As stated in my original post, the expectation is the output of the webpart would be wrapped by an update panel parent element.
However as demonstrated in my code snippet. When I enabled Update Panel, the web part outputs a sibling update panel DIV next to the table outputted from the transformation template. The webpart is not creating a parent Update Panel element.
The Update Panel generated by Kentico is working other than the incorrect wrapping of elements. When I call ___doPostBack("updatePanelID"), the AJAX request occurs and the response contains the updated table markup. However, the response payload gets appended to the sibling Update Panel DIV, rather than replacing the table element(due to incorrect wrapping)
To re-iterate the code structure that I expect vs what I actually observe.
Expected (update panel wrapper element):
<div id="updatePanelID"><table class="table scada_table"><tbody><tr>....</table></div>
Observed (update panel sibling element):
<div id="updatePanelID"></div><table class="table scada_table"><tbody><tr>....</table>