Corporate finance in renewable energy investments - a review about theory and practice

This paper examines key topics in corporate finance relevant for valuating renewable energy (RE) investments - typically a non-traded asset (NTA) and an asset type often ignored by many valuation literatures. We begin by discussing principal valuation methods from the academic financial literature, and draw on empirical survey demonstrating their relevance in practice. The key discussed topics include the applied methods in capital budgeting, cost of equity estimation, and risk analysis and mitigation. In each topic, we suggest how adequate the methods are to be applied for valuing RE investments, based on the nature of such investment projects, before rounding off the topics with a project valuation adjustment and risk management framework we propose. This paper lays the groundwork for further research as it presents work-in-progress, followed by the data collection phase with a survey amongst investors and financial advisors within the researched population. Therefore, empirical results will be presented at a later stage. We conclude with a theoretical and research agenda for future work.