To understand the investment in renewable energy in all its breadth is necessary to clear the basis of financial leverage. This will take us several chapters.
Following the philosophy of the Blog, will try to explain in a simple and understandable, giving very general examples and avoiding jargon.
Leverage means the effect on the profitability of a company through its use of debt in its financing structure. Of course, only makes sense if the ROI can cover at least the cost of debt (financial leverage positive).
Suppose we have a fully paid house that offers an 8% rental return, and another 8% by the revaluation of the market. The investment in this house shows a 16% total return. Now imagine that we can mortgage the house to an interest rate of 5% and reinvest that money in a business that offers a 10%. Since the profitability is higher than the cost of debt, could have found that our housing rents to 21%, increasing wealth and return on equity.
What risks? By increasing the financial burden increased the uncertainty since we must be able to cope with debt.
In the case of renewable energy investments are very low risks to be regulated because the sale of electricity, the business generates a guaranteed return and predictable, so it is advisable to study carefully before providing funding equity, since the investment generates enough to assume the debt.
