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Electric Utility Mergers in the Presence of Distributed Renewable Energy

In: Handbook of Merger Control and Environmental Policy

Author

Listed:
  • Luis Gautier

    (Universidad de Málaga, Departamento de Teoría e Historia Econòmica)

  • Mahelet G. Fikru

    (Missouri University of Science and Technology)

Abstract

Firm consolidation through mergers and acquisitions could be a strategic option for the electricity industry which has recently witnessed several transformations such as renewable integration and regulatory changes. This study uses a Cournot oligopoly model to examine the profitability of electric utility mergers in the presence of distributed renewable energy sources. We introduce two sector specific parameters that influence merger profitability: the rate at which renewable energy raises the marginal grid integration cost and the extent to which renewable energy reduces pollution intensity. Our model predicts that an increase in the first parameter reduces the profitability of profitable mergers, while an increase in the latter increases the profitability of profitable mergers. We find that due to the strategic substitutability between renewable and non-renewable energy, an increase in energy produced from distributed sources reduces the profitability of profitable mergers and reduces losses from unprofitable mergers. Furthermore, we show that the variability in electricity produced from renewable sources induces utilities to produce more exacerbating the extent that extra renewable energy affects merger profitability. Results from the theoretical model are illustrated by simulating a hypothetical merger among investor owned utilities in the PJM market.

Suggested Citation

  • Luis Gautier & Mahelet G. Fikru, 2024. "Electric Utility Mergers in the Presence of Distributed Renewable Energy," Natural Resource Management and Policy, in: Handbook of Merger Control and Environmental Policy, chapter 0, pages 63-92, Springer.
    • Handle: RePEc:spr:nrmchp:978-3-031-63549-6_4
    DOI: 10.1007/978-3-031-63549-6_4
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    Cited by:

    1. is not listed on IDEAS
    2. Gautier, Luis, 2024. "The design of environmental policy for the olive oil sector in the presence of eco-friendly firms," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 95-117.
    3. Lin, Boqiang & Wang, Siquan, 2023. "The performance of specialized and oriented diversified firms: A comparative analysis from the targeted expansion of renewable energy business of listed companies," International Review of Financial Analysis, Elsevier, vol. 89(C).
    4. Daher, Wassim & Elnaboulsi, Jihad & Fikru, Mahelet G. & Gautier, Luis, 2025. "An analysis of mergers in the presence of uncertainty in renewable energy integration costs," Energy Economics, Elsevier, vol. 150(C).
    5. Natalia Wasilewska & Mirosław Wasilewski & Serhiy Zabolotnyy & Dmytro Osiichuk, 2022. "The Impact of M&As on the Competitive Positioning of European Energy Firms and Market Power Concentration on EU National Energy Markets," Energies, MDPI, vol. 15(23), pages 1-19, November.
    6. Chen, Shi & Zhao, Yonghong & Chang, Chuen-Ping & Lin, Jyh-Horng & Chang, Ching-Hui, 2024. "Vertical acquisition and carbon capture and storage choices under cap-and-trade regulation with sustainable finance," Energy Economics, Elsevier, vol. 139(C).
    7. Fikru, Mahelet G. & Azure, Jessica W.A., 2023. "Renewable energy technologies and carbon capture retrofits are strategic complements," Technological Forecasting and Social Change, Elsevier, vol. 196(C).
    8. Ibrahim Y. Tawbe & Jihad Elnaboulsi, 2024. "Maternal residential proximity to the most polluting facilities and birth weight in France," Working Papers 2024-15, CRESE.
    9. Mika Goto & Tadaaki Tomikawa & Toshiyuki Sueyoshi, 2024. "Efficiency and Mergers and Acquisitions of Electric Utility Companies," Energies, MDPI, vol. 17(8), pages 1-17, April.

    More about this item

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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