Assessing the potential of energy transition policy in driving renewable energy technology innovation: evidence from new energy demonstration city pilots in China

Renewable energy technology innovation (RETI) has become essential for mitigating climate change and empowering the world’s carbon peaking and neutrality targets. However, existing studies have not systematically and scientifically assessed the impact of new energy demonstration city construction (NEDCC) on RETI. This paper, based on principal–agent theory, dissects local governments’ behavioral motivations to implement NEDCC and analyzes the internal mechanism of NEDCC to promote RETI from the perspective of local government incentives and constraints. This paper utilizes the difference-in-differences model to identify the impact of NEDCC on RETI in China. The results show that NEDCC significantly and robustly enhances RETI. Both local government financial support incentives and environmental regulations constraints are important influence mechanisms. After distinguishing the types of renewable energy, NEDCC’s uplifting effect on the technological innovation of solar, biomass, and hydro-energy shows a decreasing trend. Meanwhile, NEDCC exerts a more significant policy effect in eastern, non-resource, and cities with higher levels of digital finance development. Additionally, NEDCC significantly improves neighboring cities’ RETI through spatial spillover effects. This study provides a new policy perspective to promote RETI.