Renewable energy growth and the financial performance of electric utilities: A panel data study

Abstract

Electric utilities are under pressure to increase clean energy production. Although the adoption of renewable energy can improve the utilities' environmental performance, a fundamental question is if it also pays in economic terms. Building on the natural-resource-based view of the firm, we answer this question using two data analysis methods. First, we carry out a regression analysis of panel data from 66 large electric utilities covering the period 2005-2014, applying both a fixed and random effects estimator. Subsequently, we use the Granger causality test to explore possible causality links. Our results show a negative correlation at the firm level between renewable energy increase and short-term as well as long-term financial performance. More specifically, we find that an increase in renewable energy penetration Granger-causes a reduction of long-term performance. However, the results also show that a firm's carbon intensity moderates the relationship. When the focus is on the country level, we find that an increase in renewable power penetration is also negatively correlated to long-term firm performance, which might be explained by the combined effect of low power demand and overcapacity in developed economies. We conclude that the concept of organizational ambidexterity may supplement the natural-resource-based view of the firm for a better understanding of the relationship between an increase in renewable power and a firm's profitability.

Renewable Energy in the Electricity Sector and GDP per Capita in the European Union

“…A consistent increase in the GDP per capita is necessary to extend the share of renewable energy in electricity [42]. Economic development level of a country has its impact on RES as it allows generating more financial resources to promote renewables as well advanced economies have better developed mature energy markets, better institutional indicators, industrial know-hows, community policies, technological development level, and citizens' openness to business having also positive impact on RES penetration [12,15].…”

“…RES development does not compromise economic growth or employment [12], moreover, it may bring some additional financial advantages [15]. The literature reports that there are business models that depend on the category of resources and various characteristics of industrialized and developing economies [16][17][18].…”

Future Trajectories of Renewable Energy Consumption in the European Union

“…RES expansion can be achieved without compromising growth or employment [8] and several financial advantages are linked to their use [9]. Business models reported in the literature depend basically on two aspects: (i) the type of the analysed resource, and (ii) the different characteristics of developing and industrialized countries [10].…”

Understanding the scaling-up of community energy niches through strategic niche management theory: Insights from Finland

“…However, this research remains unclear on how a very diverse and relatively small sector such as community energy could scale up and promote a change in the dominant way of energy production. This is an important question because incumbent energy producers oppose a deeper penetration of renewable energy (Geels, 2014;Ruggiero et al, 2015) due to its negative implications for the profitability of conventional power plants (Ruggiero and Lehkonen, 2017).…”