The Profitability of Power Generating Firms and Policies Promoting Renewable Energy

With policies to promote power generation from renewable energy sources (RES) becoming important part of climate and energy policy worldwide, there is now considerable interest in understanding how these different market-based mechanisms affect power generating firms in practice. The existing theory provides conflicting guidance regarding profitability of Tradable Green Certificates (TGC) over Feed-in-Tariff (FIT) based policies. Thus, the main goal of this study is to empirically assess the performance of power generating firms operating in the TGC scheme environment relative to the performance of power generating firms operating under alternatives RES support mechanisms. The main finding of this study is that, in Europe, TGC schemes are associated with higher returns for power generating firms. This supports the hypothesis that higher investment uncertainty induced by the TGC policy nature coupled with some market imperfections lead to higher profits for electricity producers operating in TGC schemes.