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Global energy investment to tumble $400b in 2020: IEA

Issac John/Dubai
Filed on May 27, 2020
Companies with weakened balance sheets and more uncertain demand outlooks are cutting back on investment.

A combination of falling demand, lower prices and a rise in cases of non-payment of bills means that energy revenues going to governments and industry are set to fall by well over $1 trillion in 2020.

Global energy investment is expected to plunge by around 20 per cent or $400 billion in 2020 in the aftermath of the Covid-19 outbreak, the International Energy Agency (IEA) said on Wednesday.

“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.

At the start of the year, global energy investment was on track for a two per cent increase in 2020, its biggest growth in six years, the IEA said. A total of $1.8 trillion was invested in the sector in 2019.

The Paris-based IEA said a combination of falling demand, lower prices and a rise in cases of non-payment of bills means that energy revenues going to governments and industry are set to fall by well over $1 trillion in 2020. 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 energy companies have cut investments and shelved projects to shore up their finances due to the crisis,” Birol said, adding, “higher debts after the crisis will pose lasting risks to investments.”

Global investment in oil and gas is expected to fall by almost one-third. The shale industry was already under pressure, and investor confidence and access to capital has 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 nine million barrels a day, creating a clear risk of tighter markets if demand starts to move back towards its pre-crisis trajectory,” Birol said. 

“Renewables investment has been more resilient during the crisis than fossil fuels, but spending on rooftop solar installations by households and businesses have 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 nine per cent decline in investment in electricity networks this year compounds a large fall in 2019,” said Birol.

The UAE intends to spend about Dh600 billion by 2050 to meet its clean energy needs. According to S&P Global, the power companies from the GCC are planning to further invest in the global $10 trillion renewables market, expanding outside their region as demand for cleaner energy gathers pace around the world.

The report said 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. 

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 pandemic crisis has brought lower emissions but for all the wrong reasons. 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.

“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,” Dr 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,” IEA said.

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