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The Impact of Nuclear Power Plant Construction Activity on the Electric Utility Industry's Cost of Capital

Keith Berry and Samuel Loudenslager

Year: 1987
Volume: Volume 8
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol8-No2-5
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Abstract:
All across the United States, electric utilities are now faced with the prospect of prematurely abandoning partially completed nuclear units. While there are many reasons for this dilemma,[ the ratemaking implications are profound. They force regulators to make the unsavory decision as to the appropriate allocation of the fixed costs sunk in the abandoned projects between ratepayers and stockholders.' If a significant number of these plants are abandoned, the dollars at stake (estimated to be as large as $66 billion') in any ratemaking division of accountability are staggering.



Carbon Intensity and the Cost of Equity Capital

Arjan Trinks, Gbenga Ibikunle, Machiel Mulder, and Bert Scholtens

Year: 2022
Volume: Volume 43
Number: Number 2
DOI: 10.5547/01956574.43.2.atri
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Abstract:
The transition from high- to lower-carbon production systems increasingly creates regulatory and market risks for high-emitting firms. We test to what extent equity market investors demand a premium to compensate for such risks and thus might raise firms' cost of equity capital (CoE). Using data for 1,897 firms spanning 50 countries over the years 2008–2016, we find a distinct and robust positive impact of carbon intensity (carbon emissions per unit of output) on CoE: On average, a standard deviation higher (sector-adjusted) carbon intensity is associated with a CoE premium of 6 (9) basis points or 1.7% (2.6%). This effect is primarily explained by systematic risk factors: high-emitting assets are significantly more sensitive to economy-wide fluctuations than low-emitting ones. The CoE impact of carbon intensity is more pronounced in high-emitting sectors, EU countries, and firms subject to carbon pricing regulation. Our results suggest that carbon emission reduction might serve as a valuable risk mitigation strategy.





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