Global investment in energy could shrink by 20 per cent this year due to the Covid-19 crisis, with both renewables as well as fossil fuels set to suffer from what is gearing up to be the largest drop in energy spending of all time, the International Energy Agency (IEA) has warned.

A sobering report published today by the IEA predicts that global energy investment will plummet by $400bn in 2020, in a major turnaround from the two per cent growth it had forecast prior to the pandemic.

Fossil fuels will suffer the brunt of a tighter investment environment, the report notes, with oil and gas and coal investment falling by a third and a quarter respectively.

But power sector spending is also on course to wane - albeit by a slightly smaller 10 per cent - in a downward trend that could have major repercussions for the transition to a net zero energy system, according to the IEA.

"The historic plunge in global energy investment is deeply troubling for many reasons," explained IEA executive director Dr Fatih Birol. "It means lost jobs and economic opportunities today, as well as lost energy supply that we might well need tomorrow once the economy recovers. The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems."

Energy revenues reaped by governments and industry are set to drop by "well over $1tr" in 2020, due to a combination of falling demand, lower prices and a rising number of non-payment of bills,  the IEA warns. Meanwhile, global consumer spending on electricity will surpass spending on oil for the first time ever, the report notes.

After companies and projects have navigated the short-term issues caused by Covid-19 - such as supply chain issues, weakened company balance sheets and unpredictable demand - a post-crisis legacy of higher debt is likely to continue to make investment riskier in the longer term, the IEA warned. It will be felt most acutely in developing countries, which typically have fewer financing options and a more limited range of investors, the report stresses.

The overall share of global energy spending that goes to clean energy technologies such as renewables, efficiency, nuclear and carbon capture, is set to rise to 40 per cent in 2020 from one third last year, the report forecats. But, given this share is relative to plummeting levels of fossil fuel investment, the IEA emphasised that "in absolute terms, it remains far below the levels required to accelerate energy transitions".

Moreover, it predicts that electricity networks will see a nine per cent decline in investment this year, with spending on critical sources of power system flexibility and storage slowing. Investment in battery storage levelled off in the first quarter of 2020, while investment in rooftop solar installations and final investment decisions for new utility-scale wind and solar projects have slowed, the IEA adds.

"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," Birol said. "These networks have to be resilient and smart to ward against future shocks but also to accommodate rising shares of wind and solar power. Today's investment trends are clear warning signs for future electricity security."

Investment in energy efficiency - another critical plank of the clean energy transition - is also set to fall by 10 to 15 per cent, as vehicle sales and construction activity drop and spending on energy-efficient appliances and equipment is dialled back, the report warns.

The IEA also stressed that while the Covid-19 crisis is hurting the coal industry, it will not deliver a fatal blow. The rate of approvals for new coal plants has doubled in the first quarter of 2020 compared to the rate seen throughout last year, it warned, due in large part to projects in China.

But Birol said policymakers could play an important role in boosting clean energy investment critical to the net zero transition. "The crisis has brought lower emissions but for all the wrong reasons," he explained. "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 response of policymakers - and the extent to which energy and sustainability concerns are integrated into their recovery strategies - will be critical."

The IEA said it woud shortly be publishing another report later next month designed to offer recommendations and guidance for how governments can quickly create jobs and spur economic activity by building cleaner and more resilient energy systems.