Global investment in clean energy stood at $254 billion (£155bn) last year, down from $286bn in 2012 and a record $318bn in 2011.
The falling cost of solar panels and a lack of investor confidence caused by policy challenges in Europe and the United States were blamed for the fall.
Investment dipped by 3.8% in China and fell by 8.4% in the US, but plunged by 41% in Europe as countries including France, Germany and Italy cut their subsidies.
In contrast, Japanese investment soared by 55% thanks to a surge in demand for solar panels following the closure of the country’s nuclear power stations.
Michael Liebreich, founder and chairman of the advisory board for Bloomberg NEF, said:
“A second successive year of decline in investment will come as unwelcome news to the clean energy sector, but the top-line figures don’t tell the whole story.
“Investment in Europe crashed, in large part because of the falling cost of solar installations, whose volume worldwide actually grew by around 20% to a new record.
“Outside Europe, the picture was mixed, with some countries increasing and others reducing investment, and Japan the clear leader in terms of growth.”