Asia Pacific Energy Transition Plans Fraught With Difficulty: S&P Global Ratings

Standard & Poor's headquarters in the financial district of New York on August 6, 2011. The United States' credit rating was cut for the first time ever August 5 when Standard and Poor's lowered it from triple-A to AA+, citing the country's looming deficit burden and weak policy-making process. AFP PHOTO/Stan HONDA

S&P Global Ratings said that Asia-Pacific’s energy transition will be an uphill journey that would be full of twists and turns–and that’s just the beginning. By global standards, the region faces considerable roadblocks as it moves to renewable and stable forms of energy.

It said that reliance on fossil fuel-based generation remains close to 70% and demand for power is growing, with significant investment needs. The stage may be set for action, but each country will reach the summit at its own pace. To Get there will require enabling policies and a reprieve from the high cost of technological solutions.

That’s according to a report published by S&P Global Ratings today, titled “Energy Transition: Asia-Pacific Faces An Uphill Climb To A Cleaner Future.”

“If the energy transition is to accelerate, we believe affordability, reliability and sustainability must converge,” said S&P Global Ratings credit analyst Abhishek Dangra. “In many Asia-Pacific markets, dirtier fuels are cheaper, and many countries are lagging and more dependent on energy policies to gradually meet the global ambition of lower carbon emissions.”.

Nearly 60% of Asia-Pacific power generators are exposed to environmental risk factors, worth about US$500 billion of rated debt.

It said that in countries such as China and Indonesia, government policies will determine the energy transition whereas in India the private sector will take the lead because of the favorable economics for renewables. “Short-term transition goals, particularly those of China and India, may face delays because of considerations around energy security and access to electricity,” it said

“China’s market-based reforms of the power sector will deepen over the next decade,” said S&P Global Ratings credit analyst Apple Li. “Generation companies with better operational efficiencies and a higher mix of renewables will stand out amid the intensifying competition.”

Commenting on environmental, social, and governance (ESG) risk, S&P Global Ratings credit analyst Parvathy Iyer said: “ESG-related risks and a decline in profitability will increasingly make coal-fired plants less reliable and hasten their closure unless there are incentives for an orderly exit in Australia.”

On the potential effect on ratings, Mr. Dangra added: “We expect big investments from renewable generators pursuing growth and national power majors leading energy transition efforts. This will stretch their balance sheets. If companies undertake more aggressive leverage but fail to keep pace with policy directions, it will put downward pressure on ratings.”

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