Global energy investment fell by 12% in 2016, the second consecutive year of decline, as increased spending on energy efficiency and electricity networks was more than offset by a continued drop in upstream oil and gas spending, according to the International Energy Agency’s annual World Energy Investment report.

Global energy investment amounted to $1.7 trillion in 2016, or 2.2% of global GDP.

For the first time, spending on the electricity sector around the world exceeded the combined spending on oil, gas and coal supply.

The share of clean-energy spending reached 43% of total supply investment, a record high.

China, the world’s largest energy investor, saw a 25% decline in coal-fired power investment last year and is increasingly driven by clean electricity generation and networks, as well as energy efficiency investment.

The United States saw a sharp decline in oil and gas investment, and accounted for 16% of global spending. India was the fastest-growing major energy investment market, with spending up 7% thanks to a strong government push to modernise and expand the power sector.

Government policies drive energy efficiency spend

“Our analysis shows that smart investment decisions are more critical than ever for maintaining energy security and meeting environmental goals,” said Dr Fatih Birol, the IEA’s Executive Director.

“As the oil and gas industry refocuses on shorter-cycle projects, the need for policymakers to keep an eye on the long-term adequacy of supply is more important. Even with ambitious climate-mitigation goals, current investment activity in oil and gas will have to rise from its current slump.”

Dr Birol added: “The good news is that in spite of low energy prices, energy efficiency spending is rising thanks to strong government policies in key markets.”

For the first time, the report tracks investment financing sources across the entire energy sector.

More than 90% of investments are financed from the balance sheets of companies, governments and households, reinforcing the importance of sustainable industry earnings in funding the energy sector.

Energy-efficiency investment rose 9% to $231 billion with China, the fastest-growing region, accounting for 27% of the total last year.

At this rate, China could overtake Europe, the largest spender on energy efficiency, within a few years.

More than half of the global investment in energy efficiency went to buildings, including efficient appliances, which account for a third of the world’s total energy demand.

> Read the IEA report in full