ENERGY DEMAND, INCENTIVE POLICIES, AND RENEWABLE ENERGY PRODUCTION: EVIDENCE FROM SOUTH AFRICA

Abstract

This study assesses the role of energy demand and incentive-based policies in promoting renewable energy production in South Africa, with particular emphasis on policy implications for developing economies undergoing energy transition. Given the country’s continued reliance on coal and rising energy demand, understanding the effectiveness of policy instruments is essential for sustainable energy planning. Using annual data from 2004 to 2023, the study applies the AutoRegressive Distributed Lag (ARDL) approach to examine short- and long-run relationships among the variables. The findings indicate that increasing energy demand significantly stimulates renewable energy production, while incentive policies play a critical role in strengthening supply responses by reducing investment risks and improving market certainty. The results further confirm a stable long-run equilibrium, supported by a relatively fast adjustment mechanism. From a policy perspective, the study highlights that successful renewable energy expansion requires not only market-driven demand growth but also consistent and well-designed incentive policies to effectively channel investment toward clean energy development.