In the course of the further industrialization and urbanization of the country as well as the continuously ongoing growth of the population in general, the demand for energy continues to rise steadily. The growth of the energy sector is enormous: in the period from 2003 to 2016 alone, energy production grew by 59.4% (source: AHK-Philippines).
The fact that this development will continue is reflected in the corresponding growth forecast for the energy market up to 2040: For the Philippines as a whole, the expected additional demand for production capacity amounts to a whopping 43,765 MW. Luzon accounts for the largest share: here alone, the estimated additional demand for that time-period is estimated at 24,385 MW (Source: Electric Power Industry Management Bureau, Department of Energy). This growth is mainly attributable to the expansion of investments in construction and infrastructure, production increases in the manufacturing industry, further rising consumer spending, and the strong service sector.
It is unlikely that capacity expansion at the current pace will be able to keep up with the rising demand. For years, economic growth has exceeded the expansion of the country's supply capacities, and since 2008 at the latest, this supply gap has become increasingly acute. A solution of the energy question is therefore a fundamental prerequisite for the country's further economic development. The power cuts known as "blackouts" cause immense economic damage every year and have the potential to seriously impede the country's further economic development.
So far, the country relies on an energy mix dominated by fossil fuels. More than three quarters of the country's electricity needs are met by burning coal, gas and oil. The largest shares of the remaining quarter are accounted for by geothermal and hydroelectric power. Solar, wind and biomass combined contribute merely 3 % to the total energy mix (source: Department of Energy). In short and medium term, the country´s energy policy will continue to rely on coal-fired power plants as the backbone for covering energy requirements.
However, President Duterte signed the Paris agreement on climate change, through which the Philippines committed itself to reducing greenhouse gas emissions. These are to be reduced by 70% by 2030. This target will hardly be achievable without greater use of renewable energies. Great market potential is becoming apparent for the private sector, including international corporations.
The price of electricity in the Philippines fluctuates strongly. This is partly due to the high dependence on fossil fuels such as coal, two-thirds of which has to be imported and is subject to price fluctuations on world markets. According to the largest electricity distribution company, Meralco ("Manila Electric Company"), the Philippines has the highest electricity price in the region at USD 0.19 per kilowatt hour. In Indonesia, the price is 0.09 USD per kilowatt hour, in Thailand it is 0.10 USD per kilowatt hour. Such a discrepancy can influence investment decisions.
The diverse challenges in the energy sector cannot be solved within a few years, but require long-term commitment - combined with immense capital requirements. For this reason, the government is increasingly taking measures to counteract the investment backlog. In the course of this, foreign investors are also being offered favorable conditions in order to get active in the Philippine energy market.
To facilitate private sector investment, the energy sector has been systematically privatized and liberalized since 2001 through the Electric Power Industry Reform Act (EPIRA). Already today, 60% of energy production capacity is in private hands.
The government has also recognized that renewable energies are playing an increasingly important role and is systematically promoting the expansion of this sector. The foundations for this were laid down in the National Renewable Energy Program (NREP) and are flanked at a higher level by the Duterte government's 10-point plan and the NEDA Development Plan 2017 - 2022. The Philippine Department of Energy (DoE) puts the expected annual growth rate of renewable energy sources at 1.6%. The share of renewable energies in the energy mix of the Philippines would thus rise to over 35% by 2030.
The "Renewable Energy Act of 2008" and the "Executive Order 30" specifically promote the expansion of renewable energies in the Philippines. Bureaucratic and legal hurdles for energy projects have been removed, and investors are offered a whole range of additional incentives, such as tax benefits, tax and duty-free technology imports, simplified hiring of foreign specialists and accelerated application procedures for the necessary permits and operating licenses.
The "Renewable Portfolio Standard" (RPS) allocates a binding minimum quota to renewable energies in the energy mix, and the "Green Energy Option Program" is designed to ensure that consumers can actively choose at any time whether they want to purchase electricity from renewable sources.
Planning security for energy projects is provided by a government-fixed feed-in tariff, which varies depending on the energy source, but generally creates a stable, predictable economic environment for investors.
For biomass projects such as that of ECO-NATURE-PRODUCTS PLC, the feed-in tariff amounts to USD 0.12 per kilowatt hour. Preparations to contractually secure this rate are already ongoing. For this purpose, ECO-NATURE-PRODUCTS PLC is concluding a public-private partnership - a cooperation agreement - with the government.