The Impact of Economic, Environmental and Social Variables in the

Consumption of Green Energy. A Comparative Approach of the Balkan

Countries

BRUNILDA NELI, DORINA KOÇI

Department of Finance,

University of Tirana,

ALBANIA

Abstract: - Governments and businesses in many countries are orienting their strategies in accordance with

meeting the sustainable development goals (SDGs), due to current global development. In a dynamic

environment and competitive markets, this strategy orientation is seen as a way to succeed and ensure long-

term sustainability. In this context, renewable energy has gained a lot of attention and interest. The promotion

and use of renewable energy depend crucially on government policies. Different incentives such as subsidies,

tax incentives, renewable energy targets, and regulations that encourage or require the use of renewables can

significantly boost their adoption. Renewable energy technologies, such as solar panels, wind turbines, and

energy storage systems, have advanced and have made their use a more attractive option for consumers and

businesses because of their accessibility, affordability, and efficiency. This study aims to present and give a

comparative overview of renewable energy investments in the Balkan Countries with a focus on green energy.

Green energy is a sub-category of renewable energy that refers only to two sources: sun and wind. Even though

green energy is part of renewable energy, it might have specific characteristics that are interesting to be known.

The objective of this study is to analyze the relationship of the main factors that impact the consumption of

green energy in Albania compared to four EU countries. Following the previous research conducted and after

identifying the main factors that impact the consumption of green energy, a panel data regression model is used

to analyze how these factors are related to the consumption of green energy in 5 countries: Albania (non-EU

country), Croatia, Bulgaria, Greece, Slovenia (EU countries). The study results found that the electricity price

and education index positively impact the consumption of green energy, while CO2 emissions negatively

impact it.

Key-Words: - Renewable energy, Green energy, SDGs, Regulatory framework, Environment protection,

Energy markets.

Received: March 15, 2023. Revised: January 19, 2024. Accepted: February 11, 2024. Published: March 8, 2024.

1 Introduction

Energy is one of the most debated issues in recent

decades. The 2030 Agenda for Sustainable

Development and the Paris Agreement on Climate

Change have determined a set of requirements for

countries to ensure environmental protection. First

of all, the use of green energy sources aims to

protect the environment as a result of reducing the

emission of carbon dioxide. The Paris Agreement

has defined the target of reducing 3.5% every year

of the carbon dioxide released during energy

production until 2050, to achieve this objective, [1].

Moreover, the Paris Agreement emphasizes the

importance of financing investment projects in the

area of climate change and energy production

plants. Such investments require a lot of funds, that

often, are impossible to be financed and afforded by

governments and private investors only. In this

context and considering the importance of this

sector, international donors and development banks

play a major role in financing projects, [2]. The

main donor in terms of funding and the key

stakeholder in terms of policy dialogue is the

European Union. During the last decade, more than

€185 million in grants have been provided by the

EU to support energy efficiency and renewable

energy, actually attracting about €850 million in

loans, [3].

In a macroeconomic context, the above

objective is not only environmental but also has an

impact on the economic and social development of

countries. Thus, changes in the energy sector are

expected to increase gross domestic production by

2.5% and employment by 0.2% until 2050 globally,

[4].

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Balkan countries have started to adopt new

technologies and to use sustainable sources of

energy which aim to achieve the Sustainable

Development Goals (SDGs). SDG 7 “Affordable

and Clean Energy” defines specific targets and

indicators for countries to achieve by 2030

regarding the energy sector: a) Ensure universal

access to affordable, reliable, and modern energy

services, b) Increase substantially the share of

renewable energy in the global energy mix, c)

Double the global rate of improvement in energy

efficiency, d) Enhance international cooperation to

facilitate access to clean energy research and

technology, including renewable energy, energy

efficiency and advanced and cleaner fossil-fuel

technology, and promote investment in energy

infrastructure and clean energy technology, e)

Expand infrastructure and upgrade technology for

supplying modern and sustainable energy services

for all in developing countries, in particular least

developed countries, small island developing States,

and land-locked developing countries, by their

respective programs of support.

