The impact of EU ETS on the value of power plantscost pass-through rate, cost of capital

Abstract

The aim of the article was to identify and analyze the most important, in opinion of the author, aspects of the impact of the EU ETS on power plants value. Literature was researched to identify factors determining the ability to shift costs of CO2. Theoretical and methodical considerations on the essence of so-called carbon risk and its impact on the cost of capital were carried out. Particularly important are critical analysis of currently available methods to estimate the impact of the EU ETS and observation that the carbon cost pass-through could increase inflation and the risk premium. Overall that could have adverse impact on a value of power plant as well as on the health of entire economy of the country. The conclusions of this study are important for the power station valuation process and therefore they are important for all stakeholders.