Capital stock development in Latin America and the Caribbean region and their effect on investment expansion in renewable energy

ABSTRACT

The effect of capital stock development that is composed of public, private and public–private partnership capital stock on the installed capacity of renewable energy that is a proxy of renewable energy investment is investigated. Data for 18 countries from Latin America and the Caribbean region in the period between 1990 and –2016 and the Quantile via Moments methodology approach are used. The estimated model indicates that the public and public–private partnership capital stock have a positive effect on the installed capacity of renewable energy, while the private capital stock does not cause any effect on the dependent variable. The positive effect of public and public–private partnership capital stock on the installed capacity of renewable energy is due to the high investment and maintenance costs, complex construction issues and economic returns that are not always high in the renewable energy projects. Indeed, during the initial process of development of these projects, the initial access to capital can be very difficult, and the investment of this kind of energy is often supported by public and public–private partnership capital which are most cheaper if compared with support of private capital only. Moreover, the non-impact of private capital stock is related to the high investment and maintenance costs of renewable energy projects as well the low private capital supply that consequently increases the financing costs that discourages the private participation on investment in renewable energy technologies.

KEYWORDS:

• Econometrics
• energy economics
• energy transition
• capital stock
• investment
• Latin America and the Caribbean
• macroeconomics

JEL CODES:

• E00
• N16
• H54
• Q43

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 This variable measures the trade and financial globalisation. Trade globalisation is determined based on trade in goods and services, and financial globalisation includes foreign investment in various categories.

2 This variable includes all policies defined by the International Energy Agency (IRENA), namely: (a) Economic Instruments; (b) Information and Education; (c) Policy Support; (d) Regulatory Instruments; (e) Research, Development and Deployment (RD&D). This variable was built in accumulated form, where each policy that was created is represented by (1) accumulated over other policies throughout its useful life or end (e.g. 1, 1, 2, 2, 2, 3, 3).