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

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 Pereira Santos Júnior and Dorel Soares Ramos
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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

Energies, 2022, vol. 15, issue 12, 1-12

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.

Keywords: energy economics; investment; capital structure (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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