Kuala lumpur: Moody’s Ratings has revised its outlook on Malaysia’s A3-rated power sector to positive from stable, citing the implementation of a new tariff mechanism that enables more timely and effective fuel cost adjustments.
According to BERNAMA News Agency, the rating agency highlighted that power demand growth will remain solid for the Asia-Pacific region, with average annual power demand growth in major countries expected to stay at mid-single-digit percentages over the next 12-18 months, compared to five to six percent growth projected for 2024.
Despite the weakening growth, demand is supported by increased electrification and new end-users like data centres. Moody’s noted that power demand from data centres in the region is anticipated to grow at an annual rate of about 15-20 percent over the next six years, driven by rapid artificial intelligence development, which is significantly higher than the overall demand growth expected during the same period.
Moody’s emphasized that Malaysia will require a sharp increase in infrastructure investment to meet this demand growth. The country’s regulatory environment is becoming more positive with the establishment of the Automatic Fuel Adjustment (AFA) mechanism in 2025, allowing for more timely and effective fuel cost adjustments. Additionally, Malaysia’s power sector benefits from a supportive policy setting, which provides protection against potential declines in power demand and fluctuations in fuel prices.
On a regional scale, Moody’s stated that the Asia-Pacific power sector remains stable over the next 12-18 months. Capital spending on renewable energy expansion and grid infrastructure will remain high to support countries’ announced decarbonisation plans. This will keep rated power utilities’ debt elevated, with the level depending on the stage of energy transition.
Moody’s pointed out that such risks will be largely offset by expectations of lower fuel cost volatility, continued supportive regulatory policies, solid power demand growth, and lower funding costs, which will support the credit strength of most rated issuers. However, trade tensions are expected to weigh on fuel prices and power demand.
Moody’s also projected that the total annual capital spending of its major rated power issuers in the region will increase to about US$300 billion by 2026 from about US$220 billion in 2022. Meanwhile, their total adjusted debt is expected to rise to approximately US$1.6 trillion from US$1.3 trillion over the same period. Furthermore, the Asia-Pacific region is projected to require spending between US$90 billion to US$110 billion in this area over the next five to six years, depending on the technology chosen and the location of the facility.