Stabilising or improving cash flows amid power demand recovery, the gradual pace of regulatory change and manageable transition to a low carbon economy underpin Moody's Investors Service's stable outlook for the Asia Pacific power sector in 2021.
"Our outlook for the A-Pac power sector is stable for 2021 as it has been since 2009. While the sector faced challenges this year as a result of the pandemic, they have been manageable overall and we expect broadly supportive business conditions across the region as economies recover," said Boris Kan, Moody's Vice President and Senior Credit Officer.
"We do see some challenges in India's power sector and, to a lesser extent, unregulated utilities in Australia, China and Japan driven by evolving operating conditions," said Kan on Wednesday.
India is the only market with a negative power sector outlook because of weak power demand, additional payment delays by state-owned distribution companies and policy actions aimed at reducing stress for end-users.
In China, power demand recovery and falling interest rates will offset likely tariff declines as a result of increased market liberalisation but there will be delays in subsidy payments for renewable energy operators.
Meanwhile, said Moody's, Australia's regulated utilities remain transparent and predictable but unregulated utilities will face ongoing challenges from policy uncertainty and price volatility.
In Japan, further decline in the utilities' market share from retail competition will be limited and they will maintain leading positions in their home markets. But growing overseas investments will increase their business risk and capital spending in the long term.
Meanwhile in South Korea, newly-commissioned power plants, low fuel costs and improving nuclear power utilisation will offset delays in the pass-through of fuel and environmental compliance costs.
At a macro level, most countries that have announced sector reforms will change their regulations gradually, which will support cash flow stability.
Supportive government policies and increased cost competitiveness will continue to support the region's renewable energy growth in the long term but delays in the collection of subsidies or tariffs still pose challenges.
Although coal-driven power generators' cash flows will weaken and capital spending on renewables will grow given the move to a low carbon economy, these risks are manageable in the near team as coal power will remain important for the region.
The sustained low interest rate environment will also be positive for power utilities by lowering their cost of funding, said Moody's.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
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