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The cost of capital is a fundamental consideration in regulated industries, influencing investment decisions, regulatory outcomes, and financial stability. This publication explores 10 hot topics that are currently shaping cost of capital discussions, including climate change objectives, stability and predictability of regulatory approaches, diminishing comparator firms, and competition for the right to supply. It also examines emerging trends, such as the impact of large-scale investments in renewable energy and the challenges of estimating market risk premiums. Backed by extensive research and regulatory case studies from Australia, New Zealand, and the UK, this paper offers valuable insights for policymakers, industry professionals, and investors.
Cost of capital plays a crucial role in determining regulated revenues, investment attractiveness, and financial resilience in capital-intensive industries. This paper identifies and examines 10 key topics currently influencing regulatory cost of capital decisions, including climate change considerations, evolving methodologies for estimating the market risk premium, and the impact of diminishing publicly listed comparator firms. The study provides a comparative analysis of regulatory approaches from key jurisdictions such as Australia, New Zealand, and the UK, offering insights into best practices and emerging challenges. Additional areas of interest include the role of reasonableness checks, financeability testing, and competition in infrastructure investment. By addressing these pressing issues, this publication serves as a resource for regulators, businesses, and investors seeking to understand and navigate the complexities of cost of capital determinations.
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