Energy substitution in Africa: Cross-regional differentiation effects

Abstract

Although Africa has immense non-renewable energy resources and an unexplored renewable energy potential, this region is relatively less studied with regard to energy substitution. Using a non-linear modeling through the PSTR technique in 43 countries during the period 2005–2021, this paper fills the existing gap, and also includes human capital and institutional factors to capture the characteristics of populations and governance in succeeding to energy substitution. The results support the existence of one transition or two regimes. The findings show that energy substitution is effective when economic growth reaches the optimal threshold of 7.23%. Only beyond this threshold, institutional quality and human capital facilitate transitioning towards green energy respectively by 0.414% and 0.524%. These results are unchanged regardless of the institutional quality or financial development indicators used. However, cross-regional differentiation effects are underlined between Eastern, Middle, and Western Africa on the one hand, and Northern and Southern Africa on the other. The first three regions show similar path, and improving the corruption perceptions index or anti-corruption measures are inefficient in the low-growth regime. In Northern and Southern Africa, human capital, once the full potential is reached in the third regime, becomes ineffective.