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Valuation Framework for Energy Investment Finance

In: Energy Entrepreneurship, Sustainability, Innovation and Financing

Author

Listed:
  • Turalay Kenc

    (The INCEIF University)

  • Ali Mohamud Farah

    (Jigjiga University)

  • Didar İlyassov

    (Narxoz University)

  • Ismail Orakcıoglu

    (Istanbul Bilgi University)

Abstract

Structured finance products like securitization and project finance are critical for financing large-scale energy investments, but lack robust valuation models. We build on (Leland, The Journal of Finance 62:765–807, 2007) elegant financial synergy framework, expanding it to incorporate non-risk-neutral pricing, long-term debt contracts, varying macro conditions and firm lifecycles, and stochastic interest rates and cash flows. This allows examining correlation effects on liability/asset values. We then apply the enhanced model to optimize energy financing decisions—assessing mergers, securitization, and project finance given financial synergies under different market states, lifecycle stages, and parameter correlations. Preliminary analysis finds low cash flow/rate correlations and later lifecycle stages promote separate financing vehicles by enabling greater risk reduction, while high correlations and early stages favor on-balance sheet merger financing to maximize financial/operating synergies. Market conditions help determine optimal timing.

Suggested Citation

  • Turalay Kenc & Ali Mohamud Farah & Didar İlyassov & Ismail Orakcıoglu, 2025. "Valuation Framework for Energy Investment Finance," Springer Books, in: Kazim Baris Atici & Anil Boz Semerci & Hurcan Kabakci & Prabal Shrestha (ed.), Energy Entrepreneurship, Sustainability, Innovation and Financing, pages 263-295, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-80001-6_13
    DOI: 10.1007/978-3-031-80001-6_13
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