Wind service contracts are changing: implications for insurers and insureds

Peter Fitzsimmons, head of onshore renewables for Axis’ global energy resilience team, tells The Insurer collaboration is crucial as the wind industry grows.

As with any burgeoning industry, onshore wind has seen numerous changes: from susceptibility to perils such as lightning, large claims in both construction and operation, rapid iterations of new models and contractor error, it is an innovative industry that requires vigilance and specialist risk expertise on the part of insurers.

Amid a rapidly changing risk landscape, the risks related to operations and maintenance (O&M) have stayed mainly stable. As a wind project finishes its construction phase and becomes fully operational, companies are contracted to make sure the equipment runs as it should. In some cases, these are the turbine manufacturers themselves and in other cases they may be third-party operators.

For the first time we are beginning to see significant changes in both the pricing and coverage offered by these O&M providers. What is happening to bring the industry to this point and what does it mean for insurers and insureds?


As the wind industry has grown, the organising principle has been to lower the cost of energy by building bigger machines, and quickly. This strategy has allowed wind to compete with other, more established forms of energy and has generally been a success.

Even after years of cost reductions, the average cost of new onshore wind projects fell 15 percent globally in 2021. However, this continuous focus on lowering costs has also led to consequences for the wind industry.

As the size of wind turbines increases, so do all associated costs – but not in a linear fashion. The replacement cost of a broken or damaged component for a 6 megawatt (MW) machine is not simply twice that of the same component in a 3 MW machine. Instead, a number of ‘soft costs’ can increase the cost of replacements exponentially (considerations include, for example, ‘is a large enough crane available? If not now, when? Can it be procured early and at what cost?’).

We are now beginning to see the financial effects of this strategy on the turbine manufacturers themselves and the wider wind industry. At the beginning of 2023 the major western turbine manufacturers recorded operating losses. Later in the year, one of those manufacturers, Siemens Gamesa, suspended all profit guidance, stating: “The quality problems go well beyond what had been known hitherto, in particular in the onshore area”. Additionally, Siemens has restricted sales of its 4x and 5x platforms, due to quality concerns.

This situation is further explained by Vic Abate, CEO for onshore wind at General Electric (GE), who commented that the race to build bigger and better turbines had led to GE producing “faster product launches, more variants, more product derivatives”, which, in turn, has meant “more complexity, lower quality, and higher costs”.

Market changes

O&M contracts are profitable if machines run well. If they do not, either the O&M provider, project owner or insurer will have to cover the cost of the solution. In the past few years, turbines have encountered more failures, with turbine manufacturers taking on some of these costs, which has only added to their recent financial losses.

As these losses mount, turbine manufacturers may attempt to save costs by tightening the coverage afforded in their O&M contracts, for example, by reducing their exposure to consequential damage and defects liability. This can result in some project owners coming out of their long-term O&M agreements and being quoted for less coverage at higher prices. While we cannot say how widespread or long-term these changes will be, it is not too large a leap to see this is a path to reducing operating losses for turbine manufacturers.

The question then is if project owners cannot afford to take on full-service agreements and they have to reduce the amount of coverage they have in their O&M agreements, who takes on that additional risk? If the answer is insurance companies, insurers will likely charge more to reflect the greater exposure – therefore still raising costs for project owners. The decision for project owners is then whether they are able and are prepared to pay more for their insurance for this increased risk and, if not, whether they can afford to retain it on their own balance sheets?

This is a material change in risk for developers and we see the industry dividing as follows:

1. Consolidation of those with buying power and economies of scale

Project owners with the economies of scale to demand better pricing will do so. They will also be more likely to be able to justify the extra investment in spare parts, allowing them to navigate the price increases more effectively than smaller buyers. These companies may also have to scale to take their O&M in-house, increasing their expertise.

2. An increase and diversification in service providers

These companies will be independent and will look to provide alternatives to the established contracts by offering cheaper, more focused, niche services. For example, some companies may focus on condition monitoring, blades or the balance of plant. However, stepping away from a full wraparound service presents plenty of questions regarding consequential damage and provision of spare parts, for example.

Both scenarios see the risk environment change as we move away from the current O&M status quo. Insurers will need to understand the following:

What is the impact of any contractual changes?

How much access to spare parts does the contract give the developer?

What is the impact on the warranty if the service provider is a third-party?

How do insurers price these changes as the exposure changes?

Obtaining clarity and understanding of this will be key for insurers. Those carriers that do so and are then able to communicate these changes effectively to brokers and project owners will have the opportunity to differentiate themselves through demonstrating their deep understanding of the particular needs of these groups.

In addition, insurers that go beyond traditional risk transfer to provide risk solutions, helping insureds get a better understanding of their assets, particularly in less mature markets, will also provide greater value for customers. Insurers need to become specialists themselves, or partner with specialist providers to be able to develop and offer the best products and services.

As the renewable energy industry moves into its next phase, collaboration between key stakeholders must become central. As the industry receives the policy backing necessary to propel it into the future and meet growing demand for green energy, it is even more important that data is used to better understand components and their limits.

Importantly this information needs to be shared with the necessary parties. The industry will only be able to take advantage of the wind at its back if the companies within it are viable, supported, and alert to the changing risk landscape.

Peter Fitzsimmons is head of onshore renewables for Axis’ global energy resilience team