Belgium's 2028–2031 transmission tariff methodology finalized, improving Elia's expected incentive returns

Overview

This report evaluates the impact on Elia Group of the 2028–2031 transmission tariff methodology issued by the Belgian regulator CREG. Bernstein believes the key parameters of the final methodology are broadly consistent with the draft released on April 17, 2026, improving clarity on the regulatory path. Core changes include no longer distinguishing between existing RAB and new RAB, lowering the floor for the risk-free rate to 1.0%, while the equity risk premium of 3.5%, beta of 0.69, and 40% equity ratio remain unchanged.

Core views

Bernstein's core view is that, looking only at the base regulatory return, the 2028–2031 methodology implies a base ROE of about 5.9%, below its previous forecast of 6.9% base ROE for Elia's new RAB in 2028; however, the incentive framework under the final methodology is more generous, and if Elia achieves 53% of available incentives on average, ROE could increase by about 2.0 percentage points, while MOG projects could contribute an additional roughly 0.3 percentage points. Therefore, total ROE in the new regulatory period would be about 8.2%, slightly below its forecast average of 8.6% for 2028–2030, but above the assumed roughly 7.6% for FY26–FY27.

Analysis framework

The report compares CREG's final tariff methodology item by item with the April draft and the current regulatory framework, focusing on the impact of the risk-free rate, ERP, beta, capital structure, MOG risk premium, and incentive mechanisms on allowed ROE; it also combines Elia's historical guidance on incentive achievability, MOG investment progress, and DCF valuation assumptions to assess the investment implications of regulatory changes for earnings and valuation.

Methodology notes

• Regulatory return frameworkCost-plus regulatory model

  Cost pass-through and volume risk-free characteristics

  Belgian transmission regulation adopts a cost-plus model, where reasonable costs and debt costs can be passed through via final tariffs, and transmission volume fluctuations are also recovered through future tariffs. As a result, the company's Belgian business has relatively low profit sensitivity to debt costs and transmission volume risk.

• Regulatory parametersAllowed ROE calculation

  OLO, risk-free rate floor, ERP, and beta

  OLO is the average yield on 10-year Belgian government bonds. Under the final methodology, the risk-free rate floor is 1.0%, ERP is 3.5%, beta is 0.69, and the equity ratio is 40%; assuming OLO is 3.5%, base ROE is about 5.9%.

• Incentive mechanismOperational and project incentives

  Incremental contribution of achievable incentives to ROE

  The final methodology continues the more generous incentive framework. Bernstein assumes Elia achieves 53% of available incentives on average, contributing about 2.0 percentage points to ROE; incentives related to MOG I, MOG II, and Princess Elisabeth Island are also expected to contribute about 0.3 percentage points.

• Valuation methodDCF valuation

  Valuation basis for the €145 target price

  The €145 target price is derived from FY26e–FY30e DCF using an after-tax WACC of 3.7%; Belgium WACC is 4.3% and Germany WACC is 3.3%, while the FY30e terminal value is based on estimated RAB and applies 14% and 18% premiums to Belgian RAB and German RAB, respectively.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Elia Group (ELI.BB)

  The company covered by the report, mainly affected by the Belgian transmission tariff methodology.

  Strengths

  Regulated transmission assets have cost pass-through and volume risk-free characteristics; the incentive mechanism is more generous; projects such as MOG and Princess Elisabeth Island can provide additional ROE contributions.

  Weaknesses

  Base ROE of about 5.9% is below Bernstein's previous forecast of 6.9% for Elia's new RAB in 2028; long-duration asset valuation is sensitive to interest rates.

  Comparison

  Total ROE of about 8.2% in the new regulatory period is above the assumed roughly 7.6% for FY26–FY27, but slightly below Bernstein's forecast average of 8.6% for 2028–2030.

  Risks

  Incentive realization below expectations, rising interest rates depressing long-duration asset valuations, and no improvement in Germany's post-2029 regulatory framework.

