The German energy regulator Bundesnetzagentur (BNetzA) has today opened a consultation on the allowed cost of equity for electricity and gas networks in Germany in the forthcoming price control period. For the third price control period BNetzA proposes an allowed rate of equity of 6.91%, lower than the 9.05% used in the second price control period. The third price control period starts in 2018 for gas and 2019 for electricity.
The risk premium for equity of 3.15% consists of the market risk premium and the risk factor. BNetzA determines the market risk premium of 3.8% using long-term averages of historical data. The risk factor of 0.83 is derived using data from 14 network operators and 8 countries.
In determining the risk premium for equity, BNetzA relies, as in previous price control determinations, on a study by Frontier (Europe), which concluded that the regulator had some discretion to set the cost of equity within a derived interval of adequate returns.
Frontier (Europe) regularly advises companies and authorities on cost of capital and other regulatory issues.
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