engleski

Possible Impact of Global Financial Crisis on Prices in Croatian Electricity Sector

A regulatory method chosen for setting allowed revenue in transmission and distribution of electricity in Croatia is a traditional Rate of Return method. The main feature and, at the same time, the main drawback of this method is that a price is in a direct relationship with the costs of regulated company. A parameter used in this method, which does not solely depend on the costs and management decisions, is the rate of return. The rate of return is usually calculated using the weighted average cost of capital formula (WACC). The WACC reflects two types of finance used to fund investments, debt and equity respectively. The cost of equity is calculated using the Capital Asset Pricing Model (CAPM). This Paper provides the WACC calculation based on the estimates of particular parameters which could be applied in the case of electricity transmission and distribution in Croatia. The estimates are given for two scenarios, for the period prior to and immediately after the beginning of domestic crisis (reflection of the global financial crisis) and secondly for the period throughout the domestic crisis. Thus, reflecting possible impacts of financial crisis on national and global level on cost of capital in transmission and distribution of electricity.

Distribution; Transmission; Rate of return; WACC; CAPM; tariff system

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