The Impact of Liberalization and Environmental Policy on the Financial Returns of European Energy Utilities

Daniel J. Tulloch, Ivan Diaz-Rainey and I. M. Premachandra

The Energy Journal, 2017, vol. 38, issue 2, 77-106

Abstract: European energy utilities face a range of policy induced challenges that are materially affecting their financial returns. Accordingly, in this paper we examine the impact of liberalization, energy efficiency, renewable energy, and security of supply legislation on European energy utilities’ returns between 1996 and 2013. We implement an event study portfolio analysis using a comprehensive list of major regulatory changes, the largest utility sample to date, and a novel asset pricing model that controls for sector-level stock-market, term premium, and commodity risk factors. The results show EU policies that focus on liberalization and energy efficiency have a significant negative impact on the energy sector’s financial returns. This reflects changes in the fundamental risk-reward trade-off of European energy utilities and investors’ recognition of the economic impact of EU legislations on the sector. Contrary to assertions by the financial press, renewable energy objectives have no significant impact on returns at sector-level; the impact is mostly concentrated on the natural gas utilities. Our results highlight a tension between liberalization and environmental objectives, negatively impacting the sector’s ability to raise the estimated $2.2 trillion investment capital needed to ensure reliable and increasingly environmentally-friendly energy supply.

Keywords: Liberalization; Environmental Policy; Financial Risk; Financial; Return (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://journals.sagepub.com/doi/10.5547/01956574.38.2.dtul (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:38:y:2017:i:2:p:77-106

DOI: 10.5547/01956574.38.2.dtul

Access Statistics for this article

More articles in The Energy Journal
Bibliographic data for series maintained by SAGE Publications ().