Portugal's proposal for EDP's grid returns still lags European peers

LISBON (Reuters) -Portugal's electricity market regulator ERSE proposed on Thursday an increase in returns on grid assets of the country's largest utility EDP, although below the return levels enjoyed by EDP's peers in other European countries.

A crippling blackout that hit Spain and Portugal on April 28 reignited debate about investments in power networks and their remuneration, which is needed to cope with higher power demand, including data centers, and the integration of renewable sources.

ERSE proposed that during the 2026-2029 regulatory period, the pre-tax rate of return for these assets should be in the 5.5-8.5% range, with a preliminary return, starting in 2026, of 6.33%, up from the current 5.5%.

That, however, is below the 6.46% proposed by the regulator in neighbouring Spain and a far cry from other European countries that reward investments with returns as high as 7.5%.

The preliminary return was calculated based on the evolution of Portugal's 10-year bond yields, but also took into account "the expected strong increase in investments in grid infrastructure", ERSE said.

EDP ​​has been asking for an increase in returns on its regulated assets more in line with European peers, as it plans to nearly double investments in the expansion and modernisation of its distribution grid over the next five years, to 3.1 billion euros ($3.61 billion).

Analysts at BNP Exane, who had expected at least 6.7%, said the proposed preliminary return was "a bit disappointing and not really competitive compared to other countries - Italy, UK or Germany".

EDP ​​owns the largest Portuguese distribution grid serving more than six million domestic and industrial customers.

ERSE has until December 15 to confirm or change the return rate after consulting consumers and businesses.

($1 = 0.8579 euros)

(Reporting by Sergio Goncalves, editing by Ed Osmond)