Asia-Pacific power and renewable projects gear up for growth in 2024: Fitch Ratings

In the dynamic landscape of the Asia-Pacific (APAC) power sector, Fitch Ratings, anticipating an upswing in electricity consumption driven by a median GDP growth of around 4 per cent in the region, highlights the resilience of its rated power projects. Fitch expects a surge in power demand as a result of the projected GDP growth, with a focus on mitigating China's economic uncertainties.

Pankaj Chauhan, Associate Director, Fitch Ratings, said, "Fitch expects the region's electricity demand to increase in 2024 with a stable operating environment for power and renewable project companies. They will continue to focus on energy transition in the year ahead, with governments aiming to achieve energy security. Merchant risks will be more prevalent, reflecting an increasing share of shorter-dated power purchase agreements in the mix."

The outlook suggests a moderation in inflation in 2024, aided by a decrease in coal prices, albeit remaining elevated. Fitch's rated power projects are positioned to withstand higher inflation due to long-to-medium-term operation and maintenance agreements and pass-through mechanisms for coal prices. The transition to clean energy remains a focal point, supported by policy initiatives, sectoral reforms, technological advancements, cost-effectiveness, and green financing.

The recent global energy crises, including the Russia-Ukraine war, have heightened the importance of energy security, prompting governments to accelerate the shift to renewable power sources. Fitch anticipates a stable rating outlook over the next 12 months for project companies, with protection from demand risks through contractual or regulatory measures. Despite geopolitical challenges, all 17 transactions in Fitch's portfolio exhibit sufficient liquidity to withstand shocks, with improving cash collection.

Governments in the APAC region are expected to continue advocating for clean energy investments amid the global energy crisis. China and India are foreseen as key drivers of renewable energy additions, spurred by geopolitical events and a commitment to reduce dependence on imported fossil fuels. The offshore wind market is predicted to attract investments from international developers, with Taiwan leading the development, followed by South Korea, Japan, and some ASEAN countries.

Solar panel prices are expected to moderate in 2024, positively impacting Fitch-rated Indian restricted renewable portfolios. Fitch notes stable operating performance in the Indian renewable energy portfolio, with improvements in cash recovery cycles and receivable days. While moderate pressure on the debt-service coverage ratio is anticipated due to inflation and currency fluctuations, Fitch asserts that the rated companies' current ratios align with their ratings.

Some Indian renewable project companies face bullet debt maturities in 2024. Fitch expects timely refinancing, tapping into domestic markets and alternative funding sources.
Adequate funding sources and competitive onshore costs are deemed advantageous for successful refinancing. As the APAC region navigates the evolving energy landscape, the outlook underscores the sector's resilience, commitment to clean energy, and the financial stability of Fitch-rated projects.