Making Financial Systems Work for Net-Zero Transitions in Electricity Systems

The conventional risk–return management perspective explains how decarbonisation in the electricity sector and associated asset stranding impact the financial and real sectors. However, the perspective does not give satisfactory answers to the two research questions of the book: (1) why the Paris–Glasgow financial regime has been slow in progress, and (2) why emerging markets and developing economies (EMDEs) with many young coal power plants are attracted to a shift to natural gas-based electricity systems instead of those based on renewable energy sources. This chapter illustrates the costs and benefits of electricity system transitions towards net zero using the research results presented in Chapters 3, 4, 5, and 6. Our findings reveal that the benefit is substantially smaller than the total cost for EMDEs. The Just Energy Transition Partnership (JETP) can marginally addresses the gap because it maintains traditional financial risk–return thinking and optimal risk–return investments despite demanding substantial institutional and organisational reforms. While the variability of cost and benefit schedules presents opportunities for financing initiatives to accelerate net-zero transitions, such financing encounters challenges in getting acceptance from short-termist regulators and asset owners. We argue for institutional arrangements that capture the value of net-zero emissions.