Impact of Political , Economic and Institutional aspects

on Renewable Energy Penetration in Asian and Pacific

Countries
Zeeshan Maqbool Danish
Reg. No. 362304

Department of Electrical Power Engineering

U.S. - PAKISTAN CENTRE FOR ADVANCED STUDIES IN ENERGY (USPCAS-E)
NATIONAL UNIVERSITY OF SCIENCES AND TECHNOLOGY (NUST), ISLAMABAD
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Supervisor and Guidance Committee

Supervisor: Dr. Syed Ali Abbas Kazmi

Co-Supervisor: Dr. Kafiat Ullah

GEC Members:

Dr. Kashif Imran

Dr. Muhammad Irfan

Dr. Muhammad Farasat Abbas

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Contents
• Introduction

• Literature review

• Problem statement

• Objectives

• Methodology

• Results and discussion

• Conclusion and future work

3
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Introduction
• Increase in severe environmental crisis has become one of the most important issue of international debate at
present.

• Renewable energy penetration is influenced by macro and micro factors like GDP,CO2 emissions and IQ .

• According to IEA Renewable electricity capacity additions reached an estimated 507 GW in 2023, almost 50%
higher than in 2022 [1].

• Solar PV and wind additions are projected to more than double by 2028 compared to 2022, consistently setting new
records throughout the forecast period, ultimately reaching nearly 710 GW.

• Political factors significantly influence countries' decisions to deploy renewable energy, highlighting their crucial
role alongside economic, energy, and environmental drivers in shaping renewable energy policies.

• Weak institutions hinder the adaptation of renewable energy (RE) sources.

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Introduction, Contd.
• Existing studies primarily focus on the impact of macroeconomic and environmental factors on RE penetration.
• Previous part of the study revealed that GDP, CO2 emissions, income etc are key determinants of renewable energy.
• Overall the larger portion of Electricity mix is dominated by fossil fuels mainly coal 49%, Gas 9%,Renewables
21%,Large hydro 14% and Nuclear 2% [2].

Figure-1: Renewable Electricity Capacity Additions by Technology

Figure-2: Electricity Generation Mix in South Asia.
and respective segments.
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Problem statement
• As per previous research,
 Fossil fuels are depleting, and the world must seek alternative resources.
 Trend must shift from conventional means to RES to address the depletion of fossil fuels effectively.
 Comparatively the penetration of RE in Asian countries is less as compared to developed countries.
• Pre-existing studies primarily focused on:
 The impact of macroeconomic and environmental factors such as GDP and CO 2 emissions.
 Neglecting the influence of political and institutional variables.
• Incorporating political and institutional factors can help identify:
 Governmental barriers and incentives
 Assess governance effectiveness
 Understand stakeholder roles
 Evaluate stability's impact
 Offer insights for capacity building
 Enriching research on renewable energy penetration in Asian and Pacific countries.
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Objectives

To determine the impact of institutional quality on renewable energy penetration.

To determine the impact of GDP and CO2 emissions on renewable energy penetration.
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Literature review
Title Publication Author name Outcomes
3. Determinants of renewable electricity development • Governance indicators, including control of corruption, the rule of law, and voice
Energy Reports Charles Shaaba and accountability, had a positive and statistically significant impact on RED.
in Europe: Do Governance indicators and
(2023) Saba.
institutional quality matter?
• The determinants of RED in Europe exhibited a bidirectional causal relationship,
indicating a dependence between most of the determinants and RED
• Income, exchange rate, and inflation are the key determinants of renewable energy
Total Environment penetration.
4. Macroeconomic determinants of renewable energy Victoria
Research Themes
penetration: Evidence from Nigeria Oluwatoyin Foye.
(2023) • Creating renewable energy jobs directly to boost income is crucial for increasing
renewable energy usage in Nigeria, leading to enhanced economic growth.
• A 1% enhance in institutional quality at 5% significance level will enhance renewable
energy consumption by 0.869% in the long run.
5. Political economy of renewable energy: Does
Renewable Energy
institutional quality make a difference in renewable Umut Uzar , et Al.
(2020) • CO2 emission is a positive and important determinant of renewable energy
energy consumption?
consumption while economic growth negatively affects renewable energy

• Effective institutions, economic growth, and exports positively impact renewable

energy consumption in emerging countries.
6. Impacts of institutional quality, economic growth,
Renewable Energy Mohammad
and exports on renewable energy: Emerging countries
(2022) Mafizur Rahman. • Economic growth and exports drive renewable energy consumption, necessitating
perspective
improved institutions and corruption control for sustainable growth.

