The profitability of electricity generating firms and policies promoting renewable energy

- Feed-in-Tariffs and Green Certificates are common policies to promote green energy.
- The main hypothesis is that Green Certificates are associated with excess profits.
- The effects of renewable energy policies on firm profitability are analysed.
- The results support the main hypothesis of this study.

Using a cross-country firm-level dataset this study empirically analyses how the implemented renewable electricity promotion systems - Tradable Green Certificates vs. Feed-in-Tariffs - affected the profitability of the electricity production sector in Europe during the 2002-2010 period. In particular, it tests the hypothesis that due to market imperfections, namely because of higher investment risk, higher capital constraints and higher transaction costs, TGC schemes will be associated with excess profits for renewable electricity generating firms. The results somewhat support this hypothesis, showing that electricity generating firms, operating in EU countries that implemented TGC, were more profitable compared to FIT firms.