WACC

DEDA’s 9.99% WACC proposal for 2024-26 above RAAEY goal

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Italgas, the Italian buyer of gas company DEPA Infrastructure and distribution subsidiaries EDA THESS, EDA Attiki and DEDA, has proposed a 9.99 percent weighted average cost of capital (WACC) level for DEDA in negotiations with RAAEY, the Regulatory Authority for Waste, Energy and Water, for the rest of a four-year regulatory period covering 2023 to 2026, well above the level envisaged by the regulatory authority, expected to push for a rate below 8.57 percent.

A ratified legislative revision that had been forwarded by the energy ministry on the WACC level of the then-DEPA Infrastructure company, now reorganized, had set a WACC level of 8.57 percent for the current year, leaving the rest of the four-year regulatory period pending until the corporate reorganization of the gas company was completed.

The process has now been completed, as officially announced by Italgas, through a merger of gas distributors EDA THESS and EDA Attiki, both subsidiaries of the former DEPA Infrastructure Group, and absorption by DEDA.

In its DEDA negotiations with Italgas, RAAEY is pushing for a WACC level, for 2024 to 2026, below the 8.57 percent level set for 2023.

RAAEY will propose the precise WACC level it desires after DEDA has provided the authority with data on its borrowings and leverage. RAAEY aims to finalize the matter by the end of the year, so that tariffs can be set immediately afterwards.

As a result of DEPA’s restructuring, DEDA has undertaken the development and operation of the gas distribution network in all areas of Greece where DEPA Infrastructure, now a full-owned subsidiary of Italgas, is active. The company currently manages around 7,700 km of network and serves over half a million customers.

 

DEDA, RAAEY, entering WACC, tariff talks, with gap to cover

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Gas distributor DEDA and RAAEY, the Regulatory Authority for Waste, Energy and Water, are entering negotiations to determine gas distribution network weighted average cost of capital (WACC) and tariff levels for the regulatory period covering 2023 to 2026 with some distance between them to cover, energypress sources have informed.

A ratified legislative revision that had been forwarded by the energy ministry on the WACC level of the then-DEPA Infrastructure company, now reorganized, had set a WACC level of 8.57 percent for the current year, leaving the rest of the four-year regulatory period pending until the corporate reorganization of the gas company was completed.

The process has now been completed, as officially announced by Italian buyer Italgas, through a merger of gas distributors EDA THESS and EDA Attiki, both subsidiaries of the former DEPA Infrastructure Group, and absorption by DEDA.

The Italian group recently acquired DEPA Infrastructure and its three gas distribution subsidiaries, EDA Attiki, EDA Thess and DEDA.

According to energypress sources, DEDA will soon forward to RAAEY its proposal for WACC and tariff levels concerning 2024 to 2026, thereby setting in motion negotiations between the two sides. Finalized decisions are expected by the end of the year.

Italgas will propose a WACC level of more than 9 percent, expected to prompt a reaction from RAAEY, which is determined to subdue WACC and tariff levels to limit, as much as possible, the burden on consumers, sources said.

 

RAAEY reaches decisions on WACC levels for IPTO, HEDNO

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Following months of deliberation, RAAEY, the Regulatory Authority for Waste, Energy and Water, has reached decisions on WACC levels for power grid operator IPTO and distribution network operator DEDDIE/HEDNO, setting the former’s at 7.51 percent, for 2023 to 2025, and the latter’s at 7.66 percent for 2023 and 2024, energypress sources have confirmed.

Based on these decisions, IPTO’s average WACC level for the four-year regulatory period, covering 2024 to 2027, works out to 7.16 percent, while the four-year regulatory period average for DEDDIE/HEDNO is 7.11 percent.

The discrepancy in WACC levels resulted from different borrowing-cost coefficients applied to a WACC formula used by RAEEY. All other factors that were taken into account, including country risk and cost of capital, were identical.

IPTO initially sought a higher WACC rate, pushing for its cause from as far back as last year, citing unfavorable changes in the economic environment, including inflation and interest rate increases.

Just recently, RAAEY set a WACC rate of 7.85 percent for gas grid operator DESFA, covering the entire four-year regulatory period (2024-2027), and an 8.57 percent WACC rate for DEPA Infrastructure, limited to 2023.

RAAEY decides on WACC levels for DESFA, DEPA Infrastructure

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RAAEY, the Regulatory Authority for Waste, Energy and Water, has decided, after lengthy consideration, on WACC levels for two gas companies, DESFA, Greece’s gas grid operator, and DEPA Infrastructure.

