Carbon transition policies may threaten APAC stable power outlook

The heightened risk and higher environmental costs remain a pressing concern.

The stable outlook for the Asia Pacific power sector in 2018 can be downgraded to negative if the carbon transition of power companies in the region leads to weakened business conditions, according to Moody’s Investors Service.

Moody’s has maintained a stable outlook on the region’s power sector since 2009.

As countries attempt to reach target level of carbon emissions and achieve their respective energy goals, carbon transition policies will continue to drive business conditions across APAC.

However, Moody’s argues that this exposes the countries to higher transition risks with China’s thermal power generators projected to face the greatest challenge in APAC.

Nevertheless, the credit agency believes that the region has strong market structures in place to weather the transition and that higher environmental costs associated with carbon transition policies will remain largely manageable.

"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.

However, the heightened industry risk associated with carbon transition risk limits the overall likelihood of a sector upgrade to positive, Moody’s adds.

Moody's report covers the power sectors in 11 APAC countries: Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore and Thailand.