The COVID-19 pandemic has set in motion the largest drop on record of $400 billion in global energy investments, marking a 20% annual decline, International Energy Agency's flagship report Global Energy Investments 2020 revealed on Wednesday.
According to the report, at the start of 2020, global energy investments were on track for growth of around 2%, which would have been the largest annual rise in spending in six years.
However, the global pandemic crisis brought large swathes of the global economy to a standstill in a matter of months.
As a result of weakened balance sheets, uncertainty in the global economy and a fall in energy prices, companies are cutting back on investments while lockdowns and disrupted supply chains are hampering projects.
The report showed that global energy investments are anticipated to drop to around $1.5 trillion in 2020, corresponding to a fall of $400 billion compared to 2019.
“The historic plunge in global energy investment is deeply troubling for many reasons. It means lost jobs and economic opportunities today, as well as lost energy supply that we might well need tomorrow once the economy recovers," Fatih Birol, the IEA’s executive director was quoted as saying.
"The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems," he noted.
According to the report, global investments in oil and gas are expected to fall by almost one-third while investments in the shale industry are anticipated to fall by 50% this year.
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, the report said.
Global power sector investments are expected to fall by 10% raising concerns over the development of more secure and sustainable power systems.
“Electricity grids have been a vital underpinning of the emergency response to the health crisis and of economic and social activities that have been able to continue under lockdown,” Birol said.
"These networks have to be resilient and smart to ward against future shocks but also to accommodate rising shares of wind and solar power. Today’s investment trends are clear warning signs for future electricity security," he warned.
Although renewables investments have been more resilient during the crisis than fossil fuels, spending on rooftop solar installations by households and businesses has been strongly affected.
The IEA said that 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.
By Gulsen Cagatay and Nuran Erkul Kaya