...UK Inflation Low: UK RPI inflation has dropped sharply in recent years from 4.8% in 2011 to 1.6% for the 12 months ending December 2014. The Bank of England has signalled the possibility of further falls in the near term, potentially to below zero. Inflation-Linked Infrastructure Revenues: Low inflation is a relevant consideration for UK Private Finance Initiative (PFI) social infrastructure projects and offshore transmission projects (OFTOs). The revenue streams of these projects are based on availability, through a base unitary charge indexed to inflation (typically RPI) and then adjusted for the availability and performance of the assets compared to target thresholds. Contractual or Synthetic Hedging: This core exposure to inflation is typically managed in one of three ways: through setting the weighting of inflation indexation in the revenue formula to match the proportion of the project's cost base that is exposed to inflation; achieving the same net result by entering into long-dated...
