Winner or loser? The bidirectional impact between geopolitical risk and energy transition from the renewable energy perspective

Abstract

Increasingly complex global geopolitical situations are causing severe impacts on energy markets and making renewable energy (RE) the best energy option. Against fierce geopolitical conflicts, this investigation attempts to probe the bidirectional impact between geopolitical risk (GPR) and RE. By applying the rolling-window Granger causality test, we find that GPR positively and negatively impacts RE. The positive influence confirms that geopolitical competition increases the traditional energy usage cost and incentivises investment in the RE sector. This suggests GPR can be perceived as a winner in driving the energy transition. However, the rise in GPR reduces RE projects' attractiveness and inhibits the energy transition process's smooth progress. The adverse impact of RE on GPR indicates that RE is an effective channel for increasing energy diversity and reducing geopolitical events. However, the expansion of RE is vulnerable to national policy changes and critical resource competition, which induces new geopolitical conflicts. This finding is supported by the classic production model, emphasising that GPR and RE have mutual connections. To this end, governments should provide incentives for deploying RE projects to ensure energy security and promote energy transition.