The WACC level set for DESFA, 7.85 percent, will apply for a four-year period covering 2024 to 2027, while DEPA Infrastructure’s rate, 8.57 percent, applies for 2023.

The discrepancy between the two WACC levels resulted from different borrowing-cost coefficients applied to a WACC formula used by RAEEY. All other factors that were taken into account, including country risk and cost of capital, were identical.

DESFA is now expected to set tariffs ahead of tenders for three grid interconnection projects.

As for DEPA Infrastructure, the company’s new owner, Italgas, Europe’s second largest gas distributor, was expecting a WACC level of between 8 and 9 percent over the next four-year regulatory period in order to carry out its Greek investment plan through DEPA Infrastructure and its three gas distribution subsidiaries, EDA Attiki, EDA Thess and DEDA.

Decisions on WACC levels for power grid operator IPTO and distribution network operator DEDDIE/HEDNO are expected by the end of July.

IPTO has requested a revised WACC level for the regulatory period covering 2022 to 2025, while DEDDIE/HEDNO is awaiting a revision for 2023 and 2024.

Italgas seeking WACC of 8-9% to carry out Greek investments

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Italgas, Europe’s second largest gas distributor, is seeking a WACC level of between 8 and 9 percent over the next four-year regulatory period in order to carry out its Greek investment plan through the Italian group’s recently acquired DEPA Infrastructure and its three gas distribution subsidiaries, EDA Attiki, EDA Thess and DEDA.

Italgas has submitted three related studies to RAAEY, the Regulatory Authority for Waste, Energy and Water, as support for what the energy group believes to be the necessary WACC level for the regulatory period starting this year and running through 2026, its CEO, Paolo Gallo, noted during a London presentation last week of the company’s strategic plan for 2023 to 2029.

RAAEY will initially reach a decision, expected early in July, on Italgas’ WACC level for 2023, given priority through a legislative revision ratified just months ago.

Prioritizing the 2023 WACC level for DEPA Infrastructure will enable Italgas to reassess its investment plans for the year concerning its three gas distribution subsidiaries, EDA Attiki, EDA THESS and DEDA.

DEPA Infrastructure’s allowed revenues and tariffs for 2023 will be determined at a latter date.

 

 

Temporary solution for DESFA tariffs, new WACC level still not set

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Gas grid operator DESFA’s WACC figure for the next regulatory period, covering 2024 to 2027, remains undetermined, while, furthermore, a final decision by the operator on its tariffs for this four-year period will be subject to two outstanding issues, DESFA’s operating expenses and the socialization cost-coverage percentage at its Revythoussa LNG terminal.

RAAEY, the Regulatory Authority for Waste, Energy and Water, has requested additional information from DESFA concerning its operating expenses for the next regulatory period in order to calculate the operator’s allowed revenue.

As for the socialization rate at DESFA’s Revythoussa LNG terminal, RAAEY has proposed keeping it unchanged at 50 percent for the 2024-2027 regulatory period.

Based on EU terms, DESFA’s tariffs ought to have been set by June 5, ahead of international tenders, on July 3, to offer capacities at three gas grid interconnections.

Consequently, in order to meet this deadline, DESFA has set provisional tariffs based on the WACC level it has proposed, 9.14 percent.

These tariffs have been uploaded onto the platform for national grid users so that they can have a rough idea on network usage fees when preparing bids for capacity reservations.

RAAEY, DESFA still far apart on 2024-2027 WACC agreement

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RAAEY, the Regulatory Authority for Waste, Energy and Water, and gas grid operator DESFA still need to bridge a wide gap for an agreement on the latter’s WACC figure for the next four-year regulatory period covering 2024 to 2027, energypress sources have informed.

As a result, a final decision by the operator on its gas network usage fees for the next regulatory period, which had been scheduled to be set by June 5, remains pending.

This deadline results from a European regulation on interconnection auctions. The delay will impact the procedure for capacity reservations by Greek and foreign players concerning the Greek transmission system’s gas entry and exit points.

Though the delay in determining tariffs is definitely an unfavorable development, the issue could be resolved by staging capacity reservation auctions with existing gas grid network usage levels, sources noted.

RAAEY has determined that DESFA’s proposed WACC figure for 2024 to 2027, at 9.14 percent, is unjustifiably high and above the corresponding figures of all other market operators. RAAEY has proposed a WACC figure of just over 7.44 percent, DESFA’s level at the end of 2022.

 

DESFA, RAAEY apart on tariff agreement as deadline nears

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Gas grid operator DESFA and RAAEY, the Regulatory Authority for Waste, Energy and Water, still far apart on the operator’s WACC figure for the next regulatory period covering 2024 to 2027, are engaged in tough negotiations as a June 5 deadline for new tariffs approaches.

