Utility creditworthiness, a risk on the electricity supply
According to the 2018 RISE report entitled "Policy Matters: Regulatory Indicators for Sustainable Energy", only half of the utilities in the 133 countries studied by the report were rated as creditworthy in 2017. The creditworthiness of utilities was measured using financial ratios from balance sheet, cash flow and income statements. They were then classified according to a scoring system that divided them into three categories.
On the graph above, there is a higher concentration of creditworthy public utilities in countries that have already achieved universal access to electricity (57% creditworthiness level) compared to deficit access countries (34%). Beyond this general trend, which merely states that developed countries have a higher financial resilience of their power utilities than developing countries, there are some interesting exceptions. For example, even some of the countries with no access deficit, such as Japan and Spain, have power utilities that may be exposed to medium or significant creditworthiness issues. On the other hand, countries such as South Africa or Cambodia seem to present above-average levels of creditworthiness compared with peer countries.
In addition, the report indicates that the financial resilience of utility services has declined globally since 2012, with more significant declines in low access countries than in other countries. Factors such as changes in fuel and trade costs, as well as the extent of capital investment programs and related financing costs, may cause utilities to weaken over time.
One of the main problems raised is that some power services may have difficulties in meeting their debts to suppliers. Indeed, a majority of countries have utilities with reasonable EBITDA margins, but a notable number of their utilities report days payable outstanding in excess of the 90-day norm, or low debt-service coverage ratios. Beyond the fact that these elements may not be attractive to investors, it also illustrates that the electricity supply and quality may be compromised and could impact sovereign risk in certain countries in the long-term.
Félix Fouret, Carbon/Climate Analyst
Sources: Beyond Ratings, World Bank