The Philippines’ Coal Reliance Threatens Energy Transition Amid Push for Renewables

The Philippine economy is growing rapidly, but its energy sector remains burdened by a deep reliance on coal. Although the government has set ambitious renewable energy targets, coal still dominates the power mix, challenging the nation's efforts to transition to cleaner energy sources.

Despite Strong Economic Growth, the Philippines' Dependence on Coal Poses Challenges to Its Energy Sector

In a report by Nikkei Asia, the Philippine economy experienced a robust 5.6% growth rate last year, surpassing the average of numerous countries in the region in its recovery from the COVID-19 pandemic. Additional economic expansion is anticipated for 2024 and beyond.

Nevertheless, economic expansion necessitates significantly more energy. Regrettably, the Philippines is experiencing a decline in its energy sector as a result of its prolonged dependence on coal. Last year, the percentage of coal in its power generation blend surpassed that of Poland, China, and Indonesia, rising from 59.1% in 2022 to 61.9% in 2023.

Some would contend that the collective use of coal in 2023 increased by approximately 2% compared to the previous year in other ASEAN members. Nevertheless, the recent report by the U.K. think tank Ember revealed that the rebound in coal utilization for those countries was the result of two consecutive annual declines.

The Philippine economy is currently experiencing a resurgence. The country has emerged as one of the most dynamic economies in the Asia-Pacific region, according to a recent statement from the World Bank. And for a good purpose. It has established the foundation for further economic expansion through its expanding middle class, business process outsourcing, wholesale and retail trade, real estate, and tourism sectors.

Philippines’ Renewable Energy Efforts Lag as Coal Dominates Despite Government Policies and Incentives

The Philippines has made efforts to increase the use of renewable energy sources. However, renewable energy consumption is lagging behind coal. Last year, the power generation from coal experienced a 9.7% increase (6.5 terawatt hours), surpassing the 4.6% increase (5.2 TWh) in electricity demand. Nevertheless, the combined capacity of wind and solar power increased by a mere 0.9 TWh.

These figures may appear perplexing at first, as the Philippine government has implemented policies that promote the development of renewable energy while simultaneously limiting the development of new coal-fired power projects. Renewable energy initiatives were authorized for 100% foreign ownership by the government in 2022. Foreign firms were permitted to possess up to 40% of an energy initiative prior to the implementation of the new legislation, with the remaining portion being held by a Filipino firm or citizen.

The Philippine government has designated that renewable energy will comprise 35% of its energy blend by 2030 and 50% by 2040. Additionally, it has implemented the Green Energy Auction Programme (GEAP) to encourage renewable energy investments. Furthermore, it implemented a seven-year income tax sabbatical for developers of new renewable energy projects. In addition to tax credits on domestic capital equipment, tax exemptions on carbon credits, and priority connection to the electricity infrastructure, other incentives include duty-free importation of equipment and VAT-zero rating.

The government also implemented a coal moratorium in late 2020. Nevertheless, there is a concerning caveat. The prohibition applies exclusively to new greenfield coal-fired power projects and does not encompass existing projects, enhancements, or extensions. This raises the question: why implement a restricted prohibition on coal, particularly in light of its severe environmental impact? It is challenging to ascertain the answer, but it appears that the coal industry, domestic banks that continue to provide funding to the sector, and corporate interests continue to hold more political influence in the country than environmental organizations or an increasingly concerned populace.

The Philippines Faces Urgent Need to Overcome Coal Reliance and Red Tape in Renewable Energy Shift

In addition to the carbon dioxide that contributes to the warming of the atmosphere, there are numerous issues associated with the combustion of coal for power generation. The burning of fuel generates a variety of primary emissions, such as sulfur dioxide, which contributes to acid rain and respiratory illnesses, nitrogen oxides, which contribute to smog and respiratory illnesses, and particulates, which contribute to smog, haze, respiratory illnesses, and lung disease.

The Philippines should implement a complete prohibition on coal development and promote the investment of more domestic banks in renewable energy projects, rather than relying on foreign banks and direct assistance programs, such as USAID. Additionally, Manila must resolve an issue that was identified by the Philippine Center for Investigative Journalism last year: the implementation of renewable energy laws is experiencing difficulties. Bureaucratic red tape frequently results in the postponement or cancellation of significant projects, further complicating the situation.

However, it is commendable that Philippine President Ferdinand Marcos Jr. continues to speak out in favor of renewable energy and to demonstrate his commitment to it through action. He visited the Czech Republic and Germany in March, resulting in $4 billion in investment pledges, including renewable energy. wpd GmbH, a German developer of wind and solar farms, expressed interest in investing approximately $7 billion in offshore wind farms in the provinces of Cavite, Negros Occidental, and Guimaras during the same visit.

The renewables sector in the Philippines has also garnered the attention of other corporations. Denmark's Copenhagen Infrastructure Partners announced in January that it would allocate $1.92 billion to the development of a 650-megawatt offshore wind power project in Northern Samar province, which is located in the Visayas region of the nation. In June, Blue Leaf Energy Philippines announced that approximately $1.5 billion would be allocated by 2026 for the development of its 1,550-MW floating solar portfolio in Laguna province, which is situated just south of Manila. Similar agreements have been announced by other organizations.

The Philippine government announced in June that it was pursuing an ambitious objective of procuring up to $550 million in renewable energy investments by 2040.
Nevertheless, these objectives may not be realized until the nation can eliminate the red tape surrounding new renewable energy development and streamline the frequently complex approval process at both the national and provincial levels. Meanwhile, much-needed foreign direct investment (FDI) could be directed to neighboring renewable energy enthusiasts, such as Vietnam, Thailand, and Malaysia.