DESFA set a WACC figure of 9.14 percent in a proposal put through consultation in mid-March. It has been firmly opposed by RAEEY, believing this figure is unjustifiably high.

DESFA ended 2022 with a WACC figure of 7.44 percent, a starting point for RAEEY in its negotiations. The authority, viewing DESFA’s new WACC figure as pivotal as it will serve as a guide in the levels to be set for other operators, believes the operator’s new level should be a little over last year’s 7.44 percent level, and certainly under 8 percent.

The WACC level to be applied by DESFA over the next regulatory period from 2024 to 2027 is one of four aspects that need to be resolved before gas transmission network usage tariffs are set.

DESFA also needs to finalize its operational expenditure figure for the next regulatory period so that an allowed revenue for the operator may be set. The operator has yet to send this data to RAAEY and, consequently, appears likely to miss the June 5 deadline on this matter.

DESFA’s socialization percentage concerning the operating cost of its Revythoussa LNG terminal just off Athens is another unresolved matter. DESFA has proposed that it be maintained at the current level of 50 percent for the next regulatory period.

However, Gastrade and Motor Oil, both developing new floating LNG terminals in other parts of Greece, have protested, contending this figure is excessive and would offer DESFA’s Revythoussa facility an unfair advantage and undermine the financial viability of their investments. ACER, Europe’s Agency for the Cooperation of Energy Regulators, has backed the two companies on this issue.

DESFA’s ten-year development plan covering 2023 to 2032, a fourth prerequisite needed before its new gas transmission network usage tariffs are set, has already received RAAEY’s approval.

 

RAAEY, DESFA need to bridge gap for four-year WACC figure

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RAAEY, the Regulatory Authority for Waste, Energy and Water, has determined that gas grid operator DESFA’s intended WACC figure for 2024 to 2027, planned to be set at 9.14 percent, is unjustifiably high and above the corresponding figures of all other operators.

At this stage, RAAEY and DESFA have work to do to converge for an agreement on the operator’s WACC figure concerning the aforementioned four-year period. Even so, both sides are confident an agreement will be achieved.

RAAEY is expected to deliver decisions on DESFA’s WACC level, allowed revenue and tariffs for 2024 to 2027 within the first ten days of June.

DESFA has set itself an allowed revenue of 201 million euros for 2024, with slight rises over the ensuing three years, to 218 million euros in 2025, 233 million euros in 2026, and 247 million euros in 2027.

Meanwhile, a ministerial decision paving the way for the country’s three gas distribution network operators to replace conventional gas meters with smart meters is believed to be just days away.

Amendment to prioritize DEPA Infrastructure WACC level for ’23

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The energy ministry has prepared a legislative amendment to prioritize the setting of a WACC level for gas company DEPA Infrastructure in 2023, and, at a latter date, determine its allowed revenues and tariffs for the same year.

This legislative revision, ultimately covering DEPA Infrastructure’s latest four-year regulatory period from 2023 to 2026, will initially be applied to set levels for the aforementioned three parameters in 2023, an urgent need that has arisen as a result of the volatility in energy markets, especially the gas market, due to Russia’s ongoing war in Ukraine.

Prioritizing the 2023 WACC level for DEPA Infrastructure will enable Italgas, the company’s Italian buyer, to reassess its investment plans for the year concerning its three gas distribution subsidiaries, EDA Attiki, EDA THESS and DEDA. According to sources, Italgas is inclined to limit its investment plans for these subsidiaries in 2023.

Italgas is working on reviewing its overall corporate plan for DEPA Infrastructure in the light of an apparent downward revision of gas penetration targets for the end of the decade.

DEPA Infrastructure to gain investment clarity with revision

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The energy ministry is planning to allow Italgas, the Italian buyer of DEPA Infrastructure, through an acquisition completed last year, to adjust the gas infrastructure company’s investment and corporate plan in accordance with an anticipated downward revision of gas penetration targets to be set for the end of this decade.

The ministry plans to submit a related amendment to Greek Parliament, possibly as part of a multi-bill currently being discussed by a parliamentary committee ahead of its imminent tabling for ratification.

According to energypress sources, the amendment will remove an existing parameter simultaneously determining the WACC levels and allowed revenues of DEPA Infrastructure’s three gas distribution subsidiaries, EDA Attiki, EDA THESS and DEDA, for the next regulatory period, covering 2023 to 2026.

This revision would pave the way for the average cost of capital concerning the four-year period to be determined first before regulated income is also determined.

