KUALA LUMPUR (Dec 1): Fitch Ratings forecasts an improving operating environment for the Asia-Pacific power and renewables sector in 2021, as the region's economy gradually recovers from the coronavirus pandemic and electricity demand rebounds.

In a statement Nov 30, Fitch said electricity generation is perceived as an essential service, hence, it was less severely affected by pandemic.

It said many Asian countries are coming out of the crisis faster than other parts of the world, with power demand already picking up. We expect this trend to continue next year.

Fitch said renewables have shown greater resilience than conventional power plants during the pandemic, benefiting from a push for improved infrastructure.

“However, we believe overall energy transition to cleaner power production could be slower than we had expected prior to the pandemic due to China's coal-friendly policies in response to the pandemic and delays in installation of flue gas desulphurisation for coal plants in India,” it said.

Fitch said the rating outlook is "stable", with eight of the 10 Fitch-rated credits on "stable" outlook, due to contractual or regulatory protection from demand risk.

It said two transactions are on "negative" outlook, reflecting the "negative" outlook on their respective sovereigns' ratings.

It added that all credits have sufficient liquidity to withstand shocks, with counterparty risk subsiding as power demand continuing to rebound.

Fitch-rated issuers were largely unaffected by the pandemic thanks to coal-fired and geothermal issuers' contractual take-or-pay obligations and Indian renewables issuers' must-run priority.

The rating agency said counterparty risk rose in 2020 due to payment delays, particularly for sales by Indian renewables issuers to financially weak state-distribution companies, but expects issuers to deliver stable operational performance in 2020, generate adequate cash flow for debt servicing and maintain healthy coverage ratios commensurate with their current ratings.