Elia Group German regulator has to walk a tightrope towards energy transition

Yesterday morning, the president of BnetzA (Bundesnetzagentur) that regulates German Gas, Electricity, Telecoms, Train and Postal markets hinted in an interview in the “Handelsblatt” on a draft proposal for a new remuneration system for investment in Electricity and Gas networks. Later followed at 10h by documents from BnetzA on Twitter with the concrete draft proposal, an example calculation and a FAQ section, but no press release in English. We translated the documents and added the edited version in this report. The draft proposal will be discussed with TSO's and DSO's until 31/08 and walks a tight rope between accelerating the necessary investments for the energy transition and the affordability for the population and industry. Germany is currently mining brown coal to compensate its nuclear shutdown, while the EV growth increases electricity demand at the same time. Hence, the regulator is under pressure to create positive investment conditions for the infrastructure companies to shift to renewables. Elia will study the draft proposal and will participate in the consulting rounds with the regulator. A final version of the new calculation is expected by fall as well as a separate formula for the Offshore assets. Elia IR is presenting today on our KBCS New Horizon conference in London.
Our view An increase in remuneration for its new German investments is positive for Elia. Elia has announced an ambitious Capex expansion plan for Germany of EUR 8.7bn between FY23 and FY27. On the other hand Elia owns 5.5bn of infrastructure assets for which it has set up a financing structure and for which at this moment there is no compensation for the changed financing conditions. On one hand the regulator want to accelerate investments in network infrastructure as the shift to renewable energy demands a more complex network that can balance the load differentials. On the other hand it need to keep the tariff load on the population and industry in check in order to maintain a positive attitude in society towards a necessary climate change efforts. This draft proposal will make it harder to predict ROE and EPS in future.