September 2021 oies paper: et: 01 The Energy Transition: Key challenges for incumbent and new players in the global energy system

Figure 7: The cost trends for various sources of renewable power (excluding system 
integration costs)
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Source: IRENA, Renewable Power Generation Costs in 2020 
2.3 Finance 
Investment in new technology and the restructuring of the energy system inevitably raises the vital 
question of finance. As mentioned above, it is possible that state funding of economies across the world 
to encourage a post COVID-19 recovery could include significant spending on risk mitigation 
instruments to incentivise green energy, but ultimately a balance of private and public funding will be 
required to meet the investment requirements over the long term. With the IEA estimating that over the 
next decade $1-1.3 trillion will need to be invested in the power sector per annum (mainly in renewable 
energy and power networks), plus up to $1 trillion per annum in improving energy use in end-use 
sectors, the scale of financing needed in the energy transition is clearly large, while at the same time 
$0.6-0.8 trillion will still need to be spent on traditional fuels such as oil and gas to ensure a managed 
decline in traditional sources alongside changes in the existing system.
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The extent to which banks and other financial institutions will be prepared to take the dual risk of 
financing new technologies, while also responding to investor and societal pressure to withdraw from 
the funding of hydrocarbons, will be a key determinant of progress of the energy transition.
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The 
formation of the Network for Greening the Financial System (NGFS)
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demonstrates that Central Banks 
are taking steps to address this issue, but also highlights the key concerns that many financial 
institutions are facing. As noted above, it will also be vital to understand if governments and multilateral 
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The graph shows the global LCOEs from newly commissioned, utility-scale renewable power generation technologies.
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IEA World Energy Outlook 2020, Launch Presentation, page 44 sourced from 
https://iea.blob.core.windows.net/assets/fd69e584-f43f-400b-9702-f5a6dc9c3156/WEO2020-Launch-Presentation.pdf 
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For a discussion on this topic see Fattouh, B., Poudineh, R., & West R. (2019). 
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For detail see https://www.ngfs.net/en

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The contents of this paper are the author
’s sole responsibility. They do not necessarily represent the views
of the Oxford Institute for Energy Studies or any of its Members. 
agencies will allow competitive markets to operate in the efficient selection of new technologies or 
whether they may feel compelled to 
“pick winners.” The decisions taken on this issue will shape the risk 
profiles for investments and provide signals for those seeking to finance them.