Assessing Technical Efficiency in Renewable Energy Consumption: A Stochastic Frontier Analysis with Scenario-Based Simulations

This study introduces a pioneering approach marking the first comprehensive analysis explicitly designed to assess the technical efficiency of renewable energy consumption and its influencing factors. Based on data from 22 high-income countries covering the period 1996 to 2019 a Stochastic Frontier Analysis (SFA) was used to derive scores crafting a distinctive ranking of countries. Notably, Norway, Sweden, and Finland emerge as frontrunners, reflecting their efficiently robust approaches to renewable energy adoption. Empirical findings highlight the crucial role of financial development, revealing a significant and positive impact on increased renewable energy consumption efficiency. This is followed by other key factors such as institutional conditions and social development. Particularly, a non-linear impact was observed for other determinants, including trade openness, economic growth, and CO2 emissions. To explore more profoundly, the study projects six prospective scenarios, each exerting distinct influences on technical efficiency scores. Enhanced financial development, trade openness, and higher CO2 emissions are linked to elevated technical efficiency levels, albeit with variable effects among countries. Interestingly, increased growth in social development was associated to decreased technical efficiency scores, similarly, some countries experienced a counterproductive effect from a stimulated economic growth. Simulation results emphasize the imperative to address contextual variability, aiming to strike a balance between developmental objectives and optimizing the use of renewable energy.