Controlling the cost of project insurance for increasing CAPEX in Floating Offshore Wind
Strategies for Scalable, Insurable Projects
In our next article of our offshore wind series, we explore a defining challenge of floating wind projects — trying to control the ever-increasing cost of capital expenditure (CAPEX). Geopolitical, supply chain pricing and logistical pressures have severely escalated project costs. This volatility is testing investor confidence despite strong national policy and long-term revenue support mechanisms.
Floating wind turbines are expected to become a cornerstone of the energy transition over the next decade. As their rated capacity continues to rise, they can deliver higher output from the same array footprint while reducing lifetime cost per MWh. Despite being relatively nascent, floating wind is indispensable for accessing deeper‑water sites — typically beyond 60 metres — where stronger, more reliable wind conditions make fixed foundations impractical.
While they present a more heightened risk profile than their fixed-bottom cousins, the grid scale relevance they represent is a feature that has spiked both developer, investor and lender interest, plus more generous recent national policy support. The UK and EU alone pledge to scale up generation build-out to 5 gigawatts by 2030. This momentum brings renewed focus on (CAPEX) control, which is a longstanding challenge for the offshore wind industry.
Offshore wind CAPEX/MWh has increased by as much as 40% in recent years, driven by supply chain constraints, inflation and technical complexity. For floating offshore wind, these pressures are even more pronounced. A first-of-a-kind design, specialised installation requirements and a limited reference base of large-scale commercial projects make cost outcomes harder to predict.
This combination of higher deployment targets and a complex risk profile raise an important question for stakeholders: How can the volatility of project capital costs be controlled without affecting safety, certainty, insurability and bankability? The answer depends not only on technical progress, but also on how risks are identified, assessed and transferred especially as projects scale up.
rise in offshore wind CAPEX over the past two years
Understanding CAPEX in floating offshore wind
Capital expenditure in floating offshore wind is greater than fixed bottom by a considered factor of ~2 to ~2.5. Understanding the additional cost drivers and project delivery exposures is key to identifying opportunities to fully insure the loss potential thrown off by these higher CAPEX spends. The outcome of this also directly influences the levelised cost of energy (LCOE) for these projects, hence floating wind’s competitiveness in global energy markets.
Execution risks: Installation, mooring and anchoring
Floating offshore wind platforms rely on greater port and quayside capacity, complex site-specific mooring, anchoring, dynamic cable installation, hook up testing and then extended offshore maintenance campaigns after commercial operations start. These operations are exposed to the natural constant wear and tear pressures of the offshore environment plus the expected annual cyclic extremes of wind, wave height and current.
On top of this, there is exposure to external factors such as vessel and crane availability and tight scheduling windows, which means even short delays can quickly escalate overall project costs. A common experience here is where a project planned for a summer installation campaign finds itself slipping to an unexpected winter season. In deep-water projects, these variables can drive up expected budget costs per megawatt by millions.
With installation, commissioning and mooring costs representing a significant 20%-30% share of upfront spend, the unplanned escalation of these will have a direct impact on the LCOE of the installed array, making supply chain contract risk allocation and execution another one of the many critical factors in project success and returns hence ‘bankability’.
Industrial readiness risks: Substructure and supply chain
Despite the several successful pilot projects already in situ offshore for several years, floating substructures remain a first-of-a-kind endeavour for utility scale development currently at the planning and EPC bidding stage. Main material selection, fabrication methods and assembly location options still vary widely by region, country and manufacturer.
The industry also relies on suppliers who are transferring methods and skills from shipbuilding or oil and gas or other industries and is under pressure when accepting grants or other national financial support, to deliver on mandated amounts of CAPEX allocated to local supply chain providers. These issues and pressures are resulting in great variability in build quality, final pricing and on time supply delivery and follow on assembly and float out support services.
As projects scale up, this supply and manufacturing issue puts additional pressure on CAPEX. It has been a major cause of the expenditure spike over the past two years2 and is expected to intensify as more floating projects move from pilot to commercial scale.
