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COVID-19 causes biggest energy investment drop in history

Utility-scale wind and solar have both been hit in Q1 of 2020.

Utility-scale wind and solar have both been hit in Q1 of 2020.

COVID-19 has sent investment in the power sector tumbling, with the International Energy Agency (IEA) expecting power sector spending alone to fall by 10% in 2020.

A new report produced by the Agency, World Energy Investment 2020, suggests that this drop gives “worrying signals” regarding the development of more secure and sustainable power systems. Overall, this year is expected to see the largest drop in global energy investment in history due to the pandemic.

It has therefore urged world countries to drive a doubling of renewable investment this decade, helping reverse a flatlining aggravated by the COVID-19 outbreak.

While renewable energy has been more resilient than many others, it has still felt the impact of COVID-19. In particular, rooftop solar has been greatly affected as lockdown measures in the UK and elsewhere have made it impossible for work to continue.

Utility-scale wind and solar have both been hit in Q1 of 2020, with final investment decisions falling back to the levels they were at three years ago.

Beyond generation, investment in electricity networks are expected to fall 9% year-on-year in 2020. This will further compound a fallback seen last year in the sector, while aspects like flexibility and battery storage investment have stalled.

“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 Fatih Birol, the IEA’s executive director 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.”

This has been keenly felt in the UK, where energy demand has seen around a 20% drop on average since the beginning of lockdown on 23 March. Due to this, National Grid ESO has found it challenging to keep the grid balanced, particularly over bank holidays. It has had to bring in a number of tools, and it is predicted that it will cost the operator an additional ~£500 million in balancing costs.

The fall in demand, combined with lower prices and a rise in cases of non-payment of bills will cause revenues going to both industry and government to fall by US$1 trillion (£811 billion) in 2020 globally.

While this knock-back for renewables is a concern, fossil fuels will feel the impact of COVID-19 more acutely, according to the IEA. Investment in oil and gas is expected to fall by almost one-third worldwide this year. Shale gas will be particularly heavily hit, with investment anticipated to fall by 50% in 2020.

This dramatic fall will actually lead to the share of investment in renewables to grow, reaching towards 40%. But this is purely because fossil fuels have been hit harder, and in real terms it will still fall.

Prior to COVID-19, the IEA was predicting investment into energy to grow by 2% throughout 2020. But now global investment is expected to plummet by 20% compared with last year, coming in at almost US$400 billion (£323 billion).

“The 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.

“The response of policy makers – and the extent to which energy and sustainability concerns are integrated into their recovery strategies – will be critical.”

In a recent Renewable Market Update report by the IEA, it found that while COVID-19 looks set to hurt renewable growth in the short term, it will not halt it.

This comes after the UK has seen a number of records for green generation set, and there has now been no coal on the grid for the longest time since the industrial revolution.

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