APAC power utilities at risk due to climate transition: Fitch

Energy transition efforts must be enhanced.

Fitch Ratings has issued a warning to Asia-Pacific power utilities heavily reliant on coal-fired generation as they face "high" risk of pressure on their Standalone Credit Profiles (SCPs) due to climate-related transition risks over the long term.

In a statement, Fitch noted that coal-fired power generation accounts for more than a quarter of these utilities' revenue, and their Climate Vulnerability Signal for 2035 is above 50, indicating significant exposure to climate-related risks. Whilst the transition plans announced by these utilities are considered, the think tank emphasises the need for more aggressive efforts to decarbonise their operations to mitigate potential negative rating actions.

Despite the high risk, Fitch said that the Long-Term Issuer Default Ratings of these entities are unlikely to be affected by a one-notch downgrade in their SCPs, provided government incentives or support from state-owned entities remains in place. However, the likelihood of such support could change over time, particularly in the long term.

In the near to medium term, the think tank expects climate-related transition risks to have a limited impact on the creditworthiness of these utilities. Coal-fired power will continue to play a critical role in the region due to the lag in grid infrastructure improvements and the development of advanced energy storage technologies.