The Philippines’ energy transition has entered a new phase. The Department of Energy (DOE) has launched a nationwide study on coal phaseout, green energy auctions are expanding, and demand from data centers and multinationals is rising. With both policy and market forces in motion, is this a window of opportunity for Chinese enterprises?
01｜Policy Signals: From “No New Coal” to Studying Coal Exit
The DOE, in cooperation with the UN Office for Project Services (UNOPS), has officially started a national study on shutting down coal mines and coal-fired power plants. The scope includes not only energy security but also worker resettlement, local fiscal impacts, and compensation mechanisms. Michael Sinocruz, Director of the DOE’s Energy Policy and Planning Bureau, noted at the Energy Transition Dialogue that the findings will serve as a basis for consultations with coal and power companies and provide policy recommendations to government.
This is more than an academic exercise—it marks an upgrade in policy logic. Over the past three years, the guiding phrase was “no new coal.” In 2021, the government froze approval of new coal projects to prevent further reliance on fossil fuels, but coal still accounted for more than 60% of generation.
Now the focus is shifting to evaluating existing capacity for retirement. In other words, the Philippines is moving into deeper waters: not just halting new coal, but also studying the pace and costs of retiring existing plants.
As of June 2025, coal accounted for 41.9% of installed capacity, down from 62% in 2020, while renewables rose to 32.3%. Official targets: 35% by 2030, 50% by 2040.
The numbers show progress but also highlight a transitional stage. For investors, the signal is clear: coal will not expand, and renewables must accelerate to fill the gap.
02｜Market Reality: Expansion Meets Bottlenecks
1. Rapid Growth Driven by Auctions
Expansion is anchored in the Green Energy Auction (GEA) scheme, a market-based mechanism to attract investment.
To date, four auction rounds have awarded more than 12 GW of capacity. The latest round achieved 88% subscription, with clearing tariffs of ₱4.67/kWh for solar and ₱5.55/kWh for wind, both below commercial grid prices (₱5.5–6.0/kWh). This shows renewables are now cost-competitive, not just policy-supported.
On the demand side, the shift is even clearer. The Philippines is rapidly becoming a regional data center hub, with national capacity expected to exceed 500 MW by 2028. At the same time, multinational RE100 corporates are driving demand for green power across their supply chains. Together, these forces provide renewables with a stable customer base.
In financing, conditions are shifting too. While local commercial loans run 8–10%, multilaterals like ADB and IFC are offering green loans at 5–6%, combined with guarantees and blended finance. This cost gap is pushing more foreign capital toward renewables.
2. Bottlenecks & Policy Uncertainty
Yet expansion comes with limits:
Grid bottlenecks: NGCP’s constrained transmission capacity means some awarded projects cannot connect, delaying revenue. For developers, this is the most tangible barrier.
Policy continuity: The 2028 presidential election could reshape pace and priorities. While direction may hold, momentum could shift.
Social resistance: Coal retirements affect jobs and local tax bases. Without robust compensation, opposition from LGUs and communities could stall projects.
In short, the renewable market presents a “dual reality”: policy and demand drive expansion, while infrastructure and politics temper speed.
03｜What Can Chinese Enterprises Do? Where Are the Challenges?
1. Returns and Capital Assessment
Philippine renewables offer medium returns with high execution risk:
Solar: IRR 9–12%, payback 7–8 years
Wind: IRR 8–10%, payback 9–10 years
100 MW solar: Capex ~USD 75–80M
20 MW/80 MWh storage: Capex ~USD 30–32M
These returns exceed China’s domestic projects, but with higher uncertainties.
2. Execution and Compliance Hurdles
A typical project requires 18–24 months from initiation to grid connection:
DOE registration → DENR environmental clearance → NGCP grid approval → ERC tariff & contract approval → financing close & EPC contracts → commissioning
Every step can stall progress. EIAs may be delayed by local opposition; grid approvals may be blocked by capacity shortages.
For Chinese enterprises, entry opportunities concentrate in three areas:
Development side: Participate in GEA auctions, especially solar + storage hybrids.
Offtaker side: Negotiate PPAs for manufacturers and data centers, locking in tariffs (₱4.5–5.0/kWh, ~10–15% below commercial).
Supply chain side: Provide EPC, storage solutions, and carbon asset management.
⚠️ Challenges remain:
Grid capacity is the immediate bottleneck.
2028 elections may alter policy pace.
Coal retirements pose risks of social resistance.
While 100% foreign equity is allowed, land must be secured via leases or joint ventures, and LGU approvals often drag out timelines.
Conclusion
The Philippines’ energy transition has shifted from “no new coal” to actively planning coal exit. Renewables are expanding rapidly via auctions, with demand reinforced by data centers and multinationals. For investors, the opportunity window is open—but grid bottlenecks, policy uncertainty, and social resistance remain real constraints.
For Chinese enterprises, the market is attractive but execution-heavy: projects demand patience, capital discipline, and robust compliance planning. Those who can navigate both policy and infrastructure hurdles will be best positioned to capture this window.
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