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Empirical Evidence of the Cost of Capital under Risk Conditions for Thermoelectric Power Plants in Brazil

Author

Listed:
  • Luiz Moreira Coelho Junior

    (Department of Renewable Energy Engineering, Federal University of Paraíba (UFPB), João Pessoa 58051-970, Brazil)

  • Amadeu Junior da Silva Fonseca

    (Renewable Energy Graduate Program (PPGER), Federal University of Paraíba (UFPB), João Pessoa 58051-970, Brazil)

  • Roberto Castro

    (MRTS Consultoria em Engenharia, São Paulo 05511-001, Brazil)

  • João Carlos de Oliveira Mello

    (Thymos Energia, São Paulo 04578-907, Brazil)

  • Victor Hugo Ribeiro dos Santos

    (Thymos Energia, São Paulo 04578-907, Brazil)

  • Renato Barros Pinheiro

    (EPASA—Centrais Elétricas da Paraíba S.A., João Pessoa 58071-973, Brazil)

  • Wilton Lima Sousa

    (EPASA—Centrais Elétricas da Paraíba S.A., João Pessoa 58071-973, Brazil)

  • Edvaldo Pereira Santos Júnior

    (Postgraduate Program in Energy and Nuclear Technologies (PROTEN), Federal University of Pernambuco (UFPE), Recife 50740-545, Brazil)

  • Dorel Soares Ramos

    (Department of Electrical Energy Engineering and Automation, Polytechnic School, University of São Paulo (Poli USP), São Paulo 05508-010, Brazil)

Abstract

This article analyzed the cost of capital under risk conditions for thermoelectric plants in Brazil, applying the Capital Asset Pricing Model—CAPM and the Weighted Average Capital Cost—WACC. To estimate the local CAPM, we used information from the Electric Energy Index—IEE of publicly traded companies in the electricity sector in Brazil and for the global CAPM, we observed the companies associated with the Edison Electric Institute—EEI, listed on the New York Stock Exchange—NYSE and at the National Association of Securities Dealers Automated Quotations—NASDAQ—USA. The risk conditions for capital costs were represented by Monte Carlo simulation using, as a basis, the WACC of a fuel oil thermoelectric plant and the local and global CAPM. The main results show that the IEE and EEI companies obtained a positive average daily return. Due to the Brazil risk, under deterministic conditions, the local WACC (11.13% p.a.) was more attractive to investors when compared to the global WACC (10.32% p.a.) and the regulatory WACC of 10.55% p.a., established by the National Electric Energy Agency—ANEEL. The most risk-sensitive input variables were: unleveraged beta, net debt and equity. Under risk conditions observed by the market from the point of view of Brazilian companies, the chances of the WACC of the fuel oil thermoelectric plant being 11.1% p.a. was 68.30% and from a global perspective, the chance of WACC being 10.32% p.a. was 99.51%. It is concluded that the cost of capital under risk conditions provides a more realistic view of decision-making for privately held companies.

Suggested Citation

  • Luiz Moreira Coelho Junior & Amadeu Junior da Silva Fonseca & Roberto Castro & João Carlos de Oliveira Mello & Victor Hugo Ribeiro dos Santos & Renato Barros Pinheiro & Wilton Lima Sousa & Edvaldo Per, 2022. "Empirical Evidence of the Cost of Capital under Risk Conditions for Thermoelectric Power Plants in Brazil," Energies, MDPI, vol. 15(12), pages 1-12, June.
  • Handle: RePEc:gam:jeners:v:15:y:2022:i:12:p:4313-:d:837503
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    References listed on IDEAS

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    4. Paulo Rotella Junior & Luiz Célio Souza Rocha & Sandra Naomi Morioka & Ivan Bolis & Gianfranco Chicco & Andrea Mazza & Karel Janda, 2021. "Economic Analysis of the Investments in Battery Energy Storage Systems: Review and Current Perspectives," Energies, MDPI, vol. 14(9), pages 1-29, April.
    5. Grzegorz Drozdowski, 2021. "Economic Calculus Qua an Instrument to Support Sustainable Development under Increasing Risk," JRFM, MDPI, vol. 14(1), pages 1-12, January.
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    2. Zbysław Dobrowolski & Grzegorz Drozdowski & Mirela Panait & Simona Andreea Apostu, 2022. "The Weighted Average Cost of Capital and Its Universality in Crisis Times: Evidence from the Energy Sector," Energies, MDPI, vol. 15(18), pages 1-15, September.
    3. Edgardo Cayon & Julio Sarmiento, 2022. "The Impact of Coskewness and Cokurtosis as Augmentation Factors in Modeling Colombian Electricity Price Returns," Energies, MDPI, vol. 15(19), pages 1-8, September.

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