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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.
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
Challenges
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.
"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