The impact mechanism of political risk on foreign renewable energy investment in developing countries: The mediating role of vulnerability

Abstract

Faced by the unprecedented challenge of energy transition and deteriorating global political environment, political risk is considered a major deterrent to foreign renewable energy investment, particularly in developing countries. Despite this recognition, the mechanism by which various impacts of political risk on foreign renewable energy investment across countries are mediated by the internal vulnerability has not been revealed. Therefore, this study endeavors to address this by analyzing the dataset covering 61 developing countries over the time period 1989 to 2022, using cluster analysis and partial least squares structural equation modeling. Results reveal that foreign renewable energy investment significantly suffers from governmental, societal, and economic environmental risks, with the risk exposure of renewable energy projects amplifying these impacts, in countries with high per capita GDP and low renewable energy consumption. In countries with low GDP and high renewable energy consumption, foreign renewable energy investment is mostly undeterred by policy and regulatory risks, while the capacity of multinational enterprises serves to moderate negative impacts. The findings add to body of knowledge in the domain of risk management in foreign renewable energy investment by highlighting the divergent mechanism pathways of FREI's vulnerability on political risk's impacts across different jurisdictional environments. This understanding of the sources of vulnerability to various manifestations of political risk should augment interested parties' efforts to facilitate greater success in foreign renewable energy investment, and promote the achievement of Sustainable Development Goals (SDGs).