Industry still dissatisfied with NEST rules presented

31.10.2025

Source: E & M powernews

The Federal Network Agency has presented the final drafts of its NEST package for the incentive regulation of electricity and gas grids. They are to come into force at the end of 2025 and apply from 2028/2029.

In February last year, the Federal Network Agency launched its "Grids. Efficient. Secure. Transformed." (NEST) for the further development of incentive regulation and consulted intensively. On October 29 of this year, it presented a draft that the agency's committee of the federal states will discuss on November 13, 2025. If the state regulatory authorities do not agree to the procedure, the authority would have to take their comments into account.

The submitted specifications on the design of the efficiency comparison, the productivity factor and the return on capital will be submitted in mid-November and are subject to the proviso that no new findings emerge by then. Accordingly, the regulations are to take effect in the course of 2025 and form the basis for cost reviews in the gas and electricity sectors, which will begin in 2026 and 2027 respectively, as well as for the 5th regulatory period from 2028/2029.

Important changes

Essentially, the authority is retaining the previous regulatory approach, but modernizing it: The regulatory period is to be shortened from five to three years - after a transitional period. At the same time, the Federal Network Agency is noticeably simplifying the cost review and significantly increasing the equity interest rate in light of the upcoming tasks.

At the same time, the efficiency requirements are being increased in order to take the interests of network users into account. According to the authority, the package contains a "balanced, technically well-founded and future-oriented overall concept for cost regulation" for electricity distribution, gas distribution and gas transmission system operators.

A key change compared to the drafts from summer 2025 concerns the simplified procedure for electricity distribution network operators: in future, they will be able to receive an adjustment to their operating costs over five years - in line with the standard procedure - if their supply task increases. According to the authority, this will lead to an increase in revenue of around two percent, corresponding to around 380 million euros per year for these distribution system operators in the standard and simplified procedure.

Flat-rate capital cost compensation

In addition, the minimum efficiency in the efficiency comparison will be raised from 60 percent to 70 percent. This reduces the maximum inefficiency to be reduced and eliminates bureaucracy such as hardship applications. In future, the debt component of the flat-rate capital cost remuneration will be weighted more heavily for years with high investment activity - before the start of the regulatory period and uniformly for all grid operators on the basis of industry data.

For access to the simplified procedure, an adjusted revenue cap will apply in future instead of the previous starting level. In future, grid operators in the standard procedure should achieve a market coverage rate of 90% in the electricity sector and 84% in the gas sector. The agency estimates that the number of grid operators in the control procedure will only increase marginally compared to today.

Investment incentives

The package also contains instruments designed to incentivize investment: For example, grid operators will receive funds in advance for new investments via the capital cost surcharge on a planned cost basis and with current interest rates on borrowed capital. The regulatory account eliminates volume risks for grid operators: Permissible revenues are always generated, regardless of actual grid usage.

According to the authority, the interest rate on equity will thus increase structurally by around 1.2 percent, which means an average of around 215 million euros per year or over one billion euros for the coming regulatory period. The trade tax will continue to be recognized in the calculation - even if it is not incurred in the municipal cross-link, for example.

Open industry wishes

The industry associations have had mixed reactions. The Association of Municipal Enterprises (VKU), for example, welcomes the OPEX adjustment in the simplified procedure. VKU Managing Director Ingbert Liebing said: "The new regulation creates more fairness in regulation and strengthens the ability to invest in the area."

The German Association of Energy and Water Industries (BDEW) points out the great need for investment in the grid sector and believes that the regulatory framework is not yet anchored at an international level. "We are expecting grid investments of around 280 billion euros in the next five years alone, without private capital we will not be able to cope with the expansion of the grid," warned BDEW Managing Director Kerstin Andreae. She is now hoping for improvements from the Länder committee.

The NEST rules as of September 2025 are available for download as a PDF.

Author: Susanne Harmsen