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OFTO outages more frequent than thought

Robust contractual and regulatory provisions have largely insulated financial performance from the shocks but insurance premiums could start to rise, says Fitch.

Technical failures at UK offshore wind power transmission projects have been “more frequent, longer and costlier” than anticipated, according to ratings agency Fitch.

While a review of the early years of operation have revealed no major event, the ratings agency found that the recent period has seen an uptick in disruptions, with 16 outages detected between 2013 and 2016.

This matters, Fitch said, as “event risk is a bigger factor in the risk profile of offshore transmission assets compared to availability-based PFI/PPP projects, because of the difficulty and cost involved in repairing undersea cabling”.

The agency noted, however, that OFTOs’ chequered track record has not dented their financial standing or their ratings, which have remained stable. “Strong contractual and regulatory provisions have helped rated projects absorb the effect on financial performance.”

The occurrence of such events underlined the need for “structural protections”, including insurance policies, contractual provisions and favourable regulation. Particularly key to operators was the ability to receive revenue while service is disrupted and the right to claim compensation when outages happen outside their control.

“We expect these protections to continue to absorb the impact of repair costs and lost revenue on financial metrics.”

As a caveat, it said performance had benefitted from lower than expected costs and in particular a fall in premiums as insurers get more acquainted with the asset class and the market expands. But it warned this was probably a one-off boost.

“We do not expect any further reduction in premiums and there is a risk that costs will start to rise following the recent acceleration in outages and insurance claims.”