Emergence of electricity utilities: agglomeration externalities and industry dynamics

Prior studies highlight a trade-off between Marshallian and Jacobean agglomeration externalities in fostering new firms, yet their interaction and evolution alongside industry dynamics are less understood. Moreover, the emergence of firms within the electricity utility sector, particularly green electricity utilities, has received limited scholarly attention. This study examines the emergence of green electricity utilities from 1985 to the present, analyzing 962 regions across 14 European countries. Findings show that both Marshallian and Jacobean externalities independently had a positive impact on firm entry in the early stages, though their influence declined over time. For Marshallian externalities, this decline may reflect the emergence of firms with increasingly distinct knowledge bases, reducing the benefits from co-location. For Jacobean externalities, early advantages likely reflect a temporary window of location opportunity during early liberalization, which diminished as the sector matured and innovation shifted downstream. Notably, the interaction between Marshallian and Jacobean externalities had a strongly negative impact on firm entry during early liberalization, likely due to a lack of strategic focus and institutional support in highly diversified regions. This negative interaction also declined over time. Despite these diminishing effects, a concentrated specialization strategy—anchored in industry-specific policies, institutions, and supply networks—continues to offer competitive advantages during the sustainability transition. The study also highlights the importance of public legitimacy for environmental policies in reinforcing green sector regimes, while noting that such support may pose initial barriers to entry. Finally, the observed negative effect of relatedness in reinforcing green sector regimes suggests that the related-diversification mechanism emphasized in Smart Specialization may face important scope conditions in this sector.