Investment in global energy will fall by $400bn (GBP324bn) this year, the biggest slump in the industry’s history, as the Covid-19 pandemic fuels a collapse in energy demand.

The International Energy Agency (IEA) said the unprecedented investment slump follows the most severe plunge in energy demand since the second world war. The price of oil suffered an historic market crash last month when US oil prices turned negative for the first time.

The IEA said the decline in investment is “staggering in both its scale and swiftness” and will impact every major sector, from fossil fuels such as oil, gas and coal to renewable sources including wind and solar power.

In a report, the IEA said the decline in investment in areas such as clean energy technology could undermine the transition to renewable, sustainable sources of energy.

“The crisis has brought lower emissions but for all the wrong reasons,” said Fatih Birol, the IEA’s executive director. “If we are to achieve a lasting reduction in global emissions, then we will need to see a rapid increase in clean energy investment. The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems.”

The IEA said at the start of the year it forecast global energy investment would rise by 2% in 2020, the biggest annual rise in six years. It is now expected to plummet by 20% year-on-year.

Oil accounts for most of the decline as lockdowns and travel curbs across the globe wipe out demand, with investment due to plummet by a third, about $250bn, this year. Investment in shale, already under pressure as debt mounts among fracking companies, will fall by half this year.

The IEA said this decline in demand will mark a historic moment, with global consumer spending on oil due to fall below the amount spent on electricity for the first time.

The IEA said falling energy demand, lower prices and a rise of non-payment of bills will mean energy revenues going to governments and energy companies will fall by more than $1tn this year.

Financially stretched energy companies are cutting costs, including in new and existing energy projects, to fortify balance sheets.

Investment in renewable energy has proved to be more resilient than fossil fuels. However, the IEA said that in the first quarter the number of wind and solar projects given the financial go-ahead fell to a three-year low. Spending on rooftop solar panels by homes and businesses has been strongly affected, it said.

There will be a 9% decrease in spending on electricity networks this year, a “worrying signal” for the development of more secure and sustainable power systems. The report also said that investment in natural gas plants is stagnating and spending on battery storage is levelling off.

Birol said the longer-term knock-on effect of reduced investment could threaten the ability of electricity grids to handle future supply shocks.

“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,” said Birol. “These networks have to be resilient and smart to ward against future shocks. Today’s investment trends are clear warning signs for future electricity security.”

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