Prospects dim for Asia’s coal power companies on slowing power demand and growing renewable alternatives : Moody’s

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Biznextindia : Global Credit Ratings Agency Moody’s on Thursday said that Asia’s slowing energy demand growth will impact coal power producers the hardest as governments tighten environmental standards and introduce policies that favor renewable energy.

“For coal power producers, tariff schemes to compensate for lower dispatch volumes or strategies to diversify their energy mix away from coal power are increasingly important,” says Mic Kang, a Moody’s Vice President and Senior Credit Officer.

Rated coal power producers in China (A1 stable) and Korea (Aa2 stable) face a higher risk of losing their cost-competitiveness due to the absence of consistent cost pass-throughs, while producers operating with consistent regulated tariffs or power purchase agreements in India (Baa3 negative), Indonesia (Baa2 stable) and Vietnam (Ba3 negative) are less exposed.

Coal-fired power producers are also facing increasing competition from their renewable energy counterparts, which have made technological advances to improve efficiency and costs. If the levelized cost of energy for new wind and solar power plants — both with battery storage — in China and India declines annually by a high single digit to mid-teen percentage from H1 2020 to 2025-30, these alternatives will likely be just as cost competitive as coal power by 2025-30.

Rated coal power producers in China (A1 stable) and Korea (Aa2 stable) face a higher risk of losing their cost-competitiveness due to the absence of consistent cost pass-throughs, while producers operating with consistent regulated tariffs or power purchase agreements in India (Baa3 negative), Indonesia (Baa2 stable) and Vietnam (Ba3 negative) are less exposed.

Additionally, financing capacity for Asia’s coal power producers will continue to fall as funding markets for debt issuers become greener and investors lose appetite for coal power assets amid volume risk and uncertainty over the recovery of demand. But most rated coal power producers, particularly state-owned ones, should be able to withstand the pressure in the foreseeable future.

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