Determinants of renewable electricity development in Europe: Do Governance indicators and institutional quality matter?

Abstract

To reduce the flow of greenhouse gas emissions in the twenty-first century in Europe, there is a need to promote renewable electricity development. It is to this end that we contribute to the literature by investigating the determinants of renewable electricity development for a panel of 35 countries in Europe over the period 2000–2018. The determinants were sub-divided into macroeconomic, socio-economic, governance indicators and institutional quality factors, which previous studies had failed to consider. We sub-divided the determinants because studies have shown that the renewable energy sector operates within the environment of these determinants. Therefore, investigating the role that they play in the process of renewable electricity development in Europe provides insight to area policies that need to be strengthened. A battery of econometric techniques was employed to achieve the objective of this study. The cointegration results suggest that there is a long run equilibrium relationship between renewable electricity development and its determinants. The main findings from the results of fully modified ordinary least squares and dynamic ordinary least squares reveal that the long-run coefficients of control of corruption, the rule of law, voice and accountability and institutional quality have a statistically significant and positive impact on renewable electricity development. A majority of the determinants have a bidirectional causal relationship with renewable electricity development (except for real gross domestic product per capita, land, gross fixed capital formation, foreign direct investment and voice and accountability, that differ. This implies a dependence between most of the determinants and renewable electricity development. The system-generalized method of moments results show that government effectiveness, regulatory quality, the rule of law and institutional quality do not have a statistically significant or positive/negative impact on renewable electricity development, while the impact of other determinants differ. Policy implications are discussed in the conclusion section of the study.