The Political Economy of Energy Financialization: Transferring Risk and Expanding the Financial Power of Energy Companies

Leonie Fernholz

Energy is not only the backbone of developed economies, but also one of the key solutions for the global North to tackle the climate crisis. European energy market liberalization set important parameters for the energy transition and subsequent policies created a financial market environment, which allowed energy companies to not only manage credit risk and price risk more easily, but also to transfer these risks, or the costs of hedging these risks, to other market participants. This transfer of risks to other market participants has also resulted in energy companies, as non-financial companies, enjoying more financial power, thus having more room to maneuver on financial markets. This dissertation will study the financial transformation of energy companies in Europe by measuring leverage power of energy companies and by closely describing their preferences for policies which enabled energy companies to (a) transfer credit risk with close-out netting, (b) transfer the costs of hedging price risks with capacity markets, and (c) transfer price risks to consumers with dynamic tariffs.