Abstract
The energy transition of SMEs is a crucial factor for sustainability in developing economies. This paper examines the significant effects of expanding renewable energy on the energy expenditures of small- and medium-sized enterprises (SMEs) in Mongolia from 1990 to 2022, using the ARDL method. The results show that while the shift to eco-friendly energy significantly reduces SMEs’ energy consumption over the long term, the short-term benefits of strong governance play a key role in facilitating this green transition. However, challenges such as increasing energy intensity, reliance on energy imports, and population growth pose considerable obstacles to achieving sustainability. The negative coefficient of the Error Correction Term suggests a robust mechanism for correcting deviations from long-term equilibrium, emphasizing the resilience of SMEs’ energy dynamics. To ensure a successful green transition for SMEs, the paper recommends increasing investments in renewable energy infrastructure, introducing government incentives, improving governance frameworks, and addressing challenges related to energy intensity and imports. Furthermore, policymakers should prioritize urban planning and infrastructure that supports sustainable energy use, as population growth drives increased energy demand.