Bridging the gap: How financial development channels renewable energy to reduce energy poverty

Abstract

This study examines the relationship between renewable energy and energy poverty in Africa, highlighting the role of financial development, institutions, and markets. Using panel data for 30 countries from 2000–2023, energy poverty is measured by lack of access to clean cooking fuels and electricity. Lewbel 2SLS and fixed effects threshold models are applied to address endogeneity and capture nonlinear effects. The results indicate that renewable energy consumption is associated with higher energy poverty. However, when financial development exceeds thresholds (0.278–0.341), renewable energy reduces poverty, benefiting clean fuel access and electricity access. In low-income countries, renewable energy increases energy poverty due to affordability and weak financial mechanisms. In lower-middle-income countries experience transitional effects, with impacts sensitive to financial conditions. In upper-middle-income countries, renewable energy significantly lowers energy poverty. The findings highlight that renewable energy policies must be paired with financial sector reforms to achieve inclusive and balanced energy transitions.