• Institutional and political factors play a crucial role in promoting the transition to
Environmental renewable energy in the (MENA) region.
7. The impact of financial development on renewable
Science and
energy development in the MENA region: the role of Haifa Saadaoui.
Pollution Research • Global financial development does not significantly affect the transition process to
institutional and political factors
(2022) renewable energy in the long run while income is driving force in both short and long
run.
Methodology Framework
Start

Descriptive Cross sectional 1st generation

Data Collection
Analysis Dependence Test Unit root test
1.
2. 3. 4.

Granger Causality ARDL PMG 2nd generation

Cointegration test
Analysis Estimation unit root test
6.
8. 7. 5.

End Fig.3: Schematic of Methodology Framework

Methodology Framework, Contd.
1. Data Collection
• Initially the variables IQ sourced form ICRG.
 Law and order
 Corruption,
 Democratic Accountability,
 Bureaucratic Quality,
 Government Stability
• GDP and CO2 emissions data is obtained from World Bank and Our World respectively.
• RE data is extracted from British Petroleum (BP).

2. Descriptive Analysis
• Before estimating variables, descriptive analysis helps understand the data's characteristics and behavior,
making it easier to decide how to model it in econometrics.

3. Cross sectional Dependence

• Four tests, including Breusch-Pagan LM, Pesaran scaled CD, Bias-corrected scaled LM, and Pesaran CD,
were initially conducted to assess cross-sectional dependence among the variables.
Methodology Framework, Contd.
4. 1st Generation Unit root Tests
• LLC. and IPS unit root test were employed to check the stationarity among the variables.

5. 2nd Generation Unit root tests

• As there is presence of cross sectional dependence so first generation unit root tests are not appropriate to check
stationarity among the variables.
• Thus, CADF second generation test is applied to examine stationarity among the variables.

6. Cointegration tests
• Pedroni and Westlund test for examine the long run relationship among the variables.

7. ARDL PMG estimation

• Long run and Short-run estimations

8. DH Granger Causality Analysis

• To find causal relationship among core parameters
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Results and Discussions: Descriptive Analysis

• RE spans from the lowest value of 0.37 TWh to a maximum of 2184.93 TWh, with a mean value of 67.30905.
• The value of institutional quality ranges from a minimum of 5 to a maximum of 32, with a mean value of 20.05766.
Table-1: Descriptive Analysis
S# Parameters RE CO2 IQ GDP
1 Mean 67.30905 4.198468 20.05766 3.115553
2 Medium 16.870 2.443 20.000 3.199
3 Maximum 2184.93 19.21304 32.0000 55.88925
4 Minimum 0.37 .0970464 5.000 -64.42584
5 Std.Dev 214.7532 4.581873 5.497317 6.169736
6 Skewness 6.75 1.567 0.006 -0.892
7 Kurtosis 53.88 5.02 2.790 47.400
8 Jarque - Bera 64107.5 322.20 1.016624 45662.99
9 Probability 0.0000 0.0000 0.6010 0.0000
10 Sum 37356.52 2330.150 11132.00 1729.132
11 Sum Sq. Dev 25549898 11630.43 16742.49 2108.37
12 Observations 555 555 555 555
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Results and Discussions: Institutional Quality (IQ) Results

• The findings indicate New Zeeland, Australia
and Japan have the maximum level of
institutional excellence.

• While the countries with lowest value of

institutional quality include Pakistan,
Bangladesh, and Iraq.

Fig.4: Results of Institutional Quality (IQ)

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Results and Discussions: Renewable energy (RE)

• The countries with highest level of renewable
energy generation include China, India, and Japan.
• In contrast with lowest level of renewable energy
generation include Bangladesh, Iraq, and Malaysia.

