Corporate finance in renewable energy investments - a review about theory and practice

Valuation of renewable energy investments: an explanatory mixed-methods study about applied approaches amongst practitioners

“…For the data collection of the primary QUAN phase, an initial questionnaire was created based on the extensive literature review (Hürlimann and Bengoa, 2017) and findings identified in an exploratory interview phase (qual phase). It includes questions asked in the famous studies of Graham and Harvey (2001) and Brounen et al (2004), since their questions and applied answer scales have proved their validity.…”

“…The results (Figure 4) demonstrate that three risk categories are considered to be the riskiest in RES-E investments: political/regulatory (61.5%),market risk (53.2%) -both of which are systematic risks -and weather-related volume risk (52.3%), which is an unsystematic risk that can potentially be decreased with appropriate diversifications (Hürlimann and Bengoa, 2017). The results are quite homogenous if examining the responses conditional on the firm's characteristics and domicile.…”

“…Only one participant (pt. 02.2) mentioned issues regarding the consistency and subsequent restriction of the application of the IRR approach, which are also reported in financial theory (Arnold, 2013;Hürlimann and Bengoa, 2017). The majority do not differentiate between the IRR and NPV approaches from a theoretical understanding; instead, they erroneously regard them as the same approach, and they simply start the calculation from different angles.…”

“…Having been developed for PTCs, the CAPM focuses only on systematic risk (pt. 03.3) and subsequently ignores unsystematic risks -the latter is, however, specifically relevant for single RES-E investments (Hürlimann and Bengoa, 2017;Hürlimann et al, in press). Nevertheless, as reported, the CAPM with a levered Beta seems to be appropriate for application to defining the equity return rates of RES-E projects with many-year-long production cycles and natural resource experience and therefore low resource uncertainties (pt.…”

“…On the other hand, some participants, in particular many sellers reject the WACC concept for setting required return rates, hurdle rates or RADR (divergent finding). Instead, they propagate the idea of defining CoC requirements without referring to the acquirer's WACC, as finance literature proposes (Hürlimann and Bengoa, 2017), by considering the results from previous transactions, performing market sounding (pt. 02.08) and/or taking into account the exit strategies that are already present at the time of acquisitions (pt.…”