This flagship Vallorii thematic paper addresses one of the most consequential questions in regulated infrastructure: how to set the cost of capital (CoC) in a way that balances investment attractiveness, consumer affordability, and long-term sustainability. With UK infrastructure facing a £169bn investment requirement by 2030 and traditional CAPM-based methods under scrutiny, the paper evaluates whether the current regulatory model remains fit for purpose.

Drawing on insights from leading regulators, investors, and utility executives, the paper assesses three emerging approaches to CoC estimation:

• CAPM Revamp: Modernizing the current model with better gearing assumptions and peer group analytics.

• CAPM+ Evolution: Enhancing CAPM with factor models that reflect systematic and macroeconomic risk.

• Bottom-up Pivot: Using granular, asset-level analytics powered by AI and big data to capture real-world risk exposures.

This paper outlines a multi-criteria assessment framework and calls for regulators to explore hybrid and parallel modelling approaches to inform the next wave of price reviews. It is the first in a new Vallorii series exploring regulatory innovation and valuation.

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