The worldwide shock caused by the coronavirus (Covid-19) pandemic has drastically altered the course of the global economy and energy markets. In response, this year’s World Energy Investment (WEI) has expanded its coverage to integrate the latest data and insights on the unfolding crisis in 2020, in addition to a full review of 2019.

As the International Energy Agency’s (IEA) annual benchmark for tracking energy capital flows, the focus in this report is on investment and financing trends across all areas of energy supply, efficiency, and research and development (R&D). Our aim is to provide timely and authoritative data and analysis to policy makers, investors and other stakeholders, as well as insights on risks to energy security and sustainability, and what can be done to mitigate them.

Broadening the scope of the World Energy Investment to include a perspective on 2020 requires a view on the severity and duration of the ongoing public health crisis and economic slowdown, and recognition of the huge uncertainty that surrounds these factors. The assumptions that underpin this analysis follow those of the IEA Global Energy Review 2020, released in April (IEA, 2020a), which assessed energy and emissions trends for the year.

The baseline expectation for 2020 is a widespread global recession caused by prolonged restrictions on mobility and social and economic activity. With a gradual opening up of economies currently under lockdown, the recovery is U-shaped and accompanied by a substantial permanent loss of economic activity. Global gross domestic product (GDP) is assumed to decline by 6% in 2020, an outlook broadly consistent with the International Monetary Fund (IMF) longer outbreak case (IMF, 2020).

The effects on energy investment in this scenario come from two directions. First, spending cuts due to lower aggregate demand and reduced earnings; these cuts have been particularly severe in the oil industry, where prices have collapsed. Second, the practical disruption to investment activity caused by lockdowns and restrictions on the movement of people and goods.

Our assessment of 2020 trends is based the latest available investment data and announcements by governments and companies, as of mid-May (including first-quarter company reporting), tracking of progress with individual projects, interviews with leading industry figures, and incorporates also the latest insights and analysis from across IEA work. Our estimates for 2020 then quantify the possible implications for full-year spending, based on assumptions about the duration of lockdowns and the shape of the eventual recovery.

There is some potential upside to this assessment if medical and macroeconomic crisis management efforts are more successful than in our base case, allowing for a more rapid V-shaped economic recovery and a more pronounced pickup in investment activity in the latter part of the year.

By the same token, there is also the distinct possibility of an even more profound slump in investment spending, especially in the event that a second wave of infections later in the year prompts renewed restrictions and lockdowns. Whichever ways events unfold, policy responses – whether targeting energy or the economy at large – will have a major impact on the outcome.

The impacts of the Covid-19 crisis on energy demand and emissions provide an essential backdrop to this World Energy Investment report. The most pertinent elements of this picture are summarised here, and described in more detail in the IEA Global Energy Review 2020.

A key insight from the analysis of daily data (through mid-April) is that countries in full lockdown are experiencing an average 25% decline in energy demand relative to typical levels and countries in partial lockdown an average 18% decline.

Oil is bearing the brunt of this shock because of the curtailment in mobility and aviation, which represent nearly 60% of global oil demand. At the height of the lockdowns in April, when more than 4 billion people worldwide were subject to some form of confinement, year-on-year demand for oil was down by around 25 mb/d. For the year as a whole, oil demand could drop by 9 mb/d on average, returning oil consumption to 2012 levels.

After oil, the fuel most affected by the crisis is set to be coal. Coal demand could decline by 8%, not least because electricity demand is estimated at nearly 5% lower over the course of the year. The recovery of coal demand for industry and electricity generation in the People’s Republic of China (hereafter, “China”) could offset larger declines elsewhere.

The impact of the pandemic on gas demand in the first quarter of the year was more moderate, at around 2% year-on-year, as gas-based economies were not strongly affected. But gas demand could fall much further across the full year than in the first quarter, with reduced demand in power and industry applications.

In the electricity sector, demand has been significantly reduced as a result of lockdown measures, with knock-on effects on the power mix. Electricity demand has been depressed by 20% or more during periods of full lockdown in several countries, as upticks for residential demand are far outweighed by reductions in commercial and industrial operations. Demand reductions have lifted the share of renewables in the electricity supply, as their output is largely unaffected by demand. Demand has fallen for all other sources of electricity, including coal, gas and nuclear power.

For the year as a whole, output from renewable sources is expected to increase because of low operating costs and preferential access to many power systems. Nuclear power is expected to decline somewhat in response to lower electricity demand. In aggregate, this would mean that low-carbon sources far outstrip coal-fired generation globally, extending the lead established in 2019.

Global CO2 emissions are expected to decline by 8%, or almost 2.6 Gt, to the levels of ten years ago. Such a year-on-year reduction would be the largest ever, six times larger than the previous record reduction of 0.4 Gt in 2009 – caused by the global financial crisis – and twice as large as the combined total of all previous reductions since the end of World War II. After previous crises, the rebound in emissions has been larger than the initial decline. Whether this is the case also on this occasion is largely contingent on what happens to energy investment.