Energy investment to drop 20% in 2020: A turning point toward greening the grid?

Global energy investment was predicted to be at its highest in six years, according to the International Energy Agency. But in its annual World Energy Investment report out last Friday, the energy authority has dramatically changed its trendlines. 

The IEA anticipates that total energy investment is anticipated to drop by 20%—nearly $400 billion—in 2020 due to the coronavirus pandemic. 

Investment activity in oil is anticipated to be at its lowest level since 2002, and power-sector spending will finish the year at a lower level than the previous year for the first time in decades. In 2019, oil amounted to 50% of consumer spending on energy, while electricity comprised 38%. Due to decreased mobility from the pandemic, worldwide oil use is estimated to drop by more than $1 trillion in 2020. 

Huber+Suhner 500A charging cable on DC fast charger

Huber+Suhner 500A charging cable on DC fast charger

For those interested in greening the energy mix, the abrupt repositioning of the trend lines might not prove to be so bad over the long term. The new norm affected by the pandemic has exaggerated a pronounced change for consumers—as electricity rather than gasoline becomes the largest single element of consumer energy spending in the world, a switch that the EIA called historic. 

The oil industry remains in a state of shock, as it was finally catching up from a lack of refining capacity; continued investments in 2019 brought the highest level of refining capacity coming online since 2010. 

Usually the cheap gas prices created by that situation lead to an increase in driving and traveling, but this time it was up for the supply side to adapt—in some cases with very low, even negative, pricing for oil earlier in May.

The low oil prices will also bring uncertainty to the whole biofuels sector, which was already at a decade low, due largely to a lack of definitive policy direction from the Trump administration. 

2020 Chevrolet Suburban

2020 Chevrolet Suburban

The IEA noted that in 2019 a number of factors pulled vehicle efficiency away from significant improvement in 2019. That includes a lower rate of vehicle replacement and the shift toward SUVs—described as a “relentless shift towards large vehicles with relatively lower fuel economy.”

Worldwide gains in electric-car sales were modest in 2019—with the lowest rate of growth since 2011—as electric car sales contracted in the U.S. and China but expanded in Europe. So far, globally, electric-car sales are down 9% globally. 

EV market by country through 2019 - EIA

EV market by country through 2019 – EIA

Not (yet) enough to green the grid for an EV boom

The IEA report notes that utility-scale renewable power has been more resilient, and the swing in demand might end up being favorable for renewables. Although a green-energy push is no sure thing; the report notes that spending on clean energy has been mostly flat since 2015, and it’s “far from enough to bring a lasting reduction in emissions.”

In 2019, the global generation from low-carbon sources outpaced demand growth for the first time in five years—allowing the power mix to make significant strides toward a long-term “greening of the grid.” But the IEA still says that “current investment levels are not aligned with a sustainable pathway.”

Concepts preview six battery-electric cars being developed at Toyota

Concepts preview six battery-electric cars being developed at Toyota

Energy investment relative to GDP has been declining for years, but EV growth—like the 28% electric-vehicle sales mix in 2030 predicted by Bloomberg New Energy Finance last month—will require more spending. To put the world on a more sustainable track, the IEA says that spending on renewable power would need to double by the late 2020s. 

Instead, the IEA predicts that ongoing investment on renewable power projects will fall by about 10% in 2020, versus 2019. That’s based on the slowing pace of utility-scale wind and solar projects already seen in the first quarter of 2020. Spending on electricity networks had already fallen by 7% in 2019, it notes, and the crisis itself will prompt another 9% decline. 

Global investment in energy efficiency - IEA, 2020

Global investment in energy efficiency – IEA, 2020

As the agency points out, the crisis and recovery could speed the pace of change—as utilities realize, for instance, that underutilized coal plants could be shut down earlier. But it might also slow the pace of change: “Low oil prices and a reluctance to pay higher upfront costs could even usher in a new cycle of cheaper, less-efficient vehicles and appliances.”

Policymakers and, in the U.S., the elections this fall, could play a pivotal role in seeing which form that recovery takes.

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