New sources of energy production have been

the focus of many scholars and researchers,

especially in the last decade when there is increased

attention on environmental protection and

compliance with SDGs towards a sustainable energy

sector. The vast literature is related to renewable

sources of energy, which include sun, wind, water,

earth heat, and plants. Green energy is a smaller

category of renewables which refers only to two

sources: sun and wind. The availability of renewable

energy resources, such as sunlight, wind, and

hydropower, in a particular region can influence the

use of green energy. Areas with abundant renewable

resources are more likely to invest in these

technologies. There is a lack of theoretical and

empirical evidence related solely to green energy.

Even though green energy is part of renewable

energy, it might have specific characteristics that are

interesting to know. Therefore, we will bring in this

section an overview of studies related both to

renewable and green energy and then we will derive

our specific study oriented towards green energy.

The paper is organized as follows. The first

section provides a brief review of previous research

and findings regarding the factors that influence the

usage and impact the consumption of renewable and

green sources of energy. Second, a general overview

of the regulatory framework and investments in

green energy in the Balkan Countries is presented in

comparison with each other. In section three, a short

description of the methodology used in this study is

given, explaining the sampling, measures, and data

analysis. The findings, discussions, implications,

and limitations conclude the study.

2 Literature Review

Nowadays the use of green energy sources

represents a competitive advantage for businesses.

Corporate Sustainability Goals can be regarded as a

factor that influences the use of green energy. Many

businesses and corporations are setting

sustainability goals and commitments to reduce their

carbon footprint. This often involves procuring a

significant portion of their energy from renewable

sources. Nevertheless, small and medium

enterprises face more difficulties because

investments in such systems need the mobilization

of large amounts of capital and are highly dependent

on R & D expenditure, [5]. The study of [6], found

that the cost of solar panel systems and the pressure

of competitors negatively affected SMEs to invest in

this type of green energy. Financing is a key

constraint towards the use of solar panels and both

governments and financial system institutions

should do more regarding green financing, [7].

Access to financing options and investment in

renewable energy projects can facilitate their

development and deployment.

The factors that have an impact on renewable

energy consumption are generally categorized into

three groups: economic, environmental, and social

factors. The influence of such factors on renewable

energy demand is sometimes controversial in

literature. From the cost-effective perspective, the

cost of green energy technologies has been

decreasing over time, making them increasingly

competitive with fossil fuels. Dependence on fossil

fuels, which are subject to price fluctuations and

geopolitical tensions, can be a motivation to shift

towards green energy sources that are more reliable

and domestically available. As green energy

becomes more cost-effective, businesses and

consumers are more likely to adopt it.

GDP is one of the main economic indicators

which boost the use of renewable energy both in the

short and long run, [8]. Most of the studies in

developed and developing countries have found a

positive impact of GDP in consumption of

renewable energy, [9]. At the same time, it is

identified that also renewable energy contributes to

the improvement of the economic condition of

countries, thus having a vice-versa effect, [10].

Other economic factors such as labour force, the

gross capital formation have been identified to have

a negative relationship with renewable energy, [9],

[11].

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Environmental factors have also been identified

as drivers for renewable energy consumption.

Growing awareness of environmental issues, such as

climate change and air pollution, has led to an

increased interest in green energy sources. People

are more inclined to support and use renewable

energy to reduce greenhouse gas emissions and

minimize their ecological footprint.

CO2 emissions are the most used indicator to

represent this group of indicators. In most studies it

is identified a negative relationship between this

factor and the demand for renewable energy, [5],

[8], [12]. Other studies differentiate the impact of

CO2 emissions between developing and developed

countries. The negative correlation is found for

developing countries, while in developed countries

the influence is positive, [13].

International agreements and commitments can

influence a country's energy policies and

commitment to transitioning to renewable energy

sources. The Paris Agreement marked a significant

impact on policies related to environmental issues

thus affecting the energy sector. [14], concluded that

the energy consumption structure was the main

indicator influencing the demand for renewable

energy before the agreement. Meanwhile, FDIs and

trade openness became important in increasing the

demand for renewables after the Paris Agreement.

Social acceptance and cultural attitudes towards

green energy can affect its adoption. Community

support and collaboration can be crucial in

implementing renewable energy projects. Public

awareness and support for green energy play a vital

role in its adoption. As consumers become more

conscious of their energy choices, they may demand

cleaner energy sources from utility providers.