• Belgian transmission RAB

  The core asset base for the tariff methodology and allowed returns.

  Strengths

  The final methodology no longer distinguishes between existing RAB and new RAB, making the mechanism simpler; cost and transmission volume fluctuations can be recovered through tariffs.

  Weaknesses

  The floor for the risk-free rate has been lowered from 1.68% to 1.0%, reducing the degree of protection for base returns.

  Comparison

  The current mechanism distinguishes between existing and new RAB when bond yields are above 2.87%, while the new methodology removes this distinction.

  Risks

  If OLO declines or incentive realization is insufficient, total ROE may fall short of expectations.

• Modular Offshore Grid I & II / Princess Elisabeth Island

  MOG-related projects can bring additional risk premium and ROE contribution.

  Strengths

  The additional risk premium is 1.4%, and Bernstein expects the ROE contribution to rise to about 0.3%–0.4%, with the report's base estimate at about 0.3%.

  Weaknesses

  The contribution depends on project investment progress and regulatory recognition.

  Comparison

  Under the current mechanism, MOG contributes about 0.2%; as MOG II investment advances, the contribution is expected to increase.

  Risks

  Project delays, cost recognition issues, or changes in incentive mechanisms could weaken the contribution.

Key data

• RatingOutperformBernstein maintains its Outperform rating on Elia Group.
• Target price€145.00The disclosure page states the target price is €145, derived from DCF valuation.
• Regulatory period2028–2031CREG has set the electricity transmission tariff methodology for this period.
• Tariff proposal timetableSubmit in early May 2027, finalized in early November 2027Elia will submit its tariff proposal after the public consultation, and CREG is expected to complete the final tariff thereafter.
• Risk-free rate floor1.0%Lower than the 1.68% floor under the current framework.
• Equity risk premium3.5%Unchanged versus the current mechanism.
• beta0.69Unchanged versus the current mechanism.
• Equity ratio40%The regulatory RAB equity share assumption remains unchanged.
• Base ROEAbout 5.9%Based on the assumption that OLO is 3.5%.
• Incentive contributionAbout 2.0%Assumes Elia achieves 53% of available incentives on average.
• MOG project contributionAbout 0.3%Estimated incremental ROE from MOG-related incentives.
• Total ROE in the new regulatory periodAbout 8.2%Below Bernstein's forecast average of 8.6% for 2028–2030, but above the assumed roughly 7.6% for FY26–FY27.

Impact & implications

The implementation of the regulatory methodology reduces policy uncertainty and strengthens earnings visibility for Elia's Belgian transmission business. Although the lower floor for the risk-free rate means base ROE has not been meaningfully revised upward, a larger incentive pool, contributions from MOG projects, and the cost pass-through mechanism improve total ROE relative to the current period. For investors, the methodology supports the growth narrative for Elia's regulated network assets, though valuation remains affected by interest rates, Germany's regulatory framework, and the degree of incentive realization.

Risks

• Rising interest rates could affect financing costs and depress valuations of long-duration regulated assets.
• If Germany's post-2029 regulatory framework does not improve, it could weaken the group's overall growth and valuation support.
• If incentive realization or operating cost outperformance is below expectations, actual ROE could come in below Bernstein's estimate.
• If MOG-related investment, regulatory recognition, or delivery progress falls short of expectations, the additional ROE contribution could be reduced.

What to watch

• Elia's tariff proposal to be submitted by early May 2027 and feedback from the public consultation.
• CREG's final tariff outcome, expected to be completed in early November 2027.
• The trend in 10-year Belgian government bond OLO and its impact on allowed ROE.
• The proportion of operational incentives actually achieved by Elia, especially whether it comes close to Bernstein's assumed 53%.
• Investment progress in MOG II and Princess Elisabeth Island and confirmation of related incentives.
• Whether Germany's post-2029 regulatory framework improves.