Over the years, coal has dominated the energy mix in the Philippines, providing 59.6% of the total electricity generated in 2022. This has recently yielded a marked increase in the cost of power, with the average Wholesale Electricity Spot Market (WESM) price at PHP7.72 per kilowatt hour (USD0.13/kWh) compared to the pre-pandemic price of PHP5.42/kWh in 2019.
It should be noted though that when the price of coal reached USD450 per tonne in 2022, the average annual WESM price went as high as PHP10.66/kWh. Today, coal futures have fallen below USD130/tonne, reaching their lowest level since 2021, due to subdued demand from China. Oil has followed the same volatile path. In March 2022, oil prices soared to highs not seen since 2008, as a result of the Russia-Ukraine war.
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Meanwhile, reserves from the Malampaya Gas Project are no longer what they were when then operator, Shell Philippines Exploration, commenced operations in 2006. Although Service Contract No. 38 was extended by President Ferdinand “Bongbong” Marcos, there is no assurance that the exploration activities will yield additional gas supply. The new operator, Prime Energy Resources, needs to invest as much as USD600 million to explore potential gas fields near Malampaya. Any shortfall must be supplemented by liquefied natural gas imports.
Fortunately, the second-biggest contributor in the Philippine energy mix is large-scale hydropower and geothermal, both renewables. In 2008, Republic Act No. 9513, or the RE (renewable energy) Law, was passed. In May of 2011, the National Renewable Energy Programme (NREP) was launched with a target of RE producing 35% of the country’s energy by 2030. Recognising the need to reduce reliance on imported coal and oil, the Philippines has added another target of producing 50% of all energy with renewables by 2040.
The private sector has responded to the Philippine government’s call for aggressive development of the country’s RE resources with the Department of Energy (DOE) receiving a large number of applications for RE service contracts. In fact, the DOE issued the Revised Omnibus Guidelines Governing the Award and Administration of RE Contracts on 4 June, declaring a five-month moratorium on processing voluminous service contract applications. Despite the challenges, RE developers continue to work on their contractual obligations to help the Philippines meet its RE objectives.
In 2018, the National Renewable Energy Board (NREB) completed all outstanding RE mechanisms required by RE Law: Renewable Portfolio Standards for On-Grid Areas and Off-Grid Areas (RPS); Green Energy Option Program Rules (GEOP); and RE Market Rules (REM). The RPS mandated electric power industry participants, including generators, distribution utilities, electric co-operatives or suppliers, to source a specified portion of their electricity from eligible RE resources.
The GEOP provides end users the option to choose RE suppliers as their source of energy. Transco or its concessionaire, National Grid Corporation of the Philippines (NGCP), and all relevant parties are also mandated to install physical connections necessary to ensure the success of the GEOP. The REM creates the market where the trading of RE certificates equivalent to an amount of power generated from RE resources is made. The REM establishes the RE register under DOE supervision.
Despite these mechanisms, RE generation declined during the previous administration. With the assumption into office of the Marcos administration, the Philippines has seen a dramatic shift in government policies towards renewables. Immediately, the Department of Justice rendered an opinion opening the development and utilisation of renewables to foreign investors.
The DOE also issued a circular granting preferential dispatch of all RE plants in WESM. The DOE then instituted improvements in the energy virtual one-stop shop platform to facilitate the issuance of key government permits. The DOE is also pursuing the development of the first offshore wind project and first floating solar project in the Philippines.
To cap it off, the DOE concluded the second Green Energy Auction Programme with a total capacity of 3,506.76MW from renewable energy resources, to be completed in 2024-2026. The DOE is set to conduct three more auctions covering geothermal, hydro, solar, biomass, and onshore and offshore wind technologies.
In two years, the DOE has fast-tracked the RE programmes and is engaged to implement the NREP. But the Philippine government is fully conscious that the transition away from conventional fuel will have to be calibrated. With the intermittence and variability of RE and the high cost of battery storage, the DOE must be calculated in its approach to increasing renewables in the diverse energy mix.
While the debate continues on the wisdom of continued use of conventional fuels, the Philippines must increase its current 28GW installed capacity to address the growing population and need for economic progress.
Jose M Layug Jr is a senior partner at DivinaLaw in Metro Manila
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