Debt as catalyst: Empowering renewable energy in developing countries

Financing renewable energy (RE) is essential for transitioning to green energy. Debt finance plays a significant role in shifting from conventional to green energy, with the global percentage of debt financing increasing from 23% in 2013 to 56% in 2020. Previous studies have examined the impact of green finance on RE. This study examines the impact of debt financing on RE capacity in 12 developing countries from 2000 to 2020. Green finance covers various financial tools for environmental sustainability. Therefore, a distinction between green and debt financing impact on RE is essential. The study uncovers a U-shaped relationship between debt financing and RE, suggesting that while initial debt financing may hinder RE deployment beyond a certain level, debt financing promotes RE deployment. The study also draws attention to the influence of financial market conditions, indicating that developing countries can effectively utilize debt finance in favorable financial markets to negate the initial negative impact on RE deployment. These findings offer financial strategists and policymakers valuable insights to support debt financing and increase RE deployment.