Moody’s downgrades Gwynt y Mor Ofto to Baa1, saying uncertain cable repair costs will drain reserves

Rating agency Moody’s has downgraded Gwynt y Mor OFTO PLC’s rating from A3 to Baa1, saying it has a continuing history of  major cable faults, the cost of repairing and managing the faults is uncertain and the company will be drawing on reserve funds.

There is a high likelihood of further cable repair costs over the next 12-18 months and uncertainty over the liquidity available to GyM to fund them, Moody’s said, given that current reserves will be used to repair the most recent cable fault, which occurred in October 2020.

Moody’s said the Gwynt y Mor cable was more likely to fail than other Oftos. The cost of current repairs was estimated at £16M but were uncertain, and so was the £16-19M in planned costs for replacing a 5.5km section of cable where faults have been detected. The Ofto was likely to draw from an Emergency Reserve Account  and Debt Service Reserve Account between
March to May 2021 and from the European Investment Bank’s Project Bond Credit Enhancement  facility to ensure adequate liquidity is available.

Noting previous cable faults, Moody’s acknowledged that regulator Ofgem had agreed that some were ‘exceptional events’ and the Ofto’s revenue stream, based on availability, was not affected. But it also noted that the Ofto operated in a difficult natural environment within which to manage unplanned maintenance; and that the company was highly leveraged.

The Gwynt y Mor Ofto, owned by Balfour Beatty Infrastructure Investments Ltd (60%) and Equitix Transmission 2 Limited (40%), connects the 576MW Gwynt y Mor wind farm to the onshore transmission network 15km away.  The wind farm comprises 160 Siemens 3.6 MW wind turbine generators.

The derating will be a jolt to Ofgem’s plans for increased competition in network assets. Oftos have been a key influencer in those plans because their ‘low risk’ structure – a single purpose vehicle with a long-term availability-based revenue stream over 25 years – has proved attractive to investors. It comes as the regulator and NGESO are investignation a new regime for offshore wind connections that could see wind farms share larger connections.

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Further reading

Longread: take a deep dive into offshore cable risks

Ofgem changes Ofto bidding regime, aiming to increase pool of bidders

Gwynt y Mor Ofto told: no paperwork, no ‘exceptional event’

Ofgem plans for ‘competition proxy’ on Hinkley link could face challenge from National Grid

Ofgem warns Oftos it may get stricter on 3rd party outages

Mitsubishi/Chubu Electric Power consortium named as preferred connection owner for Hornsea 1

Ofgem allows Ofto compensation after ‘exceptional’ cable outage at Walney 2

Ofgem rejects claim for compensation from two Oftos after cable defect outages