Falling global coal prices and rising domestic demand will see a growing number of private coal-fired power plants open in the Philippines by 2020, dramatically improving electricity supply in the wake of continued shortages.
Government efforts to develop renewable energy have also intensified in recent years, with ongoing sector liberalisation and an expansion of the feed-in tariff (FIT) programme expected to benefit renewable energy developers and investors, presenting a sustainable long-term solution to the nation’s energy challenges.
In June, Energy Secretary Carlos Jericho L Petilla announced that 23 new coal-fired power plants would be established by 2020. Facilities include two new 300-MW plants opening in Davao City in 2016 and 2017, a 400-MW expansion of existing facilities in Quezon opening in 2017, a 600-MW plant in Subic opening in 2016, and a plant expansion in Bataan, also in 2016.
This comes at a time when coal prices are slumping, making new coal-fired projects a cost-effective solution to rising short-term demand, and presenting numerous opportunities for new foreign investment.
However, the entire electricity supply chain in the Philippines requires sizable investment, from generation to transmission. Most existing power plants were built before the year 2000 and very little new generation capacity has been created since then, fuelling concerns over worsening power shortages.
Electricity consumption in the Philippines is expected to grow by an average of 5.7% annually between 2015 and 2020, according to the Economic Intelligence Unit, while generation is expected to lag at just 5.3% average annual growth.
The country is already experiencing shortages following rapid economic and industrial growth. The country's largest island, Luzon, regularly experiences blackouts during the peak summer months due to insufficient and ageing infrastructure. Power outages have also affected the second-largest island of Mindanao. The situation prompted the government to ask power plants to avoid doing their yearly maintenance during the summer months, to avoid such outages.
With power in short supply, consumers are also paying some of the highest electricity prices in Asia, which might negatively impact new foreign investment. In addition to inflating input and market prices, this also makes domestically-manufactured goods less competitive.
New private opportunities
Private players have been active in the utilities sector since the beginning of a national reform programme in the 1980s, with several power assets privatised over the past 15 years. Most recently in June the government announced it would move forward on the planned privatisation of the supply contracts for the output of the 210-MW Mindanao coal-fired power plant.
Private players are also benefitting from the new coal projects that were announced in June. A 300-MW plant is being developed in Davao City’s for $123m by Therma South, a subsidiary of the Philippines’ Aboitiz Power, and constructed by Leighton Contractors Philippines. Domestic firm San Miguel Corporation will develop a second Davao City plant, as well as the expansion of the Bataan power plant from 600 to 900 MW.
Other private players involved in current projects include Team Energy, developing Quezon’s 400-MW expansion, and Redondo Peninsula Energy, which will oversee development of the 600-MW Subic plant. Perhaps most significantly, Meralco PowerGen Corporation, a subsidiary of Meralco, the nation’s largest electricity distributor, will lead development of two major facilities in Quezon − the 1200-MW Atimonan and 500-MW San Buenaventura plants − both opening in 2018.
In recent years the government has moved to balance the entry of new projects with plans to further incentivise renewable energy development. The government is aiming to meet 30% of the country’s energy demand by renewable sources − up from the current level of 23% − and 30% from liquefied natural gas, in a bid to reduce the carbon impact of coal generation.
In June, Petilla also announced that the Department of Energy (DoE) planned to begin developing the next round of its FIT quota to integrate new renewables projects in the national grid, offering 20-year guaranteed purchase prices for renewable developers.
Activity in the sector is already ramping up. Japanese firm Marubeni will partner with Italy’s Enel to build and operate a new geothermal power plant in the Philippines, according to Japanese media reports. The planned 100-MW plant will cost between $159m and $238m, with the firms looking to partner with a Philippine company that owns resource development rights.
Solar development also got a boost when Germany’s Living Project 4 People (LP4P) signed a 25-year solar energy service contract with the DoE in May. The signing will kickstart the construction of a 100-MW solar project in Ilagan City that is expected to be fully operational by early 2016. The DOE reports that as of March 2015, it had approved 15 projects for the FIT programme, representing 322-MW of capacity, including 250-MW of wind power and 36-MW of solar power.