IEA says global power sector to see almost $80 bil drop in investment in 2020

The International Energy Agency's executive director said Thursday that with an historic $400 billion decline in overall energy investment in 2020 expected, the global power sector will account for almost $80 billion of that, "a record 10% drop that takes spending down to the level it was at a decade ago."

At the start of 2020, many companies and investors were optimistic that this year would bring a boost to capital spending in the power sector, with renewables, grids and flexibility options like storage set to benefit, the IEA said in a report released Wednesday.

"However, the economic crisis that unfolded with the spread of the COVID-19 pandemic has upended those expectations," Fatih Birol, the IEA executive director, said while speaking on a Columbia University Center on Global Energy Policy webcast Thursday.

"The COVID-19 crisis has highlighted how much modern societies depend on electricity, and has 'squeezed' the capital flows on which a healthy electricity sector depends," he added.

In 2019, advanced economies, developing economies and China invested a combined total of $757 billion in battery storage, electricity networks, renewables, nuclear generation and fossil fuel generation.

The Paris-based IEA is projecting investments will 2020 to total $678 billion, a decline of $79 billion.

THE GRID

When it comes to the global grid, the findings of the IEA study "are deeply troubling," Birol said Thursday.

He pointed to the data showing a $25 billion, or 9% decline in global grid investments this year compared with the $273 billion invested in 2019. "The global trajectory for [grid] investment is discouraging," Birol said.

"Key electricity infrastructure can often take much longer to develop than fast-moving technologies, such as solar PV and electric vehicles," the IEA report said. "In that context, today's investment levels in networks, flexibility and storage are out of step with future pathways that would safeguard electricity security."

Birol echoed the agency's report when he said that the most exposed power companies to the investment decline are fossil fuel-based electricity producers that rely on revenues from wholesale markets.

Spending on fossil fuel-fired power plants is expected to fall by 15% in 2020, the report said. "While many of them currently benefit from price hedging, this may be limited in duration and scope," it added.

Birol noted that investments in coal-fired plants had already been falling sharply in recent years, and that trend would continue in 2020.

"However, while these investments may be down, they are not out. The size of the overall global coal fleet continues to grow as additions to capacity – concentrated in Asia – outweigh retirements," he said.

The agency's study noted that declines in hydrocarbon revenues are hitting investment in new natural gas-fired generation in regions such as the Middle East and North Africa.

RENEWABLES

Capital expenditure on renewables – the largest segment of total power sector spending – is set to fall by 10% in 2020.

"Investment in renewable power has held up better than in other generation technologies, reflecting supportive policies for wind, solar PV and other renewables," the report said.

According to the data, $311 billion was invested globally in renewables in 2019, while investments in 2020 are expected to drop $30 billion to $281 billion.

The single biggest drop is expected in the advanced economies, where $150 billion were invested in renewables in 2019 and $130 billion is projected for 2020.

"Renewable power producers that sell on long-term contracts, supported by policies and corporate buyers, have a greater degree of protection," the report said, "but they may also face growing payment risks from cash-strapped utilities and market risks in regions where policies are shifting."

The coronavirus pandemic has pushed back development timelines for some projects, the IEA said.

"A major drop in distributed solar PV is expected as individual households and small-to-medium-sized enterprises install fewer solar panels at home or on business premises in 2020," it said.

The IEA said that final investment decisions for new utility-scale solar and wind projects in the first quarter of 2020 fell back to the levels of 2017 and remain "well below" what would be required to meet international climate goals.

"That said, investments in offshore wind and hydropower – technologies with long project lead times – are set to rise as projects around the world that were already underway before the crisis continue," it added.