*1.3. Hypotheses*

We formulate three hypotheses based on the previous literature on profitability determinants of renewable energy. Specifically, we are interested in how important the firm-specific and industry-specific determinants are in the case of the data of non-listed German RE producers, and which determinants explain the largest variance in the selected profitability ratios.

The previous literature across industries has suggested that firm determinants (such as the financials chosen for this analysis) explain more variance in profitability than industry determinants, but that industry determinants, especially industry growth and concentration, are also significant. Furthermore, according to more recent studies on the markets, where the FIT support has been applied, the FIT has shown to be significant in determining the profitability of renewable electricity generators.

Based on the review of literature on profitability determinants, the following hypotheses were formed:

**Hypothesis 1 (H1).** *The model with industry-specific determinants and the model with firmspecific determinants are both significant when a 5% significance level is adopted in the statistical testing.*

**Hypothesis 2 (H2).** *The explanatory power of the included firm-specific determinants is higher than that of the included industry-specific determinants.*

**Hypothesis 3 (H3).** *The average annual Feed in Tariff (FIT) has a significant positive effect on the RE companies' profitability.*