Moreover, the energy sector has a significant social

impact since it directly affects the well-being of

families and businesses, but there are also social

factors that contribute to the renewable energy

demand. Renewable energy is positively affected by

the improvement of the education index and

negatively affected by the life expectancy index, [8].

In summary, the use of green energy is

influenced by a complex interplay of environmental,

economic, technological, regulatory, and social

factors. As these factors continue to evolve, the

adoption of green energy is likely to increase,

helping to reduce greenhouse gas emissions and

promote a more sustainable energy future.

2.1 Regulatory Framework and Investments

in Green Energy in Balkan Countries

Investment levels and priorities in green energy can

vary among Balkan countries based on their

available renewable resources, regulatory

frameworks, and economic conditions. Each Balkan

country has its unique regulatory approach and

support mechanisms for green energy development.

We analyzed different reports conducted through the

years by International Organizations and

Stakeholders, [15], [16], [17], [18], [19], to conduct

the following comparative approach between

Balkan Countries based on main indicators of

regulatory framework development and investments

support mechanisms.

Greece stands as a leading advocate for energy

development in its region. Investors find this

country very attractive due to stability in the

regulatory environment. The country has effectively

deployed support mechanisms such as feed-in

tariffs, auctions, and a renewable energy certificate

system. Greece’s commitment to expanding wind

and solar energy installations has yielded

investments while ambitious targets have been set to

increase the share of renewables in its energy mix.

Croatia has developed an incentive system for

Renewable Energy Sources through a new act on

this source in 2016. Croatia's government has

adopted a new Energy Strategy in 2020 until 2030,

that includes a wide range of energy policy

initiatives that will improve energy security,

increase energy efficiency, lower dependence on

fossil fuels, increase local production, and increase

renewable resources. Croatia aims to become a

sustainable and energy-independent country by

counting on its abundant renewable energy sources.

In Slovenia, the legal framework for the

promotion and use of renewable energy sources is

regulated by Renewable Energy Act. This

legislation has set rules regarding grid connection

for green energy to efficiently integrate green

energy into the current electricity grid. Slovenia

Government has provided some support through

different incentives such as feed-in tariffs and other

financial incentives to promote the development of

renewable energy projects and to attract more

investors in solar energy infrastructure. Considering

the geographical position of Slovenia, the

government has made efforts to utilize the potential

that the country has for wind energy, mainly in

mountainous and coastal areas. There has been an

increase in solar photovoltaic installations, including

investments from both residents and businesses that

have benefited from government incentives and

feed-in tariffs. The support and access to EU

funding programs that support renewable energy

projects have played a very important role for

Slovenia in financing green energy initiatives. The

engagement of the country in international

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partnerships and collaborations has advanced its

green energy goals. This includes participation in

regional energy projects and cooperation with

neighboring countries.

Bulgaria has made efforts to advance the

utilization of energy sources. The government has

implemented support mechanisms like feed-in

tariffs and a quota system for electricity production

from renewables. Over the years Bulgaria has

successfully attracted investments in both wind and

solar energy projects.

Romania has been highly engaged in driving

energies specifically focusing on wind and solar

power sources. There is a well-established

regulatory framework for renewable energy.

Romania has put in place a support program that

relies on certificates and has conducted auctions for

scale renewable projects. This approach has led to

investments in the country’s energy sector.

Serbia has introduced regulations to promote

renewable energy, supervised by the Energy Agency

of the Republic of Serbia. Serbia has focused on

hydropower and wind energy investments. Feed-in

tariffs and incentives were used to attract

investments, with grid infrastructure development

being a priority.

North Macedonia is actively pursuing measures

to promote energy about European Union

integration. The government has introduced enticing

incentives like feed-in tariffs and other schemes

aimed at attracting investments into energy projects.

The country’s objective is to elevate the proportion

of renewables, within its energy consumption.

Albania has expressed its keenness to promote

energy with a focus on hydropower. To encourage

investments in energy projects the country has put in

place feed-in tariffs as incentives. The regulatory

framework for renewables is continuous due to

different challenges observed in this regard such as

grid infrastructure and permitting processes The

government aims to boost the proportion of energy

in the overall energy mix of the nation. In this

context, best practices may be followed by other

Balkan countries that have more experience to

accelerate the transition to greener and more

sustainable energy in the future.

