Sustainable energy deployment in developing countries : the role of composition of energy aid

Increasing the share of renewable energy in the global energy mix requires enormous investments in low-carbon energy infrastructure in developing countries. Energy aid, being an important funding channel, seems to play a pivotal role in augmenting the shift towards cleaner energy sources. This paper presents a panel analysis on the effectiveness of energy aid and its composition on the substitution potential of renewable sources in the power sector. Our findings based on dynamic panel data and panel quantile regression techniques for a sample of 67 developing countries during 2002-2017, in general, reveal the heterogeneous effects of various components of energy aid on renewable deployment. In particular, energy ODA and its components focus on hydropower infrastructure development without targeting non-hydro renewable sources effectively. Findings also reveal that renewable generation, policy, and distribution components of energy aid help augment the share of hydro sources, irrespective of the renewable energy transition stage. However, we did not find any such effects on non-hydro renewable sources. Probable policy implications call for restructuring the composition and geographical distribution of energy aid to support the development of low-carbon energy infrastructure in the developing world. Donors should disburse energy aid in countries with low renewable shares to attract domestic and international private investments, particularly for increasing the share of non-hydro renewable sources.