Statistical Analysis and CAPM Model for Investments in Georgia’s Energy Sector

Abstract

Various types of recent research point out the fact that Georgia’s energy sector (the  hydro energy one, in particular) is one of the most attractive ones when it comes to investment opportunities. Hydro power remains the cheapest and the most “eco-friendly” source of power for Georgia. An essential part of Georgia’s hydro energy potential is still untapped (in fact, the current electricity generation represents just about 40% of Georgia’s estimated annual hydropower output potential). At the same time, it is worth mentioning that for the last 6 years, generation capacities are falling short of growing consumption and this fact increases the attractiveness of investing in this sector. Currently, more than 20 hydro power plants are under construction/reconstruction or
licensing stage and, in addition to this, the Ministry of Energy of Georgia has more than 60 HPP projects available for investment. For every potential investor, it is of vital importance to have a general knowledge about what to expect from the desired sector, what are the risks that could hurt the success of the investment and if the expected rate of return equals or exceeds his or her required rate of return. This article, based on various official data, offers introductory issues of investment analysis of small hydro power  plants in Georgia and based on well known methods of Modern Portfolio Theory offers the suitable model for investments evaluation and analysis in Georgia’s Energy sector.
Keywords: CAPM, energy sector, investment, statistics
JEL: C13