3 Methodology

The analysis of factors influencing green energy

consumption in the Balkans is carried out by using a

panel data regression model, which is used in

similar studies, [5], [8]. We have tested for fixed /

random effects and the final regression is based on

the results of the Hausman test which determines

which test is more appropriate. The analysis is

carried out in E-views 12.

Data was retrieved from different databases:

World Bank, UNSD, Eurostat, and INSTAT for the

period 2010 – 2019 on an annual basis. The aim of

the study is to analyze the drivers of green energy in

Balkan countries. The final panel data refers to five

countries: Albania (non-EU country), Croatia,

Bulgaria, Greece, and Slovenia (EU countries). The

other countries have not been involved in the study

because they have started to use green energy

sources in a few years and such a short period is not

sufficient for econometric analysis.

Although a large set of indicators has been

considered at the first stage of analysis (GDP,

private financing, inflation, energy productivity,

etc), after performing the required testing

procedures and eliminating the problems of

autocorrelation, we have included in the final model

the following variables:

Dependent variable: The green energy ratio is the

dependent variable, which is measured as the share

of sources such as sun and wind in the final energy

consumption. Most previous research has a broader

focus, using all renewable energy sources as the

dependent variable, which refers to all sources

steaming from the earth's ecosystem, such as

biomass, hydropower, marine, geothermal, wind,

and solar energy. As mentioned in the previous

sections, hydropower is the main source of energy

in Balkan countries, thus the existing studies' results

are dominated by this energy source and do not refer

solely to green energy. Therefore, this study brings a

valuable and new contribution to the related field.

The explanatory variables are selected based on

literature results and taking into consideration the

characteristics of the countries in the study. These

variables are grouped into three categories:

Economic variables: In this category, foreign direct

investment and electricity prices are included. FDIs

refer to the net inflows of capital from other

countries towards countries involved in the study

based on annual data from the World Bank

database. FDIs play a crucial role in the economic

development of Balkan countries and are an

important source of funding in the energy sector. It

is expected to have a positive relationship between

this indicator and the demand for green energy.

The price of electricity refers to the average price a

medium-size household pays in a year. The higher

the price of electricity from traditional sources of

energy, the higher the expected demand for green

energy. Therefore, a positive expected impact of this

indicator on the dependent variable.

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Table 1. Variables of the study

Type of variable

Variable name

Description

Abbreviation

Expected

impact

Dependent variable

Green energy

Share of green energy in final energy

consumption (%)

Independent variables

Economic variables

Foreign Direct

Investment

Net inflow of Foreign Direct Investment

(log)

FDI

Price of electricity

Electricity prices by type of user - medium-

sized households

Environmental

variables

CO2 emissions

CO2 emissions (kg per PPP $ of GDP)

CO2

Social variables

Education Index

Education index - component of the Human

Development Index

Source: Authors considerations based on literature

Environmental variables: In this category, CO2

emissions are considered to express the impact on

green energy consumption. This indicator is

expressed in kg per PPP $ of GDP. Based on the

literature, the impact of CO2 emissions on green

energy consumption is controversial.

Social variables: The social impact is expressed

through the education index, which is one of the

components of the Human Development Index

published every year by the United Nations

Development Programme. The index takes values

from 0 to 1, where higher values mean better

performance of countries in education.

Table 1 summarizes the variables of the study.

Considering these explanatory variables, green

energy determinants can be expressed:

(1)

Where β0 is the intercept and is the error term.

The econometric analysis is carried out in E-views

12. First some descriptive statistics and the

correlation matrix of the variables included in the

study are given. Then, the results of the least square

for panel data regression analysis are presented,

following these tests:

- Breusch Pagan statistics in Lagrange Multiplier

Test for Random Effect to check the null hypothesis

that the panel least square (PLS) is appropriate and

there is no cross-section or time effect.

- Hausman test to determine the appropriate model

between fixed and random effects.

- Residual statistics to test the appropriateness of the

model.

3.1 Analysis of the Results

The summary of the descriptive statistics is given in

Table 2. As mentioned in the previous sections,

green energy comprises a small share of the energy

market share in Balkan countries. For the analyzed

period, it amounts to only 0.8% of the final energy

consumption on average. It has an increasing trend

in all reported countries but remains at low levels.

