Economic performance and financial risk analysis of energy systems under uncertainty
Energy Strategy Reviews, vol.66, 2026 (SCI-Expanded, Scopus)
- Publication Type: Article / Article
- Volume: 66
- Publication Date: 2026
- Doi Number: 10.1016/j.esr.2026.102249
- Journal Name: Energy Strategy Reviews
- Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Scopus, Compendex, INSPEC, Directory of Open Access Journals
- Keywords: China, Energy economics, Financial risk, Policy uncertainty, Provincial panel, System GMM, Threshold effects
- Azerbaijan State University of Economics (UNEC) Affiliated: Yes
Abstract
This study investigates the economic performance and financial risk dynamics associated with energy-related economic activities in China over the period 2005–2023, with a primary focus on macro-financial efficiency rather than technical system design. The analysis is grounded in an energy–economics interface, where energy consumption, pricing structures, and transition policies are treated as key economic drivers influencing profitability, capital allocation, and risk exposure across regions. A balanced provincial panel dataset is constructed to capture variations in economic performance indicators alongside financial risk measures under evolving policy and market conditions. To empirically examine these relationships, the study employs a dynamic panel econometric framework based on the two-step system Generalized Method of Moments (System GMM), which effectively addresses endogeneity, unobserved heterogeneity, and persistence in economic performance. Economic performance is proxied by indicators such as return on investment, value-added growth, and cost efficiency, while financial risk is quantified using volatility measures, leverage sensitivity, and downside risk proxies. The baseline specification incorporates lagged dependent variables and key explanatory factors including energy price fluctuations, energy intensity, capital structure, and policy uncertainty indices, allowing for a comprehensive assessment of both short-run adjustments and long-run equilibrium effects. The empirical findings reveal that energy-related economic activities exert a statistically significant and nonlinear influence on economic performance, with moderate levels of energy cost exposure enhancing efficiency, while excessive volatility in energy prices amplifies financial risk and erodes profitability. The results further indicate that financial risk is highly sensitive to policy uncertainty and carbon-related regulatory shifts, particularly in provinces undergoing rapid structural transformation. Regions with diversified economic structures and stronger financial development exhibit greater resilience, demonstrating lower risk transmission from energy price shocks to economic outcomes. Robustness checks using alternative estimators, including fixed-effects models with Driscoll–Kraay standard errors and quantile regression techniques, confirm the stability of the results across different distributional conditions. The study also identifies threshold effects, suggesting that beyond certain levels of energy price volatility, the marginal impact on financial risk increases disproportionately. These findings underscore the importance of stable policy frameworks and financial risk management strategies in sustaining economic performance. Overall, the study contributes to the energy economics and financial economics literature by providing an integrated empirical assessment of how energy-related factors shape economic efficiency and financial risk under uncertainty in China. The policy implications highlight the need for coordinated economic and financial reforms, improved risk hedging mechanisms, and more predictable regulatory environments to support and resilient economic growth.