Record drop in energy investment, warns IEA think-tank

Andrew Cummings
May 28, 2020

The EIA said that this marks the biggest predicted drop in the worldwide energy investment in history and it could have "serious" side effects on the energy security and clean energy transitions.

Governments are easing restrictions put in place to curb the spread of the virus after the confinement of around three billion people brought the global economy to a near standstill.

It notes that at the start of the year the agency forecasted energy investment would rise by 2% in 2020, the biggest annual rise in six years, but it is now expected to "plummet" by 20%.

"The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems", said Dr Fatih Birol, the IEA's executive director.

Adding that "It means lost jobs and economic opportunities today, as well as lost energy supply that we might well need tomorrow once the economy recovers".

Investment in global energy to drop by $400bn

The coronavirus crisis is causing the biggest fall in global energy investment in history.

The International Energy Agency (IEA) said the unprecedented investment slump follows the most severe plunge in energy demand since the second world war.

While oil will see the brunt of reduced investments, the green energy sector is also expected to be adversely affected according to the IEA, with investments in energy efficiency and end use applications set to fall by 10-15 per cent.

Overall energy investment has fallen nearly $400bn (£324.3bn) short of what was expected in 2020, and the IEA says there are now serious doubts about secure energy supplies when the global economy picks up, because energy projects take so long to deliver.

Investment in shale is anticipated to fall by 50% in 2020 "due to loss in investor confidence" and the fact "access to capital has now dried up" according to the IEA. At the same time, many national oil companies are now desperately short of funding.

The study now forecasts global investment is to "plummet" by 20%, compared with previous year, in the wake of lockdowns around the world to contain the spread of Covid-19.

IEA is also forecasting that oil demand could drop by 9 million barrels per day by 2025. "Today's investment trends are clear warning signs for future electricity security".

Of the $1.52tn set to be spent on energy this year - down from $1.89tn last year - $575bn will be spent on the fuel sector and $678bn on power.

In 2020 it will jump towards 40% of total investment - but that's only relative, because fossil fuels are taking such a battering.

"It shouldn't be as a result of Covid, it should be as a result of the right energy policies". Developing countries, especially those with significant hydrocarbon industries, see the most dramatic effects of the crisis, as falling revenues pass through more directly to lower funds for investment. "If we are to achieve a lasting reduction in global emissions, then we will need to see a rapid increase in clean energy investment", said Dr Birol.

"In absolute terms, it remains far below the levels that would be required to accelerate energy transitions", stated the IEA.

The IEA chief called on governments to favour clean energy projects in their coronavirus recovery plans.

Decisions to commission new coal-fired plants are down more than 80% since 2015, but the global coal fleet continues to grow.

"The speed and scale of the fall in energy investment activity in the first half of 2020 is without precedent".

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