Energy & Utilities · Electricity transmission

How a regulated grid earns — the RAB machine

An electricity transmission network doesn't sell power — it owns the wires and is paid a regulated revenue set by the regulator (Ofgem's RIIO price control). The building blocks: a return on the Regulated Asset Base (RAB) at an allowed cost of capital, plus recovery of depreciation and an opex allowance, with incentives for out- (or under-) performance. The RAB is inflation-protected and grows as the network invests, compounding the return base. The case turns on the size of the RAB, the allowed return, and how the company performs against its allowances.

£15bn
6.00%
+0.5%
LIVE
Return on RAB allowed return on the asset base Power flow electricity carried across the network Depreciation & allowances cost recovery + incentives Operating cost network O&M (totex)
Flows — annualised from current assumptionsper year
Revenue p.a.
£0
£0 / hr
EBITDA p.a.
£0
0% margin
EBITDA / RAB
0%
RAB yield
Regulated asset base
£0bn
6.0% allowed return
Stocks — what the flows accumulate intolive
Return on RAB · session
£0
the regulated annuity
EBITDA banked · session
£0
accumulating in real time
Implied enterprise value
£0
at 12× EBITDA
Where revenue comes from Total £0 p.a.
Return on RAB
Depreciation & allowances
Why investors prize regulated networks: the revenue is about as safe as infrastructure income gets — a monopoly grid paid an allowed return on an inflation-linked asset base, largely insulated from demand and commodity prices, which is why these assets trade at a premium to RAB and carry heavy leverage. The two real value drivers are RAB growth (every pound of net investment compounds the return base for decades) and outperformance against the regulator's totex and incentive allowances. The risk is the periodic price review: when the regulator cuts the allowed return, every pound of RAB earns less.
Revenue streams£0 p.a.
Operating costs£0 p.a.
Investment case — should you buy it?DCF returns

Year-1 financials flow live from the simulation above: revenue £0 and EBITDA £0 p.a. Set your deal terms below — the unlevered IRR (asset return) and levered IRR (return to equity, after debt) recompute instantly.

Operating

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Valuation & hold

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y

Financing

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Unlevered IRR
—
asset / project return
Levered IRR
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return to equity
Equity multiple
—
MOIC over hold
Equity gain
—
exit equity − invested
Equity cash-flow profile£m · ■ invested   ■ returned
Projection — £m per year

Illustrative model. Represents an Ofgem RIIO-style regulated electricity transmission network. Allowed revenue is built from regulatory building blocks: a return on the Regulated Asset Base (RAB × allowed return), regulatory depreciation, an opex (totex) allowance, and a performance/incentive adjustment (positive or negative) shown as a percentage of RAB. Operating costs are the network's cash totex opex (modelled to run at the allowance), so EBITDA ≈ return + depreciation + incentives. The RAB is inflation-indexed and grows with net investment, which the DCF captures through the RAB-growth input; regulated networks trade at a premium to RAB and carry high leverage. EBITDA = allowed revenue − cash opex; excludes the periodic price-review reset of the allowed return. The investment case is a simplified DCF. For illustration only — not investment advice, and not any specific asset.