Carbon shift still not a threat to coal-using firms’ credit worthiness

The drive toward carbon mitigation and away from fossil fuels is expected to have a gradual effect on coal-using companies and is not a significant risk on their credit worthiness, according to Moody’s Investor Service.

However, Moody’s, in its Power Asia 2019 outlook report, said companies that operate coal-fired power plants would see their cash flows weaken as the risk from the carbon shift increased along with the rise of renewable energy and the costs of environmental compliance.

“However, carbon transition risk will not emerge as a material credit risk during the next 12-18 months because of the continued importance of coal power in Asia,” the credit watcher said.

More broadly, Moody’s gives a stable outlook for the Asian power sector as “most power companies’ operating cash flow will support their credit quality.”

Moody’s sees such firms generating steady operating cash flow in the near term due to stable or increasing dispatch volumes, or timely cost pass through.

As for regulations, Moody’s expects changes to happen gradually which, in turn, will support stable cash flows.

In a report released earlier, the London-based Carbon Tracker Initiative said owners of coal power plants in Vietnam, Indonesia and the Philippines risk losing up to about $60 billion in stranded value as government policy, market liberalization and renewable technology advances play out.

Carbon Tracker noted that coal-fired power generation in the Philippines increased by half from 2010 to 2017. Figures were higher for Vietnam (a 72-percent increase) and Indonesia (53 percent).

The not-for-profit think tank said the companies most at risk from stranded assets were Indonesia’s PT PLN Persero with $15 billion, Vietnam’s EVN with $6.1 billion, and San Miguel Corp. with $3.3 billion.