Solar photovoltaic investments and economic growth in EU: Are we able to evaluate the nexus?

Abstract

A core question in energy economics may be stated as follows: Is the cost–benefit analysis being correctly applied when we encourage investments in renewables, as an alternative to the traditional energy sources? The relationship between energy consumption and economic growth has been extensively treated within economics literature. Yet, literature on the nexus between specific energy sources and GDP is almost inexistent. In this article, we intend to explore the relationship between a certain type of renewable generation technology (solar PV) and GDP. The present and above all the planned energy mix might differ widely from one country to another. Thus, the analysis by source of energy generation becomes a helpful instrument for policy-making. Using a fixed effects panel data methodology and a sample of eighteen EU countries, we find that a 1 % increase in solar PV installed capacity and in electricity production from renewable sources has a positive impact on GDP of 0.0248 and 0.0061 %, respectively. We also conclude that a 1 % growth on greenhouse gas emissions positively affects GDP by 0.3106 %. Further evidence reveals that, in terms of country-specific analysis, Germany, France, Italy and the UK have the most significant estimations for fixed effects. In fact, Germany is a solar PV technology producer, France has a very active nuclear sector, with little pressure for both renewables development and CO2 reductions, Italy had in this period a strong governmental support to this sector, and the UK has a strong connection between the solar PV and the industry sectors.