The energy transition is leading to a shift from operating costs to capital costs across various sectors. This shift increases the importance of financing costs in the overall expenses of the energy transition. Consequently, the significance of regulatory risk, which investors factor into financing costs as a risk premium, also increases.

Director Lorenz Wieshammer discusses the impact of current energy policy and regulatory decisions on regulatory risk in his recent article “Regulatory Risk as a Cost Driver of the Energy Transition” published in the journal Energiewirtschaftliche Tagesfragen. His focus lies on the regulation of energy networks, where he addresses the valuation of the regulatory asset base and the regulatory cost of capital. Additionally, he explores examples from electricity market design, such as revenue skim-off for inframarginal producers and the potential split of bidding zones.

Mr. Wieshammer demonstrates the costs associated with regulatory risk can be substantial but are often insufficiently considered due to their lack of visibility. To prevent resulting welfare losses, he proposes approaches for better handling of regulatory risk.