Division 2.2.1 Discounted cash flow methodology, incremental method and other principles of financial analysis

The financial analysis of major projects shall be carried out taking into account the rules set out in section III (Method for calculating the discounted net revenue of operations generating net revenue) of Commission Delegated Regulation (EU) No 480/2014, including: method for calculating discounted net revenue (including the reference period and the incremental method) and discounting of cash flow (including the financial discount rate in real terms).

The data required to perform a financial analysis are as follows:

1. (1)

   investment costs, including fixed investments, non-fixed investments including start-up costs, and, where appropriate, changes in working capital;

2. (2)

   replacement costs as defined in Article 17 (a) of Commission Delegated Regulation (EU) No 480/2014;

3. (3)

   operating costs as defined in Article 17 (b) and (c) of Commission Delegated Regulation (EU) No 480/2014;

4. (4)

   revenues as defined in Article 16 of Commission Delegated Regulation (EU) No 480/2014;

5. (5)

   source of funding including equity capital of the investor (either public or private), capital from loans (in this case loan repayment and interests are a project outflow in sustainability analysis) and any additional financial resources such as grants.

In sectors where this is relevant, including the environmental sector, tariffs shall be fixed in compliance with the polluter-pays principle taking into account affordability, as set out in Section III (Method for calculating the discounted net revenue of operations generating net revenue) of Commission Delegated Regulation (EU) No 480/2014, and the full-cost recovery ^f1.

Compliance with the full-cost recovery principle includes that:

1. (1)

   tariffs should aim as far as possible to recover the capital cost, the operating and maintenance cost, including environmental and resource costs;

2. (2)

   the tariff structure maximises the project's revenues before public subsidies, while taking affordability into account.

Limitations of the polluter-pays principle and full-cost recovery principle in user charges and fees should:

1. (1)

   not jeopardize the financial sustainability of the project;

2. (2)

   as a general rule, be seen as temporary restrictions and maintained only as long as the issue of affordability of users exists.