Economic and institutional drivers of renewable energy adoption: A cross-country panel analysis

This article identifies the economic and institutional factors driving cross-country differences in renewable energy adoption, focusing on solar and wind power. Unlike previous studies that either compare the share of renewable energy sources or analyze individual support policies, we propose the Renewable Deployment Gap Index (RDGI), an indicator which captures the gap between actual renewable deployment and the level expected under given resource, macroeconomic, and regulatory conditions. The empirical analysis is based on a panel dataset of countries spanning 2010–2023. The methodology includes country- and year-fixed effects models, a dynamic specification with a lagged dependent variable, and a counterfactual scenario in which regulatory quality is improved to the level of leading countries. The results indicate that the most persistent barrier is fossil fuel inertia in the electricity sector: a higher share of fossil-fuel-based generation is statistically associated with a lower share of renewables (excluding hydropower) and a lower share of solar and wind generation specifically. The Regulatory Indicators for Sustainable Energy (RISE) tool exhibits stronger explanatory power across countries than within-country short-term dynamics. The counterfactual analysis suggests that if countries below the 90th percentile of the RISE distribution were to raise their regulatory quality to the level of top performers, the expected share of solar and wind generation would increase by approximately 11.9 percentage points on average. These findings underscore the importance of grid access reforms, competitive auctions, long-term power purchase agreements (PPAs), streamlined permitting procedures, and mechanisms to mitigate investment risk.