Determining If Oil Prices Significantly Affect Renewable Energy Investment in African Countries with Energy Security Concerns

Ishaya Tambari,Pierre Failler

doi:10.3390/en13246740

Abstract

As concerns regarding the adverse impacts of energy production and consumption on the environment grow, countries across the world are now charged with developing effective strategies that provide energy security and protect the environment. This means that efforts to generate significant investments and business opportunities to boost the growth of renewable energy need to increase rapidly. However, there are limited studies on what will facilitate the increase of renewable energy investment in Africa. The main factor considered in this study relates to the sensitivity to changes in oil prices, gross domestic product (GDP), interest rate and oil price volatility’s impact on the renewable energy investment (REI) in countries with energy security concerns and if there is any significant influence from oil price shocks. With the help of an unrestricted vector retrogressive model and an annual panel data approach that covers the period 1990–2018, this paper examines the link between renewable energy investment and three macroeconomic variables: oil prices, GDP growth-adjusted interest rates and oil price volatility. The results indicate that REI exhibited immediate positive responses to oil shocks. However, renewable energy investment continued to fluctuate negatively in response to GDP. The results also show that the REI responded positively to interest rates in Africa and it exhibited immediate negative responses to oil price volatility but became positive after the second period.

Highlights

IntroductionThe region is energy self-sufficient and a net exporter of crude oil, natural gas and coal
Africa has an abundance of energy resources
The variance decomposition, in the long run, shows that Renewable Energy Investment (REI) is strongly influenced by itself and oil price volatility. This shows that the influence of other variables such as oil price, gross domestic product (GDP) and interest rate in the model are not significant in African countries

Summary

Introduction

The region is energy self-sufficient and a net exporter of crude oil, natural gas and coal. Angola and Algeria lead the region in oil reserves and production with over 60% of the continent’s oil production in 2017 (International Energy Agency, 2019). Nigeria, Egypt and Ethiopia are among the region’s leaders in natural gas reserves and production, while South Africa is the fourth-largest coal exporter in the world, producing 92.5% of African coal in 2017 (International Energy Agency, 2019). Much of Africa still depends on fossil fuels and renewable energy sources in the form of rich sunshine for solar power, water and river bodies for hydropower, and there is potential for wind energy which is yet to be tapped [1,2]. Renewable energy technologies (RETs) have been identified as one of the best technologies to decarbonise the global electricity supply system [6,7,8,9]

Objectives

Methods

Results

Conclusion