Stable credit lights up Asia Pacific

THE Asia-Pacific power sector is set for a broadly stable credit trajectory over the next 12 to 18 months, even as utilities continue heavy spending on renewable energy (RE) and grid infrastructure.

Malaysia, in particular, stands out with a positive outlook, driven by a new tariff mechanism that allows “a more timely and effective fuel cost adjustment”, signalling a more investor-friendly environment.

According to Moody’s Investors Service, lower funding costs across the region will provide a much-needed cushion for utilities facing rising debt burdens.

The US Federal Open Market Committee is expected to gradually reduce the federal funds rate to 3%-3.25% from 3.75%-4%, easing borrowing costs for global investors.

Domestic capital markets in countries like China and India also remain supportive, allowing power companies to tap onshore financing options to fund growth or refinance existing debt.

“The growth of the private credit market will also provide additional sources of external liquidity,” Moody’s notes, underscoring the multiple channels of financial support available.

Renewable energy and battery storage technology costs are declining, helping to offset some of the leverage pressures from new clean energy projects.

Moody’s notes that each Asia-Pacific market will have its own strategy to mitigate higher debt leverage and to preserve credit strength.

In China, major state-owned power generators will shoulder the bulk of the country’s expansion plans, benefitting from high levels of government support.

In India, transition-related spending on generation, storage, and transmission infrastructure remains elevated, underpinning long-term growth but exerting short-term pressure on financial metrics.

Privately owned renewable companies such as Greenko Energy Holdings and ReNew Private Ltd, rated Ba2 negative, continue to have weaker financial profiles because of debt-funded capital investments.

In contrast, operational renewable projects generally maintain stable financial profiles, though they remain exposed to resource fluctuations.

India’s Power Grid Corp of India Ltd (Baa3 stable) is also set to navigate significant capital expenditure on transmission networks without jeopardising its credit strength.

Australia’s outlook remains stable, anchored by a strong regulatory framework, shareholder support, and effective capital allocation levers, including selective on-balance sheet funding, capital recycling, and dividend retention. Hybrid securities have been issued by some issuers to manage debt from large-scale asset expansions.

Positive on Malaysia

Overall, Moody’s expects that the credit strength of most rated power issuers in Asia Pacific, as well as the sector as a whole, will remain broadly stable over the next 12 to 18 months.

Malaysia’s power sector, rated A3 stable, is the only market in Asia Pacific with an upgraded outlook this year.

Moody’s attributes this to the newly established Automatic Fuel Adjustment (AFA) mechanism, effective 2025, which provides more timely adjustments to fuel costs.

“Regulatory environment is turning more positive with the establishment of the AFA mechanism in 2025 which allows a more timely and effective fuel cost adjustment,” it says.

This, coupled with supportive policies protecting against fluctuations in power demand and fuel prices, strengthens investor confidence.

Several factors could further boost Malaysia’s power sector.

Positive developments in generation and transmission capacity, especially for net-zero transition commitments and rising demand from digital infrastructure, could reinforce the sector’s credit profile.

Conversely, sustained spikes in fuel prices or environmental costs without corresponding tariff adjustments, or unfavourable changes to power purchase agreements, could trigger negative pressures.

Malaysia aims to reduce greenhouse gas emissions intensity of gross domestic product by 45% by 2030 relative to 2005 levels and to achieve carbon neutrality by 2050, reflecting its ambitious climate agenda.

Stable demand

Across the Asia Pacific, leverage remains elevated due to ongoing capital spending, projected to reach about US$300bil annually in 2026, up from US$220bil in 2022.

Total adjusted debt among major rated power issuers is expected to rise to US$1.6 trillion from US$1.3 trillion.

Much of this investment will support RE capacity and grid expansion, particularly to meet rising demand from data centres.

Moody’s highlights that Asia Pacific may need to spend US$90bil to US$110bil over the next five to six years on generation capacity expansion alone, depending on technology and location.

Renewable energy continues its rapid growth. Installed capacity in the region is projected to increase more than five-fold by 2050, with varying contributions across markets.

In Australia, 6GW to 12GW of renewable capacity are expected to be added over the next 18-24 months, lifting renewable generation to 40%-50% of total capacity.

India targets 500GW of renewable capacity by 2030, requiring US$170bil to US$200bil in investment. China added 350GW of wind and solar capacity in 2024 alone, and Singapore’s initiatives to import RE will help it meet its 2050 net-zero goal.

Transmission and distribution (T&D) infrastructure development is critical to accommodate intermittent renewables and ensure energy security.

Significant investments are underway across Asia Pacific.

China is building long-distance transmission lines and employing smart grid technologies to optimise RE dispatch.

Australia faces regulatory and labour challenges in expanding its networks, while Korea’s Kepco plans to invest 72.8 trillion won by 2038 in T&D upgrades.

India will need US$170bil to US$200bil by 2030 for electricity transmission, distribution, and storage. Japan anticipates six trillion to seven trillion yen in interconnection grid enhancements by 2050.

Battery storage deployment is also expected to expand dramatically, with capacity projected to increase from about 97GW in 2024 to over 1,000GW by 2035, ensuring the stability of intermittent renewable supplies.

Despite high debt levels, Moody’s expects supportive regulations, transparent tariff mechanisms, and priority dispatch for renewables will maintain the financial health of utilities.

“This environment will facilitate RE and related expansion, as well as T&D network infrastructure development, all of which will play a major role in meeting the net-zero targets set by the governments in Asia Pacific.”

Thermal power continues to play a key role, accounting for roughly 65% of Asia Pacific’s total output in 2024, and this is expected to remain largely unchanged over the next three years.

Less volatile fuel costs, particularly for coal and oil, are expected to support profitability and cash flow visibility for thermal generators in China and Korea, while regulated utilities in markets such as Australia, Singapore and Hong Kong are shielded from volume and price risks.

In India, Malaysia and Indonesia, most utilities with thermal exposure can pass fuel cost changes to end-users or recover them through subsidies.

Power demand growth is set to remain mid-single-digit, reflecting steady but subdued economic expansion.

Data centres will drive particularly strong demand, growing at 15% to 20% annually over the next six years, with Malaysia’s rapid digital infrastructure build-out requiring sharp investment in capacity and transmission.

Despite slower overall growth, Moody’s concludes that the current growth trajectory will still support the stable outlook of most power markets in Asia Pacific.