Customer Logins

Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.

Customer Logins

Energy transition accelerates in the Philippines

09 August 2021 Kevin Adler

With new rules for green power auctions announced on 3 August, the Philippines continues to retool its energy industry in order to meet growing demand while also reducing its carbon footprint.

The revised green auction rules came a few months after the nation in April updated its nationally determined contribution (NDC) under the Paris Agreement, and that announcement came a few months after a moratorium on new coal-fired power plants. Meanwhile, the country is seeking to complete its first LNG import terminals and regasification facilities and to resurrect a renewable power sector that has been stagnant in recent years.

At the same time, however, the Philippines experienced a rough economic buffeting due to the COVID-19 pandemic, which has diverted investment to recovery in areas beyond the energy transition. And its electric power system showed the strain of years of underinvestment, including a series of power outages in the Luzon region (its most populous) in May and June.

Ambitious goals, with an asterisk

Under its updated NDC, the Philippines is aiming for a 75% reduction in GHG emissions from a 2020 baseline by 2030.

But this goal comes with an immense asterisk: it called only 2.71% of the reduction "unconditional," that is, backed by specific government programs. The remaining 71.29% of the reduction is "conditional": based on financial support from other national governments and international investors. In a statement issued by the government's Philippines News Agency on 22 July, the conditional elements were described as "dependent on funding, technical assistance, and capacity development which developed countries will provide."

In that statement, the Philippines government pointed out that it should not bear the greatest burden for emissions reductions, given that its per-capita GHG emissions are 1.98 metric tons (mt) per year, or half the global average of 4 mt.

Less coal, more gas and renewables

The country's moratorium on new coal power plants, announced in October 2020, is perhaps its biggest GHG-reduction step to date.

Coal-fired power represented almost 48% of the nation's power in 2019-2020, according to the Philippines Department of Energy (DOE), and oil and natural gas contributed another 28%. Renewables contributed 24%, of which a 90% share was hydropower.

DOE did not respond to a Net-Zero Business Daily request for an update on any coal-fired power plants that are still under construction.

Going forward, the country has a two-pronged plan to change its generation stack. First, it's planning to increase gas-fired generation as a transitional fuel, according to IHS Markit analysts.

"The Philippines is looking to start LNG imports in the short term, as gas generation in power is forecast to grow, while the sole domestic gas supply is expected to decline," IHS Markit said in a report in July.

Construction is underway or approvals are in place for three LNG projects, according to IHS Markit:

  • A substation to connect Energy World Corporation's Pagbilao 3 million mt/year LNG terminal to a 650-MW power plant.
  • First Gen's floating storage regasification unit on the Luzon coast of undisclosed capacity.
  • An LNG terminal and regasification unit operated by Excellent Energy Resources. This is backed by a 20-year power purchase agreement (PPA) with Meralco, the largest power distributor in the Philippines, for 1.2 GW of output. It's the first LNG project in the nation specifically backed by a PPA.

IHS Markit expects the first two projects to be online in 2023 and the third in 2024, which will support LNG import demand rising to 2 million mt/annum (Mtpa) by 2026. In today's market, that would place the country in about 25th place as a global importer, with China and Japan each at about 80 Mtpa.

The country's second major strategy is to increase renewables to 35% of the power generation mix by 2030 through additions of wind and solar photovoltaic power. This would require the addition of 20 GW of new renewable capacity, compared with about 1.3 GW that is operational currently.

To that end, the Philippines teamed up with the World Bank to launch the Philippine Offshore Wind Roadmap in June. DOE has awarded five wind contracts so far with a combined potential capacity of 5 GW.

But this is a drop in the bucket, according to DOE Secretary Alfonso Cusi, who said estimates indicate that the Philippines has over 170 GW of offshore wind potential. The agency is committed to a "robust, independent, and practical assessment of the possible ways forward for offshore wind in the Philippines," Cusi said in announcing the roadmap.

