The governance threshold effect: Institutional quality thresholds and their differential impact on solar, wind, and hydropower deployment in emerging economies

This study investigates the institutional quality (IQ) threshold requirements for various renewable energy technologies across Next Eleven (N-11) emerging economies over the period 2000 to 2024. The study adopts Panel Threshold Regression (PTR) methodology and a Principal Component Analysis-derived Institutional Quality (IQI) Index. The study tests the Institutional Threshold Hypothesis (ITH) that different renewable technologies have distinct minimum governance requirements. The findings confirm significant technology-specific thresholds. Hydropower demands the highest IQI (showing negative coefficients below its threshold but positive effects above it), while wind energy and solar photovoltaic demonstrate progressively lower institutional barriers, respectively. These nonlinear relationships help explain divergent renewable adoption patterns among economies with similar income levels. The analysis reveals that IQ operates as a binary enabler rather than a continuous facilitator, with three key mechanisms explaining threshold effects: investment reliability concerns, policy credibility requirements, and technology-specific governance needs. The findings guide policymakers in prioritizing governance reforms according to their preferred renewable energy pathways while offering investors a framework for risk assessment in emerging markets. The technology-differentiated institutional approach advances energy transition theory beyond conventional linear assumptions about governance-energy relationships.