Asian thermal power producers to brace for medium to long-term headwinds in 2017

No thanks to lower dispatch volume and higher investment on meeting new environmental policies.

According to BP Statistics, the Asia Pacific region accounted for 48% of global carbon dioxide emissions in 2015. The largest CO2 emitters were China and India, followed by Japan, Korea, Indonesia and Australia.

Moody's reported that coal accounted for 30% or above of power generation volume in all countries in 2015, except Singapore and Thailand.

Thermal power generators without contracted revenues will likely face medium- to long-term pressure. This is because tariff systems in many countries may not fully compensate generators for lower dispatch volume stemming from growth of low marginal cost renewable or nuclear generation, or investments to meet environmental regulations. 

"Moreover, in deregulated markets such as Australia, thermal generators will also be exposed to increased volatility and a likely longer term decline in spot prices to the extent renewable generation capacity ramps up," it said.

Here's more from Moody's:

In general, thermal power companies will be adversely impacted by growing renewables and/or nuclear power, which have priority over thermal power sources, including coal, oil and natural gas. Similarly, declining battery costs will encourage adoption of distributed generation technology in many countries, further pressuring demand for on-grid thermal power over time.

That said, we believe that grids will remain an essential component of the energy supply chain. However, we believe environmental risk is manageable for most rated thermal power companies during the outlook period, because carbon reduction initiatives will be gradually implemented, and/or regulated or government-controlled market structures will allow companies to maintain adequate dispatch capability.

In addition, the rated unregulated power utilities in Australia have quality generation assets and strong presence in the retail market, and plans to develop renewable and new technology businesses.