A New Approach to Cost of Equity for Private Infrastructure

C. Lennart Baumgärtner, Jorge Cárdenas Prieto, Cameron Hepburn and Robert A. Ritz

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: What rate of return is needed to compensate investors in an infrastructure project? This question is central to the delivery of future investment into sectors like energy, water and transport. CAPM is often difficult to implement for unlisted green-field investments, and its assumptions sit uneasily with the infrastructure context. In this paper, we present a new simple model - the Infrastructure Risk Pricing Model (IRPM)—which better reflects real-world practice and also prices idiosyncratic risk. We show how IRPM can perform better than CAPM in estimating investor hurdle rates, especially for concentrated funds. To illustrate, we argue that IRPM rationalizes investor behaviour in Sizewell C, a recent large, government-backed UK nuclear energy project.

Keywords: Cost of Equity; Hurdle Rate; Infrastructure Investment; Idiosyncratic Risk; Regulation (search for similar items in EconPapers)
JEL-codes: G11 G12 G31 H54 L94 Q48 (search for similar items in EconPapers)
Date: 2026-08-21
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2671

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