Empirical analysis on economic impacts of integrating renewable energy on national grid. The case of Rwanda

Abstract

This study investigates the impacts of integrating renewable energy into Rwanda’s national grid, emphasizing its economic, environmental, and policy dimensions. using a Generalized Method of Moments (GMM) estimation model, the research analyzes the contributions of hydroelectric (LHYDRO) and thermal oil power (LTHERMO) to Rwanda’s Gross Domestic Product (GDP). The findings reveal that renewable energy significantly contributes to economic growth, with hydroelectric power showing a positive coefficient of 0.193980 (p = 0.0000) and thermal oil power possessing a coefficient of 0.355263 (p = 0.0000). These results proves the pivotal role of renewable energy in driving economic development while highlighting the reliance on thermal oil power as a transitional energy source. The study further explores the environmental implications, revealing that renewable energy sources, such as hydropower, promote sustainability by reducing reliance on fossil fuels, whereas thermal oil power negatively impacts environmental goals due to high carbon emissions. Diagnostic tests confirm the robustness of the results, validating the model’s explanatory power (R-squared = 0.748365) and the normality of residuals. Policy recommendations include expanding investments in renewable energy technologies, phasing out high-emission energy sources, enhancing energy efficiency, and fostering regional energy cooperation. Strengthening regulatory frameworks, increasing access to finance, and building technical capacity are critical for accelerating Rwanda’s energy transition. This research highlights the transformative potential of renewable energy integration in achieving economic growth, environmental sustainability, and energy security, offering valuable insights for policymakers and stakeholders in Rwanda and similar emerging economies