The energy ministry’s legislative initiative, the same sources noted, comes following a request made by Italgas, so that the company may examine and establish its investment plan for the new four-year regulatory period based on WACC levels to be set until 2026.

The company’s investment plan will, as a result, be tailored to generate allowed revenues and lead to the creation of new assets.

 

RAE, operators far apart on WACC levels for 2023-2026

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RAE, the Regulatory Authority for Energy, and the country’s gas distribution network operators appear to be far apart on WACC (weighted average cost of capital) figures for the next regulatory period covering 2023 to 2026, energypress sources have informed.

The authority is expected to set its levels early in 2023, the sources noted. Locking in the WACC level for the four-year period will enable Required Income levels to be determined along with tariffs for each of the operators.

The distribution network operators, EDA Attiki, EDA Thess and DEDA, have yet to announce their desired WACC levels for 2023 to 2026, but it is believed they want a significant increase on the current levels.

The current regulatory period is ending with a WACC level of 7.03 percent, the level recorded in 2021, following levels of 8.18 percent in 2019 and 7.45 percent in 2020.

RAE contends there is no reason to deviate from the current WACC formula, which, it has noted, includes all the factors that reflect the economic environment in which EDA Attiki, EDA Thess and DEDA operate, including inflation and country risk.

Given its approach, RAE appears likely to set just marginally higher WACC figures for the next four-year regulatory period.

RAE to cut extra WACC for electricity interconnections

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RAE, the Regulatory Authority for Energy, will eliminate any extra weighted average cost of capital (WACC) concerning electricity interconnection projects, the authority’s president, Athanasios Dagoumas, has informed a parliamentary committee.

RAE is basing its decision on a cost-benefit analysis study conducted by the authority, while latest European approaches have also been taken into account, the aim being to converge with European WACC standards, the chief executive noted.

The president of RAE stressed that the role of the authority is to control operator expenditures, which, he added, is public money. “We’re cutting expenses – what is not substantiated as an expense will be cut,” he underlined.

The RAE president also protested that market operators are presenting financial data to RAE for approval with great delay, forcing the authority’s staff to work overtime to meet schedules.

RAE has moved swiftly to offer its approval of a series of projects, such as the IGB, the Alexandroupoli FSRU, and a pipeline link with North Macedonia, the chief official noted, adding that the authority’s role is to protect public interest. “We ask you to recognize and support this,” Dagoumas told the parliamentary committee.

 

Key Performance Indicators to be introduced for IPTO earnings

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Key Performance Indicators (KPIs) to prompt rewards and penalties determining earnings will be introduced for power grid operator IPTO, abolishing a current formula guaranteeing the operator’s earnings.

The KPI plan, expected to soon be forwarded for public consultation, applies for Europe’s major operators.

It will be used to assess services such as transmission line availability, loading forecast accuracy, and RES forecast accuracy.

The KPI system also promises to bring about changes for projects of major importance, among them the Crete and Cyclades grid interconnections.

Until now, the operator’s bonus arrangement for these projects was set at 2.5 percent of WACC over a period of up to 12 years, but, under the new system, the bonus rate will be trimmed to 2 percent, while the application period will be limited to between four and seven years instead of 12.

Regulatory decision for operator DEDDIE most likely delayed

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RAE, the Regulatory Authority for Energy, is not expected to reach a decision by March 31, as has been scheduled, on the regulated earnings and network development plan for distribution network operator DEDDIE/HEDNO’s four-year period covering 2021 to 2024 because the authority has yet to receive all necessary data and information, sources have informed.

The authority’s decision on regulated earnings, to apply retroactively as of January 1, 2021, is important for the DEDDIE/HEDNO privatization, to offer investors a 49 percent stake, as it will determine WACC amounts and other key dimensions.

RAE has already established formulas for calculating required distribution network earnings and WACC figures.

The operator’s new framework includes two four-year periods, 2021 to 2024 and 2025 to 2028, offering prospective buyers a longer-term outlook on this investment’s yield.

Last Friday, power utility PPC extended its expression-of-interest deadline for the sale of its minority stake in DEDDIE/HEDNO to February 19, from January 29, following requests by prospective bidders. They now have until February 5 to forward any related queries and February 26 to produce supporting documents needed for the sale’s preliminary expression-of-interest stage.

Five to six investment teams, comprised mostly of companies and funds, are seen participating in the sale of a minority DEDDIE/HEDNO stake.

South Kavala UGS tender qualifiers by early February

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Greece’s privatization fund TAIPED will finalize its list of second-round qualifiers in a tender offering development and operation of an underground gas storage facility (UGS) in the almost depleted natural gas field of “South Kavala” in northern Greece by late January or early February, sources have informed.

