Search Advanced

Green Finance

2020, Volume 2, Issue 2: 135-150. doi: 10.3934/GF.2020008
Previous Article Next Article
Research article Special Issues

Examining risk and return profiles of renewable energy investment in developing countries: the case of the Philippines

  • 1.
    Graduate School of Advanced Integrated Studies in Human Survivability (GSAIS), Kyoto University, Japan
  • 2.
    Graduate School of Global Environmental Studies (GSGES), Kyoto University, Japan
  • Received: 23 March 2020 Accepted: 14 April 2020 Published: 17 April 2020

  • JEL Codes: G12, G15, Q20

  • This paper examines the risk and return profiles of energy companies with renewable energy (RE) investment in developing countries taking the Philippines as our country case study. First, we analyze the impact of the global RE project specific risk and country risk on RE projects using a simple capital asset pricing model (CAPM) by benchmarking stock returns of these companies to either the global S&P Global Clean Energy (S&P GCE) index or to the local Philippine Stock Exchange (PSE) index. Our findings show that the Energy Development Corporation (EDC), a "pure" RE company, is affected by both these risks examined on short- and mid- to long-term investment interval, while those with partial investment in renewables are affected only on the short-term. Next, we calculated these companies' abnormal returns by using the Jensen's alpha. Results show that EDC's alpha values are positive on all short- and medium-to-long term investments and on both indices, suggesting that Philippine RE companies are possibly underestimated on both the global RE market and the Philippine stock market. Lastly, we examined the latest feed-in tariff (FIT) level by using the beta results of EDC and the FIT structure of solar PV. Results show that the FIT rate generates profit to both the global and local RE companies' risk and returns from the investors' perspective, but is higher than the desired FIT rate from the policymakers' perspective. This paper aids in investment decision-making by showing that differences in investment timeframes and RE shares could impact investment outcomes in developing countries.

    Citation: Phoebe Grace Saculsan, Takashi Kanamura. Examining risk and return profiles of renewable energy investment in developing countries: the case of the Philippines[J]. Green Finance, 2020, 2(2): 135-150. doi: 10.3934/GF.2020008

    Related Papers:

  • This paper examines the risk and return profiles of energy companies with renewable energy (RE) investment in developing countries taking the Philippines as our country case study. First, we analyze the impact of the global RE project specific risk and country risk on RE projects using a simple capital asset pricing model (CAPM) by benchmarking stock returns of these companies to either the global S&P Global Clean Energy (S&P GCE) index or to the local Philippine Stock Exchange (PSE) index. Our findings show that the Energy Development Corporation (EDC), a "pure" RE company, is affected by both these risks examined on short- and mid- to long-term investment interval, while those with partial investment in renewables are affected only on the short-term. Next, we calculated these companies' abnormal returns by using the Jensen's alpha. Results show that EDC's alpha values are positive on all short- and medium-to-long term investments and on both indices, suggesting that Philippine RE companies are possibly underestimated on both the global RE market and the Philippine stock market. Lastly, we examined the latest feed-in tariff (FIT) level by using the beta results of EDC and the FIT structure of solar PV. Results show that the FIT rate generates profit to both the global and local RE companies' risk and returns from the investors' perspective, but is higher than the desired FIT rate from the policymakers' perspective. This paper aids in investment decision-making by showing that differences in investment timeframes and RE shares could impact investment outcomes in developing countries.


