Abstract
Under the dual pressures of energy crisis and environmental pollution, China’s new energy power industry has become a focal point for environmental management and requires greater investment. In this context, as a significant input of investment projects, discount rate requires a well-calibrated evaluation because new energy power investment projects are highly capital intensive. The main objective of this paper is to evaluate the discount rate of China’s new energy power industry. First, we use Moving Average to correct the parameters of capital asset pricing model (CAPM) and weighted average cost of capital, which extends the literature on the avoidance of CAPM noise information problem. Second, we study the industry-level annual discount rates of mainly China’s new energy power industries, including hydropower, nuclear power, wind power, and photovoltaic power industries for the period of 2014–2019. The results show that discount rates in China’s new energy power industries evolved differently between the years of 2014–2019 with average annual discount rates being 7.56%, 5.83%, 5.60%, and 8.64%, for the hydropower, nuclear power, wind power, and photovoltaic power industries, respectively. In 2019, the four annual discount rates were highest for the photovoltaic power industry (8.66%), followed by hydropower (7.17%), wind power (5.72%), and nuclear power industry (5.26%). Forecasting to 2020 from the 2019 evaluation base period, the discount rates are 6.37%, 5.00%, 6.57%, and 9.05% for the photovoltaic power, hydropower, wind power, and nuclear power industries, respectively. Under the different capital structures, their forecasts for the photovoltaic power, hydropower, wind power, and nuclear power industries in 2020 are, respectively, within [4.35%, 9.24%], [3.92%, 7.10%], [4.58%, 10.40%], [5.46%, 14.81%]. We also discussed more details on capital structure and forecast period of discount rates for China’s new energy power industries. Our analysis shows that it is necessary to establish a new energy power industry database and steadily promote the implementation of policies.
Highlights
Under the dual pressures of energy crisis and environmental pollution, China has taken the path of green and low carburizable development through deepening reform of the electrical power industry
Considering the limitation of the current capital asset pricing model (CAPM) and weighted average cost of capital (WACC) on evaluation of the discount rate, we use the moving average (MA) method to remove the noise from statistical data and to correct the parameters of CAPM and WACC
The beta of the nuclear power industry is relatively stable because the enterprises in the industry are mainly state-owned enterprises, but there is a large range for change
Summary
Under the dual pressures of energy crisis and environmental pollution, China has taken the path of green and low carburizable development through deepening reform of the electrical power industry. In this context, China substantially increases the share of new energy sources to meet the energy demand in the future. Increases in energy sources are mainly in hydropower resources, nuclear power resources, wind power resources, and photovoltaic power resources. It is well known that the social, economic, market, policy, technology, and other factors that affect the discount rate of China’s new energy power industry are changing. It is necessary to update the industry-level discount rate of China’s new energy power industry
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