A sobering report published today by the IEA predicts that global energy investment will plummet by $400bn in 2020, in a major turnaround from the two per cent growth it had forecast prior to the pandemic. Fossil fuels will suffer the brunt of a tighter investment environment, the report notes, with oil and gas and coal investment falling by a third and a quarter respectively. But power sector spending is also on course to wane – albeit by a slightly smaller 10 per cent – in a downward trend that could have major repercussions for the transition to a net zero energy system, according to the IEA.
Energy revenues reaped by governments and industry are set to drop by “well over $1tr” in 2020, due to a combination of falling demand, lower prices and a rising number of non-payment of bills, the IEA warns. Meanwhile, global consumer spending on electricity will surpass spending on oil for the first time ever, the report notes. After companies and projects have navigated the short-term issues caused by Covid-19 – such as supply chain issues, weakened company balance sheets and unpredictable demand – a post-crisis legacy of higher debt is likely to continue to make investment riskier in the longer term, the IEA warned. It will be felt most acutely in developing countries, which typically have fewer financing options and a more limited range of investors, the report stresses.
The overall share of global energy spending that goes to clean energy technologies such as renewables, efficiency, nuclear and carbon capture, is set to rise to 40 per cent in 2020 from one third last year, the report forecats. But, given this share is relative to plummeting levels of fossil fuel investment, the IEA emphasised that “in absolute terms, it remains far below the levels required to accelerate energy transitions”. Moreover, it predicts that electricity networks will see a nine per cent decline in investment this year, with spending on critical sources of power system flexibility and storage slowing. Investment in battery storage levelled off in the first quarter of 2020, while investment in rooftop solar installations and final investment decisions for new utility-scale wind and solar projects have slowed, the IEA adds. Investment in energy efficiency – another critical plank of the clean energy transition – is also set to fall by 10 to 15 per cent, as vehicle sales and construction activity drop and spending on energy-efficient appliances and equipment is dialled back, the report warns.
The IEA also stressed that while the Covid-19 crisis is hurting the coal industry, it will not deliver a fatal blow. The rate of approvals for new coal plants has doubled in the first quarter of 2020 compared to the rate seen throughout last year, it warned, due in large part to projects in China.
The IEA said it woud shortly be publishing another report later next month designed to offer recommendations and guidance for how governments can quickly create jobs and spur economic activity by building cleaner and more resilient energy systems.
Source: Business Green
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