Renewable energy generation capacity following the Russian invasion of Ukraine, and the stock market performance of energy firms: evidence from southern European Union countries

Following the Russian invasion of Ukraine, European countries had to limit natural gas imports from Russia, rendering electricity generation from renewable sources even more important. In this paper, first we document the increase in investment in renewable energy generation capacity over the period from 2012 to 2022 in four southern European Union countries – Portugal, Italy, Greece and Spain – and then we investigate the association between generation capacity from renewable energy sources and the stock returns of energy firms in these countries and examine whether investments in renewable energy capacity generation have had any effect on the performance of these energy firms following Russia’s invasion of Ukraine. We report strong evidence that energy firms from countries with higher investments in renewable energy capacity exhibit statistically significant higher stock returns. Moreover, we find that the positive effect that a high percentage of energy generation capacity from renewable sources has on stock returns has become more pronounced after the invasion. The empirical findings suggest that country-wide investments and policies that accelerate the transition to renewable energy significantly contribute to the energy sector’s resilience against security-threatening geopolitical risks.