THE ASIA-PACIFIC power sector outlook for 2018 will be stable, Moody’s Investors Service said, adding that business conditions across the region will increasingly diverge as governments implement policies to address growing carbon transition risks.

“The key factors supporting our stable outlook for the power sector in [Asia-Pacific] are the steady market structures or consistency of returns in the region,” said Mic Kang, a vice-president and senior analyst at Moody’s, in a statement.

“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,” the analyst said.

“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.”

The outlook is contained in its report for rated power companies in Asia-Pacific through the end of 2018, “Power sector — Asia Pacific: 2018 outlook stable, business conditions to diverge on carbon transition policies,” which was authored by the analyst.

The report said carbon transition policies would prove to be a key driver of business conditions across the region as each country’s respective target level of carbon emissions and timeframe to achieve its carbon goals would affect its exposure to carbon transition risks.

It said China’s thermal power generators will face the greatest challenges because of the sector’s faster transition towards renewables in light of overcapacity.

The Moody’s report also said the prudent sector reforms would 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,” it said.

It added greater funding diversity would help power generation 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,” it said.

While corporate-type debt will remain dominant through 2018, debt funding across the region will gradually include more project bonds, it said.

Moody’s said it could change its outlook for the sector to negative if the exposure of the majority of power companies 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,” it said.

Moody’s has maintained a stable outlook on the Asia-Pacific power sector since 2009. — Victor V. Saulon