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: This study* examines the role of the financial sector in renewable energy development and the obstacles it faces in non-OECD developing and transition countries:

Energy firms in less developed economies are largely dependent on external financing to realise new projects. In turn, external financing in these countries relies on the banking sector, as stock and bond markets, as well as venture capitalism are not well-enough established to provide large-scale funding. However, the under-development of the banking sector, coupled with specific renewable energy sector problems such as high up-front information costs and long lead times, hamper the emergence of renewable energy entrepreneurs. The financing problems are combined with the greater issue of energy sector regulations and renewable energy technology policies, which do not always offer a level-playing field for all energy producers as fossil fuel generation often benefits from special incentives. The empirical estimations, using renewable energy electricity generation per capita as a proxy for renewable energy sector development, show that financial sector development does indeed have a robust and significant positive effect on the amount of renewable energy produced, which is independent of energy policy.