Abstract/Summary

Being the largest emitter of greenhouse gas, the electric utility industry plays a key role in the energy structure transition. However, the substantial investment required for the transition poses a huge financial challenge for them. This thesis aims to investigate the specific impact of energy structure transition on the electric utility industry and seeks to provide valuable implications. The first study examines the impact of energy structure transition on the electric utilities’ capital structure. It reveals that the inclusion of energy variables improves the average leverage prediction accuracy by 12%. Notably, wind (solar) energy negatively (positively) contributes to firms’ gearing. Next, firms’ leverage adjustment speed is in line with the dynamic trade-off theory and adjusts quickly, with a half-life of 0.67 years for book leverage. Therefore, electric utilities can use more loans for solar projects and internal accruals or alternative financing for wind projects. Effective policies should be implemented to encourage the development of green credit and bonds. The second study investigates whether energy structure transition affects electric utilities’ risk exposure. The results manifest that including the energy variables significantly improves the classification accuracy of systematic, idiosyncratic, and total risks. Both wind and solar energy show negative correlation with systematic risk. Meanwhile, wind (solar) energy is negatively (positively) correlated with idiosyncratic and total risks. Given the different impacts of wind and solar energy on systematic and idiosyncratic risks, a sophisticated allocation between them should be designed to minimise total risk. Further, electric utilities should diversify financing sources beyond equity for higher-risk solar projects. The third study proposes a new business model for electric supply utilities for utilising energy storage. The findings confirm that renting cloud energy storage can significantly reduce costs and maximise profits for electricity supply utilities. The biggest saving reaches 24.5%. With the rapid fall in battery prices, the proposed strategy will be more advantageous.