Questioning Aid for Building Renewable Energy Capacity in Developing Countries

This study investigates whether capacity-building drives the association between renewable energy aid and renewable energy consumption in low-income countries. It hypothesises that renewable energy aid is positively associated with renewable energy consumption (H1) and that this association is driven by capacity-building (H2). While previous literature acknowledges that aid may promote renewable energy outcomes, the mechanism of capacity-building is often assumed rather than empirically tested. Moreover, existing research predominantly focuses on governance capacity or climate adaptation capacity within broader samples of developing countries, rarely isolating capacity for renewable energy aid or considering only low-income countries. This study addresses these gaps by disaggregating renewable energy aid into capacity-building and non-capacity-building components and focusing exclusively on low-income countries, where both the need for aid and the vulnerability to climate change are greatest. Conducting a large-N panel regression analysis, this study examines 21 low-income countries over the 2010–2020 period. Renewable energy aid (RAID) and its capacity-building component (CB RAID) are identified through word-based filtering of project-level data from the OECD Creditor Reporting System. The dependent variable, renewable energy consumption, is expressed as a percentage of total final energy consumption. Control variables include GDP per capita, foreign direct investment (FDI), and access to electricity. All models apply fixed effects for country and year to control for time-invariant country-specific characteristics. Contrary to expectations, results show no significant association between RAID and renewable energy consumption, rejecting the first hypothesis. Furthermore, CB RAID is found to have a statistically significant negative relationship with renewable energy consumption, contradicting the second hypothesis. Non-capacity-building RAID shows no meaningful effect. Across all models, FDI consistently exerts a strong and significant negative influence, while GDP per capita and access to electricity show no significant associations. Robustness checks using alternative model specifications confirm these results. These findings suggest that the effectiveness of RAID, particularly its capacity-building component, is highly contingent on national contexts. The dominant explanatory power of country fixed effects further highlights the importance of unobserved structural factors in shaping renewable energy outcomes. This study’s findings contribute to the academic literature by empirically isolating capacity-building within renewable energy aid and analysing its effects in a sample of low-income countries. The results call for greater consideration of recipient contexts and donor strategies in designing effective renewable energy aid. Keywords: Renewable energy aid; capacity-building; low-income countries; renewable energy consumption; energy transition; aid effectiveness; climate mitigation.