Germany's network regulator wants to provide operators of power and gas grids higher returns on equity for their outlays, its president said on June 7, responding to higher inflation that utilities say threatens investments in these assets.
For investments in newly constructed facilities, the agency, called the Bundesnetzagentur, plans a return on equity of around 7.09%, replacing currently applying 5.03%, while for investments in existing ones, the rate would remain at 5.07%, it said a statement.
"We take into account the current development of the interest rate environment," Klaus Mueller, Bundesnetzagentur's president, said.
"That's why we want to see better interest on new investments and thus will create noticeable incentives for network operators to spend money."
The regulator must reconcile the needs to stimulate spending by operators and institutional investors-by setting the permitted weighted average cost of capital-while not overburdening consumers.
The rates would be applicable for five years from 2024 for power and from 2023 for gas, based on annually adjusted interest prognoses and a risk surcharge, to allow more immediate refinancing.
Shares in E.ON, Europe's largest operator of energy grids, were up 1.7%, and those of smaller peer EnBW were up 2.1%.
E.ON said it viewed the move as an interim solution, given an enormous investment requirement for millions of decentralized wind and solar production units and new points of consumption such as electric car charging wallpoints and heat pumps.
"This (requirement) must be reflected in the overall regulatory framework," it said.
Utilities have said they need more money to remain competitive, chiming with grid operators which have published ambitious expansion plans.
National utility lobby group BDEW said the planned increases were not sufficient as they should also apply to investments made in recent years in already existing infrastructure.
"Grids are the backbone of the energy transition and of the transformation to climate neutrality in 2045," it said.
Household and industry help to finance operators' investments through grid fees, which make up sizeable parts of their final energy bills.
A decision will probably be made by the end of 2023, the regulator said.
The authority will draw on more autonomy it will gain from the implementation of a European Court of Justice ruling in 2021 awarding it more power, the statement said. The Berlin government cabinet approved steps for implementation last month.
A scheme to compensate offshore grid investments will be calculated separately by mid-October and then fine-tuned with the regulator.
Recommended Reading
CNX, Appalachia Peers Defer Completions as NatGas Prices Languish
2024-04-25 - Henry Hub blues: CNX Resources and other Appalachia producers are slashing production and deferring well completions as natural gas spot prices hover near record lows.
Comstock Continues Wildcatting, Drops Two Legacy Haynesville Rigs
2024-02-15 - The operator is dropping two of five rigs in its legacy East Texas and northwestern Louisiana play and continuing two north of Houston.
Chevron Hunts Upside for Oil Recovery, D&C Savings with Permian Pilots
2024-02-06 - New techniques and technologies being piloted by Chevron in the Permian Basin are improving drilling and completed cycle times. Executives at the California-based major hope to eventually improve overall resource recovery from its shale portfolio.
Proven Volumes at Aramco’s Jafurah Field Jump on New Booking Approach
2024-02-27 - Aramco’s addition of 15 Tcf of gas and 2 Bbbl of condensate brings Jafurah’s proven reserves up to 229 Tcf of gas and 75 Bbbl of condensate.
Repsol to Drop Marcellus Rig in June
2024-04-26 - Spain’s Repsol plans to drop its Marcellus Shale rig in June and reduce capex in the play due to the current U.S. gas price environment, CEO Josu Jon Imaz told analysts during a quarterly webcast.