The recent electricity outages in which 39 power plants throughout the country bogged down, causing an unprecedented scare, are expected to persist until the power sector firms up its foothold in the renewable energy shift that may include the transition to nuclear energy.
Power firms are being weaned away from fossil fuel projects due to the country’s international commitments under the Paris Agreement of 2015, a binding pact among 196 countries, including the Philippines, to take actions that will reduce carbon emissions that alter the global weather patterns.
While valid issues are being raised about the phase-out of coal plants since they remain necessary for a developing nation such as the Philippines, the march towards a fossil fuel-free source of electricity cannot be reversed.
A compelling reason is that banks restrict their exposure to lending for conventional fossil fuel projects.
The DoE has also adopted a policy not to approve new coal plant projects while pushing for the early retirement of coal-fired power plants to support the complete transition to renewable energy. Still, it admitted that such a move entails transition costs, including a slower buildup of generation capacity.
The country has already taken its first steps in the right direction by imposing a coal moratorium in 2020. From 10.3 gigawatts (GW) of proposed pre-construction coal capacity in 2019, this decreased to 4.094 GW in 2023.
Recent developments point to an increasingly narrowing space for coal development in the country. Even outside the Philippines, more and more financial institutions are turning their backs on coal, according to the Center for Energy, Ecology, and Development (CEED).
The CEED counted over 200 global institutions, including banks, multilateral development financiers, insurance companies, and asset managers, that have implemented policies that ban funding thermal coal mining and/or coal-fired power projects.
Financiers have recognized that coal projects are not “great long-term investments” due to accelerating climate action, improved viability of renewable energy, and increasing understanding of the systemic risks global warming poses to the financial system.
The Department of Energy (DoE) data showed that power-generating capacity only inched up by 0.12 percent last year compared to the 5.6 percent gross domestic product growth.
Renewable energy (RE), however, proves to be more costly and less reliable than conventional power sources. While technologies are developing to make RE a primary energy source, natural gas has been identified as a transition fuel.
This pivot was reflected in the conversion of the Atimonan One (A1E) project from a coal plant to a liquefied natural gas facility after numerous failures to secure the necessary permits.
Banks' inclination towards gas financing is among the reasons for the shift to gas.
Since the 2015 Paris Agreement, financial institutions have poured $60.3 billion into Southeast Asia’s gas industry.
Four Japanese banks have contributed a combined total of $9.7 billion, making them among Southeast Asia's top 10 largest financiers of gas projects. Thailand banks have also emerged as major financiers of projects, providing $10.2 billion in loans.
According to the CEED, the Philippines received a total of $4.7 billion in gas financing, with international institutions accounting for $3.2 billion and domestic institutions financing $1.5 billion.
Gas projects in the Philippines received financial backing from about 41 international financial institutions, led by Japan, the United States, Australia, Taiwan, and the Netherlands, CEED reported.
The largest gas financing came from Japanese financial institutions such as the Development Bank of Japan, Japan Bank for International Cooperation, Mizuho Bank and Securities, and Sumitomo Mitsui Banking Corporation, which totaled $944 million.
While the shift creates a tectonic effect on the supply and cost of electricity, the government is responsible for preventing electricity users from suffering its consequences.
The power generating and distribution utilities have the enviable privilege of passing all the costs they incur to the monthly electricity bills.
The government’s job, in turn, is to find ways to ensure that electricity is generated at the least cost, as required under the Electric Power Industry Reform Act.
