OPINION: Mind the gap! Clarity, not capacity, is the transmission asset insurance issue
By MENAKA P. Skjold - Assistant Underwriter
Offshore wind has become a cornerstone of Europe’s energy strategy, driven by net-zero targets and rising public-private investment. But as capacity grows, so do challenges, especially in transmitting power from sea to shore.
Offshore wind farms are now routinely underwritten and insured. Transmission assets and their contractual and regulatory particularities, however, present different complexities that need to be better addressed.
Despite established ownership models and statutory compensation regimes, wind farm operators remain exposed to income losses due to transmission failures, resulting in an inability to sell generated electricity to the onshore grid for prolonged periods of time. This risk transfer problem reflects a structural misalignment that must be better solved in order to sustain both investor confidence and long-term project viability.
Ownership models and risk transfer
Offshore transmission infrastructure, including export cables and onshore/offshore substations, is essential for delivering generated power to the grid. Yet insurance structures around these assets often fail to fully reflect the financial risks involved. Two dominant models - the UK’s Offshore Transmission Owner (OFTO) regime and the Transmission System Operator (TSO) model used across continental Europe, illustrate how losses caused by transmission failures are often inadequately considered.
Both models separate ownership and operation of transmission assets from the wind farms they connect. While this promotes investment, prevents monopolies, and serves public interest, it also creates a structural anomaly. The party that suffers revenue loss in the event of a transmission failure is typically not the party that owns or controls the affected transmission infrastructure. This misalignment complicates underwriting by creating uncertainty around liability, repair timelines, and economic exposure.
Under the OFTO regime, transmission assets are divested from the wind farm developer to an independent operator after construction. OFTOs operate under fixed-term licenses and must meet minimum availability thresholds - often around 98% - to maintain full revenue. If availability falls short, they may face reduced availability incentives paid by National Grid ESO but otherwise have no liability to the wind farm operator who suffers the actual revenue loss. As a result, the wind farm operator bears the risk without receiving any direct compensation from the OFTO which connects the farm to the grid and has little ability to influence the particulars of repair of the failure.
The TSO model differs in governance but leads to similarly misaligned outcomes. TSOs are typically public, quasi-public, or regulated entities with stable income tied to performance metrics. In jurisdictions where they are liable for compensating wind farm operators after outages, the associated costs are often passed on to end users through mandated grid levies. Such levies may place the burden of transmission failure on consumers rather than on the entities responsible for operating and maintaining the offshore transmission infrastructure.
Regulatory compensation is not a substitute
Whether through a lack of redress (as in the OFTO model) or consumer-funded compensation (as in many TSO regimes), current frameworks fail to allocate risk to those best positioned to manage it. Although various compensation mechanisms are embedded within both models, they are not necessarily always structured to fully replace lost revenue; they serve primarily as tools to enforce availability standards and/or penalise underperformance.
In the OFTO regime, penalties for low availability are modest, formulaic, and not always aligned with actual financial losses. These availability incentive deductions, handled by National Grid ESO, are often too small to incentivise performance improvements and do not compensate for the offshore wind farm’s loss of revenue. Moreover, the system does little to align incentives to repair cost effectively (in the interest of the OFTO) with the real cost of failure (lost revenue) and the need to repair as quickly as possible (in the interest of the wind farm).
In TSO regimes, outcomes vary. Some jurisdictions, like Germany or the Netherlands, offer reasonable compensation for outages, others less so. When compensation is available to the wind farm operators, the cost is often directly passed through to end users. As such, it can be argued that these mechanisms might both impact accountability from the transmission operator and distort the purpose of compensation itself. Consumers, who have no control over infrastructure risk, should not act directly as de facto insurers of offshore transmission reliability.
These frameworks may satisfy compliance obligations, but they do not deliver what insurance is meant to provide: timely, contract-based monetary relief tied to a defined loss. These limitations highlight the opportunity for insurance to play a greater role in supporting offshore transmission risk management. Professional risk-takers, namely insurers, are better placed to absorb and price this exposure than regulatory regimes or end users. Yet, bringing this theoretical expertise into widespread, effective insurance coverage continues to be challenging, for both the industry and for the insurers.
