Finance for Renewable Energy: An Empirical Analysis of Developing and Transition Economies

Abstract

This paper examines the role of the financial sector in renewable energy (RE) development. Although RE can bring socio-economic and environmental benefits, its implementation faces a number of obstacles, especially in non-OECD countries. One of these obstacles is financing: underdeveloped financial sectors are unable to efficiently channel loans to RE producers. The influence of financial sector development on the use of renewable energy resources is conformed in panel data estimations on up to 119 non-OECD countries for 1980-2006. Financial intermediation, in particular commercial banking, has a significant positive effect on the amount of RE produced, and the impact is especially large when we consider non-hydropower RE such as wind, solar, geothermal, and biomass. There is also evidence that the adoption of the Kyoto Protocol has had a significant positive impact on the development of the RE sector.

Keywords: renewable energy, financial sector, banking, development

JEL Classification: O13, O16