Olena Shcherbakova

Type of article: Research Article

Abstract
The mobilization of banking sector capital is increasingly viewed as a pivotal component of the global transition to renewable energy sources (RES), given the sector’s capacity to finance capital-intensive projects. However, banks typically favor investments and lending opportunities that offer predictable cash flows and low default risk, characteristics often lacking in RES projects without policy support. This study investigates whether the development of the banking sector facilitates the uptake of RES and how feed-in tariffs (FiTs), which provide guaranteed purchase periods and stable prices, modify this relationship. Using a panel dataset of 66 countries (selected based on data availability, allowing robust results that may be cautiously applied to countries with comparable financial and institutional contexts) from 2000 to 2020, fixed effects regression models with time dummies and robust standard errors are employed. The analysis finds that banking sector development alone does not lead to increased consumption from RES (coefficient = 0.0011, p = 0.950), suggesting that banks are reluctant to invest in renewables due to the lack of mechanisms to guarantee returns. The standalone introduction of FiTs is associated with a temporary decrease in RES uptake (coefficient = −5.07; p < 0.001), likely reflecting initial market distortions. However, when FiTs are implemented in countries with a more significant economic role of banks, the interaction yields a significant positive effect (coefficient = 0.0412; p < 0.001), indicating that FiTs reduce investment risk and unlock bank financing for RES. The model explains 20.8% (R2=0.208) of within-country variation, and fixed effects vary substantially, underscoring structural differences across countries.