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Are the Purchase Prices of Solar Energy Projects under Development Consistent with Cost of Capital Forecasts?

Department of Business Administration, Rey Juan Carlos University, Paseo de los Artilleros s/n, 28032 Madrid, Spain
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Author to whom correspondence should be addressed.
Academic Editor: Thomas P. Seager
Received: 28 May 2021 / Revised: 18 June 2021 / Accepted: 20 June 2021 / Published: 22 June 2021
(This article belongs to the Section Sustainable Infrastructures)
The reduction in construction and maintenance costs per MW of renewable energy facilities, together with low interest rates, have led to a significant growth in the purchase prices paid for these facilities in the Spanish market. This trend is shared by other European countries, especially for projects that hedge energy price risk incorporating power purchase agreements with third parties. In this framework, questions arise about the economic rationale of the purchase prices paid for these projects. Consequently, we develop a project evaluation model that forecasts expected cash flow and time-varying required rates of return for a standard photovoltaic plant, in order to study the extent to which foreseeable market conditions—interest rates and equity risk premia, among others—translate into economically viable buyouts. Our results suggest that purchase prices paid for these initiatives often lead to buyer returns below those that would be reasonable according to market conditions. Indeed, we find that only facilities that reach a production 23% higher than the number of hours considered in the base case provide returns that compensate long-term financing costs. However, specialised investors can exploit their relatively low cost of financing to pay prices up to 73% higher than those affordable by classic investors. View Full-Text
Keywords: financial planning; infrastructure financing; photovoltaic energy; renewable energy; project finance; power purchase agreement; cost of equity; green bubble financial planning; infrastructure financing; photovoltaic energy; renewable energy; project finance; power purchase agreement; cost of equity; green bubble
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MDPI and ACS Style

Vázquez-Vázquez, M.; Alonso-Conde, A.B.; Rojo-Suárez, J. Are the Purchase Prices of Solar Energy Projects under Development Consistent with Cost of Capital Forecasts? Infrastructures 2021, 6, 95. https://0-doi-org.brum.beds.ac.uk/10.3390/infrastructures6070095

AMA Style

Vázquez-Vázquez M, Alonso-Conde AB, Rojo-Suárez J. Are the Purchase Prices of Solar Energy Projects under Development Consistent with Cost of Capital Forecasts? Infrastructures. 2021; 6(7):95. https://0-doi-org.brum.beds.ac.uk/10.3390/infrastructures6070095

Chicago/Turabian Style

Vázquez-Vázquez, Miguel, Ana B. Alonso-Conde, and Javier Rojo-Suárez. 2021. "Are the Purchase Prices of Solar Energy Projects under Development Consistent with Cost of Capital Forecasts?" Infrastructures 6, no. 7: 95. https://0-doi-org.brum.beds.ac.uk/10.3390/infrastructures6070095

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