Electric utility mergers in the presence of distributed renewable energy

Mahelet Fikru () and Luis Gautier

Energy Economics, 2021, vol. 101, issue C

Abstract: Firm consolidation through mergers and acquisitions could be a strategic option for the electricity industry which has recently witnessed several transformations such as renewable integration and regulatory changes. This study uses a Cournot oligopoly model to examine the profitability of electric utility mergers in the presence of distributed renewable energy sources. We introduce two sector specific parameters that influence merger profitability: the rate at which renewable energy raises the marginal grid integration cost and the extent to which renewable energy reduces pollution intensity. Our model predicts that an increase in the first parameter reduces the profitability of profitable mergers while an increase in the latter increases the profitability of profitable mergers. We find that due to the strategic substitutability between renewable and non-renewable energy, an increase in energy produced from distributed sources reduces the profitability of profitable mergers and reduces losses from unprofitable mergers. Furthermore, we show that the variability in electricity produced from renewable sources induces utilities to produce more exacerbating the extent that extra renewable energy affects merger profitability. Results from the theoretical model are illustrated by simulating a hypothetical merger among investor-owned utilities in the PJM market.

Keywords: Mergers and acquisitions; Renewable energy; Grid integration; Emission tax; Pollution intensity (search for similar items in EconPapers)
JEL-codes: G34 Q5 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Chapter: Electric Utility Mergers in the Presence of Distributed Renewable Energy (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:101:y:2021:i:c:s0140988321003285

DOI: 10.1016/j.eneco.2021.105436

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