A recent 2022 report by Global Wind Energy Council titled “Capturing green recovery opportunities from wind power in developing economies” reflects a study of wind energy potential in five developing economies (Brazil, India, Mexico, the Philippines and South Africa) over the next five years, with the aim to highlight the vast and largely unexploited socioeconomic and environmental opportunities attached to wind energy. Accelerated deployment of wind projects will not only support a global net zero target, but help countries to realise a range of benefits from job creation to cleaner air. This particular extract from the report focuses on the wind power space in the Philippines.
Located in the tropical cyclone belt, the Philippines is especially vulnerable to climate change impacts and natural disasters. The government has called for increased investment in renewable energy and the bolstering of energy self-sufficiency. However, renewable project development has been limited due to technology neutral auctions, insufficient transmission infrastructure, and concerns about variability. In 2008, the share of renewable energy in the electricity mix was close to the 2030 target of 35%, but as more coal has been introduced over the last decade, the share of renewable energy in power generation decreased to 21% in 2019. Consequently, with more imported coal instead of renewables produced domestically, energy self-sufficiency has decreased, and electricity prices in the Philippines continue to be among the highest in Southeast Asia. The pandemic has heavily impacted the country’s economy, but economic growth is expected to rebound post-pandemic, with energy demand growing alongside it. The inconsistent reliability of fossil fuel plants has further led to forced power outages and unplanned maintenance.
Energy mix and targets
Coal use has steadily increased over the last decade, encompassing over 50% of the country’s energy mix by 2019. Meanwhile, use of renewables has declined as a proportion of energy use. Wind energy as a proportion of renewable energy has modestly increased over this same time period. However, the rate of increase has markedly declined over the last five years. Between 2011-2016, approximately 390MW wind capacity was installed; from 2016-2021, only 20MW was installed, the majority of which was in 2016.
The Philippines ratified the Paris Agreement on 14 March 2017 and has an NDC target of 70% reduction in GHG emissions below BAU projections by 2030, conditional on financial, technological, and capacity building support.
However, in 2021, the country raised its GHG reduction target, which is primarily a conditional target, to 75% relative to 2015 levels by the year 2030 and has set out plans to announce a net zero target in 2022. To aid its ambitious reduction targets, the Philippines government declared a non-permanent moratorium on new coal power plants in 2020. There are still, however, several coal plants in development that are due to be built in the next decade.
Economic stimulus and laws
Under the strain of the pandemic, economic rebound has become a national priority for the country. In June 2020, the House of Representatives approved a PHP1.3 trillion ($25.2 billion) economic stimulus package to help the economy recover from the coronavirus pandemic in the next 4 years. The Accelerated Recovery and Investments Stimulus for the Economy of the Philippines (ARISE Philippines) will support micro, small, and medium enterprises (MSMEs) and other key sectors affected by the COVID-19 crisis, while aiming to rebuilding consumer confidence. This will indirectly act as a stimulus for the renewable energy sector.
For renewable energy specifically, the Renewable Energy Act of 2008 is the primary economic stimulus provided to the sector. This law aims to provide fiscal and non-fiscal incentives to private sector developers and manufacturers, through schemes such as:
- 10% corporate income tax, as opposed to the usual 25%
- 1.5% real property tax cap on assessed value of equipment and facilities classified as real property to produce renewable energy
- Prioritising the purchase, grid connection and transmission of electricity generated by
- companies from renewable energy sources, and
- Power generated from renewable energy sources are zero-rated value added.
Current barriers to wind energy
The Philippines is well positioned to be a regional leader in wind energy. It has an appropriate permitting and auctioning infrastructure in place and was on track a decade ago to rely primarily on renewable energy. The reasons why this progress has been hindered are detailed below:
Policy commitment: While the current government publicly supports the push for renewables, it has historically promoted development of nuclear and LNG projects as alternatives to coal. Auctions are technology neutral and biased towards baseload technologies, which has made it difficult for renewable energy projects to win contracts. This process has contributed to the present energy mix pattern.
In addition, the Department of Energy (DoE) currently takes a passive approach to wind energy expansion, refraining from any significant steps to improve the wind energy pipeline and not actively promoting renewables as a necessary energy source.
Permitting and leasing process: The current permitting system for renewable energy is lengthy, complex and bureaucratic, with permits from approximately 15 different national agencies as well as local government. Currently the online platform set up for permitting and bidding documents, EVOSS, only includes the DoE. The current leasing mechanism, service contracts, are viewed favourably by developers, but the terms and conditions could benefit from simplification. Additionally, the bidding process is seen to have excessive conditions attached to it, putting off prospective developers as they have to jump through multiple hoops to meet all the conditions.
Transmission system: Availability of grid connections and transmission network bottlenecks present a considerable challenge, delaying projects and reducing investor confidence.
Recommendations for green recovery
For the Philippines to be able to accelerate green recovery and expand the use of wind energy, the following broad actions for policymakers are recommended:
- Commit to supporting renewable energy as the preferred energy resource in the Philippines, and ensure this commitment remains consistent and stable regardless of changes in administration.
- Consider holding technology specific auctions or pots within auctions to allow the wind industry to regain a footing in the Philippines.
- Expand the online Energy Virtual One-Stop Shop (EVOSS) for permitting and bidding, so that all documents go to one agency, which manages the necessary approvals from all agencies, both local and national.
- Streamline and simplify terms and conditions in service contracts to allow developers to be more creative with their solutions in their project bids.
- The Philippines DoE should be more proactive with the wind industry, by consulting with industry leaders and coordinating wind energy and transmission network development through designating wind energy areas for project developers to focus on.
- Ensure that proactive grid planning and investment considers future renewable energy projects.
- Consider technical feasibility studies on forecasting and smart distribution systems to be integrated with the national power grid, which can help to support balancing with larger shares of renewable energy.
Project pipeline scenarios
In the business-as-usual scenario we forecast that almost 1.15 GW of wind capacity will be installed between 2022 and 2026. If a green recovery is implemented, we forecast a fast acceleration of wind capacity from 2024 onwards, which would result in almost 1.65 GW being installed between 2022 and 2026 – a potential upside of 500 MW. The greatest difference is seen in 2026, and this trend is expected continue past 2026.
In the business-as-usual scenario, 6,000 direct and indirect full time equivalent (FTE) job years are created by wind energy in the Philippines between 2022 and 2026 in the development, construction and installation phase. In addition, 1,500 annual direct and indirect FTE job years are created in O&M, which continues for the lifetime of the wind farms.
In the green recovery scenario, 9,000 direct and indirect FTE job years are created from wind energy in the Philippines between 2022 and 2026 in the development, construction and installation phase. In addition, 2,700 annual direct and indirect FTE job years are created in O&M, which continues for the lifetime of the wind farms.
$700 million direct and indirect gross value added is created from wind energy in the Philippines between 2022 and 2026 in the business-as usual scenario over the lifetime of the wind farms. $1.1 billion direct and indirect gross value added is created from wind energy in the Philippines between 2022 and 2026 in the green recovery scenario over the lifetime of the wind farms.
The complete report can be accessed here.