    加载中


    [1] Ali MH, Islam S, Chowdhury MM (2010) Test of CAPM in emerging stock markets: A study on Dhaka stock exchange. Cost Manage, 34-37.
    [2] Basu D, Chawla D (2010) An empirical test of CAPM-The case of Indian stock market. Global Bus Rev 11: 209-220. doi: 10.1177/097215091001100206
    [3] Bautista CC (2003) Stock market volatility in the Philippines. Appl Econ Lett 10: 325-318.
    [4] Bodnar GM, Dumas B, Marston RD (2003) Cross-border valuation: The international cost of equity capital. NBER Working Paper.
    [5] BP (2019) BP Statistical Review of World Energy 2019. Available from: https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2019-full-report.pdf
    [6] Chiang TC, Doong SC (2001) Empirical analysis of stock returns and volatilities: Evidence from seven Asian stock markets based on TAR-GARCH Model. Rev Quant Financ Accounting 17: 301-318. doi: 10.1023/A:1012296727217
    [7] Damodaran A (2012) Equity risk premiums (ERP): Determinants, estimation and implications-The 2012 Edition. Working paper, New York University. Available from: http://dx.doi.org/10.2139/ssrn.2027211
    [8] Damodaran A (2017) Equity Risk Premium by Country-January 2017. New York: University of New York, Stern School of Business.
    [9] De Ocampo PB Jr (2003) Alternative methodologies for testing CAPM in the Philippine equities market. Working Paper, University of Limoges, France.
    [10] Energy Development Corporation (EDC) (2016) Energy Development Corporation (EDC) Annual Financial Report 2016. Pasig: Securities and Exchange Commission. Accessed on August 23, 2018. Available from: https://www.energy.com.ph/wp-content/uploads/2017/05/EDC-PR-2016_FINAL-063017.pdf
    [11] Estrada J (2002) Systematic risk in emerging markets: The D-CAPM. Emerging Markets Rev 3: 365-379. doi: 10.1016/S1566-0141(02)00042-0
    [12] Fama EF, French KR (1996) Multi-factor explanations of asset pricing anomalies. J Financ 51: 55-84. doi: 10.1111/j.1540-6261.1996.tb05202.x
    [13] Inchauspe J, Ripple RD, Trück S (2015) The dynamics of returns on renewable energy companies: A state-space approach. Energy Econ 48: 325-335. doi: 10.1016/j.eneco.2014.11.013
    [14] Investopedia (2019a) Country Risk (Definition). Accessed on August 5, 2019, Available from: https://www.investopedia.com/terms/c/countryrisk.asp
    [15] Investopedia (2019b) Jensen's Measure (Definition). Accessed on August 5, 2019, Available from: http://www.investopedia.com/terms/j/jensensmeasure.asp
    [16] IRENA (2017) Renewables Readiness Assessment: The Philippines, International Renewable Energy Agency, Abu Dhabi.
    [17] KPMG (2016) Global Trends in Renewable Energy. Accessed on June 5, 2019. Available from: https://home.kpmg/content/dam/kpmg/sg/pdf/2016/11/Global-Trends-in-Renewable-Energy.pdf
    [18] KPMG (2013) The Energy Report: Philippines. Growth and Opportunities in the Philippine Electric Power Sector". Accessed on July 26, 2019. Available from: https://home.kpmg/content/dam/kpmg/ph/pdf/InvestmentGuide/2013PHInvestmentGuideInvestmentGuideTheEnergyReportPhilippines.pdf
    [19] Krištofík P (2010) Application of CAPM for investment decisions in emerging countries. 5th International Conference Management and Modelling Financial Risk Ostrava.
    [20] Wing LC, Jin Z (2015) Risk management methods applied to renewable and sustainable energy: A review. J Electr Electronic Eng 3: 1-12. doi: 10.11648/j.jeee.s.2015030101.11
    [21] Managi S, Okimoto T (2013) Does the price of oil interact with clean energy prices in the stock market? Japan World Econ 27: 1-9. doi: 10.1016/j.japwor.2013.03.003
    [22] Madhusoodanan TP (1997) Risk and return: A new look at the Indian stock market. Financ India 1: 285-304.
    [23] Mishra DR, O'Brien TJ (2005) Risk and ex ante cost of equity estimates of emerging market firms. Emerging Markets Rev: 107-120. doi: 10.1016/j.ememar.2005.03.002
    [24] Mobarek A, Mollah AS (2005) The general determinants of share returns: an empirical investigation on the Dhaka stock exchange. Rev Pac Basin Financ Markets Policies 8: 593-612. doi: 10.1142/S0219091505000518
    [25] Mossin J (1966) Equilibrium in a Capital Asset Market. Econometrica 34: 768-783. doi: 10.2307/1910098
    [26] Pamane K, Vikpossi AE (2014) An analysis of the relationship between risk and expected return in the BRVM stock exchange: Test of the CAPM. Res World Econ 5: 13-28.
    [27] Philippine Stock Exchange (PSE) (2016) Listing Directory. Accessed on August 1, 2016. Available from: https://www.pse.com.ph/stockMarket/listedCompanyDirectory.html
    [28] Philippine Stock Exchange (PSE) (2017) Listing Directory. Accessed on July 31, 2017. Available from: https://www.pse.com.ph/stockMarket/listedCompanyDirectory.html
    [29] Philippine Dealing and Exchange Corp (PDEx) (2019) Philippine Dealing System Treasury Fixing (PDST-F) rates. Accessed on August 19, 2019. Available from: http://www.pds.com.ph
    [30] Renewable Energy Policy Network for the 21st Century (REN21) (2017) REN21 Renewables Global Status Report. Paris: REN21. Accessed on August 20, 2019. Available from: https://www.renewable-ei.org/en/activities/events/img/20171027/ChristineLins_20171027_EN.PDF
    [31] Ross S (1976) The arbitrage theory of capital asset pricing. J Econ Theory 13: 341-360. doi: 10.1016/0022-0531(76)90046-6
    [32] Saculsan PG, Mori A (2018) What can the Philippines learn from Thailand's ENCON fund in overcoming the barriers to developing renewable energy resources. J Clean Energy Technol (JOCET) 6: 278-283. doi: 10.18178/JOCET.2018.6.4.474
    [33] Sadorsky P (2012a) Correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies. Energy Econ 34: 248-255.
    [34] Sadorsky P (2012b) Modeling renewable energy company risk. Energy Policy 40: 39-48.
    [35] SEC (2019) LISTED COMPANIES UNDER PHILIPPINE STOCK EXCHANGE. As of May 31, 2019''. Available from: http://www.sec.gov.ph/wp-content/uploads/2019/06/2019_Listed-CosPSE.pdf
    [36] Sehgal S (1997) An empirical testing of three parameter capital asset pricing model in India. Financ India XI: 919-940.
    [37] Sharpe WF (1964) Capital asset prices: A theory of market equilibrium under conditions of risk. J Financ 19: 425-442.
    [38] S&P Global Clean Energy Index (S&P GCE) (2019) Accessed on August 22, 2019. Available from: https://us.spindices.com/indices/equity/sp-global-clean-energy-index
    [39] Treynor JL (1961) Market value, time and risk. SSRN.
  • Reader Comments
  • © 2020 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0)
通讯作者: 陈斌, bchen63@163.com
  • 1. 

    沈阳化工大学材料科学与工程学院 沈阳 110142

  1. 本站搜索
  2. 百度学术搜索
  3. 万方数据库搜索
  4. CNKI搜索
Green Finance
5.5 9.6

Metrics

Article views(15125) PDF downloads(619) Cited by(13)

Preview PDF
Download XML
Export Citation
Article outline

Figures and Tables

Tables(7)

Other Articles By Authors

Related pages

Tools

/

DownLoad:  Full-Size Img  PowerPoint
Return
Return

Catalog