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Key Findings

The Philippines faces a critical policy problem. Outdated market structures are compromising the country’s ability to innovate and discouraging adoption of the cleaner and cheaper technologies that it badly needs.

At a time when renewable energy enhances affordability, neither the government nor consumers should be footing the bill for diesel subsidies.

Given the sharp and sustained declines in renewable energy costs over the past few years, as well as projections for continued declines in the years ahead, the country’s coal backers should no longer assume they can recover these costs, and instead diversify their power holdings.

Executive Summary

Philippine electricity prices are the highest in South East Asia at roughly US$0.20 per kilowatt-hour (kWh) or Php 10 per kWh. Excessive reliance on imported coal and diesel is one of the main reasons the Philippines has the highest electricity prices in the Association of Southeast Asian Nations (ASEAN) region. The low uptake of renewables is surprising given that solar, wind, run-of-river hydro, geothermal and biogas are viable domestic generation options. This is especially true when paired with storage for ancillary services such as frequency regulation providing both enhanced and firm frequency responses, spinning reserves and voltage support. These can be combined to create the type of cost effective and secure energy system that an island nation like the Philippines needs.

Corporates are making strides to divest from coal in favor of renewables. In 2018, Philippine companies, such as the Ayala Corporation subsidiary AC Energy, are set to sell US$1 billion worth of coal assets. According to AC Energy, the sale aims to balance its renewable and thermal portfolios and raise capital to support regional expansion targeting 5 GW of geothermal, solar and wind projects in Vietnam, Indonesia, and the Philippines by 2025. AC Energy has invested in: an 81MW North Luzon wind farm in Pagudpud and a 52MW Northwind Power wind farm in Bangui Bay, as well as the MonteSol, IslaSol and SacaSol solar projects. AC Renewables has also invested in Vietnam's Nin Thuan, Khanh Hoa and Dak Lak solar parks, and in Indonesia's Sidrap wind farm and Salak and Darajat geothermal plants.

Ayala Corporation is not the only player to follow this global trend of fossil fuel divestment and renewable capacity investment. Companies in India, China, Malaysia, and most recently, Vietnam, are increasingly moving towards cancellations and delays involving new coal plants. And Ayala Corporation is not the only player to be following this trend in the Philippines. The Manila Electric Company, more popularly known as Meralco, shares this foresighted strategy and added a carve-out provision, better known as “curtailment,” to all their new coal power purchase agreements including the 1200MW Atimonan coal plant. Meralco realizes it wants to protect ratepayers from the high risk of stranded assets by shifting the cost of bad decision-making to the coal power providers and their investors. Despite leadership from the more successful corporations in the power sector, others, including the San Miguel Corporation, are still locked into legacy strategies and are increasing their coal exposure. San Miguel is doing this through its power arm, SMC Global Power Holdings Corp., which planned to construct a 300- megawatt (MW) coal plant in Negros Occidental. However, this is now cancelled because of leadership from the Governor of the Province of Negros Occidental who declared the area as coal-free and supportive of renewable energy. This gives SMC Global Power the opportunity to instead build a renewable energy portfolio to complement its current storage/batteries pipeline of 240MW for ancillary services to the grid in Luzon. 

Although coal risk remains underpriced in South East Asia, there is increasing investor appetite in capital markets for renewable energy projects. Most recently, AC Energy issued the first ever US dollar climate bond in South East Asia valued at US$410 million on the Singapore Stock Exchange to finance renewable energy projects in the Asia-Pacific region including the Philippines, Vietnam, and Indonesia. AC Energy initially launched an offering of US$225 million for a 5-year tranche and closed at $300 million due to oversubscription. It also issued a US$110 million 10-year tranche. 

It is difficult to understand why, despite the systematic deflationary nature of renewable energy prices globally and capital market support, emerging markets like the Philippines continue to lag behind global trends and are locking in long-term exposure to import coal, diesel and liquefied natural gas (LNG) import terminals.

Press release: Surging energy prices accelerating pace of wind, solar and battery adoption

Please view full report PDF for references and sources.

Sara Jane Ahmed

Sara Ahmed is founder of the Financial Futures Center and an advisor to the Vulnerable 20 Group of Finance Ministers (V20) of the Climate Vulnerable Forum (CVF). The Financial Futures Center supports developing countries catalyze an economic transformation to launch a decade of progress with five years of fast-tracked action aimed at ultimately achieving climate prosperity by 2030.

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