The Evolution of Technology Portfolios and Firm Profitability in the European Power Sector

Power firms' generation portfolios are long-lived and change slowly. We study how this inertia shapes profitability as market conditions shift. Linking plant-level data to financial accounts for over 1,300 EU power firms over 2002-2023, we find renewable- and fossil-oriented firms earned similar returns until 2018. Thereafter, renewable-oriented firms earned about 3.2 percentage points higher return on assets. Exposure to rising carbon and gas prices accounts for roughly 60% of this divergence. Durable portfolios thus turn market shifts into sustained profit differences.