Philippines: The Green Path – Part 3

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How the Philippines, an archipelagic nation in the Pacific, strives to advocate renewable energy

In Part 1 of the series, the landscape of the Philippine energy system was presented. This was followed by the drivers (Part 2), which propelled RE development in the country. To wrap up this series, an attempt to establish the future mechanism of continuing RE growth will be presented in this section.

Hitting the Plateau? The Future of Renewable Energy in the Philippines

A slowdown in energy investment after the Feed-in-Tariff is inevitable. After the Philippines, its fellow ASEAN nation Vietnam announced a huge RE capacity target for wind and solar at a generally lower FiT rate than the Philippines. Consequently, most investors and technical support companies moved on to this new opportunity. Without FiT, developers can opt to do a merchant plant that sells power at market price or negotiate a bilateral contract with retail electricity suppliers. Both schemes have a higher risk and generate a less attractive financial run.

To continue the good run of renewable energy in the country, two things must be given enough focus in the near term. First is the establishment of a well-designed auction scheme to promote further investment at a cost-efficient price. Second is the effective implementation and deployment of energy storage systems to complement variable renewable energy. 

Figure 7: Recent news items in the Philippines regarding RE Auction and Energy Storage

Auction Scheme to initiate more RE investments

In July 2019, the Department of Energy disclosed its proposal to undertake an auction for 2,000MW of new renewable energy in 10 years. A ceiling rate will be set by the government for RE developers to compete against each other. With the decrease in capital equipment, developers will have their options and strategy to put forward a competitive bid. Once in effect, the auction scheme, which had been implemented in China, Morocco, South Africa, and Brazil and 70 more countries, is expected to increase cost efficiency and allow price discovery of RE-generated electricity (Figure 8) [16].

One thing to note about auction scheme, as mentioned in the IRENA study, is the potential to favor large energy players due to their financial capacity. Large players backed by the largest conglomerates may accept a lower hurdle rate in putting their bid, which to a small to medium-sized developer may downright be financially unviable.

Figure 8: Trend of increasing number of countries implementing Auction scheme [17]

Battery Storage: Solution to the Variability of Wind and Solar

Wind and solar power are the leading technologies deployed in the last five years. They are less site-specific, may require less investment, and have a shorter construction time when compared to a geothermal or hydro of the same capacity. However, a key issue in wind and solar is their variability, which could cause frequency fluctuation in the grid. It is also possible that the high solar and wind generation will coincide with low demand periods initiating curtailment or low solar and wind occurring at peak demand times, causing ramp-up of expensive peaking plants. All these issues regarding the variability of wind and solar and other grid issues can be addressed by integrating a battery storage system.

The Department of Energy published a circular on the provision of a framework for energy storage systems in the electric power industry [18] in August 2019. This will be the first directive that outlines the endorsed usage of energy storage, as well as the ownership and mechanism for deployment. However, it may take a few months to iron out the accreditation process and modifications to be done in existing market rules with the inclusion of energy storage. As of August, 42 battery energy storage projects have been approved to conduct a grid impact study, which is one of the key requirements needed during the pre-development stage. The 42 projects translate to 2,500MW of energy storage capacity [19]. Even if only a quarter of these projects come to completion, they will still make an impact in facilitating further uptake of variable renewable energy.

Concretizing the Path

The Philippines had massive changes in its power industry since the beginning of the 21st century. In two decades, we saw a transformation to a pro-market power industry and prioritization of emerging renewable energy. It was not an easy feat being a developing country and the fact that energy transition requires a tremendous amount of capital investments and policy adaptations. There are critics of the EPIRA and RE Law, and critics of renewable energy in general. However, it cannot be disregarded that the Philippines started laying down the blocks toward the green path in the energy system.

The continuous greening of the energy system can be done through policy and support mechanisms, together with the improvement in the global pricing of RE capital equipment. For the Philippines, a clear multi-partisan stand on renewable energy and climate change will help concretize the path. We are talking about a country with no less than three parties competing during an election, with various platforms and stands. A pro-RE administration can be displaced after six years by the opposing party that may have a weak position on climate change and carbon reduction. It is consequently crucial to develop a clear, multi-partisan, energy policy. This is, of course, easier said than done. However, with enough local and international co-operation, and genuine support of every citizen and stakeholders in the energy industry, this is not far from reality.

The Philippines may be a small island nation in the Pacific, but its efforts to reduce its carbon emission and champion emerging renewable energy technology are evident. There are challenges, and coal remains to be the primary generation, but the transition is slowly happening as with innovation and price improvement. The green path that the Philippines is taking may hopefully be the path that other developing countries will also consider going.

