How Financial Development and Energy Dependency Affect Renewable Energy Production in EU Countries

Abstract

This study aims to examine the drivers of investment in renewable energy production. These include the development of the financial system, the price of Brent crude oil and the energy dependency of EU economies. Following the outbreak of the Russia-Ukraine war and the resulting increase in the price of traditional energy sources, it is necessary to understand how to promote the development of alternative energy sources to ensure greater EU energy independence from Russia and meet green energy targets. The PMG-ARDL panel model is conducted to analyse the short-run and long-run relationships between variables. This model can solve the problems of endogeneity, heteroscedasticity, autocorrelation and multi-collinearity. The results obtained are consistent with the literature. However, they add several contributions. First, the study shows how the development of the financial system has an impact on the production of renewable energy sources (RES). Second, the study analyses how the degree of energy dependence of EU countries on export countries influences the production of RES. Finally, the study confirms that geopolitical risk is also a criterion in the assessment of investments in renewable energy. Therefore, this study contributes to the existing literature. Specifically, the study shows that EU countries with more developed financial systems produce more renewable energy. In addition, the study also has practical implications for policymakers and financial authorities.

Keywords: Renewables, Financial Development, Russia-Ukraine War, Energy Dependency, Brent Oil

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