The WACC as a methodology to approximate the spread for the allowed rate of return in the Spanish framework
Resumen
In this research the allowed rate of return for electricity network investors for the next regulatory
period (2020-2025) in Spain is analysed. The main purpose of this research is to propose a
methodology to estimate the spread to be added to the allowed rate of return for transmission and
distribution activities according to the Spanish regulation. Among the different ways to estimate
such value, the Weighted Average Cost of Capital (WACC) was selected since it is commonly used
by most of European regulators from different industries as the most accurate approach to
recognize the fair return to network industries.
In order to come up with an orthodox and suitable methodology, theoretical principles,
benchmarking analysis, recommendations of financial experts and preceding methodologies were
analysed; additionally, the economic context, industrial organisation and current regulatory
framework were also taken into account in order to properly reflect the Spanish reality. The
estimation of all the involved parameters – Risk Free Rate (RFR), Beta coefficient, Optimal
gearing ratio, among others – comprises the most challenging task due to the different
considerations applying to the specific framework in Spain. Important parameters that are critical in
the proposed methodology refer to the selection of a suitable peer group of utilities and the
selection of the period of study that better estimates the next regulatory period. Furthermore,
questions regarding the expected investors and the appropriate cost of debt were tackled by
proposing different scenarios.
Results obtained in the case studies provide a range of possibilities regarding the allowed rate of
return; however, a conclusive outcome was suggested based on critical considerations. Also, it was
found that this conclusive outcome is in line with the assumption that costs of underestimating the
allowed rate of return are higher in the long term that costs of overestimating it.
Trabajo Fin de Máster
The WACC as a methodology to approximate the spread for the allowed rate of return in the Spanish frameworkTitulación / Programa
Master in the Electric Power IndustryMaterias/ UNESCO
33 Ciencias tecnológicas3306 Ingeniería y tecnología eléctrica
330609 Transmisión y distribución
53 Ciencias económicas
5312 Economía sectorial
531205 Energía
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