MOODY’S UPGRADES MALAYSIA’S POWER SECTOR OUTLOOK TO POSITIVE

KUALA LUMPUR, Nov 28 (Bernama) -- 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.

In a note today, the rating agency said power demand growth will remain solid for Asia-Pacific, with average annual power demand growth in major Asia-Pacific countries to stay at mid-single-digit percentages over the next 12-18 months compared to five to six per cent growth in 2024.

Despite the weakening growth, demand is supported by increased electrification and new end-users like data centres, it added.

“We expect power demand from data centres in the region to grow at about 15-20 per cent per year over the next six years, driven by rapid artificial intelligence development, significantly higher than the overall demand growth over the same period,” it said.

Moody’s said Malaysia will require a sharp increase in infrastructure investment to meet demand growth.

It also said that the country's regulatory environment is turning more positive with the establishment of the Automatic Fuel Adjustment (AFA) mechanism in 2025, which allows a more timely and effective fuel cost adjustment.

Additionally, it said, Malaysia’s power sector benefits from a supportive policy setting, underpinned by protection against a potential decline in power demand and fluctuations in fuel prices.

On the regional outlook, Moody’s said the Asia-Pacific power sector remains stable over the next 12-18 months.

“The sector’s 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, the level of which will depend on the stage of energy transition.

“Such risks will be largely offset by our expectation of lower fuel cost volatility, continued supportive regulatory policies, solid power demand growth and lower funding costs to support the credit strength of most rated issuers,” it said.

It noted that trade tensions will weigh on fuel prices and power demand.

Moody’s also projected the total annual capital spending of its major rated power issuers in the region will increase to about US$300 billion (US$1 = RM4.12) in 2026 from about US$220 billion in 2022.

Meanwhile, their total adjusted debt will also increase to about US$1.6 trillion from about US$1.3 trillion over the same period.

“We project that the Asia-Pacific region will need to spend about 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,” it added.

-- BERNAMA