Three parties submitted first-round expressions of interest: China Machinery Engineering Co. Ltd. (CMEC) – Maison Group; DESFA – GEK Terna; and Energean Oil & Gas (in alphabetical order).

Assessments of their supporting documents and other criteria are expected to be completed within the next twenty days.

RAE, the Regulatory Authority for Energy, still needs to deliver decisions concerning the operating framework of the UGS.

These pending issues include a RAE decision on the percentage of the UGS project’s capacity to be regulated, thus pre-determining this proportion’s revenue, and the earnings percentage to be determined by market forces.

The authority also needs to decide on the duration of the regulatory period and its WACC level.

At least 10 candidates emerge for DEDDIE sale’s market test

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At least ten prospective bidders, among them a number of infrastructure funds as well as European operators, have taken part in a market test staged by distribution network operator DEDDIE/HEDNO in the lead-up to its sale of a 49 percent stake.

The privatization’s officials have deemed the turnout as considerably satisfactory, both in terms of numbers and the reputations of participants.

Some of the funds, both from Europe and beyond, that emerged for this market test are either already present in the Greek market or have been considering to make an entry for quite some time. They specialize in infrastructure and energy projects as long-term investments.

The board at power utility PPC, DEDDIE/HEDNO’s parent company, will be fully informed on the market test’s participants at a meeting scheduled for today, before the privatization is officially launched.

The privatization’s exact number of first-round participants should become known by the end of January, when the expression-of-interest deadline is expected to be set.

Officials believe the overall sale procedure can be completed by spring in 2021. Attractive WACC levels set recently by RAE, the Regulatory Authority for Energy – 7 percent for 2020 and 6.7 percent for 2021 to 2024 – are expected to lure candidates.

DEDDIE/HEDNO’s ambitious 2.3 billion-euro investment plan, included in the operator’s preliminary network development plan, its projects featuring the installation of 7.5 million digital power meters, transmission network upgrades and expansions, as well as a fiber optics project, should serve as further stimulus for a solid sale price.

RAE to set DEDDIE’s WACC level this week, investors keen

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The launch of a privatization procedure to offer a 49 percent stake in distribution network operator DEDDIE/HEDNO should be brought one step closer to its actualization this week as RAE, the Regulatory Authority for Energy, is expected to set a WACC level for 2020, before following up, a few weeks later, within December, with a WACC level covering 2021 to 2024.

These steps are intended to offer investors clarity on the operator’s earning potential.

The distribution network operator’s WACC level for 2021 to 2024 is expected to be set at just below 7 percent, a highly attractive level given the far lower yields offered by respective European distribution network operators.

Investor interest in the forthcoming DEDDIE/HEDNO sale is currently high, energy ministry sources informed. Though no companies were specified, the sources indicated that potential buyers who had surfaced prior to the pandemic remain interested.

Germany’s EON, Italy’s Enel, France’s Enedis and a number of Chinese firms had all expressed interest. Surprise additions to this list cannot be ruled out.

A market test, to measure the level of interest of prospective bidders, is expected to take place next month, immediately following an Investor Day online event planned by state-owned power utility PPC, the operator’s parent company, for early December, energy minister Costis Hatzidakis told a recent energypress conference.

DEDDIE/HEDNO, possessing networks covering 242,000 kilometers, has prepared a major investment plan that includes installation of 7.5 million smart power meters, a project budgeted at 850 million euros, and a digital upgrade of the network. The operator’s assets are valued at 3.6 billion euros.

RAE deciding on DEDDIE 2020 WACC, terms for 2021 to 2024

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RAE, the Regulatory Authority for Energy, intends to reach decisions this week on the WACC and allowable income levels for 2020 of distribution network operator DEDDIE/HEDNO, both pending regulatory factors needed ahead of the operator’s privatization.

The authority has already approved a formula determining the required network earnings.

RAE intends to approve the operator’s WACC level for 2021 to 2024 by the end of the year before deciding early in 2021 on the regulated earnings and a network business development plan covering 2021 to 2024.

The distribution network operator’s WACC level for 2021 to 2024 is expected to be set at just below 7 percent, sources informed. Such a level would be seen as highly attractive by investors given the far lower yields offered by respective European distribution network operators.

Decisions on all these regulatory matters will enable prospective buyers to evaluate DEDDIE/HEDNO’s prospects and shape their offers for a 49 percent stake to be offered through the operator’s privatization.

