Abstract
The fight against a climate crisis has urged nations and the global community to cut emissions and to define ambitious environmental goals. This has highlighted the importance of the renewable energy (RE) industry. Germany has been one of the most active countries in RE adoption. In this vein, the purpose of this research is to study and identify key profitability determinants of unlisted German electricity-producing RE-companies, many of which have been supported by the German Feed-in Tariff (FIT). A multi-year analysis based on panel data from 783 companies for the years 2010–2018 is used. The results show that both company- and industry-specific profitability determinants are statistically significant, but the company-specific determinants seem to be more important. The results shed new light on what drives the profitability of private German RE companies during the period of financial aid from the government and are of use to managers, regulators and investors alike, e.g., when the effects of different regulatory climates and industry environments, as well as states of business life cycle are considered. Furthermore, the implications of this study have wider environmental and economic importance as the performance of the RE companies is critical in achieving the emission targets of the energy industry and ensuring a more sustainable energy production for the future.
Highlights
After 2010, the fight against the climate crisis intensified and supranational bodies started to act
The company determinants appear significant mostly when profitability is measured with Return on Assets (ROA) and Return on Capital Employed (ROCE)
Company size in sales (LOG_Sales) is statistically significant and positive in three out of six of the tests, with a larger effect on profitability when measured with ROA and ROCE (3.890, 8.081, 6.959) but the effect is non-significant on Return on Equity (ROE)
Summary
After 2010, the fight against the climate crisis intensified and supranational bodies started to act. In addition to understanding the profitability issues better, we wish to know what effect the German RE support mechanism, the Feed-in Tariffs, has had on company profitability. Understanding these issues is important because of the role of the energy industry in reaching the ambitious goals of carbon neutrality in Germany (see Figure 1). Germany has set a goal to increase the share of renewables in gross power consumption to 65% by 2030, and that by 2050 all electricity generated or consumed in Germany be greenhouse-gas neutral. In 2020, the largest share of renewable electricity generation in Germany was by wind onshore power (42%), followed by solar (20%), and biomass (7%) [11]
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