The Philippines has leapfrogged its Southeast Asian neighbours to become a regional leader in planned clean-power projects as fewer investment restrictions and green-minded policies attract domestic and foreign cash.

Changes including allowing full foreign ownership of renewable energy projects have already helped secure a pipeline of 99 gigawatts of wind and solar developments. That’s more than enough power to supply all Philippine households, and is ahead of Vietnam at 86 gigawatts and about five times higher than in Indonesia.

The energy transition in coal-dependent emerging nations like the Philippines will determine the success of global efforts to hit net zero targets and curb the worst impacts of climate change. Many middle-income nations are struggling, however, to balance the shift away from fossil fuels with growing energy demand and the need for economic growth.

Only 3% of the Philippines’ ambitious renewables pipeline is currently under construction. But it’s a step toward meeting the country’s goal of boosting the share of renewables in its electricity mix to more than a third by the end of the decade from about a fifth now.

At a clean energy forum in Manila last month, companies like Oslo-based renewables developer Scatec ASA were enthusiastic about the Philippines’ potential, especially in contrast with its neighbors where funding and regulatory issues have held back progress.   

“In many of the other markets, there are still regulatory challenges,” said Scatec chief executive officer Terje Pilskog. “But in the Philippines we see lots of opportunities to continue to grow.”

Other companies involved in renewables projects in the country include Japan’s Advantec Co Ltd, Singapore-based Vena Energy Pte Ltd and local firms Citicore Renewable Energy Corporation and SP New Energy Corporation. 

Successive governments in the Southeast Asia’s second-biggest country by population have relaxed restrictions for large-scale power projects. The Philippines has in recent years released an offshore wind development strategy, offered tariff and tax incentives, and opened the renewables sector to full foreign ownership. All this helped spur a 41% jump in clean energy investment to US$1.3 billion in 2022 from the year before, according to BloombergNEF. 

Interest from renewable developers has accelerated in recent years due to falling equipment costs and the domestic power sector becoming more familiar with how to build and operate facilities, said Lawrence Fernandez, head of utility economics at Manila Electric Co., the country’s biggest power retailer. 

Unlike many of its neighbours, where state-owned entities dominate power markets, the Philippines allows private firms to take part in the generation and sale of electricity. 

“There is no single state entity which is a dominant player and that has allowed innovation to flourish,” said Ramnath Iyer, research lead for sustainable finance in Asia at the Institute for Energy Economics and Financial Analysis. Clear rules welcoming foreign investment make companies more comfortable putting money into the country, he said.

The Philippines has also mandated that electricity suppliers must increase energy from renewable sources by at least 2.52% every year from 2023, up from 1% a year in 2020. That was a crucial policy, according to Eric Francia, CEO of Philippine conglomerate Ayala Corp.’s energy unit ACEN Corp, and “should be enough to incentivise or motivate us to build more renewable energy plants.”

While investment in renewables capacity is projected to rise in most of the region over the next five years, the Philippines and Malaysia are set to lead that growth, while current frontrunner Vietnam will see a drop, according to analytics firm Wood Mackenzie Ltd.

To truly accelerate its energy transition, however, the Philippines will have to surmount an array of challenges including the need to extend transmission lines to distribute power across the archipelago of more than 7,000 islands. It will also need to expand its grid capacity, boost storage and streamline the land permitting process.

Despite those challenges, the policy certainty in the Philippines has helped the country “leapfrog” over regional peers, said Ramesh Subramaniam, director general at the Asian Development Bank. 

That’s despite Vietnam and Indonesia signing up to receive billions of dollars from G7 Just Energy Transition Partnership deals, which were designed to finance their transition from coal and bring forward peak-emissions dates. The projects have faltered, however, because of restrictions on how the money can be spent, counterproductive local regulations, and insufficient technical preparation on the ground. 

Such complications mean the region’s biggest polluters are likely to see emissions rise until well into the 2030s, according to BNEF, making room for the Philippines to spearhead renewable generation growth in Southeast Asia. 

The country’s success is far from assured, however.

Without proper execution, projects might face delays, and the government needs to ensure there’s sufficient grid capacity from where the power is being generated, said the energy institutes’ Iyer. “The auctions have been done, projects have been awarded. Now the work has got to be done,” he said. 

  - Bloomberg