Taking the importance of time and risk into account has a significant impact on the value of
investment projects. Investments in the energy sector are long-term projects and, as such, are burdened
with uncertainty associated with the long-term freezing of capital and obtaining the expected
return. In the power industry, this uncertainty is increased by factors specific to the sector,
including in particular changes in the political and legal environment and the rapid technological
development. In the case of discounted cash flow analysis (DCF), commonly used for assessing the
economic efficiency of investments, the only parameter expressing investor uncertainty regarding
investment opportunities is the discount rate, which increases with the increasing risk of the project.
It determines the value of the current project, thus becoming an important criterion affecting
investors’ decisions. For this reason, it is of great importance for the assessment of investment
effectiveness. This rate, usually in the form of the weighted average cost of capital (WACC), generally
includes two elements: the cost of equity capital and borrowed capital. Due to the fluctuant
relationship between these two parameters in project financing, performing a WACC analysis in
order to compare the risks associated with the different technologies is not completely justified.
A good solution to the problem is to use the cost of equity. This article focuses on the analysis of this
cost as a measure of risk related to energy investments in the United States, Europe and worldwide.