ABSTRACT
By means of the event study approach, we analyse the effect of COVID-19 on listed European renewable and traditional electricity companies, inside and outside the European Union, for the pandemic announcement and lockdowns. We find that the pandemic negatively affected both subsectors of electricity production, but the negative effect was more intense for renewable electricity companies, since they represent a riskier investment. Moreover, this negative effect was larger for European electricity companies than for companies from countries that do not belong to the European Union. Our results show the riskier profile of the clean energy industry together with the importance of a stable and supportive regulatory framework to develop and consolidate renewable energy. Our findings have important implications for policymakers. In addition to the intrinsic risks associated with renewable energy, this type of investment poses policy and regulatory risks, which they should take into account when evaluating future energy policies. Policymakers must be aware of the importance of these specific risks, and seek to respond to investors' expectations about long-term, stable regulations.
Subject(s)
COVID-19 , Humans , European Union , COVID-19/epidemiology , Communicable Disease Control , Renewable Energy , ElectricityABSTRACT
Purpose>The authors analyze the impact of COVID-19 on listed European electricity companies and differentiate between renewable and traditional electricity, to show the heterogenous characteristics of electricity subsectors and the differences between renewable and traditional electricity.Design/methodology/approach>Using the event study method, the authors calculate the cumulative average abnormal returns (ARs) before and after the World Health Organization pandemic announcement and the declaration of national lockdowns in Europe.Findings>The results show that while the European electricity sector was overall negatively impacted by the COVID-19 announcement, this impact was larger for renewable companies due to their riskier investment profile. Moreover, after the national lockdowns came into effect, the recovery in the financial markets return was smaller for the latter.Research limitations/implications>There may be variables to be included in the model to analyze possible differences between companies and countries, as well as alternative econometric models. Limited to the data, the authors did not investigate the different impact of the economic policy uncertainty from various countries inside or outside the EU.Practical implications>The results have important implications for both investors and policymakers since the heterogenous characteristics of electricity subsectors. This heterogeneity prompts different investor reactions, which are necessary to know and to understand.Originality/value>As far as the authors know, this is the first study that analyses the effect of COVID-19 in heterogeneity profile of both types of electricity, renewable and traditional.