Training Module on Electricity Market Regulation - SESSION 5

Webinar 5: Cost of Capital

The weighted average cost of capital (WACC) methodology is a widely accepted method for calculating the allowed rate of return. Regulators use different models to set the allowed cost of capital. This section explains the models and their practical application.

• Definition of cost of capital : WACC / Cost of equity / Cost of debt / Capital structure (gearing) / Treatment of taxes
• Quantification of cost of capital : CAPM (Capital Assets Pricing Model) / Price Arbitrage Theory / Dividend Growth Model / Comparable Earnings Model / “Precedent Case” Approach
• Financial Analysis