BNetzA Lowers Return on Equity Rates for Electricity and Gas Grids – But Less Than Feared

The return on equity rates for the second regulation period for gas networks and for electricity networks will be lower than in the first regulation period, but less than feared by network operators and their associations. After consulting with market participants, the Federal Network Agency (BNetzA) decided on a return of equity rate of 9.05%  for new installations (currently 9.29%) and 7.14% for existing installations, starting in 2013 (gas) respectively 2014 (electricity). The rates will apply for the 5 year regulation period.

The return on equity rates are needed to calculate the revenue caps for German network operators, as they are one of the factors determining the costs related to the operation of the grid. German grid charges are subject to an incentive regulation pursuant to the Incentive Regulation Ordinance (Anreizregulierungsverordnung – ARegV). According to Section 7 para. 6 of the corresponding Electricity Grid Charges Ordinance (Stromnetzentgeltverordnung – StromNEV) and the Gas Grid Charges Ordinance (Gasnetzentgeltverordnung GasNEV), the Federal Network Agency stipulates the return of equity rates.

Contrary to its proposal submitted for consultation in September, BNetzA decided against lowering the risk premium (Wagniszuschlag), which is part of the formula for determining the return on equity rates, to 2,9%. Instead the risk premium will remain unchanged at 3.59%. The base interest rate (Basiszinsatz), however, will fall to 3.8% (from 4.23%) as proposed in September. It is based on the weighted average yield of outstanding Bundesbank bonds (Umlaufrendite) of the past ten years.

September’s proposal would have led to return of equity rates of 8.2% for new installations and of 6.29% for existing installations. It was called inadequate by grid operators and their associations in view of the need to modernise and expand the German grids to enable them to accommodate a larger amount of renewable energy in line with Germany’s recently revised Renewable Energy Sources Act (EEG) that will enter into force on 1 January 2012.

The Federal Association of the Energy and Water Industry (BDEW) and the Association of German Municipal Enterprises (VKU), which had both demanded return on equity rates for new installations of over 11%, welcomed the lower than expected decrease, calling it a step in the right direction. They however pointed out that German rates were already lower than the international average (BDEW) and demanded to minimise the still existing delay with which certain regulation provisions come to effect for grid operators (VKU).

The Federal Association of New Energy Suppliers (bne) and the Federal Association of Consumer Protection Agencies (vzbv) on the other hand criticised BNetzA, calling the decision a billion Euro gift for grid operators. A return on equity rate for new installations of 7.53 % would have been sufficient, bne said.

BNetzA has meanwhile officially released the new rates.

[Updated 02.11.2011]

Sources: BDEWVKUbnevzbv

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