The spread of the Covid-19 pandemic is set to bring the largest decline in energy investment on record, a reduction of one-fifth – or almost $400 billion – in capital spending compared with 2019, said the International Energy Agency’s (IEA) World Energy Investment 2020 report.

The effects on energy investment come from two directions. First, spending cuts due to lower aggregate demand and reduced earnings; and second, the practical disruption to investment activity caused by lockdowns and restrictions on the movement of people and goods.

Oil (50 per cent) and electricity (38 per cent) were the two largest components of worldwide consumer spending on energy in 2019. However, IEA estimates that spending on oil will plummet by more than $1 trillion in 2020, while power sector revenues drop by $180 billion.

The revisions to planned spending have been particularly brutal in the oil and gas sector, where there has been a year-on-year fall in investment in 2020 of around one-third.

Overall, China, the largest market for investment and a major determinant of global trends, sees a 12 per cent decline in energy spending in 2020; the US sees a larger fall in investment of over 25 per cent; and Europe’s estimated decline is around 17 per cent.

Developing countries, especially those with significant hydrocarbon industries, see the most dramatic effects of the crisis, as falling revenues pass through more directly to lower funds for investment.

Overall, ongoing investment in renewable power projects is expected to fall by around 10 per cent for the year, less than the decline in fossil fuel power. Capacity additions are set to be lower than 2019 as project completions get pushed back into 2021.