German regulator cuts power, gas grid earnings to protect consumers

German regulator cuts power, gas grid earnings to protect consumers
German regulator cuts power, gas grid earnings to protect consumers   -   Copyright  Thomson Reuters 2021   -  
By Reuters

<div> <p><span class="caps">FRANKFURT</span> -Germany’s federal network agency on Wednesday curbed the permitted return on new infrastructure for power and gas networks in the years to 2029 to protect consumers from higher energy bills. </p> <p>The move, which the authority said was led by the general interest rate environment, comes as a surge in energy prices has left households facing an expensive winter heating season.</p> <p>The grid element accounts for just over a fifth of the final bill paid by power consumers, while in gas it is a quarter, industry statistics show.</p> <p>In its equity interest rates for the networks published on Wednesday, the authority proposed a permitted return for new infrastructure of 5.07%, versus 6.91% now, in the regulated sectors, where costs are recouped through fees levied on prices paid by energy customers.</p> <p>The new rates will apply in the five-year periods starting 2023 and 2024 respectively. Rates for old infrastructure were set at 3.51%, down from 5.12%, the agency said in a statement.</p> <p>The agency said it had been mindful of the need to allow satisfactory revenues for operators in a sector led by E.ON, and had taken on points raised by them in the consultation periods.</p> <p>But there was also an obligation to lessen the impact on consumer prices, it said.</p> <p>The agency assumed a risk-free interest rate average over 10 years of 0.74%, which it said it could adjust should there be unexpected changes. It granted a risk surcharge of 3%.</p> <p>The final rates are above the first proposals made in July, when the authority had suggested 4.59% for new infrastructure and 3.03% for old.</p> <p>Operators say they need plenty of money to upgrade gas networks for their future roles in decarbonised energy systems.</p> <p>Billions of euros will also go into wind and solar power production plants in coming years, and this capacity needs hooking up to power grids.</p> <p>EnBW, which operates power and gas grids mainly in Baden Wuerttemberg state, said the move would undermine the speed of renewable power expansion and the re-purposing of gas infrastructure at a time when they should be sped up.</p> <p>The company may take legal action after studying the 53-page document more closely, board member Dirk Guesewell said.</p> <p>Some analysts had supported the operators’ views, while others have said big institutional investors would still be happy with a lower outcome as the German grids deliver steady income streams.</p> </div>