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Germany: Allowed investment return for TSOs drops to 9.05%

27 Oct 2011 16:39:02 | esgm

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German regulator the Federal Network Agency (BNetzA) is to reduce the return that natural-gas and power transmission system operators (TSOs) can make on new investments by less than the industry feared.

BNetzA will lower the allowed return on new investments by 0.24 percentage points from 9.29% to 9.05% before tax, instead of the planned reduction to 8.2% (see ESGM 7 September 2011), the regulator confirmed to ICIS Heren on Thursday.

TSOs' allowed return-on-investment (ROI) rate for existing installations will also drop, from 7.56% to 7.14% before tax.

The new rates will take effect at the beginning of the next regulatory period - 1 January 2013 for gas grid operators and one year later for power network operators.

BNetzA told ICIS Heren it revised its ROI plans in view of the country's energy targets decided in July, which include a strong focus on renewable-energy sources and the phase-out of all nuclear power by 2022 (see EDEM 8 July 2011).

Under those targets, German TSOs are required to expand their grids sooner and more extensively then grid operators in other European countries, the regulator said.

BNetzA said its revision came after it faced widespread criticism from German grid operators, who said the search for investors has proved a difficult task, even under the present conditions, and, at a rate of 8.2%, new projects would be impossible to finance.

It appeared that the planned reduction could call new grid expansion projects into question. German gas TSO Bayernets, for instance, told ICIS Heren it would re-evaluate all its planned investment projects in case the regulator introduced a lower rate.

According to BNetzA, the new rate of 9.05% for new installations still takes into consideration Germany's generally falling investment rates, but the regulator has decided to refrain from lowering the risk premium contained within the rate.

This is in line with the results of a study commissioned by the country's energy and water association, BDEW, which states that the German regulatory system is carrying above-average risks.

That view is backed up by rating companies including Moody's, which only recently qualified the German regulatory framework as "less transparent and predictable than more established regimes, such as the UK framework, and therefore slightly riskier".

BNetzA's decision caused some relief among German TSOs on Thursday. BDEW welcomed it but said the rate of 9.05% still stands below the international average.

The association also insisted that TSOs are unable to achieve the existing allowed return on their investments, as it can take up to seven years before BNetzA takes an investment into consideration and allows a TSO to receive a return.

Even under the 9.29% rate, several German TSOs have stepped back from grid investments in past years, saying the nation's investment conditions do not ensure projects' economic viability.

Only recently, TSO Thyssengas, which operates part of the network in the recently extended NCG market zone, abandoned its plan to build an 8 billion cubic metre/year German-Belgian pipeline, despite a market test last year that showed huge interest in the project (see ESGM 5 August 2011).

Dutch TSO Gasunie, whose subsidiary operates part of the gas grid in the GASPOOL market area, and Germany's largest TSO, Open Grid Europe in the NCG, have already scaled down their investment projects, considerably reducing the additional capacity from customer requests during the Open Season procedures.

The country's power grids have also long been a subject of debate. In April, German energy agency Dena said the nation needed 4,500km of high-voltage power lines and 200,000-400,000km of medium- and low-voltage power lines by 2020 to accommodate its fast-expanding renewable-energy sector (see EDEM 19 April 2011).

During the next 10 years, the four German power TSOs aim to invest a total of €11.8bn in the country's power networks. Despite that large sum, data collated by ICIS Heren show that grid operators have publicly committed to about one-third only of the necessary power lines. JR

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