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Fuel mix characteristics and expected stock returns of European power companies


  • Malte Sunderkötter

    () (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen)


This article investigates the impact of the fuel mix structure in power generation portfolios on expected stock returns for major European power companies. The 22 biggest publicly listed European power producers are examined between January 2005 and December 2010. Based on the capital asset pricing model (CAPM) and multi†factor market models, the systematic risk of the power companies relative to the overall market performance and other typical energy and macroeconomic risk factors is analyzed. The full†information approach is used to determine technology†specific betas and risk factor sensitivities from the sample. Although most companies are not exclusively in the power producing business, it is shown that the generation fuel mix has a significant impact on the historical stock returns of the investigated companies. In particular, the sample companies exhibit significant differences in the systematic risk of gas and nuclear generation technologies compared with renewable technologies measured by technology†specific, delevered beta factors. This study extends existing literature and contributes new insights in two ways: Firstly, this is to our knowledge the first empirical analysis comparing the financial risk of different electricity generation technologies. Secondly, the results provide practical benefit to determine adequate riskadjusted capital costs for typical generation technologies. Therewith, this study is relevant for evaluating all kinds of power plant investments.

Suggested Citation

  • Malte Sunderkötter, 2011. "Fuel mix characteristics and expected stock returns of European power companies," EWL Working Papers 11056, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Oct 2011.
  • Handle: RePEc:dui:wpaper:1106

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    References listed on IDEAS

    1. Gregor, ZOETTL, 2008. "On investment decisions in liberalized electricity markets : the impact of price caps at the spot market," Discussion Papers (ECON - Département des Sciences Economiques) 2008028, Université catholique de Louvain, Département des Sciences Economiques.
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    4. Henriques, Irene & Sadorsky, Perry, 2008. "Oil prices and the stock prices of alternative energy companies," Energy Economics, Elsevier, vol. 30(3), pages 998-1010, May.
    5. Leahy, John V & Whited, Toni M, 1996. "The Effect of Uncertainty on Investment: Some Stylized Facts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 64-83, February.
    6. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-1152, September.
    7. Oren, Shmuel S & Smith, Stephen S & Wilson, Robert B, 1985. "Capacity Pricing," Econometrica, Econometric Society, vol. 53(3), pages 545-566, May.
    8. Sadorsky, Perry, 2001. "Risk factors in stock returns of Canadian oil and gas companies," Energy Economics, Elsevier, vol. 23(1), pages 17-28, January.
    9. Bower, Dorothy H & Bower, Richard S & Logue, Dennis E, 1984. " Arbitrage Pricing Theory and Utility Stock Returns," Journal of Finance, American Finance Association, vol. 39(4), pages 1041-1054, September.
    10. Roques, Fabien A. & Newbery, David M. & Nuttall, William J., 2008. "Fuel mix diversification incentives in liberalized electricity markets: A Mean-Variance Portfolio theory approach," Energy Economics, Elsevier, vol. 30(4), pages 1831-1849, July.
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    More about this item


    power plant investments; asset pricing; fuel mix diversification;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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