Fig.5: Results of Renewable Energy (RE)

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Results and Discussions : Cross sectional dependence

• Null Hypothesis: No cross sectional dependence
• Alternative Hypothesis: Presence of cross sectional dependence.
Table-2: Cross Sectional Dependence

Evaluation Tests RE IQ GDP CO2

Breusch-Pagan LM 2250.215*** (0.000) 923.07***(0.000) 373.37***(0.000) 2110.258***(0.000)

Pesaran scaled CD 148.0339*** (0.000) 56.72***(0.000) 18.519***(0.000) 138.37***(0.000)

Bias-corrected scaled LM 147.8256*** (0.000) 56.52***(0.000) 18.311***(0.000) 138.16***(0.000)

Pesaran CD 43.33697*** (0.000) 21.577***(0.000) 12.78***(0.000) 41.50***(0.000)

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Results and Discussions : 1st Generation Unit root tests

Table-3: 1st Generation Unit root tests

Variables Tests Level 1st difference

• The number of snail-trails-affected cells remains the same.

LLC 12.9753(1.0000) -7.5674***(0.0000)
RE
IPS 5.6952 (1.0000) -13.2328***(0.0000)

• Dark spots LLC -3.2581**(0.006) -

IQ
showing micro-cracks.
IPS -2.7023**(0.0034) -

LLC 1.8355(0.9668) -6.2185***(0.0000)

CO2
IPS 3.9166(1.0000) -9.5534***(0.0000)

LLC -3.7046**(0.0001) -
GDP
IPS -7.0237***(0.0000) -
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Results and Discussions : 2nd Generation Unit root tests

Table-4: 2nd Generation Unit root tests
• CADF Cross sectional augmented Dicky Constant
Parameters Evaluation

Fuller t-bar Z[t-bar] p-value

RE -2.452 -2.810 0.002
• CO2 is stationarity at level I(1) for both IQ -2.359 -2.426 0 .008
constant and trend solutions. While all GDP -2.311 -2.228 0.013
other variables are stationarity at their
CO2 -1.419 1.447 0.926
level.
∆CO2 -2.412 -2.644 0.004***
• After the verification of stationarity now Constant and trend t-bar Z[t-bar] p-value
cointegration tests can be applied. RE -3.097 -3.331 0.000***
IQ -3.189 -3.738 0.000***
GDP -2.793 -1.995 0.023
CO2 -1.924 1.830 0.966
∆CO2 -3.189 -3.737 0.000***
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Results and Discussions : Pedroni Cointegration test

• Pedroni test statistics 4 out of seven statistics show that the null is rejected.
• Ho = no cointegration
• Ha = there exists cointegration.
Table-5: Pedroni Cointegration test
Seven Group Statistics Statistic p-value
Panel v-statistic 1.106659 0.1342
Panel rho-Statistic -0.091658 0.4635
Panel PP-Statistic -3.359577 0.0004**
Panel ADF - Statistic -4.306958 0.0000***
Group rho-Statistic 1.344513 0.9106
Group PP -Statistic -1.699889 0.0446**
Group ADF - Statistic -2.395875 0.0083**
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Results and Discussions: Westlund Cointegration test

• The null assumption which suggests variables are not cointegrated is dismissed at a 1% level of significance (Gt and
Ga).

• Similarly, using bootstrap values derived from 200 samples, the null hypothesis suggesting no cointegration is also
dismissed at 1% Gt and Ga significance level
Table-6: Westlund Cointegration test

Statistics Value z-value Bootstrap (100) p-value Bootstrap (200) p- value

Gt -3.829 -5.002 0.000*** 0.000***

Ga -24.300 -4.229 0.000** 0.000***

Pt -12.260 -2.890 0.002** 0.115

Pa -23.485 -5.756 0.000*** 0.045**

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Results and Discussions : ARDL estimation results

PMG estimation results
Table-7: ARDL estimation results
Variables Coefficient St. Error t-statistic p-value
Long run results PMG
IQ 0.213037 0.122622 1.737344 0.0830
CO2 -0.622667 0.148262 -4.199781 0.0000
GDP 0.019271 0.010395 1.853763 0.0644
Short run results
ECT (-1) -0.156182 0.054343 -2.874006 0.0042
(∆) IQ -0.052288 0.091378 -0.572213 0.5675
(∆) GDP -0.199149 0.155939 -1.277090 0.2022
(∆) CO2 0.001631 0.002419 0.674076 0.5006
C 0.193994 0.094578 2.051145 0.0480
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Results and Discussions : ARDL Findings

• In the long run, renewable energy adoption will:
• Increase by 0.2130% for every 1% rise in institutional quality at a 10% level of significance.

