Introduction
The Philippines has set a goal to harness renewable energy (RE) as an essential part of the country’s low emission development strategy and address challenges of energy sustainability, security, and equity. The Renewable Energy (RE) Act of 2008 or Republic Act (R.A.) 9513, sets an ambitious national target for expanding renewable energy installed capacity to 15,304 megawatts (MW) by 2030 and will push will push the percent share of the RE sector close to 35% in the country’s energy generation mix. The DOE is creating policies and systems to encourage private domestic and foreign investment drive forward growth in the industry and reduce the dependence on expensive energy imports. The Department of Energy (DOE) instituted the Renewable Energy Service Contracting system to form agreements with the private sector to engage in the exploration, development or utilization of renewable energy resources and actual operation of RE systems/facilitates.
Current Market Trends
Biomass Power
Biomass power generation has an installed capacity of 258 MW—contributing 1.1% in the generation mix. The sector targets 276.7 MW capacity addition by 2030, while biofuels expect a 400-million-liter production capacity addition for its long-term plans. The Philippines has extensive resources for biomass energy production, particularly considering its extensive rice production, which results in considerable volumes of agricultural waste. On the other hand, municipal solid waste is used as fuel for power generation through a biogas or landfill methane recovery technology. Bagasse, an agricultural residue from sugar production, is also utilized. Despite the potential, the market expects biomass capacity to reach only 400MW by the end of 2029, as investor interest in the market remains limited. Key challenge for this sector includes competing use for biofuel and biomass feedstock for food and fuel, consolidation and collection of biomass feedstock must be sustainable and efficient to minimize the use of fossil fuels during transportation and maintain price.
Geothermal Energy
The Philippines has a long history of utilizing indigenous geothermal resources in electricity generation and currently ranks as the third largest producer of geothermal energy globally, behind the United States and Indonesia. As of December 2018, geothermal sector has an installed capacity of 1,918.19 MW. It has an overall contribution of 10.5% to the generation mix. The DOE geothermal sector roadmap envisions to add another 1,495.0 MW to the total generating capacity by 2030. Currently, there are 32 Geothermal Service Contracts. The geothermal segment will be limited as nearly all the proven reserves have been commercialized. Due to the nature of geothermal projects, the exploration stage to select geothermal sites comes with high risks and intensive capital. Geothermal resources are unique with varying characteristics which require different technologies.
Hydro Power
Hydropower is a proven, mature, and price competitive technology in the Philippines. Several on- and off-grid hydropower plants have been built throughout the country, including impounding dams and run-of-river types. Impounding dams can supply energy during peak and off-peak hours while run-of-river types supply electricity whenever capable, depending on the volume of water that is discharged from the watersheds. However, several factors continue to inhibit the growth of the industry. Its capital-intensive nature, long gestation period and accompanying issues of social adaptability remain the largest impediments to the use of hydropower. At present, there are 103 hydro power plants; an additional 84 active projects are considered as committed or under development phase. The projects have a total installed generating capacity of 896 MW, achieving the full potential of the country’s hydropower resource.
Solar Power
Solar power contains the most growth potential in Philippines renewables sector. The tariff offered to solar project developers is the highest of all the FiTs and this has led to a surge in solar capacity growth in recent years. Total solar capacity is targeted only 1,000MW by 2029. While the project pipeline for large-scale solar power is fairly limited beyond 2020, the outlook for distributed solar remains positive, particularly the use of solar systems and microgrids to boost electrification rates in remote regions of the country. Regulations have been mooted by the Philippines’ Energy Regulatory Commission that pave the way for private companies to develop microgrid systems, as part of rural electrification schemes. Other kinds of solar PV systems such as solar home systems, rooftop solar PV, and solar PV mini grids are also currently operating in the Philippines. In addition, a “Photovoltaic (PV) Mainstreaming Program’ was launched in 2018, which offers solar systems to households for daily fees.
Wind Power
The Philippine DOE has awarded 65 service contracts, all projected to add to the up from the 490MW wind energy generation capacity. Of the 65, 51 are in pre-development stage, while 14 have already received their Certificates of Confirmation of Commerciality (COCCs) and are ready for development or commercialization. Increased investor interest supported the project pipeline and improvements in technology (both for turbines and grid connections) boosted efficiencies.
