*1.1. Background*

This research is motivated by the lack of existing studies that focus on the profitability and the determinants of profitability of unlisted German electricity-producing RE companies. Thus, there is a research gap that the results of this research fill. In addition to understanding the profitability issues better, we wish to know what effect the German RE support mechanism, the Feed-in Tariffs, has had on company profitability. Understanding these issues is important because of the role of the energy industry in reaching the ambitious goals of carbon neutrality in Germany (see Figure 1).

**Figure 1.** CO<sup>2</sup> emissions in Germany in millions of tons of CO<sup>2</sup> equivalents. (\* Industry: Energy and process-related emissions from industry (1.A.2 & 2); Other emissions: Other combustion (rest of CRF 1.A.4, 1.A.5 military) & fugitive emissions from fuels (1.B) \*\* PYE: Previous Year-Estimate for 2020; \*\*\* Targets 2030 and 2045: according to the revision of the Federal Climate Protection Act (KSG) as of 12 May 2021) according to [6,7].

Renewable, green, or alternative energy all describe energy either in the form of heat, electricity, or fuel that is derived from constantly renewing natural sources and processes. The sources usually prescribed as renewables are solar, wind, geothermal, marine, hydro, and bioenergy. According to the European Commission (2021), in 2020, Germany's share of renewables in the gross final energy consumption was 18.6% and 45.4% in the gross power consumption. Germany has set a goal to increase the share of renewables in gross power consumption to 65% by 2030, and that by 2050 all electricity generated or consumed in Germany be greenhouse-gas neutral. (see, e.g., [8–10]). In 2020, the largest share of renewable electricity generation in Germany was by wind onshore power (42%), followed by solar (20%), and biomass (7%) [11].

Germany has been a renewable energy policy pioneer with its energy transition "Energiewende" that started as opposition to nuclear energy in the late 1970s. The longterm energy transition has included a reorientation of energy policy from the traditional fossil energy forms towards renewable energies along with the nuclear energy phase-out into concrete actions. By 2022, the last nuclear facility is set to shut down and the latest Coal Phase-Out Act mandates a gradual phase-out of coal-burning leading to all coal plants having to cease operations by 2038 [12,13].

In 1991, the Electricity Feed-in Law (EFL) was introduced in Germany. Its objective was to make sure that electricity produced from renewable energy sources had access to the grid. The electricity from renewable energy power plants was paid a premium price (Feed-in Tariff, FIT), a cost that was borne by the electricity supply utilities and their customers. As the support was highest for wind and solar plants, the law contributed to the expansion of renewable energy production, especially in the form of wind farms. [14]

According to IAE [15], the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, EEG) replaced the EFL in 2000 and obligates grid operators, instead of the suppliers, to buy renewable energy and to effectively pay the FIT. The tariffs were determined for each sector separately and according to the actual production costs, and upon initialization, the main target was to double the share of renewable electricity by 2010 [15]. The plants initially eligible for the FIT remuneration will soon face the end of the support period as Germany is shifting out from the FIT system. As of 2021, there is also a discussion about completely ending the renewables levy (EEG surcharge) that has been paid by electricity consumers. Possible discontinuation of the renewables levy may be offset by an increase in the price of CO<sup>2</sup> emissions, a part of the EU Emissions Trading System, and Germany's own national emissions trading [16,17].

The 2017 amendment to the EEG introduced public tenders, the goal of which is to aid the shift from FIT to a market-oriented price mechanism. From 2017 onwards, on-shore and offshore wind, solar and biomass projects have had to bid a price in an auction to ensure contracts for 20 years [8].
