Investor Presentaiton
Calculation of WACC in the regulatory model
2016-2023
Cost of equity
CE=R, +ẞdebt free X (1+ (1-t) x D/E) x (R-R) + LP
CE= Finnish 10y bond + 0,4 x (1 + (1-20%) x 50/50) x 5% + 0,6%
CE = Finnish 10y bond + 4,2%
Parameter
Risk-free rate (R)
Value to be applied
Greater of:
a) 10-year average of 10-year
Finnish government bond rate
b) Average of previous year
April-September government
bond rate
Cost of debt
CD= R, + DP
CD= Finnish 10y bond + 1,4%
WACC (pre tax)
WACC = CEX 50/100+ CD x (1- t) x 50/100
WACC.
post-tax
pre-tax
= Finnish 10y bond x 0,9 + 2,66%
WACC = Finnish 10y bond x 1,125 + 3,33%
Asset beta (ẞdebt free)
0,4
Market risk premium (Rm- R₁)
5,0%
Liquidity premium (LP)
0,6%
Capital structure (D/E)
50/50
Risk premium of debt (DP)
Tax rate (t)
1,4% *
20%
* Will be updated by end of 2019 for regulatory period 2020 - 2023 based on Bloomberg's utility sector A-BBB rated companies' fixed income indices
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The core parameter defining yearly WACC is the yield of the Republic of Finland's 10-year bond
Fingrid Debt Investor Presentation
30.9.2018
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