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Response to AER rate of return proposals

After a year of focused engagement, we're stepping-up correspondence with the Australian Energy Regulator

GIIA is encouraging the Australian Energy Regulator (AER) to reassess its approach to calculating returns for investors, warning that failure to do so will impact infrastructure delivery just as decarbonisation deadlines land against a volatile global backdrop.  

In our response to the AER's draft decision on the 2022 rate of return instrument, we urge the regulator to shelve a five-year approach to calculating a risk-free return rate in favour of a more widely-accepted ten-year benchmark. 

Warning that inaction on this front will massively impact Australia's appeal as an investment destination, GIIA highlights 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." 

The intervention follows our response to the AER's Omnibus Paper published earlier this year, in which we stressed the need for fair investor returns in the context of surging inflation and the Australia Energy Market Operator's expectation that AU$150bn of investment in energy generation will be needed to replace the nation's coal fleet.    

Our full responses can be accessed on the AER's website and downloaded from this page.