall are found to be the costliest weather events, accounting for 18% of total damages by frequency but 46% of total damage costs.

GCube Insurance analyzed global construction industry trends and data from 2013 to 2022 to compile its report.