Power policy

The Green Energy Option Program (GEOP) is a renewable energy (RE) policy mechanism providing end-users with the option to choose RE resources as their source of energy. This is currently still under review. Following President Duterte's directive to reduce the country's dependence on coal, the DOE has announced its intent to fast-track the Green Energy Option Program as of late 2019. Feed-in tariffs (FiTs) are officially removed as announced by the energy secretary. The last approved FiTs are for run-of-river hydro and biomass and applicable until 2019.

The Green Energy Auction Program (GEAP) is a policy that includes a renewable energy auction to be administered by the DOE. The program has a target of 2 gigawatts of new installed capacity equivalent to $2 billion of investment value. The initial auctions are going to be held in October 2021, after being pushed back because of Covid-19, pending the finalization of the implementing rules and regulations of the program.

The DOE has an expansive process on project application, interconnection and reporting to stay within compliance. Unfortunately, red tape and bureaucratic processes have resulted in some delays to projects historically. For the FiT, it was not clear who would pay for getting the transmission cables out to these projects. The government said they will pay the developers back over time after a project’s completion and connection.

Deregulation removed all forms of subsidies that influence fossil fuel prices. Excise taxes as part of the TRAIN Law have been imposed and impacts overall prices. The Power Development Program is the only explicit fleet 'modernization' program in the Philippines. It states that 9,000 megawatts of new-build capacity is expected over the next decade and that of the 1,868 megawatts of planned oil-based thermal plants shortlisted for retirement, some will be considered for rehabilitation and conversion to gas-fired power plants.

Renewable project development in the Philippines has been stalled by political red tape that prevents the timely passing of policies within the RE Act of 2008. The on-going Covid-19 pandemic and the response of the government also caused strict lockdowns to delay projects and implementation of several programs. Retroactive policies on feed-in tariffs have impacted rates for clean energy projects, eventually causing the removal of the incentive to project developers.

Power prices and costs

Power pricing varies depending on the end user. Meralco, the largest utility company, employs a peak/off-peak program for its corporate clients and partners, while the Energy Regulatory Commission (ERC) has a time-of-use (TOU) pricing that aims to replace electricity meters with TOU programmable meters with stamping capability. This is designed to reflect the cost of electricity at any particular time of the day. Subsidies are provided for low-income electricity consumers with consumption of less than 100kWh.

In terms of fuel pricing, the Philippines deregulated the downstream oil sector in 1998 to foster a competitive market for fossil fuel subsidy reform. This meant that petroleum products are subject to taxes including a uniform VAT of 12%. Deregulation removed all forms of subsidies that influence fossil fuel prices.

Power market

The power sector has been reformed and is somewhat deregulated. Independent power producers (IPPs) still need government approval from the ERB regarding changes in price and other aspects of the industry.

The Philippines is one of two countries in the Southeast Asia region to have a liberalized electricity supply industry through the comprehensive Electric Power Industry Reform Act (EPIRA). This law allowed for the liberalization and demonopolization of electricity distribution. Power supply agreements (PSA) are reached between a distributed utility (DU) and a generation company (GenCo) for the supply of capacity and/or energy intended for the DU's captive market. Power supply agreements in general can span 10 to 25 years.

There are very few actors in the Philippines energy industry. The majority of generation is owned by three main players, namely, Firstgen which owns 17%, Abolitz Power with a 15% share, San Miguel Energy Corp. at 24% market share and AES who sold their 6% share to San Miguel. Generation is handled and managed by IPPs while grid operations are handled by the National Grid Corporation of the Philippines (NGCP). The wholesale market is under the jurisdiction of the WESM as mandated in the EPIRA law. WESM is the centralized venue for trading electricity as a commodity in the Philippines, based on actual demand and availability.

Doing business and barriers

Several development plans are available in the form of the distribution development plans, transmission development and electrification development plans from the Department of Energy, which outlines long-term development action plans to 2025. IPPs develop most, if not all, of new-build projects today. Transmission is handled under Transco, and the Wholesale Electricity Spot Market (WESM) was established in 2015. Distribution is handled under 20 private distribution utilities and sales/retail is open now to new retailers (retail electricity suppliers) and the distribution utilities.

Curtailment is more likely an issue in the Luzon grid. Renewable energy represents 25.5% of installed capacity on the Luzon grid but only 16.3% of generation. Coal and gas represent 37.8% and 20.9% of capacity but 51.4% and 29.3% of generation. In Visayas, renewables represent a greater share of generation than its share of installed capacity and in Mindanao the discrepancy is much smaller than in Luzon. The government announced plans for infrastructure improvement in the 2016-2025 distribution development plan.

According to the Power Development Plan (PDP), for the 2017-2040 planning horizon, the electrification goals that will serve as guideposts for the sector include 100% electrification of targeted and identified household accessible to grid (based on 2015 census) and accomplishment of off-grid targets by 2022; electrification of all targeted and identified households (beyond the 2015 census) and 100% electrification of target household in off-grid areas within the period 2023-2040; and total electricity access by 2040. No details are available on the rules when the main grid is established, although the Small Power Utility Group (SPUG) is in charge of rural electrification and is a unit of the NAPOCOR, which might lead to easier integration.

Mini-grids and SHS are actively promoted and implemented through various programs which are foreign assisted such as the EU-assisted Access to Sustainable Energy Program (ASEP). The SPUG is focused on providing electricity access through the missionary electrification program in rural areas and includes programs on grid expansion. This is in line with the overall program of the government to provide high electrification rates in the whole country by 2020. The country currently has no pay-as-you-go (PAYG) services, but SolarHome plans to expand its PAYG services in Southeast Asia, including the Philippines.

Offtaker risk remains low, although the changes in the feed-in tariff program may result in some risks. The FiT is backed by the government (paid for by rate payers) and PSAs with distribution utilities tending to be low risk due to positive historical payment capabilities. PPA payment delays are covered by warranties, but no in-depth information is available in terms of actual delays, if any. The inter-agency review conducted when EPIRA was enacted resulted in PPA renegotiations, but no further information is available for more recent renegotiations conducted. The country has previously absorbed some form of debt following some changes in the mandate. No in-depth information is available for utilities in general.

EV market

Sales of battery electric vehicles (BEVs) and hybrid vehicles, as well as electrified two-wheelers, are barely 1% of total vehicle sales for both segments, which are largely still composed of internal combustion engine (ICE) vehicles. The share of BEVs and electrified two-wheelers remain at less than 1% of the total fleet for both segments. There is very little demand for electric vehicles (EVs) in general.

EV policy

The Philippine government has yet to implement any substantive policy support in this sector and the EV market remains at an early stage. The only program that is most aligned with EV policy is the Jeepney Modernization Program, but it is also composed of hybrid vehicle types such as Public Utility Jeepneys (PUJs) running on alternative, lower-carbon emission fuels.

Most other programs are spearheaded by private groups such as the Electric Vehicle Association of the Philippines (EVAP) but they are in very early stages as well.

Buildings market

No substantial data and information is available as the market remains at an early stage. Heat pumps are mostly for water heating and not for building heat management as the country is tropical.

Buildings policy

Policy on buildings remains part of the larger legislation on the overall Energy Efficiency and Conservation Act. The market is still waiting for actual implementing rules and regulations for proper implementation.