Regulatory Environment
The Philippine Department of Energy sets overall policy goals and targets in the energy industry, while the Energy Regulatory Commission (ERC) is responsible for overseeing and regulation of the electricity sector. Most notably, the Electric Power Industry Reform Act (EPIRA) of 2001 set in motion the deregulation of the power industry and break-up and eventual privatization of state-owned enterprises. The Renewable Energy Act created the National Renewable Energy Board (NREB) to supervise the implementation of that law and as a recommending body on renewable energy policies and action plans for implementation. Applications for renewable energy service contracts are reviewed by a board composed of members of the DOE’s Renewable Energy Management Bureau.
Under RA 9513, the Philippine Government laid out renewable energy policy and regulatory mechanisms to further boost investors’ interest in RE development. These include:
- Feed-in-Tariff (FIT) system which is intended to accelerate the development of emerging RE technologies by offering fixed rates for the sale of electricity generated by eligible RE facilities.
- Net-Metering refers to a system appropriate for distributed generation, in which a distribution grid user has a two-way connection to the grid. The user is only charged or credited the difference between its import energy and export energy.
- Renewable Portfolio Standards (RPS) is a market-based policy mechanism under the RE Act that requires load-serving entities to source an agreed portion of their energy supply from eligible RE facilities. The minimum annual increment required under the RPS On-Grid rules is initially set at 1% per annum but may be adjusted subject to the assessment of DOE.
- Green Energy Options Program is a policy mechanism under the RE Act that provides end-users the option to choose RE Resources as their source of energy. The DOE will set a ceiling price for renewable energy, supporting generators to secure favorable power supply agreements. The final guidelines are expected to be released at the end of 2020.
- Renewable Energy Market aims to ensure a level playing field for all participants, issuing Renewable Energy Certificates (RECs) based on actual RE generation from eligible RE generation capacities and establish a competitive, efficient and transparent market for the trading of RECs.
President Rodrigo Duterte issued a Presidential directive in July 2019 that signaled intentions to reduce the country’s dependence on coal for power generation with more gas and renewables. The Department of Energy (DoE) will update the country’s renewable energy targets following under subscription over the past decade. The new targets will focus more on increasing the share of generation than capacity targets.
Market Challenges
The renewable energy sector in Philippines continues to face multiple challenges and will require a strong political commitment and more incentives in order to support growth. One of the key issues has been the regulatory delay and complex permitting process. Before renewable energy projects enter development and construction phase, acquisition of numerous permits, licenses, and certifications are required, which require hundreds of signatures. This makes the project endure long development periods and therefore becomes costly. Whether a project is large or small, the number of permits and endorsements are the same.
For investors, the Philippine Constitution and Foreign Investment Act (FIA) restrict the ownership of foreign nationals to hold up to 40 percent equity in their Filipino corporations.
Grid-related issues have often also led to the curtailment of wind and solar power. Solar and wind energy requires responsive regulating reserves because of their variability. Thus, there is a need for the power infrastructure to be more flexible by introducing technological innovations that are now available in the market, such as battery energy storage system. It is important that any disruption in the power supply, reserves or electricity stored can address supply and integrity of the grid. Another common issue experienced by RE Developers is the lack of off-takers or buyers to commence commercial operation. Industry sources note that the market has become more price-sensitive as there is a growing preference among end-users for lower-priced yet technically compliant options. Most of the imported renewable systems are supplied by China, Japan, Taiwan, Norway, Singapore and Germany.
Best Prospects for U.S. Exporters
In view of the developments in the renewable energy sector, industry insiders note increasing demand for various renewable energy products and technology, which include:
- Renewable energy equipment/ products such as turbines, solar systems, inverters.
- Hybrid Systems any power or energy generation facility which makes use of two or more types of technologies utilizing both conventional and/or renewable fuel sources.
- Energy Storage System, Energy Efficiency Technologies (green building, energy management).
- Stand-by Mobile Power Generating Systems, cogeneration systems, converter stations.
