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Analyzing Profitability and Discount Rates for Solar PV Plants. A Spanish Case

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  • Inmaculada Guaita-Pradas

    (Department of Economics and Social Sciences, Polytechnic University of Valencia, 46022 València, Spain)

  • Ana Blasco-Ruiz

    (Department of Economics and Social Sciences, Polytechnic University of Valencia, 46022 València, Spain)

Abstract

The widespread use of renewable energy sources and the growing concern about climate change, together with Spain’s exceptional weather and solar radiation conditions, have led to an increase in the use of photovoltaics for energy production in the country. Solar power generation has been tightly regulated, although the legal framework has changed frequently over the years. When assessing the potential financial performance of any business venture, legal as well as financial aspects must be considered, but a critical factor is the discount rate used, which must reflect the company’s capital cost. Other factors are the period of interest, the firm’s activity, market risk, and the level of debt of firms in the sector. The main objective of this study is thus to estimate the discount rate for companies using photovoltaics to produce solar power. We calculate it by employing two financial techniques: capital asset pricing model and historical return analysis. We then evaluate the investment in a photovoltaic plant with a capacity of 5000 kW located in eastern Spain, assuming it started its activity in different years which coincide with changes in the regulatory framework. The results show the relevance of the initial outlay costs for the profitability of photovoltaic power plants.

Suggested Citation

  • Inmaculada Guaita-Pradas & Ana Blasco-Ruiz, 2020. "Analyzing Profitability and Discount Rates for Solar PV Plants. A Spanish Case," Sustainability, MDPI, vol. 12(8), pages 1-13, April.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:8:p:3157-:d:345400
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    2. Anwar, Muhammad Bashar & Stephen, Gord & Dalvi, Sourabh & Frew, Bethany & Ericson, Sean & Brown, Maxwell & O’Malley, Mark, 2022. "Modeling investment decisions from heterogeneous firms under imperfect information and risk in wholesale electricity markets," Applied Energy, Elsevier, vol. 306(PA).
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    6. Eleonora Riva Sanseverino & Hang Le Thi Thuy & Manh-Hai Pham & Maria Luisa Di Silvestre & Ninh Nguyen Quang & Salvatore Favuzza, 2020. "Review of Potential and Actual Penetration of Solar Power in Vietnam," Energies, MDPI, vol. 13(10), pages 1-25, May.
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    8. Silvestro Cossu & Roberto Baccoli & Emilio Ghiani, 2021. "Utility Scale Ground Mounted Photovoltaic Plants with Gable Structure and Inverter Oversizing for Land-Use Optimization," Energies, MDPI, vol. 14(11), pages 1-16, May.

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