Page 43 - Annual Report KELAG Group 2018
P. 43

The discount rate is derived from the risk-free interest rate plus a risk mark-up for borrowed capital
                                      (calculated based on current long-term refinancing costs) and the market risk, taking into account
                                      the beta factor.

                                      The risk-free interest rate is derived from the interest rates paid on German government bonds
                                      with  matching  terms  using  the  “Svensson  method”.  For  heat,  wind  power  and  hydroelectric
                                      power business divisions in Austria, a matching interest rate of 0.95% (prior year: 1.34%) for a
                                      period of 30 years was used and for the remaining business divisions, a rate of 0.57% (prior year:
                                      0.87%) for a period of 15 years. As a rule, the matching interest rate was determined on the basis
                                      of the typical average capital employed of a cash-generating unit.

                                      The market risk premium was fixed uniformly at 7.50% (prior year: 7.00%).

                                      To take into account increased political and macroeconomic risk from foreign operations, country-
                                      specific risk premiums were taken into account in the cost of equity and borrowing costs. The
                                      country-specific risk premiums were primarily calculated on the basis of local government bonds
                                      denominated in euro directly unless unavailable, in which case they were calculated indirectly
                                      based on government bonds with comparable ratings as of 31 December 2018. This method is
                                      adapted from the calculation of country-specific risk premiums published by Damodaran.

                                      The beta factors were determined on the basis of a peer group consisting of European benchmark
                                      electricity producing companies with similar operational risk  structures to KELAG. The capital
                                      market calculation of the peer group was based on a five-year period, with monthly yield intervals
                                      and local indices.


                                      The  borrowing costs  of  the  respective  business  divisions  are determined  on  the basis  of  the
                                      respective risk-free interest rate plus the country risk premium and the credit spread of the peer
                                      group. The local nominal marginal tax rates are used to calculate the after-tax cost of borrowed
                                      capital.

                                      Given the volatility of the financial market environment, the development of the cost of capital
                                      (and in particular the country risk premiums) is monitored on an ongoing basis.


                                      The purchase agreement for the shares in Windfarm MV I from 2010 stipulates that the sellers
                                      participate in the three-year net additional income from 2011 until 2031 and are entitled to an
                                      earn-out payment based on the realisable prices for green certificates. The remeasurement of the
                                      obligation resulted in a carrying amount of EUR 0.5m (prior year: EUR 1.0m).


                                      As part of the share increase to secure the majority shareholding in Windfarm Balchik 1 OOD,
                                      Windfarm Balchik 2 OOD and Windfarm Balchik 4 OOD in the financial year 2014, agreements were
   38   39   40   41   42   43   44   45   46   47   48