The Federal Network Agency wants to give the operators of electricity and gas networks greater profit opportunities. This should create incentives for investments. Consumers bear the costs.
The head of the Federal Network Agency, Klaus Müller, has promised electricity and gas network operators higher returns. According to a new calculation, there could be a state-approved return on equity of around 7.09 percent for investments in new network infrastructure, the Federal Network Agency announced. Müller justifies the rising interest rate with the “current development of the interest rate environment”: “That’s why we want to pay better interest on new investments and thus create noticeable incentives for investments among network operators.”
Most recently, the Federal Network Agency reduced the interest on equity to 5.07 percent in October 2021. If the authority’s proposal is now implemented, the interest on equity for new systems will rise by more than two percentage points. For old investments, the old interest rate should remain in place even after the change. However, whether and when the rising return on equity will be implemented is currently up to Parliament. Because the Bundestag still has to decide on the legal basis for the change – the new law has already been approved by the Federal Cabinet.
New rules on January 1, 2024?
The reason for the new law is a ruling by the European Court of Justice from September 2021, according to which Germany is currently violating EU guidelines. Accordingly, the Federal Network Agency does not have enough leeway in setting network tariffs, for example. Many questions have so far largely been regulated in individual ordinances of the Federal Government.
It is currently planned that the new law will be passed by the Bundestag in autumn. It can then be implemented by the Federal Network Agency. It is therefore still unclear when exactly the new return on equity will come into effect. The planned date is January 1, 2024.
The authority has now put its proposals up for discussion. Network operators or associations can comment on this until the end of August. Network operators such as E.ON, EnBW and numerous municipal utilities have been demanding higher returns for a long time and point to the rise in interest rates and high inflation.
What is the network operators’ return on equity?
The return on equity shows the return that companies generate with their capital employed. It is therefore a parameter for the profitability of companies. In the state-regulated energy market, the permitted interest rate for network expansion is determined by the Federal Network Agency.
The network operator’s return on equity consists of a base interest rate and a risk premium. The base interest rate is based on average current yields of fixed-income securities over the past ten years. The risk surcharge reflects the risks of the network business – as well as a tax surcharge.
If the new law is passed by the Bundestag, the Federal Network Agency’s approach to setting interest on equity could change fundamentally. Until now, interest rates have been set every five years and then applied to both new investments and existing old systems. In the future, only the interest rate for new investments is to be fixed annually in order to increase the incentive for investments in network expansion – then it would be possible to react quickly even if interest rates rise or fall significantly.
What a household would have to pay more on average
The higher returns on equity are paid for by consumers. However, Netzagentur boss Müller emphasized that the additional costs for end customers should be as low as possible: “The additional burden must be limited to what is absolutely necessary.”
Consumers also pay the network operator’s interest on equity via the network charges. The following applies: the higher the return on equity, the higher the network charges. However, the additional burden with the changes proposed by the Federal Network Agency should remain rather low, since only new investments earn interest at a higher rate. Experts assume that an average household with an annual consumption of 3500 kilowatt hours would have to pay around ten to twelve euros more per year.
With information from Lilli-Marie Hiltscher, ARD finance department