Electricity-sector opportunity in the Philippines

This paper describes how small islands in the Philippines can modernize outdated power generation systems that currently rely on imported diesel fuel and how solar- and wind-powered grids on these islands can supply affordable, reliable, more efficient, more secure, and cleaner power.

Many Philippine small island grids served today by diesel generators suffer from frequent blackouts and unplanned power outages. The problem is far from intractable, however.

Our research suggests that a reasonably swift transition to renewable energy is feasible across these islands and that it can be driven largely by market forces that support modernization and savings through advances in renewable energy and storage.

The core policy question posed here is how the national government can speed this transition through the adoption of appropriate forward-looking policy and oversight.

Key Takeaways:

• Small island grids powered by solar, wind, and other renewable energy can reduce dependence on expensive imported fossil fuel generation without compromising availability of power and grid reliability.
• Hybridization of existing diesel-powered generation with solar photovoltaics (PV), wind turbines, biomass gasification, small hydro installations, and battery energy systems, holds great promise.
• Electricity cooperatives that continue to procure diesel supply via long-term contracts run stranded-asset risk.
• While sizeable regulatory barriers exist to the modernization of small island electricity systems—and indeed while the Philippines present a prime example of how techno-economic change has outpaced government regulation—these barriers can be overcome.
• The Department of Energy (DOE) can incentivize the Small Power Utilities Group (SPUG) under the National Power Corporation (NPC) to speed up hybridization of its plants. Moreover, the National Electrification Administration (NEA) can direct electric cooperatives to be technology-neutral in the procurement of power.
• The Philippine Renewable Energy Act of 2008 has spurred international and local interest in renewable investment, but uneven and uncertain implementation pose formidable barriers. The incentive in this act most germane to small island grids is the entitlement of renewables developers to half of the savings on existing subsidies that arise from their projects. A provision also entitles renewables developers to a cash incentive equal to half of the savings that arise from lower cost renewables generation.

In short, small island grids represent a largely overlooked opportunity for investors in renewable energy and storage that can readily replace imported diesel generation throughout the Philippines.

The case for investment in modernization can be made on straight financial merit, and provides win-win outcomes. We estimate that while modernization will require at least $1 billion in private investment in the short term, it will substantially diminish the cross-subsidies of at least $200 million borne by ratepayers on the main grids annually.

Modernization of small island power systems through the uptake of renewables will supply cheaper, efficient, secure, cleaner power.

Press release: IEEFA Report: Electricity-Sector Opportunity in the Philippines

Please view full report PDF for references and sources.