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Renewable resilience: Fitch Ratings predicts Asia-Pacific power surge in 2024 amid energy transition

In a recent report, Fitch Ratings anticipates a notable surge in electricity consumption across the Asia-Pacific region in 2024. This surge is bolstered by a median GDP growth projection of approximately 4% for the region, despite concerns surrounding China’s economic trajectory. Fitch predicts a moderation in inflation for 2024, attributing it to a decrease in coal prices, although they are expected to remain elevated. Notably, Fitch-rated power projects are poised to weather these economic fluctuations due to long-to-medium-term operation and maintenance agreements, along with the pass-through of coal prices.

The ongoing energy transition to cleaner sources is expected to persist, driven by policy initiatives, sectoral reforms, emerging technologies, cost-effectiveness, and green financing. The recent Russia-Ukraine conflict has underscored the urgency of energy security, prompting governments to shift towards renewable power sources. However, fiscal constraints may limit government support for new technologies like green hydrogen and offshore renewables.

Fitch’s outlook reflects stability in ratings over the next 12 months, with project companies safeguarded from demand risks through contractual or regulatory protections. While most transactions in Fitch’s portfolio demonstrate robust liquidity to withstand shocks, some Indian companies face lower headroom due to currency depreciation.

Pankaj Chauhan, Associate Director at Fitch, emphasizes the expectation of increased electricity demand in 2024 within a stable operating environment for power and renewable project companies. He underscores the focus on energy transition, with governments prioritizing energy security. Chauhan also notes the rising merchant risks associated with shorter-dated power purchase agreements.

Fitch’s Core Credit Drivers for power and renewable projects encompass various factors, including resource performance, energy pricing, regulatory and political environments, counterparty risk, fuel pricing, operating costs, major maintenance needs, coverage, cost of debt, and financial reserves and liquidity. The report identifies key areas to monitor, such as inflation and taxes impacting coverage, higher-than-expected debt costs, wind or solar resource availability affecting coverage, and continued policy initiatives for achieving net-zero emissions. Fitch Ratings illustrate the distribution and changes in rating outlooks for power and renewable projects in the Asia-Pacific region for 2024.

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