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Investments and calculations to support decision making within a business is discussed in chapter 15. The chapter analysing investment appraisal considers techniques such as Net Present Value (NPV) and Internal Rate of Return (IRR); however, within the chapter it is highlighted that creating spreadsheets to scrutinise future investments, in practice, is more difficult than it first seems. The difficulties rest with the complication of uncertainties, including unknown regulation changes and social norms.

 

Within the energy sector there has been a long debate over the types of fuels that should be invested in and the basis of these arguments rest with environmental concerns. In the vast majority of countries renewable assets are considered the future of the industry; renewables such as solar, wind and hydro. Despite the social acceptance that renewables are ideologically the right thing to invest in, the growth in this area is still not as fast as most environmentalists would like. Other fuel types such as coal, oil and gas still remain a significant percentage of most countries portfolios.

In an article by Gore & Blood (2014), in the Financial Times, they argue that now there is a stronger case for divesting assets relating to coal. They argue that the long term risks for now owning coal, due to the increasing carbon costs through regulation, are too great to reward. One of the biggest concerns relates to the unknown future government policies on how they will reduce carbon emission, most countries are using some kind of market mechanism to charge for carbon emissions, although this is in varied formats across the globe. So the big question now is how quickly can government support enough renewables’ for coal not to be required?

Gore, A. & Blood, D. (2014) Strong case for coal divestment. Financial Times 6th August 2014.