The Covid-19 pandemic has set in motion the largest drop in global energy investment in history, with spending expected to plunge by $400-billion in 2020, a new International Energy Agency (IEA) report shows.
Describing the slump as “unparalleled” and “staggering” in both scale and swiftness, the ‘World Energy Investment 2020’ report forecasts that global investment will fall by 20% when compared with 2019, with potentially serious implications for energy security and clean-energy transitions.
Despite renewables investment demonstrating greater resilience than all other energy sources, IEA executive director Dr Fatih Birol warned on May 27 that clean-energy investment, which had remained stable at about $600-billion a year for the past five years, would need to more than double to meet global climate targets.
Some relief would arise from the fact that every dollar invested in new solar photovoltaic and wind projects leveraged far more capacity than it had in the past, owing to the rapid fall in technology costs.
Nevertheless, Birol expressed concern that clean energy investment would fall below $600-billion in 2020, along with investments in electricity grids, which were needed to support the integration of variable renewable energy and flexible generators.
Birol was also concerned by a recent rise in final investment decisions for coal projects in Asia relative to the downward investment trend in coal over the past number of years.
Global approvals, led by China, for new coal plants in the first quarter of 2020 were twice the rate of 2019 and there was also a 130-GW pipeline of projects under construction, also mostly in Asia.
Taking anticipated retirements into account, these projects, which would eneter production between 2020 and 2023, would lead to a net growth in the global coal fleet of around 40 GW. This, despite rising environmental-permitting and funding pressures and the fact that many coal plants were being operated well below nameplate levels globally, or being retired early.
“There is a great risk that the lockdown that the world has experienced may lead to a lock-in of obsolete energy technologies, which could determine energy patterns for years to come,” Birol cautioned during a webinar hosted by IEA to launch the report.
The report’s lead author, Tim Gould, said that governments had a crucial role to play in mitigating the risks associated with the investment slump, which could slow down the structural transformation of the energy sector.
In response to Covid-19, companies with weakened balance sheets and more uncertain demand outlooks were cutting back on investment while projects were also being hampered by lockdowns and disrupted supply chains.
The forecasts contained in the report represent a dramatic downward revision to the IEA’s initial 2020 investment projections, which predicted that global energy investment would increase by 2%, or the largest annual rise in spending in six years.
Global investment in oil and gas is expected to fall by almost one-third, with investment in shale anticipated to slump by 50%.
In the power sector, spending could fall by 10%, with the expected 9% decline in investment in electricity networks set to compound the large fall of 2019.
The IEA notes that electricity grids have been a vital underpinning of the emergency response to the health crisis and that the decline in grid-related investment represented a “clear warning signs for future electricity security”.
A combination of falling demand, lower prices and a rise in cases of non-payment of bills means that energy revenues to governments and industry are set to fall by well over $1-trillion in 2020, with oil accounting for most of this decline.
For the first time, global consumer spending on oil will fall below the amount spent on electricity.
Gould said that the IEA was engaging with government to encouraged them to integrate energy and sustainability into Covid-19 recovery strategies.
Given fiscal constraints, he said it was notable that most renewables were developed by private companies rather than State-owned utilities. Nevertheless, renewables still relied on policy certainty and, in many cases, incentives to proceed
“There is no single pathway out of the investment slump, but the response of policy makers, including whether energy and sustainability concerns are integrated into recovery strategies, will be critical,” Gould said.
Birol added that, leaving everything to markets, would not be enough to ensure that clean-energy and grid investments recovered to levels required to meet climate commitments.