* Grid regulator to ease planned cuts to returns-source
* Returns will be cut, but less than suggested-source
* Ease applies to long-distance power grids-source
By Peter Dinkloh
FRANKFURT, Oct 25 (Reuters) - Power grids in Germany are set for a smaller hit to their profitability than initially planned by the grid regulator, said a person with knowledge of the matter.
That would make investment in power grids more attractive as Europe's largest electricity market seeks billions of euros to make its energy supply greener.
The regulator has to review returns on the country's power grids at a particularly sensitive time as Germany needs investments in new power lines to connect windfarms in the north with industrial consumers in the south.
The country is shutting down all its 17 nuclear power stations. Large consumers in the south that relied on those plants need to get access to new power stations.
In September, the Bonn-based regulator, Bundesnetzagentur, initially proposed to reduce returns on newly-built power grids by 1.09 percentage points to 8.2 percent for the next regulatory period from 2014 to 2018 and had sought comments on the proposal. The returns refer to the grid operators' own invested capital in new grids as opposed to borrowed capital.
Due to constant demand for power, power grids are considered a safe investment, comparable to government bonds. As yields on benchmark 10-year German bonds have fallen to 2 percent, the regulator also proposed to cut returns on energy grids.
Arguments from the four operators of long-distance grids in Europe swayed the agency to soften their decision, said the person from within the agency.
The person declined to be identified, as the agency has not finally decided on how much they will reduce the cut on returns.
"We will accommodate" the demands of the network owners, said the person. The person said the comments refer only to high-voltage grids.
The investors will also be allowed to charge their customers for any investments sooner than under the current regulation, which foresees a time span of two years between investment and charging, said the person.
"Investors will possibly be able to charge users of the grid immediately after they build a power line," said the person.
The four grid firms are 50Hertz, owned by Belgian Elia and Australian fund IFM, TenneT, Amprion, 75-owned by a group of financial industry investors lead by Commerzbank (CBKG.DE), and Energie Baden-Wuerttemberg's (EBKG.DE) grid unit. (Reporting By Peter Dinkloh; editing by Carol Bishopric)