Causal Relations and Elasticities between Renewable Electricity Generation Excluding Hydro and Economic Growth in Kenya

Abstract

This study examined the relationship between renewable energy generation excluding hydro and economic growth. It employed a multivariate approach hence other variables included in the study were financial development, export of goods and services, and carbon emissions. The study was prompted by the ambitious energy plan and the declining reliability of hydro power due to changing climate in Kenya. To ensure robustness in the outcome, the study used CobbDouglas production function, F-Bound test, and Vector Error Correction Model in achieving the objective of the study using time-series data from 1980 to 2014. There was evidence of a long run dynamic relationship between renewable energy generation excluding hydro and the other variables. The study discovered that, in the long run, 1% rise in economic growth would lead to 3.424% increase in renewable energy generation excluding hydro. Renewable electricity is also seen as a multifaceted development carrier as, in the long-run, 1% increase in RE influences financial development (0.44% increase), export of goods and services (0.352% decrease in value) and carbon emissions (1.06% decrease). The study advocates for extensive renewable energy generation development including improvement energy efficiency and energy saving regulations as reduced energy demand would not impact negatively on the economy. Such measures also lead to improved energy conservation and environmental protection through reduced emissions.