When people aren't sure where interest rates are going, they actually dump more money into renewable energy.
Standard economic theory suggests that uncertainty kills investment in capital-heavy sectors like renewables. However, in sophisticated financial markets, volatility acts as a catalyst by prompting institutional investors to strategically rebalance their portfolios toward green assets.
The Impact of Interest Rate Uncertainty on Renewable Energy Investment: Empirical Evidence from OECD Countries
SSRN · 6469731
Conventional wisdom, grounded in real options theory, posits that interest rate uncertainty unequivocally deters investment, particularly in capital-intensive renewable energy. However, this view overlooks potential heterogeneity in how financially diverse economies respond to volatility. This paper challenges the presumption of a uniformly negative effect by investigating the asymmetric impact of interest rate uncertainty on renewable energy investment (REI) across 23 OECD countries (1992–2023)