Analyzing Profitability and Discount Rates for Solar PV Plants. A Spanish Case

Inmaculada Guaita-Pradas and Ana Blasco-Ruiz
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Inmaculada Guaita-Pradas: Department of Economics and Social Sciences, Polytechnic University of Valencia, 46022 València, Spain
Ana Blasco-Ruiz: Department of Economics and Social Sciences, Polytechnic University of Valencia, 46022 València, Spain

Sustainability, 2020, vol. 12, issue 8, 1-13

Abstract: The widespread use of renewable energy sources and the growing concern about climate change, together with Spain’s exceptional weather and solar radiation conditions, have led to an increase in the use of photovoltaics for energy production in the country. Solar power generation has been tightly regulated, although the legal framework has changed frequently over the years. When assessing the potential financial performance of any business venture, legal as well as financial aspects must be considered, but a critical factor is the discount rate used, which must reflect the company’s capital cost. Other factors are the period of interest, the firm’s activity, market risk, and the level of debt of firms in the sector. The main objective of this study is thus to estimate the discount rate for companies using photovoltaics to produce solar power. We calculate it by employing two financial techniques: capital asset pricing model and historical return analysis. We then evaluate the investment in a photovoltaic plant with a capacity of 5000 kW located in eastern Spain, assuming it started its activity in different years which coincide with changes in the regulatory framework. The results show the relevance of the initial outlay costs for the profitability of photovoltaic power plants.

Keywords: net present value; cost of capital; cost of equity; capital asset pricing model; sector’s historical return (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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