An Analysis of Mergers in the Presence of Uncertainty in Renewable Energy Integration Costs

Wassim Daher (), Jihad Elnaboulsi (), Mahelet Fikru () and Luis Gautier ()
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Wassim Daher: GUST - Gulf University for Science and Technology
Jihad Elnaboulsi: CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]
Luis Gautier: Universidad de Málaga [Málaga] = University of Málaga [Málaga]

Working Papers from HAL

Abstract: We study the incentives to merge for energy producers in the presence of distributed renewable energy producers. Utilizing a Cournot model, we explore how uncertainty surrounding the cost of grid integration influences the profitability of mergers, where uncertainty comes in the form of an industry-wide shock (or common) and firm-specific errors (private shock). We find that the effect of these uncertainties on merger profitability depends on average energy grid integration costs, the size of the merger, and quality of private information. Overall, results suggest that mergers are more likely to be profitable when firms can effectively absorb private shocks due to the scale of the merger, unless average grid integration costs become too high. The incentives to merge are less clear-cut in the presence of an industry-wide shock, unless the quality of private information is high enough.

Date: 2024-08-28
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Working Paper: An Analysis of Mergers in the Presence of Uncertainty in Renewable Energy Integration Costs (2024)
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