How does geopolitical risk affect clean energy generation? Daily evidence from five highly Russia-reliant European countries

Abstract

Europe has recently experienced an energy crisis that began with the war between Russia and Ukraine and continued with reciprocal sanctions and power cuts, increasing geopolitical tensions and risks. In such an environment, European countries must decide how to replace energy imports from Russia. As the best option may be to rely on clean energy, this study explores how geopolitical risk (GPR) affects clean electricity generation (i.e., hydro, solar, wind, & nuclear) in five European countries (i.e., Bulgaria, Czechia, Germany, Romania, and Switzerland), which have a high dependency on Russia. The study therefore uses daily data between January 2, 2019 and January 29, 2024 and applies a set of nonlinear methods (i.e., wavelet coherence, quantile-on-quantile regression, Granger causality in quantiles, and quantile regression). The results show that (i) there is a strong dependence of GPR on renewable and nuclear electricity generation over different times, frequencies, and countries; (ii) GPR stimulates hydro electricity generation at higher quantiles across countries except the Czechia; (iii) GPR increases solar electricity generation at higher quantiles in all countries except the Czechia and Switzerland; (iv) GPR mainly stimulates wind electricity generation at higher quantiles, except for Bulgaria and Switzerland; (v) GPR is almost inefficient in nuclear electricity generation. Overall, the study clearly shows the supportive effect of the GPR in promoting renewables, while this is not the case for nuclear energy. Therefore, European countries can rely on renewables as the best alternative against energy blackouts in the short term, considering the varying effect based on time, frequency, quantile, country, and clean energy sources.

Keywords

• Clean electricity
• Geopolitical risk
• European countries
• Nonlinear approaches