Barriers and Socio-Economic Drivers of Renewable Energy Adoption Among Manufacturing SMEs: A Structural Equation Modeling Approach

Background: Small- and medium-sized enterprises (SMEs) constitute a large portion of the industrial energy demand in the emerging economies, but their shift to renewable energy is not well comprehended at the firm level. Bangladesh is a special case, since the country has adopted national commitments to Sustainable Development Goal 7 on clean energy, but the uptake of renewable energy by SMEs remains minimal due to complex socio-economic factors. Most of the literature has concentrated on household access to energy or national policy models, leaving a gap in empirically validated models of firm-level adoption in the manufacturing sector. Method: Based on the diffusion of innovation theory, institutional theory, and the resource-based view, this research paper formulates and empirically verifies a combined socio-economic model of renewable energy adoption. Partial least squares structural equation modeling (PLS-SEM) was used to analyze a cross-sectional survey of 426 owners and managers of manufacturing SMEs in Bangladesh’s textile and food processing sub-sectors. Findings: Four out of five hypothesized direct relationships were supported. The most important drivers were environmental orientation (β = 0.467, p < 0.001, f2 = 0.413), market competitiveness (β = 0.287, p < 0.001, f2 = 0.413), policy and institutional factors (β = 0.211, p < 0.001, f2 = 0.413), and access to finance (β = 0.096, p = 0.004). Perceptions of cost did not become significant (β= −0.036, p = 0.279). Top management support significantly and negatively moderated the relationship between environmental orientation and adoption (β = −0.093, p = 0.003), possibly because it moderates the substitution mechanism in SME decision-making, which is highly centralized. The model accounted for 64.5% of the variation in renewable energy adoption (R2 = 0.645). Conclusion: The results show that attitudinal and institutional factors tend to be more important than financial barriers in determining SMEs’ energy transitions. Environmental consciousness, market incentives, and streamlined institutional access should be the focus of policy interventions to hasten inclusive low-carbon transitions in emerging manufacturing economies.