Regarding the approved electricity and natural gas WACC for 2024

Regarding the approved electricity and natural gas WACC for 2024

AB “Ignitis grupė” (hereinafter – the Group) informs that on 17 August 2023 National Energy Regulatory Council (hereinafter – NERC) has approved the updated data for calculating the weighted average cost of capital (hereinafter – WACC) for electricity and natural gas sectors. Accordingly, WACC for the Group’s Networks as well as Customers & Solutions segments from 1 January 2024 will be as follows:

Business segment
(activity)
CompanyWACC
2023
WACC
20241
ChangeRegulated asset base
(RAB) 20232
Networks (electricity)AB “Energijos skirstymo operatorius” (ESO)4.17%5.09%+0.92 ppEUR 1,183 million
Networks (natural gas)AB “Energijos skirstymo operatorius” (ESO)3.99%5.03%+1.04 ppEUR 254 million
Customers & SolutionsUAB “Ignitis”3.09%4.36%+1.27 ppEUR 8 million3

1 WACC was calculated based on the updated Methodology on WACC (see below), which is to enter into force on 1 January 2024.
2 RAB values by individual companies approved by NERC for 2023 are provided for illustration in order to highlight the proportional significance of the changes.
3 RAB of the Customers & Solutions segment comprises working capital necessary for covering the public supply of electricity.

The Group would like to remind you that on 27 July 2023 NERC approved the updated Methodology (link in Lithuanian) on WACC (hereinafter – the Methodology). Below a comparison of former and the updated Methodology and its impact to the approved WACC is provided.

ParameterElectricityNatural gasMethodology
2023202420232024FormerUpdated
(1) Risk-free rate1.42%2.86%2.32%2.86%1. Set for a 5-year period.
2. Calculation: the average Lithuanian government bond yield at issue of the last 10 years with a maturity of 9.5-10 years.
1. Set annually.
2. Calculation: the average Lithuanian government bond yield at issue of the last 12 months with a maturity of 9.5-10 years1.
(2) Equity risk premium5.00%5.00%4.43%5.00%Fixed at 5.0%Fixed at 5.0%
(3) Levered beta0.7790.7690.7200.7611. Set for a 5-year period.
2. Calculation:
2.1. unlevered beta is equal to sector average beta based on data published by the Council of European Energy Regulators (CEER)2.
2.2 levered beta is determined by applying a 50/50 D/E ratio and a 15% income tax rate.
1. Set annually.
2. Calculation:
2.1. unlevered beta is equal to sector average beta based on data published by the Council of European Energy Regulators (CEER)2.
2.2 levered beta is determined by applying a 50/50 D/E ratio and a 15% income tax rate.
(4) Corporate income tax15%15%15%15%Corporate income tax rate in Lithuania.Corporate income tax rate in Lithuania.
Cost of equity (pre-tax)6,25%7,89%6,48%7,84%--
(5) Cost of debt2.09%2.30%2.32%2.21%1. Set annually.
2. Calculation: the lower of (1) the effective interest rate on ESO debt or (2) the average of the interest rates on outstanding euro-denominated loans to non-financial corporations/companies with a maturity of more than one year, published by the Bank of Lithuania (hereinafter - BoL average).
3. Additional incentive: if the actual ESO cost of debt is lower than the BoL average, an additional incentive is applied, calculated as the difference between the average cost of debt of the sector and the actual ESO cost of debt. If the difference is positive, it is added to the ESO cost of debt as incentive, if negative, no penalty is applied.
1. Set annually.
2. Calculation: the lower of (1) the effective interest rate on ESO debt or (2) the average of the interest rates on outstanding euro-denominated loans to non-financial corporations/companies with a maturity of more than one year, published by the Bank of Lithuania (hereinafter - BoL average).
3. Additional incentive: if the actual ESO cost of debt is lower than the BoL average, an additional incentive is applied, calculated as the difference between the average cost of debt of the sector3 and the actual ESO cost of debt. If the difference is positive, it is added to the ESO cost of debt as incentive, if negative, no penalty is applied.
Cost of debt (pre-tax)2.09%2.30%2.32%2.21%--
(6) D/(D+E)50%50%60%50%Fixed at 50%.Fixed at 50%.
WACC (pre-tax)4.17%5.09%3.99%5.03%--

1 If there have been no auctions with such maturity in the last 12 months (until 1 July of the current year), the closest lower duration bonds are used.
2 CEER reports are available here.
3 The cost of debt of the relevant sector does not include loans provided by international financial institutions in which Lithuania is a member and their list is published on the website of the Ministry of Finance of the Republic of Lithuania (e.g., the European Investment Bank, the International Monetary Fund, the Nordic Investment Bank, etc.).    

The Group reminds that it treats the adopted Methodology changes positively, as it allows adjustments based on macroeconomic situation and changes in the financial markets. The amendments will also have a positive impact on ESO ability to manage cash flow and ensure timely implementation of the planned investments as well as help maintain a sustainable debt level of the Group.

The information provided in this announcement does not change the Group’s Adjusted EBITDA guidance for 2023.

For more information, please contact:

Artūras Ketlerius
Head of Corporate Communications at Ignitis Group
arturas.ketlerius@ignitis.lt
+370 620 76076


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