Cost of capital under different regulatory regimes

The European Union stepped on the path of creation of competitive internal energy market. In order to achieve this goal significant investment amounts are required in the electricity sector in the near future. Under the estimation of the European Commission (EC) in 2011 the required investments in transmission and distribution networks will amount to 1,269.4 billion euros till 2050, which is equivalent to 32.5 billion euros per year. Transmission and distribution network companies are operating in regulated environment, therefore, the investment activity of electricity companies in different countries can be influenced by different regulatory regimes. The Weighted Average Cost of Capital (WACC) is an important parameter of regulatory models, which have an impact on investment activity of the firm.