Effect of Renewable Energy Consumption on Economic Growth in Kenya

Abstract

One of the significant economic growth problems in Kenya is the income inequality and poverty rate which has made it impossible for among the households to afford clean energy. While the country has experienced some economic growth over the years, it is not yet clear whether the adoption of renewable energy has been the cause of this growth. There have been mixed results on the studies done on renewable energy use and their effect on economic growth and therefore calls for further research. The general objective of the study was to determine the effect of renewable energy consumption on economic growth in the Kenyan economy. Specifically, the study specific objectives were to determine the effect of solar energy consumption, geothermal energy consumption, and hydroelectric energy consumption and wind power energy consumption on economic growth in Kenya. This was made possible through an analysis of 37 years’ data from 1986 to 2022 on an annual time series basis. This study employed the endogenous growth theory as the main theory of the study and triple bottom line theory as the supplementary theory. The study employed an explanatory research design and analyzed data using the Autoregressive Distributed Lag model to establish whether renewable energy consumption had any effect on economic growth of the Kenyan economy. Findings of diagnostic test demonstrated that there was no multicollinearity among the independent variables, residuals were homoscedastic, and there was no autocorrelation among the residuals. The results of the Jarque bera normality test showed that the study's variables were normally distributed. The Augmented dickey fuller unit root test both showed that there was no unit root and that the variables had a short run relationship. Additionally, the model's stability over time was confirmed by the CUSUM test. Findings of the study were: the relationship between hydroelectric energy consumption and economic growth was positive and significant, wind power energy consumption and economic growth was positive and significant and between geo-thermal energy consumption and economic growth was positive and significant. The study concluded that geo-thermal energy consumption, hydroelectric energy consumption and wind power energy consumption significantly affect economic growth positively. The study therefore recommends that the Kenyan government should set ambitious targets for renewable energy consumption such as a specific percentage of electricity generation or overall energy consumption. The Kenyan government should enhance and enforce regulatory frameworks specific to renewable energy in order to provide a stable and predictable investment environment. Finally, the Kenyan government should focus on expanding access to renewable energy solutions in rural areas, where energy access is limited. Implementing off-grid renewable energy systems, such as solar home systems and mini-grids, can provide clean and reliable electricity to rural communities.