The outlook from Moody’s Investors Service for the power sector in the Asia-Pacific (APAC) region through 2018 is stable, but as regional governments begin to tackle carbon transition risks, business conditions across the region will begin to diverge.
"The key factors supporting our stable outlook for the power sector in APAC are the steady market structures or consistency of returns in the region," said Mic Kang, a Moody's vice president and senior analyst. "Growing demand for electricity will help most Moody's-rated power companies with dominant or stable market positions maintain adequate dispatch volumes, despite challenges from renewables. As for the higher environmental costs associated with carbon transition policies, such costs will remain manageable, because of the gradual implementation of initiatives, cost pass-through and/or compensation through subsidies."
Carbon transition policies will become an important driver of business conditions in APAC, as each country’s target emissions level and the deadline to reach it will affect its exposure to carbon transition risks, Moody’s said. China’s thermal power generators are likely to face the biggest issues in the region while the sector faces overcapacity as it moves rapidly into renewables.
Sector reforms in most APAC countries are suggesting only modest changes to the way companies operate through 2018, which should help reduce the associated risks with liberalization policies, analysts said. Meanwhile, the power companies will see greater funding diversity that will allow them to expand capacity and develop renewables. “Given their large investment needs, a multi-pronged approach that combines bank loans with institutional debt capital will help boost private sector debt capacity.” Moody's says that “while corporate-type debt will remain dominant through 2018, debt funding across APAC will gradually include more project bonds.”
– Nicholas Stern, managing editor