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The Shifting Finance of Electricity Generation

Author

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  • Andonov, Aleksandar
  • Rauh, Joshua

Abstract

Despite the incentives of incumbent domestic listed corporations (DLCs) in the electricity generation industry, private equity, institutional investors, and foreign corporations have played an outsized role in financing the energy transition. These new entrants are twice as likely to create power plants as incumbents. They owned 58% of wind, 47% of solar, and 34% of natural gas electricity production as of 2020. The ownership changes are concentrated in deregulated wholesale markets which attract more capital from new entrants to create renewable and natural gas plants, acquire existing plants, and accelerate the decommissioning of coal plants. Sales of fossil fuel plants from DLCs to foreign corporations result in some leakage, but private equity has similar decommissioning rates to incumbents. The new ownership types create more efficient power plants with a lower heat rate and improve the efficiency of acquired plants. Our results also highlight an important tradeoff in bringing new financing sources to the electricity sector. When selling electricity, private equity and foreign corporations use contracts with shorter duration, shorter increment pricing, and more peak-period sales, and obtain a $2.59 higher average price per MWh.

Suggested Citation

  • Andonov, Aleksandar & Rauh, Joshua, 2024. "The Shifting Finance of Electricity Generation," CEPR Discussion Papers 19289, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:19289
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    More about this item

    Keywords

    Innovation; Regulation; Energy; Ownership structure; Private equity; Electricity market; Utilities;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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