Effect of geopolitical risk and economic uncertainty indices on renewable energy

Abstract

In this study, the relationships between five renewable energy sub-sectors markets and the geopolitical risk (GPR) and economic uncertainty indices (EUI) were examined using daily data from March 30, 2012, to April 1, 2022. Convergent cross mapping results show that the renewable energy indices have definite relationships with the GPR and EUI. The renewable energy indices show differences in response directions, speed and trends for a standard information difference impulse from the GPR and the EUI. A positive dynamic conditional correlation between renewable energies and EUI was observed in the first and second waves of the COVID-19 outbreak. In contrast, there was a relatively decreased effect for two risk indices during the Russia–Ukraine conflict of February–March 2022. Our results show that renewable energy may act as a time-varying hedge against economic uncertainty and GPR owing to its safehaven properties at various scales. Moreover, building more secure and reliable renewable energy systems can help countries to increase their energy independence, which protects them against the risks of political and economic uncertainty.