The sale could be completed by the first quarter of 2021. Pundits anticipate the sale price could reach approximately 1.5 billion euros.

In accounting terms, the operator’s fixed assets – networks covering 239,000 kilometers and substations – are worth 3.5 billion euros.

DEDDIE formula for required revenue approved by authority

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RAE, the Regulatory Authority for Energy, has approved a formula determining the required revenue for electricity distribution networks, an important first step towards the finalization of distribution network operator DEDDIE/HEDNO’s regulatory framework, essential for its privatization procedure to offer a 49 percent stake, sources have informed.

A WACC level still needs to be set and approved for the operator. RAE intends to reach a decision by December 31 so that prospective buyers can have even greater clarity on the operator’s potential revenue.

Given the time required for the processing of related data concerning the operator’s regulated earnings and the network’s business development plan for 2021 to 2024, RAE should deliver a decision on the four-year period by March 31, 2021, which would be retroactively applied as of January 1, 2021.

The new framework includes two periods covering 2021-2024 and 2025-2028, offering investors a long-term picture of the investment’s potential yield.

According to sources, the authority intends to set a WACC level of just below 7 percent for 2021-2024, highly attractive for investors given levels of no more than 2.5 percent offered by equivalent distribution network operators around Europe.

RAE plans to launch a market test, to measure the level of investor interest in DEDDIE/HEDNO, next month.

Prior to the pandemic, Germany’s EON, Italy’s Enel, Enedis – an EDF subsidiary – as well as a number of Chinese companies, had expressed interest in the DEDDIE/HEDNO privatization plan.

IPTO awaiting approval of 20% Ariadne sale for €40m minimum

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Power grid operator IPTO’s needed approval from RAE, the Regulatory Authority for Energy, of its sale plan offering a 20 percent stake in subsidiary firm Ariadne Interconnection, tasked with the development of the Crete-Athens grid interconnection, is now in the hands of the authority, sources informed.

A condition setting a minimum sale price of 40 million euros, or 20 percent of the nominal value of Ariadne’s equity capital, totaling 200 million euros, has been included in the plan, the sources added.

It also includes criteria that will need to be met by prospective bidders, as well as the tender’s steps all the way to the final round, when qualifiers will be given access to the sale’s video data room.

The VDR will offer candidates financial, technical and legal details concerning the Crete-Athens grid interconnection, a project budgeted at one billion euros and slated for completion within 2023.

IPTO has already secured a 400 million-euro loan from Eurobank, an additional 200 million euros will stem from own capital, while the other 40 percent is expected to be provided in the form of EU subsidies, now close to approval.

China’s SGCC, IPTO’s strategic partner with a 24 percent stake, as well as European operators, among them Italy’s Terna and Belgium’s Elia, have all expressed interest ahead of the Ariadne Interconnection tender.

Importantly, IPTO is still awaiting RAE’s approval of WACC levels for the Cretan interconnection project – permitted revenue (2018-2021) and required revenue (2019-2021).

Projects categorized as projects of major significance are legally entitled to additional returns beyond the asset-based yield.

DEDDIE’s WACC close to 7%, RAE framework approval soon

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Distribution network operator DEDDIE/HEDNO’s new WACC level, determining the yield, required by potential buyers, will be set at just below 7 percent for a four-year period covering 2021 to 2024, energypress sources have informed.

This WACC level, well over rates of no more than 2.5 percent offered by respective European operators, is expected to be seen as a very attractive offer by investors.

RAE, the Regulatory Authority for Energy, has been given the green light by the energy ministry to hasten proceedings for a launch of the DEDDIE/HEDNO privatization, offering a 49 percent stake, in November, as promised by the ministry.

DEDDIE/HEDNO has awaited RAE’s approval of its new regulatory framework, including the WACC level, to launch the tender. This framework will include an option for a four-year extension, covering 2025 to 2028.

If the privatization is launched next month, it could be completed within the first quarter of 2021.

Market officials have forecast a DEDDIE/HEDNO selling price of close to 1.5 billion euros for the 49 percent stake.

The operator’s assets, essentially comprising networks totaling 239,000 kilometers in length, plus substations, are estimated to be worth 3.5 billion euros.

The DEDDIE/HEDNO business plan for 2021 to 2024, still subject to official approval, should excite investors. It features investments worth 2 billion euros and network 5G add-on potential for a wide range of telephony and internet services.

The prospective installation of 7.5 million digital power meters in place of conventional meters around the country, an upgrade budgeted at 850 million euros, is another strong selling point. Recovery funds will be sought for this project, energy minister Costis Hatzidakis recently informed. This would save the operator a considerable amount.

