Can The Philippines Be An Attractive Investment Destination For Renewables In Southeast Asia?

The Philippines, an early renewables leader in the region, is touted as the second best investment destination for renewable energy in Southeast Asia.

The country possess resources that can generate up to 3,000 gigawatts along with a highly liberalized active spot market, according to a report from HSBC Global Research. In deciding the rankings, the independent research house considered the entry barriers and the regulatory environment of six Southeast Asian countries. The two parameters were believed to have effects on reinvestments.

HSBC Global Research said that the Philippines had a relative score of 2.5, second only to Vietnam which got 2.8, but better than Singapore, Malaysia, Indonesia, and Thailand.

It said the Philippines has a medium range of solar or wind resource availability of up to 3,000 gigawatts but had a fragmented market with local players such as a Aboitiz Power, Manila Electric Company (Meralco), and AC Energy Corporation.

Aside from policies that support renewables, the country’s active wholesale electricity spot market is said to be highly liberalized with partial retail competition.

The spot market is a venue where electricity can be traded as commodity.

In its report, HSBC Global named the Philippines as one of the three countries that led the first wave of re-capacity growth in the Association of Southeast Asian Nations (ASEAN) region last year due to its attractive regulatory environment. This time, the next growth wave of renewable energy will be more evenly spread out across the Southeast Asian region.

Improved regulations and declining equipment costs are the two major forces that will drive more inclusive development in the region.

Analysis shows that governments are either in the process of defining policies or have already stated clear regulatory policies related to renewables to attract further investments, HSBC global said, highlighting the Renewable Portfolios Standards (RPS) program in the Philippines.

The RPS program requires distribution utilities to get an agreed portion of their supply from eligible renewable energy facilities. The research also noted the spectacular fall in the cost of the equipment used in building renewable energy projects.

Solar module prices in 2020 were 89% lower than a decade ago and are forecast to drop another 27% by 2025. The price of wind turbines in 2020 was down 41% from 2010 and is expected to fall another 18% by 2025 it said.

Renewables in four Southeast Asian countries including the Philippines will be the cheapest source of power.

The report also mentioned that levelized energy costs for solar and onshore wind are projected to decrease by 2025.

Based on Bloomberg and HSBC estimates, utility-scale solar projects have a levelized cost of energy of US$62 per megawatt hour in the Philippines and this will go down by 16% to US$52 per megawatt hour by 2025.

Meanwhile, the country’s cost of onshore wind projects is at US$93 per megawatt hour and the level will decrease by 22% to US$72 per megawatt hour.

HSBC Global added that other costs in renewable projects are likely to marginally come down.

Green financing may help bring down borrowing costs while technology advancements in solar and wind farms can help firms trim labor costs and reduce outage periods.

In 2019, it was estimated that around 45 million people in Southeast Asia did not have access to reliable electricity. Due to this, most countries in the region handled the increase in power consumption primarily by doubling down on investments in planet-heating fossil fuels. If the world is to stave off climate catastrophe, this needs to change.

Since ASEAN is still way behind in achieving its 23% renewable energy goals by 2025, investment in renewables in the region as whole will be attractive indeed for investors.