On the policy level, DOE issued new rules for green auctions on 3 August, for which it's currently seeking public comment. The new rules are intended to "give preference to renewable energy" and support development and increase financing access for renewables. Firm goals for renewables will be incorporated in the auctions in order to keep the country on track for its 35% target.

In the last two years, contracts have been awarded for a range of renewable technologies, indicating the country's all-of-the-above approach (see table below). Also, in 2020 an energy efficiency program went into effect that mandated 10% savings by government agencies, yielding power demand reductions of nearly 2.4 million kWh.

Source: Philippines Department of Energy


While the range of activity is impressive, the country's ambitions face tough challenges. These include operational difficulties and the need to attract foreign investment.

On the operations side, the power outages that hit Luzon in May and June were a harsh reminder of the country's lack of investment in its existing power generation base and grid. Luzon is the economic heart of the nation. It's one of three power grids, but it represents two-thirds of the country's 23 GW of installed generation capacity and more than 72% of peak demand in 2019 and 2020.

At a Senate at a hearing in June, Cusi blamed state-owned utility National Grid Corporation of the Philippines, which he said has not maintained the power grid and has been "continuously remiss in its obligations under its franchise agreement, particularly in procuring ancillary services or power reserves."

Generation reliability also is a concern. Brownouts were seen on 2 June 2021, when DOE said demand peaked at 10.5 GW. For a country with 23 GW of installed power, this shouldn't be a problem.

Beyond current power generation issues, IHS Markit said the Philippines' record with new power projects isn't great. "The process of developing the LNG market in the Philippines has been marked by a litany of stalled or cancelled projects and delays throughout the 2010s," it said.

In fact, the three projects that IHS Markit sees as likely to be completed in 2023 or 2024 have each been delayed more than a year from their original projected in-service dates.

Even if the projects are completed, the Institute for Energy Economics and Financial Analysis (IEEFA), an energy think tank, warned that the country could be overinvesting in fossil fuel infrastructure.

"Committing to LNG is unlikely to become a cost-effective option," IEEFA said in a note on 4 August. "Although LNG is often portrayed as a transition fuel, the infrastructure buildout required to support LNG imports relies on long-term take-or-pay commitments and rigid contracts that could lock the Philippines into being dependent on expensive imported fuel for 25 years or more."

Calling LNG "risky" in a world in which renewable power is getting cheaper, IEEFA estimates that the gas industry's buildout in the Philippines risks exposure to at least $14 billion in stranded assets.

Wasted investments can hardly be tolerated in a country that the government describes as "low-middle income," with a poverty rate of nearly 17% and about 6-7% of the nation's households without access to electricity. According to IHS Markit, real GDP contracted by over 9% in 2020, due to COVID-19. Optimistically, the government is projecting a rebound of 7% this year.

This makes the need for outside investment crucial, but as Cusi said in a speech in May, it must be the right type of investment. "The government can introduce policies and laws to make the country a haven for investments and even out the playing field for stakeholders," he said. "Most of all, we need to ensure that the sector is equitable for both businesses and our consumers. Ultimately, however, we can only achieve our aspirations if the titans of the industry—both local and foreign—will stand with us side by side."

Investors may be waiting for more clarity though. Under the constitution, President Rodrigo Duterte's term ends in May 2022 and he is prohibited from running again, which raises the question of whether his successor will follow through on the same policies.

Posted 09 August 2021 by Kevin Adler, Chief Editor


Follow Us

May 11

RT @SPGlobal: Essential Intelligence from S&P Global helps you dive below the surface. Because a better, more prosperous world is yours for…

{"items" : [ {"name":"share","enabled":true,"desc":"<strong>Share</strong>","mobdesc":"Share","options":[ {"name":"facebook","url":"","enabled":true},{"name":"twitter","url":"","enabled":true},{"name":"linkedin","url":"","enabled":true},{"name":"email","url":"?subject=Energy transition accelerates in the Philippines | IHS Markit &","enabled":true},{"name":"whatsapp","url":"","enabled":true}]}, {"name":"rtt","enabled":true,"mobdesc":"Top"} ]}
Filter Sort