Germany’s EON, Italy’s Enel, Enedis, a subsidiary of France’s EDF, as well as a number of Chinese companies had showed interest, unofficially, in the DEDDIE/HEDNO sale well before the pandemic broke out.

 

 

RAE’s WACC reduction for operators ultimately neutralized

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A recent decision by RAE, the Regulatory Authority for Energy, reducing the WACC rate amid a fixed four-year period for energy market operators, as a result of the government’s corporate tax reduction from 29 to 24 percent, is ultimately expected to be neutralized as the authority has asked operators to submit updated data based on latest market conditions, including borrowing costs, all factors applied by the authority to its WACC formula.

Gas grid operator DESFA, power grid operator IPTO, as well as the country’s gas distributors EDA Attiki, EDA Thess and DEDA, initially reacted against RAE’s intention to reduce the WACC rate, determining earnings, within the preset four-year period. It is supposed to be adjusted every four years.

However, RAE’s latest call for updated data from operators and distributors, effectively promising to offset any WACC rate adjustment, has been well received.

 

DEPA Infrastructure bidder shortlist expected end of month

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A shortlist of second-round bidders for DEPA Infrastructure, a new entity formed by gas utility DEPA ahead of its privatization, is anticipated towards the end of May, while the cut for DEPA Trade bidders, the utility’s other new division being privatized, could be announced a month later, government sources have informed.

DEPA Infrastructure, whose earnings are regulated by RAE, the Regulatory Authority for Energy, is less vulnerable to the impact of the pandemic, which is not the case for DEPA Trade, fully exposed to market forces.

“We will not rush, for any reason, to take action that would lead us to much lower offers than the prices we are seeking,” Aris Xenofos, president of the privatization fund TAIPED, told Reuters yesterday.

Weighted Average Cost of Capital (WACC) levels set for network operators by RAE before the coronavirus crisis emerged offer protection to certain privatizations against the global economic uncertainty, government sources told energypress.

Though absolute safety can never be assured, DEPA Infrastructure, whose WACC level has been set at around 7 to 8 percent, is less susceptible to financial volatility compared to other companies on Greece’s privatization list.

DEPA Trade, Hellenic Petroleum ELPE, and power grid operator IPTO – its earnings are regulated but the company is listed through IPTO (ADMIE) Holding – are all far less resilient.

IPTO in talks with financial institutions for Crete link loan

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Power grid operator IPTO is currently involved in talks with local and foreign financial institutions for a loan concerning Crete’s major-scale electricity grid interconnection with Athens, a project budgeted at around one billion euros.

IPTO chief executive Manos Manousakis is looking for a project loan of roughly 400 million euros. Talks, so far, with financial institutions, including the EBRD, according to sources, are believed to have made good progress.

Financial institutions contacted so far appear positive on the prospect of  providing financing for the Crete-Athens interconnection but want WACC level and cost-benefit study assurances.

IPTO anticipates financing for the project from three sources, including the 400 million-euro bank loan.

The operator has already allotted 200 million euros for subsidiary firm Ariadne Interconnector, the project promoter. IPTO also expects between 350 and 400 million euros to come from the EU’s National Strategic Reference Framework (NSRF).

A new regulatory framework for the grid interconnection as a national project rather than a PCI project is a significant pending issue that also needs to be resolved.

Energy firms react against RAE plan for WACC reduction

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The prospect of upcoming WACC level reductions reportedly planned by RAE, the Regulatory Authority for Energy, for gas grid operator DESFA, power grid operator IPTO, as well as the country’s gas distributors EDA Attiki, EDA Thess, DEDA and their parent company DEPA, the gas utility, has unsettled the administrations of all these companies.

Though RAE has not yet reached a decision on the matter, the aforementioned energy companies understand the authority is working to soon lower their WACC levels as a follow-up adjustment to the government’s business tax rate reduction, from 29 to 24 percent.

RAE has endorsed the current WACC levels for a four-year period. A revision at this point would cancel out this endorsement.

The energy companies will push for a delay of any WACC rate revisions until the four-year period has expired, it is believed.

DESFA officials have already pointed out a need for stability and predictability, also stressing the company has invested heavily in the operator during a difficult period for the country.

DEPA’s gas distribution companies fear a WACC revision may negatively impact an ongoing privatization procedure for DEPA Infrastructure, a new DEPA entity established for the privatization.

DEPA and its associated firms have warned DEPA Infrastructure would become a less attractive prospect for nine candidates who have expressed first-round interest, while a revision before the WACC level’s four-year period has been completed could be interpreted as a signal of uncertainty by investors.

