The Investor and the Engineer


September 12, 2013

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Who knew that a cable could be so expensive?

Dong Energy, clearly, when it announced this week that they had sold a power cable to the London Array offshore wind farm to a consortium made up of Barclays Infrastructure Funds Management and Mitsubishi Corporation for 4.1billion Danish Kroner – roughly £460m.

With the sale, DONG, and its project partners for the development, E.ON and Masdar, will, in theory, have off-loaded the operations and maintenance responsibilities for the cable – which, given the liabilities we’ve seen associated with offshore wind cabling, makes sound financial sense.

But, whilst the theory holds water, it also raises some interesting questions about the involvement of investors and asset managers in offshore infrastructure.

Speaking hypothetically, whilst the extra income from the sale will be useful to the developers; export cables are the conduit by which the developer makes its money. After all, if the electricity generated by the wind farm isn’t reaching the grid, then the project owner isn’t earning an income.

And whilst some of this cost may be borne by the insurance provider, in reality, it is certainly in the best interests of the project owners to ensure that the export cable is managed proficiently.

So, is there a moral hazard for owners once cable assets have been sold? It’s an opinion we’ve heard quietly voiced in the industry, but until the time comes that we see, publicly at least, a substantial fault with an independently owned export cable we simply don’t know.

Like so much of the offshore wind industry, there are parts of the sector that are still feeling their way in the dark and the OFTO regime has yet to be fully tested.

And whilst it isn’t practicable, or necessarily viable, for project owners to be responsible for every asset in the development portfolio, there needs to be an awareness of the liabilities really lie.

Likewise for the investment community, there needs to be a commensurate awareness of what they’re agreeing to take on.

The offshore wind industry can seem like the collision of two worlds – that of the investor and that of the engineer.

Managing these two disparate realms may yet prove to be the industry’s biggest challenge.

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