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PHL power sector risk increasing amid weak consumption, construction halts

phl power sector risk increasing amid weak consumption construction halts - PHL power sector risk increasing amid weak consumption, construction halts

RISKS in the Philippine power sector are increasing as the pandemic pressures both demand and new-build plant construction, Fitch Solutions Group said in a research note.

It said the assessment is based on the industry’s declining performance on its risk-reward index over two consecutive quarters.

With disease containment efforts stretching into a seventh month, the power and renewables sectors will face heightened risk over the near term, it said.

Earlier in September, Fitch Solutions trimmed its power consumption outlook for the Philippines to a decline of 5.9% this year “with further downside risks.” Before the pandemic, its estimate was for growth of 5%.

“We also expect continued headwinds to power capacity growth over the near to medium term,” it said.

Still, electricity usage may rebound “strongly” over the long term, which will require over 40 gigawatts of additional power capacity by 2040, as the Department of Energy projects.

The prolonged pandemic also exposes the Philippines to “increasingly tighter” financial constraints, with more funds expected to be diverted away from infrastructure and towards the labor market and social subsidies.

“An inability to contain the virus could also dampen foreign direct investment and momentum around structural reforms to attract such investment over the longer term,” it added.

Delays are also likely for plant construction due to labor and supply chain disruptions caused by the quarantine.

According to Fitch, the Asian power market remains a “global outperformer” in terms of investment attractiveness because of “strong underlying demand for power and ambitious government expansion plans for their respective power sectors, which create opportunities for the development of power capacity, particularly in emerging markets.”

However, risks vary across countries, depending on their respective “ability to successfully contain their domestic outbreaks, energy intensity of their economic growth, capacity to implement fiscal stimulus measures to support their economies and priorities in place for the power sector.”

“We stress that risks are still skewed to the downside, particularly as the risk of a second wave of infections becomes more apparent,” it added. — Adam J. Ang

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