Discounting and the Green Transition: District Heating in Denmark

Mark R. Freeman*, Frikk Nesje, Daniel Møller Sneum, Emilie Rosenlund Soysal

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingReport chapterResearch

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Abstract

Taking Aalborg as the basis for a case study, we consider the discount rates, annuity rates and costs of capital that were used in recent socio-economic and financial Net Present Value (NPV) analyses of a proposed geothermal district heating plant. While the core NPV analysis applied a real social discount rate of 4 percent, in keeping with Danish government guidance, emissions and electricity prices were based on costs of capital that differed from this rate, as did the annuity rate applied in the financial analysis of the project. While the different rates are carefully justified in each setting, we question whether there is consistency in the approach taken to intergenerational welfare across different steps of the analysis. The use of high corporate rates in some contexts potentially makes it more difficult for Green Transition projects to meet the legal requirement of being evaluated as socio-economically optimal.

Original languageEnglish
Title of host publicationEnergy Regulation in the Green Transition
Volume1
Publication date2021
Pages98-112
Publication statusPublished - 2021

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