- Waste-to-energy technology options such as gasification for boiler and gas turbine, incineration, co-firing, methane separation technologies, gas-to-liquids and feed stock type. Remote, off-grid areas tapping new and renewable energy sources.
Market Entry Strategies
By virtue of RA 9513, imported RE products and equipment such as solar PV modules and ancillary parts enjoy duty free privileges. However, the tariff structure for imported wind and micro hydro turbines (which have locally manufactured counterparts) range from three (3) to five (5) percent and are subject to 12 percent Value Added Tax (VAT).
Presently, there are no set standards for evaluating RE technology and equipment and its attendant applications. Nevertheless, RE equipment used for power generation should at least conform to Philippine Electrical Code provisions on ratings, wattage, voltage and amperage.
Generally, U.S. products enjoy strong brand recall and are perceived to be reliable and of high quality. However, purchase decisions are dependent not just on the brand but also on such factors as cost / affordability, availability of financing, after sales service and/or technology transfer possibilities, site-specific RE resource endowments, among others.
When developing RE projects, proponents usually factor in such considerations as geographic conditions and resource availability, existing and projected power demand and supply situation and financing options. In view of this, project opportunities in the RE market can basically be divided into two: (1) baseload on-grid applications that are essentially capital intensive and are usually implemented through a turnkey mechanism; and (2) applications for remote, off-grid communities that are typically integrated with a livelihood component (e.g., providing electricity to agroindustry ventures or to run irrigation equipment) to ensure financial sustainability.
Product awareness and previous successes are key elements in promoting a renewable energy technology or equipment. Hence, holding technical seminars or briefings or outreach to host communities and other related activities are usually arranged with RE project proponents.
It is important to note that financing plays a key role in RE project development in the Philippines. Several prominent initiatives in the RE sector have been supported by funding mechanisms such as Official Development Assistance (ODA) from donor countries; mixed credit facilities from selected EU member countries (e.g., Denmark, Spain, Germany, France); as well as funding grants, technical assistance grants or loan arrangements from multilateral development banks such as the World Bank, ADB, and the U.S. (through USAID or USTDA). Local bank financing are also available.
U.S. suppliers are encouraged to appoint a local representative or agent mainly to look after their interests in the Philippine market (e.g., following up on project tender opportunities or secure product certification, licensing or accreditation when applicable). Technology transfer possibilities, provision of marketing collaterals, and after sales service are critical support elements to ensure a mutually beneficial relationship with local partners.
U.S. firms seeking agents or distributors in the Philippines are encouraged to use the services of the U.S. Commercial Service Philippines to find agent/distributors. More information is available at: https://www.trade.gov/find-buyers-and-partners.
Philippine Renewable Energy Profile
| As of 2018 |
Biomass |
Geothermal |
Solar |
Hyrdropower |
Wind |
| Operational Power Plant Sites |
26 |
32 |
49 |
103 |
6 |
| FIT-Eligible Power Plant |
21 |
0 |
24 |
11 |
51 |
| Power Generation in GWH (2018) |
1,105 |
10,435 |
1,249 |
9,384 |
1,153 |
| Share in Total Generation MIX (total for 2018: 99,765 GWH) |
1.10% |
10.50% |
1.30% |
9.40% |
1.20% |
| FIT Installed Capacity in MW (Dec 2018) |
153.825 |
- |
525.95 |
122.023 |
393.9 |
| Non-FIT Installed Capacity in MW |
195.035 |
1918.19, 17 |
366.4 |
68.87 |
- |
| Capacity Factors |
90% stand alone
60% congeneration
|
85% |
15-19%
(ave. 17%)
|
40% run-off river
22% storage
|
23-24%
(ave. 28.5%)
|
| Million Barrels of Oil Equivalent Saved from Importing Oil Figure (out of 32.83 million barrels of oil equivalent (MTOE) |
14.40% |
18.20% |
0.3% (shared with wind) |
3.90% |
0.3% (shared with solar) |
Source: DOE Renewable Energy Management Bureau
U.S. Commercial Service Information
To explore the market and discuss customized market entry strategies, please contact:
Thess Sula, Commercial Specialist
U.S. Commercial Service Manila
Website: www.export.gov/philippines
Email: Thess.Sula@trade.gov; businessphilippines@trade.gov