References:

[1] Johansson, T. B., Patwardhan, A., Nakićenović, N., & Gomez-Echeverri, L. (2012). Global Energy Assessment (GEA). Cambridge: Cambridge University Press; Laxenburg, Austria: International Institute for Applied Systems Analysis, 2012.

[2] World Bank. (2018). Global Economic Prospects, January 2018: Broad-Based Upturn, but for How Long?. The World Bank. DOI:10.1596/978-1-4648-1163-0

[3] Department of Energy (DOE). (2016a). 2016 Philippine Power Situation Report. Retrieved from https://www.doe.gov.ph/sites/default/files/pdf/electric_power/power_situationer/2016_power_situation.pdf

[4] BloombergNEF. (2019). [online] Available at: https://www.bnef.com/core/country-profiles/phl [Accessed 24 Sep. 2019]           

[5] Asian Development Bank. (2017). Pathways to Low Carbon Development in the Philippines. Retrieved from https://www.adb.org/sites/default/files/publication/389806/pathways-low-carbon-devt-philippines.pdf

[6] Department of Energy (DOE). (2016b). PHILIPPINE ENERGY PLAN 2016 – 2030. Retrieved from: https://www.doe.gov.ph/sites/default/files/pdf/pep/2016-2030_pep.pdf

[7] Asian Development Bank. (2018). PHILIPPINES: Energy Sector Assessment, Strategy, and Road Map. Retrieved from: https://www.adb.org/sites/default/files/publication/463306/philippines-energy-assessment-strategy-road-map.pdf

[8] The Lantau Group. (2013). Global Benchmark Study of Residential Electricity Tariffs Final Report. Prepared for the Energy Market Authority. Retrieved from https://www.ema.gov.sg/cmsmedia/Electricity/Consumers/Residential/Global_Benchmarking_Study_of_Residential_Electricity_Tariffs_%202013.pdf

[9] International Energy Consultants. (2016). Regional/Global Comparison of Retail Electricity Tariffs Executive Summary. Retrieved from http://corporate-downloadables-tips.s3.amazonaws.com/1478573661.68b4d11ba9cb3ccb30e91c6edd66b6c9.pdf

[10] Richter, A., & Richter, A. (n.d.). Indonesia expects to add 95 MW of additional geothermal capacity this year. Retrieved from http://www.thinkgeoenergy.com/indonesia-expects-to-add-95-mw-of-additional-geothermal-capacity-this-year/#targetText=With the addition of Lumut, global ranking of geothermal countries.

[11] Frankfurt School-UNEP Centre/BNEF. (2018). Global Trends in Renewable Energy Investment 2018, http://www.fs-unep-centre.org (Frankfurt am Main)

[12] Electric Power Industrial Reform Act of 2001 (PH). Retrieved from http://www.neda.gov.ph/wp-content/uploads/2013/12/R.A.-9136.pdf

[13] Renewable Energy Act of 2008 (PH). Retrieved from https://www.doe.gov.ph/sites/default/files/pdf/issuances/20081216-ra-09513-gma.pdf

[14] Delos Santos, A.S. (2016). [Online] Renewable Energy in the Philippines. Presentation to International Renewable Energy Agency Event. Available at https://www.irena.org/eventdocs/Philippines%20presentation.pdf [Accessed 25 Sep.2019]

[15] Bloomberg New Energy Finance Interactive Datasets

[16] International Renewable Energy Agency. (2013). Renewable Energy Auctions in Developing Countries. Available at https://www.irena.org/publications/2013/Jun/Renewable-Energy-Auctions-in-Developing-Countries [Accessed 28 Sep.2019]

[17] REN21. (2018). Renewable Energy Policies in a Time of Transition. Retrieved from https://www.ren21.net/wp-content/uploads/2019/06/17-8622_Policy_FullReport_web_FINAL.pdf

[18] Providing A Framework for Energy Storage in the Electric Power Industry (PH). Retrieved from https://www.doe.gov.ph/sites/default/files/pdf/issuances/dc2019-08-0012.pdf

[19] Lectura, L. (2019, August 21). Department of Energy green lights 42 battery-energy storage projects. Business Mirror. Retrieved from https://businessmirror.com.ph/2019/08/21/department-of-energy-green-lights-42-battery-energy-storage-projects/

Author’s Info:

Claris Canta

  • Six years of working for a renewable energy developer in the Philippines
  • Received a Master’s degree in Energy Systems from the University of Melbourne, 2018

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