This variable has the highest standard deviation

because of significant differences among countries.

The highest value is 8.8% of final energy

consumption and it refers to Greece, which has the

best indicators in green energy consumption.

Table 2. Descriptive statistics

FDI

CO2

Mean

1.96

20.89

0.12

0.22

0.81

Median

0.80

20.97

0.13

0.20

0.80

St. Dev.

2.15

0.99

0.03

0.07

0.056

Minimum

0.10

17.32

0.08

0.12

0.68

Maximum

8.80

22.33

0.17

0.42

0.91

Source: Authors calculations in E-views 12

Table 3. Correlation matrix

CO2

FDI

0.05

0.24

0.40

0.49

CO2

0.05

-0.07

0.08

-0.15

0.24

-0.07

-0.11

0.77

FDI

0.40

0.08

-0.11

-0.03

0.49

-0.15

0.77

-0.03

Source: Authors calculations in E-views 12

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Table 4. Estimation of PLS, FE, and RE models

Panel Least Square (PLS)

Fixed effects (FE)

Random effects (RE)

Variable

Coefficient

P-value

Coefficient

P-value

Coefficient

P-value

FDI

0.8550

0.0009*

0.0458

0.6514

0.8550

0.0000*

51.9912

0.0001*

35.9216

0.0001*

51.9912

0.0000*

CO2

3.4598

0.2892

-5.8790

0.0480*

3.4598

0.0046*

-10.8956

0.1093

22.4098

0.0001*

-10.8956

0.0000*

-14.4206

0.0462*

-20.5079

0.0004*

-14.4206

0.0000*

Adjusted R2

0.4198

0.5898

0.4671

Prob (F-stat)

0.0000

* p < 5%, Source: Authors calculations in E-views 12

Foreign direct investments have fluctuations

among countries. On average for the past 10 years,

the highest amount of foreign capital has been

granted to Greece and the lowest level to Slovenia.

Regarding the price of electricity, the average value

is 0.1274 euro/kwh. The highest price for the period

is 0.1767 euro/kwh. In almost all countries, there is

an increasing trend for the period.

Emissions of CO2 fluctuate in a decreasing

trend between 0.4289 to 0.1214 kg per PPP of GDP

with an average of 0.2212 kg per PPP, which is

higher than the standard for fossil CO2 emissions.

Referring to the social indicator, the average

education index is 0.8139, with variations between

0.68 and 0.92.

Based on the correlation matrix coefficients

(Table 3), all variables are positively correlated to

green energy, even though the correlation is not

very strong (values below 0.5). The strongest

positive relation of green energy is identified with

the electricity price and FDI. In addition, there is no

indication for autocorrelation, because also the

coefficients among other variables are not very high.

The panel data least square has been employed

to test the statistical impact of the independent

variables on the dependent variable. At a 95%

significance level, only FDI and PE influence the

demand for green energy. But, based on the Breusch

Pagan statistics in the Lagrange Multiplier Test for

Random Effect, we rejected the null hypothesis that

the panel least square (PLS) is appropriate (P-value

less than 5%) and concluded that we should check

for fixed or random effects. Below we have

summarized the results of the panel least squares,

fixed effect, and random effect tests.

As can be seen in Table 4, the three models are

statistically significant, and the regression results

are different in each model. To check which model

is more appropriate, the one with fixed effects or

random effects, we have used the Hausman test. The

null hypothesis is that the random effects model is

preferred. This hypothesis is rejected because the p-

value resulted less than 5%, thus the fixed effects

model is more suitable, and we can explain the

demand for green energy based on the coefficients

of this model. The R2 of the model is 58.98% which

is acceptable in cases where we use macroeconomic

indicators.

So, for a p-value = 0.05, the factors that

influence green energy consumption are the price of

electricity, the CO2 emissions, and the education

index. The foreign direct investments are not

statistically significant. The impact of electricity

price and education index is positive while the

relationship between CO2 emissions and green

energy is negative.

4 Conclusion and Discussion

In recent years, Balkan countries have undertaken

measures and policies towards the shift from

traditional energy sources to renewable ones.

However, the results are still not very positive,

especially compared to Western Europe countries.

