Page 116 - KELAG Annual Report 2019

P. 116

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price increase at a rate of 2.0% is assumed for the extrapolation of the forecast electricity prices
(from 2041 onwards). In cases where the respective public authorities have guaranteed feed-in
tariffs, these were used for the relevant period. For the recoverable amounts from heating
projects, the forecast price developments of the energy sources serve as a price structure to
calculate the recoverable amount. By means of indexing, these are also used to adjust the heat
sales prices under the terms of the contract.
The price structure to calculate fair value less costs to sell based on the income-based approach
is the same as in the aforementioned procedure, subject to a discount for costs to sell.
The discount rate represents a weighted average interest rate of equity capital and debt capital.
This is derived from the risk-free interest rate plus risk mark-ups for debt capital and market risk.
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 0.04% and 0.34% (prior year: 0.95%) for a
period of 15 and 30 years was used and for the remaining business divisions, a rate of between -
0.19% and 0.34% (prior year: 0.57%) for a period of between 10 and 30 years. As a rule, the
matching interest rate was determined by deriving the remaining useful life of a cash-generating
unit.
The market risk premium was fixed uniformly at 8.25% (prior year: 7.50%).
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 2019. 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.
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