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Does the Net Present Value as a Financial Metric Fit Investment in Green Energy Security?

Author

Listed:
  • Zbysław Dobrowolski

    (Institute of Public Affairs, Jagiellonian University, 30-348 Krakow, Poland)

  • Grzegorz Drozdowski

    (Department of Economics and Finance, Jan Kochanowski University in Kielce, 25-369 Kielce, Poland)

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.

Suggested Citation

  • Zbysław Dobrowolski & Grzegorz Drozdowski, 2022. "Does the Net Present Value as a Financial Metric Fit Investment in Green Energy Security?," Energies, MDPI, vol. 15(1), pages 1-16, January.
    • Handle: RePEc:gam:jeners:v:15:y:2022:i:1:p:353-:d:717649
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    Citations

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    Cited by:

    1. Zbysław Dobrowolski & Grzegorz Drozdowski & Mirela Panait & Arkadiusz Babczuk, 2022. "Can the Economic Value Added Be Used as the Universal Financial Metric?," Sustainability, MDPI, vol. 14(5), pages 1-14, March.
    2. Imen Khanchel & Naima Lassoued, 2022. "ESG Disclosure and the Cost of Capital: Is There a Ratcheting Effect over Time?," Sustainability, MDPI, vol. 14(15), pages 1-19, July.
    3. Zbysław Dobrowolski & Grzegorz Drozdowski & Mirela Panait & Simona Andreea Apostu, 2022. "The Weighted Average Cost of Capital and Its Universality in Crisis Times: Evidence from the Energy Sector," Energies, MDPI, vol. 15(18), pages 1-15, September.
    4. Fernando García-Muñoz & Miguel Alfaro & Guillermo Fuertes & Manuel Vargas, 2022. "DC Optimal Power Flow Model to Assess the Irradiance Effect on the Sizing and Profitability of the PV-Battery System," Energies, MDPI, vol. 15(12), pages 1-16, June.
    5. Zhengmeng Hou & Liangchao Huang & Yachen Xie & Lin Wu & Yanli Fang & Qichen Wang & Yilin Guo, 2023. "Economic Analysis of Methanating CO 2 and Hydrogen-Rich Industrial Waste Gas in Depleted Natural Gas Reservoirs," Energies, MDPI, vol. 16(9), pages 1-12, April.
    6. Azam Ghezelbash & Mitra Seyedzadeh & Vahid Khaligh & Jay Liu, 2023. "Impacts of Green Energy Expansion and Gas Import Reduction on South Korea’s Economic Growth: A System Dynamics Approach," Sustainability, MDPI, vol. 15(12), pages 1-18, June.
    7. Hui Wang & Shu Xu, 2022. "Heterogeneity Effect of Corporate Financialization on Total Factor Productivity," Sustainability, MDPI, vol. 14(11), pages 1-17, May.
    8. Grzegorz Drozdowski & Paweł Dziekański, 2022. "Local Disproportions of Quality of Life and Their Influence on the Process of Green Economy Development in Polish Voivodships in 2010–2020," IJERPH, MDPI, vol. 19(15), pages 1-26, July.
    9. Umut Burak Geyikci & Serkan Çınar & Fatih Mehmet Sancak, 2022. "Analysis of the Relationships among Financial Development, Economic Growth, Energy Use, and Carbon Emissions by Co-Integration with Multiple Structural Breaks," Sustainability, MDPI, vol. 14(10), pages 1-11, May.
    10. Constantin Anghelache & Mădălina Gabriela Anghel & Ștefan Virgil Iacob & Ion Pârțachi & Irina Gabriela Rădulescu & Alina Gabriela Brezoi, 2023. "Analysis of the Situation of Renewable and Non-Renewable Energy Consumption in the European Union," Energies, MDPI, vol. 16(3), pages 1-15, January.

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