Renewables to stabilise APAC thermal gencos’ earnings

Thanks to the insulation of clean energy from fuel costs.

The growing share of renewable power will enhance the earnings stability of thermal power generation companies in the Asia Pacific, as clean energy is unaffected by fuel cost fluctuations, have dispatch priority, and have significantly higher margins, Fitch Ratings said. 

In a statement, Fitch said its rated thermal power generators in the region are investing heavily in diversification away from coal-fired power. Their earnings before interest, taxes, depreciation, and amortisation (EBITDA) is seen to increase due to capacity and margin expansion. 

Chinese issuers' average EBITDA margins are projected to rise by nine percentage points by 2026, driven by the accelerating energy transition, whilst non-Chinese issuers' margins are expected to increase by three percentage points.

However, most rated power generators will still have negative free cash flow due to high investments. 

“We estimate average capex [capital expenditure] intensity of 30% in 2024-2026 versus 23% in the previous five years. We expect the average share of non-thermal power in the capacity mix of rated issuers will increase to 48% by 2026, from 40% in 202,” Fitch said.

The think tank said Chinese issuers should continue deleveraging as margins expand. It also expects non-Chinese issuers' EBITDA net leverage to either rise or remain stable in the medium term, as the increase in capex may slightly exceed or match earnings growth.

“Nevertheless, we expect sufficient financial flexibility for rated APAC issuers due to falling interest rates and strong funding access for key government-related entities or their subsidiaries,” Fitch said.