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UPDATE 1-Regulator cuts German power, gas grid fees
October 12, 2016 / 8:31 AM / 10 months ago

UPDATE 1-Regulator cuts German power, gas grid fees

* Earnings from grid investments cut as expected

* Levels to apply from 2018, 2019 for 5 years

* Regulator says can raise fees if interest environment changes (Adds detail, context)

FRANKFURT, Oct 12 (Reuters) - Germany's energy regulator cut fees for the country's power and gas grids for five years on Wednesday.

The Federal Network Agency (BnetzA) must under a government brief ensure that grids, in which competition is limited, do not generate monopoly earnings and are operated cost effectively, while maintaining reasonable profits for investors.

BnetzA said it reduced fees to 6.91 percent and 5.12 percent, respectively, for new and existing grids.

Currently, they stand at 9.05 percent and 7.14 percent respectively for new and old grids, representing rates of return on capital before corporate tax.

Regulated energy transmission assets are the core earnings vehicles for new energy companies emerging from formerly integrated top utilities RWE and E.ON.

"The new interest rates that we set reflect lower interest available in the capital markets," BnetzA's President Jochen Homann said in a statement.

"This development needed to take into account the interest of consumers and so lower the earnings levels."

The fees will apply for a five-year period, starting from 2018 for gas grids and from 2019 for power grids.

Both new energy companies and top utilities are trying to appeal to investors by splitting grids, energy services and renewable energy activities from loss-making conventional businesses, which have suffered from weak commodity prices and rivalry with expanding renewables.

RWE only last week spun off networks, services and renewables into its Innogy unit, which makes two thirds of its profits from networks.

"It's not great but it's been expected," a spokesman for Innogy said, declining to say how it would affect its network business.

Energy grids are still deemed to be attractive investments for infrastructure and pension funds because of their steady income flows.

Formerly lucrative renewable energy installations such as solar panels and wind parks are also due to generate lower income as they change to auction-based models as policymakers try and limit costs for taxpayers and consumers.

"Investments in networks remain attractive," Homann said, adding the authority was also flexible if conditions were to change in future. (Reporting by Vera Eckert; Additional reporting by Tom Kaeckenhoff; Editing by Christoph Steitz and Susan Fenton)

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