The Australian Energy Regulator (AER) has confirmed that it will maintain its current approach to calculating its “risk-free term of equity”, a key benchmark for investors when deciding where to allocate funds, as recommended by GIIA.
The AER had previously stated that it was planning to move to a five-year approach to calculating the term – which gauges the return investors can accrue without taking meaningful risk, through assets such as government bonds – rather than basing its approach on ten-year yields.
In the autumn of 2021, we wrote to the regulator to make the case for fair returns on critical infrastructure investments.
That was followed up with a submission last year in which we flagged the the Queensland Competition Authority’s view that “it is reasonable to use long-term Australian Government bonds based on a 10-year term to maturity” when establishing an acceptable rate of return because “this approach reflects the requirements of investors and lenders who… will deploy equity over the entire life of an asset.”