Power companies to be stable through 2018: Moody's

This is despite challenges arising from wider renewables use.

Moody's Investors Service says that its outlook for the power sector in Asia Pacific (APAC) through 2018 is stable. However, as governments in the region implement policies to address growing carbon transition risks, business conditions across APAC will increasingly 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," says 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," adds Kang. "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."

Here's more from Moody's:

Moody's conclusions are contained in its just-released report on Moody's outlook for rated power companies in Asia Pacific through until the end of 2018 titled "Power sector — Asia Pacific: 2018 outlook stable, business conditions to diverge on carbon transition policies," and is authored by Kang.

Moody's report points out that carbon transition policies will prove a key driver of business conditions across APAC, because each country's respective target level of carbon emissions and timeframe to achieve its carbon goals will affect its particular exposure to carbon transition risks.

China's thermal power generators will face the greatest challenges in the region, owing to the sector's faster transition towards renewables, against the backdrop of overcapacity.

Moody's report also says that the prudent implementation of sector reforms will reduce the risks arising from market liberalization. Specifically, the proposed or already implemented sector reforms in most countries call for only moderate changes in the operations of most companies through until the end of 2018.

And, greater funding diversity will help the power companies 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.

Moody's explains that it could change its outlook for the sector to negative if the exposure of the majority of power companies in APAC to carbon transition risk increases substantially and/or intensified competition or sector reforms weaken business conditions.

On the other hand, the elevated industry risk mainly stemming from carbon transition risk limits the likelihood of a change in the outlook for the sector to positive during 2018.