According to data from the International Energy

Agency (IEA) and UN Statistics Division (UNSD),

Albania still focuses on providing energy from

hydro sources, which in 2019 accounted for 25.9%

of total energy consumption. Whereas, referring to

green energy sources, they constituted only 0.8% of

the total energy consumed, [20]. This level is similar

to the performance of the energy sector in Serbia

and Slovenia in 2019. In Croatia and Bulgaria, the

use of green energy was less than 3% of total energy

consumption. Countries with the lowest percentage

of green energy in the Balkans are Bosnia

Herzegovina and Kosovo (0.3% and 0.5%

respectively). The use of green energy in these

countries is significantly below the average of the

countries of Western Europe (4.3%) or Southern

Europe (5%). Only Greece had a higher use of green

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energy reaching 8.8% of total consumption in 2019,

[21].

Considering the low level of green energy

consumption, it is of high importance to understand

the driving forces of this energy source to design the

proper policies to boost its demand. Regarding

electricity prices, Balkan countries are characterized

by higher prices and inefficiencies compared to

Western Europe. Generally, an increase in energy

produced by sun and wind reduces electricity prices,

[22], [23], but the reverse impact is not always

known. In our study, an increase in electricity prices

results in a higher share of green energy. This is

expected because electricity prices refer mainly to

other sources of energy and an increase in such

prices will motivate customers to shift towards

green energy. Foreign direct investments are

positively linked with green energy, but this

relationship is not statistically significant.

An expected result refers also to the positive

relationship between the education index and the

consumption of green energy. Education plays a

significant role in economic development and

directly impacts well-being. A high education index

means a high human development stage. The

average value for the countries we have included in

our study is above the world average (0.7). In the

context of our study, education positively affects

green energy consumption because an improvement

in education level means a better quality of life and

improved well-being of people. Moreover, the more

educated the customers, the easier it will be for them

to accept new technologies. According to [6], the

ease of using solar panel systems is one of the

factors that strongly impacts the acceptance of such

systems by small and medium enterprises.

The increase in CO2 emissions decreases the

consumption of green energy. As emphasized in the

theoretical background, the CO2 impact is

controversial. The negative relationship may result

because of the main sources that cause CO2

emissions. In Albania, Croatia, and Slovenia the

fossil CO2 emissions are coming mostly from

transport, while in Greece and Bulgaria from the

power industry, [24]. Since these sectors are very

crucial in the economies of all countries and will

continue to produce CO2, this may discourage

investments in green energy. This result is in line

with conclusions from [8], [12], [25], [26].

4.1 Limitations of the Study and Directions

for Future Research

Future research is needed in the field of green

energy to enrich both theoretical and practical

frameworks. This study takes into consideration

secondary data on macroeconomic variables that

have a significant impact on green energy demand.

A valuable contribution could be to analyze the

sector from the investor or business perspective by

using primary data. This could lead to more

appropriate results and suggestions for intervention

consequently. Moreover, the analysis can be

extended to the remaining countries in the Balkans

and for a longer period, so it may be replicated to

see also if other factors serve as driving forces of

green energy consumption. The economic situation

is changing rapidly, taking into consideration the

increase in inflation, the war in Ukraine, etc., so it is

important to analyze other variable impacts in the

future.

Acknowledgement:

This research is supported by the National Agency

for Scientific Research and Innovation in Albania

through national research and development program

grants.

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Contribution of Individual Authors to the

Creation of a Scientific Article (Ghostwriting

Policy)

The authors equally contributed to the present

research, at all stages from the formulation of the

problem to the final findings and solution.

Sources of Funding for Research Presented in a

Scientific Article or Scientific Article Itself

This study was conducted with the financial support

of the National Agency for Scientific Research and

Innovation (NASRI) in Albania.

Conflict of Interest

The authors have no conflicts of interest to declare.

Creative Commons Attribution License 4.0

(Attribution 4.0 International, CC BY 4.0)

This article is published under the terms of the

Creative Commons Attribution License 4.0

https://creativecommons.org/licenses/by/4.0/deed.en

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DOI: 10.37394/23207.2024.21.63

Brunilda Neli, Dorina Koçi

E-ISSN: 2224-2899

761

Volume 21, 2024