Finance

Feed-in tariff

Electrical engineering

Engineering

Energy policy

Sociology

Business

Econometrics

Economics

International economics

Renewable energy

Ecology

Energy consumption

European union

Consumption (sociology)

Social science

Renewable energy credit

Panel data

Biology

Renewable Energy

One of the strategic objectives of the European Union is to increase the renewable energy consumption level, in a market which brings together technological, financing and customer engagement innovations. However, little is known about the impact of the financial sector on renewable energy consumption. The aim of the paper is to examine the effect of financial development on renewable energy consumption using a panel data of 28 countries in the European Union (EU) over the period 1990–2015. Our research is based on a panel fixed effects model, where renewable energy consumption is given as a function of income, energy prices, financial development, and foreign direct investments. The results of the empirical analysis show that all three different dimensions of financial development (banking sector, bond market, and capital market) have a positive effect on the share of renewable energy consumption. Additionally, our results show that capital market development does not influence renewable energy consumption in the new EU Member States. Our empirical results give valuable insights into how best to deploy capital in the renewable sector, in order to provide cost-competitive options to customers, with the final objective of expanding higher value-added services.

The effect of financial development on renewable energy consumption. A panel data approach