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Investment and Profitability Calculation

In: Energy Economics

Author

Listed:
  • Peter Zweifel
  • Aaron Praktiknjo

    (RWTH Aachen University)

  • Georg Erdmann

    (Berlin University of Technology)

Abstract

Capital budgeting and profitability accounting are necessary for assessing the economic viability of energy investments. Although the methodology for energy investments does not differ fundamentally from other applications, there are unique problems associated with it due to some particularities of investment in energy technologies. Long planning, construction, and operation periods make the result of an investment decision strongly dependent on the discounting of future cash flows. These facts motivate consideration of the following issues: What is the meaning of (net) present value of a flow of revenues (expenditures, respectively)? Why is the interest rate especially important in investment projects relating to energy and what determines this rate of interest? How can one account for future inflation (deflation, respectively)? Would it be preferable to abstain from discounting altogether, in the interest of sustainability? What insights can be gleaned from recent developments in the theory of finance?

Suggested Citation

  • Peter Zweifel & Aaron Praktiknjo & Georg Erdmann, 2017. "Investment and Profitability Calculation," Springer Texts in Business and Economics, in: Energy Economics, chapter 3, pages 37-63, Springer.
    • Handle: RePEc:spr:sptchp:978-3-662-53022-1_3
    DOI: 10.1007/978-3-662-53022-1_3
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    Cited by:

    1. Matos, Catarina R. & Pereira da Silva, Patrícia & Carneiro, Júlio F., 2023. "Economic assessment for compressed air energy storage business model alternatives," Applied Energy, Elsevier, vol. 329(C).

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