The lack of industrial readiness has a direct impact on the LCOE, and hence the relative competitiveness of offshore wind projects. Even without accounting for economies of scale and the hidden risks of operating in a nascent market, it would currently be impossible to achieve cost parity of floating wind projects anywhere close to their fixed-bottom counterparts.
Lifecycle risks: Operational and maintenance trade-offs
Operations and maintenance expenditure comes into the LCOE picture later in the project lifecycle but may incur major unplanned cost uplifts in major component exchanges (MCEs) or other outages if unaccounted for properly at the planning stage.
Accessing turbines in deep waters require continued development and roll out of specialised vessels and equipment that can withstand challenging weather and sea states to achieve long enough on-site time windows to carry out complicated repair schedules. The issue of limited availability of such marine capability is likely to hamper installation, commissioning, maintenance and unplanned repair times around the world for many years or even decades to come.
Reducing upfront CAPEX with unconventional solutions like lighter mooring systems, shared mooring lines or novel design substructures can also limit availability of project finance as well as later repair options and thereby increase long-term maintenance risks. As the industry scales, developing reliable operation and maintenance frameworks is going to be of critical importance to safeguard asset performance and stabilise long-term costs hence ultimately the success of this sector of the renewables industry.
Strategic avenues to reduce CAPEX
Reducing CAPEX in floating offshore wind is achievable, but only when cost strategies are paired with robust risk management. There are three broad phases of activity at which CAPEX can be reduced:
· Design and procurement
· Installation stage
· Post commissioning operations
Each phase has its own nuances where careful oversight is required to protect deliverability and hence bankability.
Efficiency in design and supply chain
Standardised components and structural designs can significantly reduce fabrication complexity. Using advanced simulation technology, such as digital twins, can help optimise the process. Localising critical components to strategic supply partners can also help reduce lead times and improve reliability.
Such incremental improvements can reduce the CAPEX per megawatt significantly. It is estimated that there are over a hundred different foundation concepts currently proposed by providers, which for the industry to succeed needs to be whittled down to something more practical and realistic.
Even so, the first-of-a-kind nature of designs and niche suppliers introduces variability risks. It is important to independently verify and audit suppliers - this approach eliminates any echo-chamber overlooking of risks and ensures early cost savings do not translate into unforeseen failures later in the project lifecycle.
Innovation in installation and operations
Adopting tested but innovative strategies in installation and operations can help reduce both the CAPEX and the timelines of floating offshore wind project installation. For instance, pre-assembling components and streamlining offshore logistics can shorten installation campaigns for floating wind power turbines, even in challenging weather conditions.
When Europe's first offshore wind arrays were built off the choppy coast of Portugal, many of the components were assembled in sheltered waters, using semi-submersible platforms. This pre-assembly enabled efficient deployment of the turbines in deep water offshore sites, even at high wind speeds and wave heights that would otherwise disable offshore lifting and integration activities.
Once operational, predictive maintenance and remote monitoring technologies can be deployed to minimise downtime and reduce the need for offshore interventions. Importantly, it can be advantageous to account for unplanned hitches during installation and maintenance with a robust risk-financing programme to share the burden of risk transfer in unpredictable conditions.
Alignment in financing and contracts
Financial structures and contract design play a decisive role in shaping CAPEX outcomes. Evidence from offshore wind financing reviews indicates that innovative models, such as project financing, risk-sharing clauses, and phased capital deployment, can potentially reduce risk premiums and enhance bankability.
However, when KPIs don’t align or when agreements are ambiguous, costs can shift in unexpected ways. Engaging the right experts in the decision-making process can help identify and address gaps in risk and financing, set clear performance measures, and ensure contract clarity for efficiency and effective risk management.
"In offshore wind, contracts define the real risk. Developers and their lenders must understand the liabilities they assume, the risks they transfer and where insurance can - or cannot - act as a backstop.
True resilience comes when warranties and agreements clearly protect both sides. Understanding the state of the supply and original equipment manufacturer (OEM) market is critical for us to provide realistic commercial advice to our project clients so that they secure the best contractors and suppliers at optimal terms and with the most responsive and favourably priced insurance programmes.
