4.3. The Cost of Debt 4.3.1. Risk-free rate The risk-free rate for the cost of debt is of course taken to be identical to the risk-free rate shown in Section 4.2.1 above.
4.3.2. Debt premium There is relatively little publicly available in formation on historic debt premia, bor the earlv 2000s we have therefore relied on several sources for spread at issue for electricity company bonds. From the early 2000s onwards we have used daily spread estimates for electricity bonds based on secondary' trading data. These arc reported by Bloomberg and summarised in Figure 4.12 below.
Figure 4.12: Spreads on utilii)- company bonds vs. benchmark government bonds Source: FinancialTimts, Bloomberg СЕРА analysis. We include only European and US bond issuances. We exclude six issuances by ABS in 2001/02 due to the specific difficulties fead by Prax during ¡bat period. Data were available for all years for medium term bonds. Where data ¡vere unavailable for short or long ferm. ive interpolated values based on data for the closest available year.
Whilst there has been significant movement in bond spreads over the period, the medium term spread has been much more stable. This is likely to be in part due to the higher quality of available data for medium term bonds. Our assumption regarding the debt premium is driven bv the asset life under consideration; where appropriate, however, we focus on the medium term as a t^ase case' given the higher data quality.
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