Mixed outlook for utilities

Fitch also released reports on Australian and New Zealand utilities: "Australian Power & Utilities 2010 Credit Outlook: Carbon, Capex and Capital"; and "New Zealand Power & Utilities Credit Outlook 2010". For the Australian sector the credit outlook is broadly stable, though greenhouse gas reduction policy and the scale of investment required in both generation and network infrastructure could potentially damage the credit profile of some participants.

Although almost all of the sector's 2010 debt maturities have already been refinanced, A$22 billion of debt will fall due in the following two years. While Fitch believes the regulated networks, in particular, will continue to be able to raise debt capital, the scale of investment required is likely to lead to new equity playing an important role in the funding mix, in order to maintain credit quality.

A negative outlook remains on the New Zealand sector for 2010 but some positive developments are likely to occur over the medium term. Utilities, in particular the South Island-based generators, remain exposed to hydrological risks due to the inter-island transmission constraints.

However, Fitch anticipates a reduction in the level of regulatory risk for the electricity sector in the long term, following legislative changes to the regulation of the sector. Fitch also notes that hurdles in the approval processes for new generation capacity remain a key credit risk issue, with larger wind energy projects in particular facing the biggest challenges.

Other issues highlighted are the decline of indigenous gas reserves and the expected gas supply shortage post-2015; wholesale and retail pricing and market competition; the planned additional generation capacity through to 2015; and the role of thermal plants in a hydro-dominated electricity system.