Diversification of nonhydro renewable energy sources in developing countries

Despite the increasing attention on renewable energy, still there is limited empirical analysis about its determinants especially in developing countries. In this paper, we investigate the determinants of diversification of nonhydro renewable energy sources such as wind, solar, geothermal, biomass and waste using an extensive data set covering more than 100 developing countries from 1980 to 2010. We explore several estimation techniques such as negative binomial regression and Poisson pseudo-maximum likelihood estimation. Controlling for time and regional variations, results show that higher per capita income, implementation of renewable energy policy, advances in technological innovation and improvement in human capital promotes diversification of nonhydro sources of renewable energy. However, financial development showed no robust evidence of its effect on the diversification. Similarly, high dependence on foreign sources of fuel, increasing world market price for crude oil and increasing population will push developing countries to diversify sources of nonhydro renewable energy. In contrast, the local abundance of hydropower, high production of fossil fuel, development aid and foreign direct investment do not contribute to diversification. Results highlight salient information in drawing the roadmap for further diffusion of renewable energy in developing countries. This suggests that policy makers should exert consistent effort in integrating renewable energy in the country’s energy mix.