Target Leverage and Cost of Capital in the Electricity Sector: Implications for Valuation and Public Policy
研究了影响电力公司目标资本结构的因素，提出了一套估算和应用目标杠杆的流程，对监管资本成本计算和企业估值有实际指导意义。
This paper examines the factors that influence the target capital structure of electricity firms and proposes a protocol for estimating and applying target leverage in the sector. The target capital structure is crucial to the weighted average cost of capital (WACC), which impacts firm valuation, capital budgeting, and regulatory policies, thereby balancing investor returns with consumer tariffs. While prior energy finance literature has focused on the cost of equity, capital structure has often been overlooked. I aim to address this gap by introducing a protocol for estimating target leverage, relevant for calculating regulatory WACC and firm-level valuations. Although my focus is on the Brazilian electricity market, the methodology can be applied internationally. I find that electricity firms tend to align their leverage with a target level, and I discuss the implications of my protocol for regulatory WACC and corporate valuation.