Considering the multi-faceted risks of new ever larger rated plug and play dynamic cables, plus tow to port cost and natural perils exposure, we blend evolved offshore construction language with project specific marine risk extended conditions or parallel P&I club cover with the best possible cover for defect exposure from new technologies to provide the overall comprehensive solution."
Joe Hassett Executive Partner, Offshore Renewables, Gallagher Specialty
Emerging cost-reduction strategies in floating wind projects
- Standardisation and modular design Moving from bespoke engineering to repeatable, modular floating platforms levelises design risk and fabrication costs.
- Shared mooring and anchoring systems Clustering turbines with common anchors and lines reduces material use, installation complexity, and the environmental footprint, resulting in overall CAPEX savings
- Industrialised fabrication Leveraging shipyards and offshore oil and gas expertise enables mass production of substructures at scale.
- Supply chain expansion Diversifying suppliers and scaling fabrication yards helps ease bottlenecks and stabilise pricing.
- Innovative financing models Risk-sharing between governments, developers and insurers reduces premiums and improves bankability.
Insurance as a value add: Protecting CAPEX and bankability
As floating offshore wind advances, the sector needs to balance technical innovation with financial resilience. Insurance can provide critical lever in this equation by transferring risk, reducing capital strain, stabilising financing conditions, and minimising the need for oversized contingency reserves. In practice, insurance delivers value via several pathways: • Risk transfer Insurance absorbs the financial shock of unforeseen repair costs, extreme weather events or equipment failures, triggered by a physical loss or damage event under the policy. Instead of developers having to allocate large sums of capital to cover these risks, insurance aims for budgets to remain intact and focused on project delivery. • Financing advantage Offshore wind carries a higher cost of capital than onshore renewables due to marine environment construction complexity and concentration of value at offshore substations. Insurance aims to reduces perceived project risk, which enhances creditworthiness and facilitates access to financing at lower rates. Even small reductions in interest costs can translate into substantial long-term capital expenditure savings. • Cost certainty Risk-mitigation tools identify and then transfer uncertainty risks into insurable predictable costs. This reduces the need for oversized contingency funds and frees up capital for core investments, ultimately enabling more efficient CAPEX planning. • Operational continuity Resultant downtime due to loss of damage resulting from storms, accidents or maintenance delays can erode annual revenues and force costly backup measures. Business Interruption insurance provides a cushion against the cost of these interruptions, protecting cash flows and is designed to ensure that projects remain financially stable even when operations are disrupted. • Value creation Beyond protection, it is a key indicator of a protected investment to have secured insurance cover which itself is a managed process demonstrating risk management met various minimum criteria. Otherwise cover would not have been possible to arrange. This supports delivery of project timelines, that if achieved should strengthen internally measured rates of return, and so in turn supports positioning of floating offshore wind as a bankable, scalable solution in the global energy transition.
Brokers as strategic advisors
"It really is essential for broker/advisors and potential lead insurers to be involved early in shaping the risk transfer framework. This ensures it aligns with the developer’s strategy for engineering, procurement and construction (EPC) contract risk allocation matrix and OEM Warranties, well before the construction phase begins.
Broker/advisors undertake detailed risk audits to identify technical, contractual, warranty, commercial and operational phase exposures and we tailor coverage to financially counter-balance and fit with those exposures.
This support mechanism also indemnifies the project owners in the event insurable events lead to unanticipated costs of repairs, replacement or the delay in commercial operations start hence late revenues required to meet debt service and capital repayment obligations."
Mike Parry Executive Director, Offshore Renewables, Gallagher Specialty
Embedding insurance into project planning helps floating offshore wind scale more efficiently, attract investment with confidence and deliver on its promise to be a powerful contributor to the global energy transition. These are brief product descriptions only. Please refer to the policy documentation paying particular attention to the terms and conditions, exclusions, warranties, subjectivities, excesses and any endorsements.
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Mike Parry Executive Director, Offshore Renewables , Gallagher Specialty
Joe Hassett Executive Partner, Offshore Renewables, Gallagher Specialty
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