Can we increase the effectiveness of ODA (official development assistance) for renewable energy development? An assessment of the relative performance of financial incentive policy measures

Motivation: The transition from fossil fuels to renewable energy is crucial to address climate change and achieving sustainable development, particularly for low- and middle-income countries (LMICs). The Paris Agreement underscored the importance of involving LMICs in global greenhouse gas reduction efforts, thus amplifying the relevance of renewable energy development in these regions. Purpose: This study evaluates the effectiveness of financial incentive policies in enhancing official development assistance for renewable energy development in LMICs. It also provides strategies for beneficiaries to select efficient financial incentive policies. Methods and approach: The study uses panel regression analysis to assess the effectiveness of the financial incentive policies in the relationship between official development assistance for renewable energy development and renewable electricity generation. Using renewable electricity generation as the performance indicator, the article examines the effectiveness of individual financial incentive policies. The data span 2010 to 2019 for 79 LMICs, including the post-Paris agreement period. Findings: The findings indicate that feed-in tariffs and loans positively moderate the relationship between official development assistance for renewable energy development and renewable electricity generation. Feed-in tariffs seem to have a long-term effect due to their policy design, and loans emerge as a significant moderator influenced by the technological maturation and transformative changes in international climate policy. Policy Implications: The results suggest that official development assistance for renewable energy development beneficiaries should prioritize feed-in tariffs and loans. Feed-in tariffs offer consistent risk reduction and market access, while loans are most effective when institutional and technological conditions enable large-scale investment. Donors should promote feed-in tariffs for sustained stakeholder participation and loans for capital mobilization.