The Covid-19 pandemic is causing the largest drop in global energy investment in history, with spending expected to plunge in every major sector this year – from fossil fuels to renewables and efficiency.
The International Energy Agency (IEA) said this in a new report named "World Energy Investment 2020" released on May 27.
Covid-19 crisis brought large swathes of the world economy to a standstill in a matter of months, global investment is now expected to plummet by 20 per cent, or almost $400 billion, compared with last year, according to the report.
Impacts are felt across the energy world, from fuel and power supply to efficiency, with serious implications for energy security and clean energy transitions.
"The historic plunge in global energy investment is deeply troubling for many reasons," said Dr Fatih Birol, the IEA's executive director.
"It means lost jobs and economic opportunities today, as well as lost energy supply that we might well need tomorrow once the economy recovers. The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems," he added.
The World Energy Investment 2020 report's assessment of trends so far this year is based on the latest available investment data and announcements by governments and companies as of mid-May, tracking of progress on individual projects, interviews with leading industry figures and investors, and the most recent analysis from across the IEA.
The estimates for 2020 then quantify the possible implications for full-year spending, based on assumptions about the duration of lockdowns and the shape of the eventual recovery.
A combination of falling demand, lower prices and a rise in cases of non-payment of bills mean that energy revenues going to governments and industry are set to fall by well over USD1 trillion in 2020, according to the report.
Oil accounts for most of this decline as, for the first time, global consumer spending on oil is set to fall below the amount spent on electricity.
Global investment in oil and gas is expected to fall by almost one-third in 2020. The shale industry was already under pressure, and investor confidence and access to capital have now dried up: investment in shale is anticipated to fall by 50 per cent in 2020.
At the same time, many national oil companies are now desperately short of funding.
For oil markets, if investment stays at 2020 levels then this would reduce the previously-expected level of supply in 2025 by almost 9 million barrels a day, creating a clear risk of tighter markets if demand starts to move back towards its pre-crisis trajectory.
Power sector spending is on course to decrease by 10 per cent in 2020, with worrying signals for the development of more secure and sustainable power systems.
Renewables investment has been more resilient during the crisis than fossil fuels, but spending on rooftop solar installations by households and businesses has been strongly affected and final investment decisions in the first quarter of 2020 for new utility-scale wind and solar projects fell back to the levels of three years ago.
An expected 9 per cent decline in investment in electricity networks this year compounds a large fall in 2019, and spending on important sources of power system flexibility has also stalled, with investment in natural gas plants stagnating and spending on battery storage levelling off.
Energy efficiency, another central pillar of clean energy transitions, is suffering too.
Estimated investment in efficiency and end-use applications is set to fall by an estimated 10-15 per cent as vehicle sales and construction activity weaken and spending on more efficient appliances and equipment is dialled back.
The overall share of global energy spending that goes to clean energy technologies – including renewables, efficiency, nuclear and carbon capture, utilisation and storage – has been stuck at around one-third in recent years. In 2020, it will jump towards 40 per cent, but only because fossil fuels are taking such a heavy hit. In absolute terms, it remains far below the levels that would be required to accelerate energy transitions.
The Covid-19 crisis is hurting the coal industry – with investment in coal supply set to fall by one-quarter this year – but does not pose an existential threat.
Although decisions to go ahead with new coal-fired plants have come down by more than 80 per cent since 2015, the global coal fleet continues to grow.