The elusiveness of contingent cover
To manage these complex exposures, some developers have turned to Contingent Delay in Start-Up (CDSU) or Contingent Business Interruption (CBI) insurances. These products are intended to cover income losses stemming from damage to non-owned assets, such as transmission assets, that are not directly insured by the wind farm’s physical damage policy. In principle, they offer a critical solution. In practice, they are extremely difficult to underwrite.
A CDSU or CBI claim typically hinges on a hypothetical: would the loss have been covered if the non-owned transmission asset were insured under the wind farm’s physical damage policy? Answering this question may well depend on access to detailed root cause data, which is not always easily available when assets are owned and operated by separate entities. Furthermore, definitions and exclusions often differ across policies, leading to grey areas that delay claims and reduce certainty.
Brokers face real difficulty aligning wording across multiple stakeholders. Underwriters, meanwhile, may need to evaluate the actual dependency risk without full visibility into system architecture, failure modes, or repair protocols. As the offshore transmission infrastructure gets more built out, the risk of a single, catastrophic occurrence triggering multiple contingent claims across several farms within an insurer’s portfolio is dramatically increased. These obstacles have made consistent underwriting of contingent cover challenging in practice. In the case of each CDSU/CBI underwriting decision - without clear precise knowledge of which contingent assets may trigger claims across one or more policies, especially as physical proximity and connectivity of such assets to each other becomes more dense, complex, and continually ever-changing - potential aggregation issues for underwriters present an ongoing concern.
Realigning risk ownership
The underlying problem is not merely the absence of a specific policy type, it is the structural misalignment between asset ownership, operational control, and revenue exposure. The party that bears the financial consequences of a failure is often the one least able to manage and triage the risk. This is not just an administrative hurdle. It creates systemic vulnerability, particularly as power purchase agreements, merchant exposure, and debt service obligations increase.
For underwriters, this presents both a challenge and an opportunity. The challenge is to bridge policy gaps between construction and operation, between asset owner and revenue maker, and between technical damage and commercial loss. It requires a willingness to engage early in the project lifecycle, and to shape rather than simply price these risks.
The opportunity lies in building insurance solutions that reflect the interconnected reality of offshore energy projects. That includes improving how risk is defined, who holds it, and how it can be transferred - clearly and consistently.
Conclusion: Closing the structural divide
The key constraint with insuring transmission assets is not a shortage of capacity, rather a lack of clarity. The complexity and interdependence of offshore infrastructure demand a more coordinated approach from the insurance market. As underwriters, we must ask: how can we facilitate smoother placement, clearer coverage intent, and faster resolution in times of loss? As an industry, we should ask: how can we enable clearer exposure management, so that risk-taking professionals may more efficiently de-risk ever-more ambitious projects?
To do so, we need to take the mystery out of it. That means moving beyond technical ambiguity and toward shared visibility - across contracts, asset responsibilities, and root cause data. When a transmission failure occurs, it is often the wind farm operator, and its insurers, that suffer the financial consequences. If contingent insurers were empowered to contribute to transmission-side repairs, either through expediting cost mechanisms or coordinated response protocols, it could materially reduce outage periods and mitigate broader losses.
This requires a shift in mindset: viewing contingent insurance not just as a reactive solution, but as an integrated tool for resilience. Supporting clearer contractual relationships between wind farm operators and transmission asset owners can also reduce friction and promote faster operational recovery. From an underwriting perspective, encouraging such structures is not just prudent and efficient – it is essential.
Standardising CDSU and CBI wordings could also be beneficial. Current variations make interpretation difficult and placement inefficient. Consistent clauses simplify negotiation, improve transparency, and allow underwriters to model risk more accurately across portfolios.
As offshore networks grow more interconnected, old assumptions about risk ownership no longer apply. The biggest losses in this space are not physical - they’re financial, and they are increasingly falling into the cracks between regulation, ownership, and insurance. If we do not fix this misalignment, investor confidence and long-term project viability will continue to erode.
It’s time we closed the gap.
