S&P Global – Asia-Pacific Utilities Credit Outlook, 2024

The Asia-Pacific region's economic growth is expected to shift from China to South and Southeast Asia, leading to changes in the utilities sector. Fuel costs are expected to decrease, which will help in the recovery of earnings. However, global interest rates are anticipated to ease only gradually. In terms of key assumptions for 2024, overall power demand growth is expected to stabilize at mid-single digits. By 2025, Asia is projected to account for half of the world's electricity consumption, with China accounting for one-third of the global total. Natural gas demand is also expected to recover, driven by industrial demand and normalizing prices. Easing fuel costs and increasing renewable energy generation will support operating cash flow. However, there will be variability in pass-through rates among countries. Despite this, easing thermal coal and gas prices, along with greater adoption of renewable power, will contribute to the recovery of earnings. Leverage in the sector will remain high, mainly due to investments in energy transition. Potential mergers and acquisitions and vertical expansion could further strain financial metrics. The key risks to the baseline outlook include a potential economic slowdown in the region, which could dampen power and gas demand. Additionally, volatile fuel prices and geopolitical tensions could disrupt energy supply and increase prices, although long-term contracts or price regulation may mitigate this risk. Finally, overaggressive expansion of unregulated businesses could increase business risks and limit cost pass-through without sufficient long-term protections.