Abstract
Surprisingly, little is known whether the net present value (NPV) used as a financial metric in budgeting and investment planning to analyse a projects’ profitability is universal. Meanwhile, the epochal green energy revolution ensuring carbon neutrality through green innovations requires enormous investments, and projects realised must ensure energy security. Therefore, there is a need to reanalyse financial metrics used in financial planning, including NPV. We eliminate this research gap and, based on data from Poland, Romania, Hungary, Croatia, the USA, the United Kingdom, Japan, Israel, and Euro Zone, explain why one may not perceive the currently used NPV formula as a universal financial metric. We show that the variable discount rate influences the time value of money. Therefore, there is a need to redefine the NPV formula. This study makes two main contributions. First, it creates new ground by revisiting the NPV formula in the emerging market context compared to stable economies and contributes to developing business and management theory. Second, we propose and empirically verify the modified NPV formula as a financial metric that considers the situation of energy firms in emerging markets. Thus, this research helps the capital budgeting process, and the modified NPV formula can help provide optimal outcomes in firms, helping to reduce financial risks. Our study contributes to a further contextual diagnosis of business projects and can, in turn, be relevant for other energy sector analyses.
Highlights
No doubt, one of the critical industries in today’s economy is the energy industry, and there is a connection between energy consumption and economic growth, c.f. [1,2,3]
There is a research gap regarding whether the net present value (NPV) metric is universal—whether one may use the NPV in different countries with different economic stability? the research problem needs to be solved: Does the currently applicable NPV metric fit emerging markets? Our research aims to verify the following hypothesis: the variable discount rate influences the time value of money, requiring redefining the NPV formula as a financial metric
One may assume that NPV helps make the right decision from the shareholders and other decision-makers points of view
Summary
One of the critical industries in today’s economy is the energy industry, and there is a connection between energy consumption and economic growth, c.f. [1,2,3]. All projects in the energy sector must be well planned and implemented It results from management rationality and the influence of the energy sector on other branches of the economy. Energy security can be understood as the diversification of energy supply sources and ensuring the certainty of their supply at a price acceptable to society and the economy. It is the optimal use of domestic energy resources, with the simultaneous use of new technology and active participation in international environmental and energy initiatives. We define green energy security as generating energy from environmentally neutral sources and ensuring the certainty of their supply at a price acceptable to society and the economy
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
