The role of energy prices and economic growth in renewable energy capacity expansion - Evidence from OECD Europe

This paper presents an alternative perspective on the renewable energy-economic growth nexus from the lens of installed capacity. Twenty OECD countries in Europe are assessed using panel data methodologies with data period spanning from 1993 to 2018. Electricity generation share-weighted coal and natural gas price indexes are incorporated in explaining country differences in fossil fuel reliance. Compared to results obtained from unweighted price indexes, weighted energy price indexes seem vital in obtaining a more plausible description of the relationship between energy prices and renewable capacity growth. Our findings confirm the crucial role of economic growth for renewable energy capacity development and long-term causality is apparent. Results indicate coal price increases trigger a greater positive impact on renewable capacity than natural gas. Finally, climate policies that raise fossil fuels costs could potentially stimulate the addition of renewable capacity and expedite the transition to renewable energy through price effect. (C) 2022 Elsevier Ltd. All rights reserved.

Automated summary

This paper presents an alternative perspective on the relationship between renewable energy and economic growth, focusing on installed capacity. It evaluates twenty OECD countries in Europe from 1993 to 2018 using panel data methodologies. The study finds that economic growth plays a crucial role in the development of renewable energy capacity, and there is a long-term causality between the two. The results also show that coal price increases have a greater positive impact on renewable capacity compared to natural gas. Additionally, climate policies that raise fossil fuel costs can stimulate the addition of renewable capacity and expedite the transition to renewable energy through price effect.