• CO2 emissions per capita negatively impact renewable energy penetration:

• If there is 1 unit change in CO2 emissions per capita there will be -0.62 % decrease in renewable energy
penetration.

• GDP growth percentage influences renewable energy penetration positively:

• If there is 1% change in annual GDP growth there will be 0.010% increase in renewable penetration.

• IQ, CO2 emissions per capita and annual GDP growth per capita:
• have an adverse impact on renewable energy in the short run, these coefficients are also not statistically
significant
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Results and Discussions : ADRL Results Estimation

Fig-6: ARDL estimation results

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Results and Discussions : DH Granger Causality Test

• As per the findings bidirectional causality is found between GDP and IQ.
• On the other side exists unidirectional causality from RE to CO2 emissions per capita and from GDP to RE.
Null Hypothesis Z bar-Stat. p-value
DLIQ --- DLRE 0.31579 0.7522
DLRE --- DLIQ 0.77697 0.4372
DLCO2 --- DLRE 0.82811 0.4076
DLRE --- DLCO2 8.83782 0.000 ***
DLGDP --- DLRE 1.78483 0.0743*
DLRE --- DLGDP 0.41076 0.6812
DLCO2 --- DLIQ 0.39354 0.6939
LIQ --- DLCO2 -0.69664 0.4860
DLGDP --- DLIQ 5.00467 6.E-07***
LIQ --- DLGDP -1.77937 0.0752*
DLGDP —— DLCO2 0.10139 0.9192
DLCO2 —— DLGDP 2.35775 0.1847
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Results and Discussions: DH Granger Causality Test

• Rise in economic activity results in a heightened need

for energy, encompassing renewable sources, because
of expanded industrial production

• The unidirectional causality between the RE and CO2

emissions per capita indicates that future CO2
emissions can be efficiently reduced in tandem with the
growing need for renewable energy.

Fig-8: DH Granger Causality Test

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Conclusion

 Political and institutional factors significantly influence the adoption of renewable energy, with democratic

governance, corruption control, and efficient bureaucracy positively impacting renewable energy penetration.

 Quality of institutions is crucial for promoting renewable energy deployment, as they enhance public interest in

environmental quality and discourage environmentally detrimental initiatives.

 Reduction of CO2 emissions is integral to the adoption of clean energy sources, emphasizing the necessity of

transitioning towards sustainable energy alternatives.

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Conclusion contd..

 Economic growth stimulates renewable energy penetration, as rising GDP fosters demand for environmentally

friendly energy sources.

 Competitive market mechanisms alone may not effectively address environmental crises, underscoring the

importance of well-established institutions in fostering renewable energy transitions.

 Investing in renewable energy requires supportive incentives such as tax concessions and financing, which can

stimulate increased investment and accelerate cost reduction through research and development initiatives.
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Limitations & Future Work

• Limited control variables were employed to represent economic performance and environmental aspects.

• Limited to 1984 to 2020.

• Future research could explore the influence of various socioeconomic factors, such as human development, income
distribution, gender equality, education, health, opportunity inequality, and social security, on renewable energy
penetration.

• No of years can be increased.

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Countries analyzed in this paper.

Australia-AUS Iran-IRN Pakistan-PAK

Bangladesh-BAN Iraq-IRQ Phillipines-PHI

China-CHI Japan-JPN Sirilanka-SL

India-IDN Malayisa-MAL Thailand-THI

Indoneshia-INDN New Zeeland-NZ Vitenam-VTN

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References
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2. “Home,” The National Bureau of Asian Research (NBR). Accessed: Apr. 21, 2024. [Online]. Available: https://www.nbr.org/C.

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Paper Status
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Acknowledgement

I would like to express my sincere gratitude to my thesis committee members, Dr. Muhammad Irfan, Dr. Kashif Imran
and Dr. Muhammad Faraast Abbas.
I would also like to thank my supervisor, Dr.Syed Ali Abbas Kazmi and Dr. Kafiatullah , for providing me with
valuable insights and feedback throughout my research.
Additionally, I would like to acknowledge the support of my family and colleagues who have encouraged me
throughout this process. I am also grateful to the institution where I conducted my research.
Finally, I would like to thank you, the audience, for your attention and interest in my research.
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Thank you for Listening

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