Asia’s hydropower reliance exposes risks as El Niño develops

Vietnam is most exposed as hydropower supplies 30% to 40% of its electricity.

Hydro-dependent power systems across Asia face growing risks from a developing El Niño, which could curb hydropower generation and tighten electricity supply in some markets, according to Fitch Ratings.

The agency said the impact is expected to vary across the region depending on countries' energy mix, system integration and available reserve capacity

Amongst the markets assessed, Vietnam is the most exposed, with hydropower accounting for about 30% to 40% of the country's installed power capacity and electricity generation.

Fitch warned that below-normal rainfall could reduce reservoir levels and increase the risk of supply shortages, echoing disruptions seen in 2023 when power outages affected businesses and contributed to economic losses.

Whilst Vietnam is expanding its thermal and renewable energy capacity, the ratings agency said the power system will remain vulnerable until these projects are fully operational.

In India, the impact is expected to be more limited. Wind power generation, which depends on monsoon wind conditions, could decline during El Niño periods, although the relationship has been inconsistent in previous episodes.

Fitch said India's broader power system is well positioned to absorb any shortfall, citing significant additions in solar and thermal power capacity in recent years.

Thermal power plants are also operating below 70% utilisation, providing sufficient spare capacity to compensate if renewable generation weakens.

China's hydropower sector is also expected to remain resilient despite the changing weather pattern.

Fitch said generation at the country's major hydropower facilities is unlikely to be significantly affected because the cascade of dams along the Yangtze River helps regulate water flows and smooth fluctuations in electricity output.

Historical weather patterns also suggest river flows may increase after an El Niño reaches its peak, although any resulting boost in power generation is unlikely to materially change overall electricity supply.

“The impact of the current El Niño episode could differ because its intensity and duration remain uncertain,” Fitch concluded.