Summary 

Georgia’s geographic location, distribution of the natural resources and the level of economic development of the country makes the renewable energy industry as the one of the most vibrant, fast-changing, and transformative sectors of the Georgian economy. However, according to the great majority of the studies, Georgia has only partially utilizes its hydropower resources and has just begun studding potential of the wind energy. Furthermore, almost unused solar energy and nontraditional renewable energy sources could be considered as a wasted potential for the country. It worth mentioning that alongside with the unrealized potential, Georgia’s electricity production is characterized by seasonality – the country is importing electricity in winter, while exporting it in the summer. The notable seasonal variation of the electricity production underlines importance of diversifying renewable energy sources.

Under considering the role of the renewable energy sector in the economic development, the empirical literature identifies three hypothesis of the causal relationship between the growth of the renewable energy consumption and economic development: growth hypothesis, conservation hypothesis and hypothesis of the feedback causality. According to the growth hypothesis, the increased growth of the renewable energy consumption causes higher economic growth. Conservation hypothesis identifies one-sided causal relationship from the economic growth to the growth of the renewable energy consumption. While, the hypothesis of the feedback causality states a bilateral causal linkage between the output and renewable energy consumption. This study aims to develop methodology of testing causal relationship between these two variables.