Abstract
Eskom's power plants in South Africa face increasing electricity shortages due to
frequent breakdowns because of the lack of adequate maintenance and the increasing
energy demand as populations and businesses expand. The high dependence by
South Africa on coal for power generation, which is a resource that significantly
contributes to carbon dioxide emissions that impact the environment negatively, could
be massively reduced by considering other energy sources, including renewable
energy sources.
In South Africa, renewable energy supply has been viewed as a viable answer to the
country's energy and environmental problems. Moreover, it is assumed that the
expansion to the renewable energy supply is dependent on private sector funding and
the expansion in South Africa’s production of economic goods and services, also
known as economic growth. The study aimed to examine if financial development and
economic growth impact renewable energy supply in South Africa and to discover if
cointegration exists between these variables, including the variables defined as the
determinants of renewable energy supply, namely CO2 emission by coal power
generation; secondly, coal electricity supply; thirdly, coal price changes and lastly load
shedding levels.
The autoregression distributed lag (ARDL) model was employed for an observation
period from 1990 to 2021. The results from the Bounds test revealed that cointegration
exists within the variables, and therefore, long-run relationships can be determined
between renewable energy supply and its explanatory variables. The short-run
relationships were also determined by employing the error correction model (ECM).
Financial development was reported to have a positive and significant impact on
renewable energy supply in the long run for the current period and two periods back,
whilst for the short-run relationship, financial development was reported to have a
positive and significant impact on renewable energy supply in one and two periods
back. Similarly, economic growth was reported to have a positive and significant
impact on renewable energy supply for two periods back in the long and short run.
Moreover, load shedding was reported to have a positive and significant impact on
renewable energy supply in the long run during the current period and in the short run
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one period back. On the other hand, coal price changes were reported to be
insignificant in the long run. However, in the short run, they negatively and significantly
impacted renewable energy supply two periods back. The autoregression distribution
term, namely, renewable energy supply, was reported as insignificant for both the
long-run and the short-run relationship.
Similarly, CO2 emission by coal power generation was also reported as insignificant
for both the long-run and the short-run relationship. The development of empirical
apprehension from the study on the relationship between financial development,
economic growth, and renewable energy supply was critical to influence policy reforms
that impact renewable energy supply in South Africa. The study could be of assistance
to the National Energy Regulator of South Africa (NERSA) and the government of
South Africa as the regulatory bodies that develop and implement the energy sector’s
policies in developing and implementing renewable energy policies that encourage the
deployment of renewable energy infrastructure to increase renewable energy supply,
particularly from factors associated with addressing challenges in financial
development and economic growth.
Keywords: renewable energy supply, financial development, economic growth, ARDL