DEPA Infrastructure yield, 8.2% + 1.5%, a drawcard for bidders

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Though not yet officially announced, a new annual regulated yield for distribution network operators, now set, represents one of the strongest drawcards for the sale of DEPA Infrastructure, a new entity established by gas utility DEPA for privatization.

Prospective bidders engaged in preliminary contact with authorities linked to the DEPA Infrastructure sale ahead of a February 14 deadline for non-binding expression of interest have been told the WACC figure has been set at 8.2 percent plus a 1.5 percent premium if certain investment objectives are achieved.

These objectives include swift network development in areas covered by gas distributor EDA, achievement of pipeline addition goals, specified in kilometers, as well as the development of projects not included in DEPA Infrastructure’s initial development plan.

Prospective participants, including funds, will enter this privatization procedure knowing their investment’s potential yield can reach 9.7 percent, far higher than WACC performances enjoyed by network operators in central Europe.

This higher yield offering has generated all-round optimism for a solid turnout by participants Friday week.

Potential bidders, so far, are believed to include Greek gas grid operator DESFA, France’s Engie, Italy’s Italgas and Germany’s Eon.

Besides European operators, the privatization is also expected to attract a number of funds, seen partnering with operators for the sale’s second round of binding bids.

DEPA Infrastructure has taken under its wings DEPA’s interests in the distribution networks of wider Athens (EDA Attiki), Thessaloniki and Thessalia (EDA Thess) and the rest of Greece (DEDA).

 

DEDDIE preparing 10-year plan for longer-term approach

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Distribution network operator DEDDIE/HEDNO, headed for privatization, is preparing a new and ambitious 10-year business plan reflecting the lofty goals set of the National Energy and Climate Plan, energypress sources have informed.

The operator will seek a long-term WACC figure from RAE, the Regulatory Authority for Energy, the body responsible for approving this constituent.

The operator’s multi-billion ten-year plan will include urgently needed  network upgrade projects, network expansions, digitization, as well as electric vehicle sector initiatives.

A favorable revision of the regulatory framework and the WACC level, set by RAE on an annual basis, will be a crucial factor for the operator’s plan. DEDDIE’s current WACC level is at 7 percent.

WACC level clarity over a ten-year period will be sought for the operator’s prospective new shareholders, as is the case with many other European network operators. This is crucial for planning and execution of projects.

Until now, DEDDIE’s business plans have had a five-year duration. The most recent of these, worth 1.37 billion euros, was approved by RAE just last November. However, the lofty demands of the new NECP require a longer-term approach.

The operator’s new business plan is expected to be ready for presentation in two months, the energypress sources informed.

 

 

Ministerial decision signed for Kavala underground storage

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The environment and energy ministry has signed a long-awaited ministerial decision for the development of an underground gas storage facility in the offshore South Kavala region through the transformation of a depleted natural gas field, an unprecedented venture in Greece.

The country, as a result of this project, situated 30km south of Kavala, will join the list of EU member states contributing to the continent’s underground gas storage capacity and energy security.

Deputy energy minister Gerassimos Thomas and the ministry’s secretary-general Alexandra Sdoukou have completed all preparations needed for the project’s operating framework.

The ministerial decision essentially outlines the legal terms concerning the facility’s operation, including licensing requirements for development and exploitation, sources informed.

RAE, the Regulatory Authority for Energy, needs to decide on the project’s WACC level, or minimum acceptable rate of return for investors, the sources added.

A total of 126 underground gas storage facilities operate in the EU, offering an overall capacity of approximately 80 billion cubic meters, recent data showed.

Internationally, a total of 642 underground gas storage facilities have been developed for an overall capacity of 333 billion cubic meters, approximately 11 percent of global gas consumption.

 

Incentive regulation considered for operator earnings formula

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An incentive-based regulation that would gradually replace a cost-based model is being seriously considered for a formula determining earnings provided to the country’s operators.

The energy ministry and RAE, the Regulatory Authority for Energy, are examining changes to the regulatory framework concerning investments in the energy transmission and distribution networks, officials representing the two bodies have highlighted at the ongoing Thessaloniki International Fair.

Operator earnings include regulated earnings determined by WACC figures for projects.

Regulatory authorities around Europe typically permit higher and lower WACC rates that consider the time required to complete a project, or its cost. This is not so in Greece.

Incentives driven by specific targets or the achievement of specific results need to be offered by the regulatory authority, deputy energy minister Gerassimos Thomas told a forum titled “Energy Developments in the Country amid Structural Changes to the New Energy Model”, staged within the framework of the Thessaloniki International Fair.