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The cost of capital for power generation in atypical capital market conditions

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  • Paul Simshauser

Abstract

Determining the cost of capital in the energy sector requires considerable care. Whether being derived by firms, stock analysts, policymakers or regulators, the consequence of error is amplified because the energy sector is the worldùs most capital-intensive. No other cost variable has a greater impact on electricity price/cost estimates. Historically, the Capital Asset Pricing Model could be applied mechanistically and produce reliable estimates for equity costs. But the Global Financial Crisis produced atypical capital market conditions and a mechanistic application will produce results that are intuitively erroneous. The model is not broken, but inputs require professional judgement and adjustment.

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  • Paul Simshauser, 2014. "The cost of capital for power generation in atypical capital market conditions," Economic Analysis and Policy, Elsevier, vol. 44(2), pages 184-201.
    • Handle: RePEc:eee:ecanpo:v:44:y:2014:i:2:p:184-201
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    Cited by:

    1. Nelson, Tim & Reid, Cameron & McNeill, Judith, 2015. "Energy-only markets and renewable energy targets: Complementary policy or policy collision?," Economic Analysis and Policy, Elsevier, vol. 46(C), pages 25-42.
    2. Valadkhani, Abbas & Moradi-Motlagh, Amir, 2023. "An empirical analysis of exchange-traded funds in the US," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 995-1009.
    3. Martina Tuschl & Tomislav Kurevija, 2023. "Revitalization Modelling of a Mature Oil Field with Bottom-Type Aquifer into Geothermal Resource—Reservoir Engineering and Techno-Economic Challenges," Energies, MDPI, vol. 16(18), pages 1-27, September.
    4. Wang, Chen & Zhou, Kaile & Yang, Shanlin, 2017. "A review of residential tiered electricity pricing in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 79(C), pages 533-543.
    5. Dimitrios Angelopoulos & Robert Brückmann & Filip JirouÅ¡ & Inga KonstantinaviÄ iÅ«tÄ— & Paul Noothout & John Psarras & Lucie Tesnière & Barbara Breitschopf, 2016. "Risks and cost of capital for onshore wind energy investments in EU countries," Energy & Environment, , vol. 27(1), pages 82-104, February.
    6. Hickey, Conor & Deane, Paul & McInerney, Celine & Ó Gallachóir, Brian, 2019. "Is there a future for the gas network in a low carbon energy system?," Energy Policy, Elsevier, vol. 126(C), pages 480-493.
    7. Jenny Gabriela Peña Balderrama & Thomas Alfstad & Constantinos Taliotis & Mohammad Reza Hesamzadeh & Mark Howells, 2018. "A Sketch of Bolivia’s Potential Low-Carbon Power System Configurations. The Case of Applying Carbon Taxation and Lowering Financing Costs," Energies, MDPI, vol. 11(10), pages 1-20, October.
    8. Simshauser, Paul & Tian, Yuan & Whish-Wilson, Patrick, 2015. "Vertical integration in energy-only electricity markets," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 35-56.
    9. Simshauser, Paul & Akimov, Alexandr, 2019. "Regulated electricity networks, investment mistakes in retrospect and stranded assets under uncertainty," Energy Economics, Elsevier, vol. 81(C), pages 117-133.

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