Germany cuts returns for electricity, gas grids

Germany's Federal Network Agency has reduced the rate of return on capital for electricity and gas grids to 5.07% and 3.51% for new and existing systems, respectively, amid heated debates.

The new rates will be valid from 2024 to 2028 for the electricity network and in the period 2023-2027 for the gas grid and represent a significant reduction from the current yield of 6.91% and 5.12% for new and existing facilities, respectively.

The decision to cut the return rate reflects the lower level of interest rates on the capital markets, and despite the reduction, investment in the power grid will remain attractive to operators in the long term, the Federal Network Agency said on Wednesday.

At the same time, with the cut, the regulator sought to reduce the burden for electricity consumers resulting from higher return rates, it said.

The agency had planned a sharper cut to 4.59% which fuelled a debate with grid operators. In August, the Advisory Council of the Bundesnetzgentur called on the network regulator to keep the return on equity at an investment-friendly level as the expansion of electricity and gas grids will require significant investments for the successful energy transition. At the same time, a study conducted on behalf of the Association of Energy Market Innovators and renewable electricity provider Lichtblick claimed that the return could be cut to 3.79% without impeding investments in grid renovation and expansion.

At the end of September, electric utility EnBW Energie Baden-Wuerttemberg AG (ETR:EBK) urged the Federal Network Agency to keep the rate at a competitive level. The grid yield for new plants must be at least 1.6 percentage points higher than the planned 4.59%, EnBW said back then.

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