A Special Report by Malaya Business Insight
Building momentum, harnessing energy
The Philippine energy sector is at a turning point. What began as a set of policy ambitions around renewables has now taken shape in market realities reshaping how electricity is generated, transmitted, and priced.
The first quarter of 2025 saw several key developments: electricity generation costs fell to their lowest since 2022, restrictions on foreign investment in renewables were fully lifted, and new private sector commitments neared 7,000 megawatts in just three months.
Energy regulators point to three major shifts underway: a growing shift to renewables, a major overhaul of grid infrastructure, and a diversification of energy sources. Together, these shifts are redrawing the landscape of the power sector.
Historic investment commitments, new benchmarks
January 2025 marked a milestone as the Philippines signed renewable energy deals with Abu Dhabi-based Masdar during Sustainability Week. The agreements, covering up to 10 gigawatts of capacity and potential investments of $15 billion, include large-scale solar, wind, and battery storage projects.
The Masdar partnership underscores how policy changes—especially the 2022 decision allowing full foreign ownership in renewables—are opening the door to international capital and technology. Offshore wind, in particular, is drawing interest despite the country’s limited domestic experience in the sector.
Electricity rates decline despite market pressures
Average generation rates nationwide dropped to PHP 5.80 per kilowatt-hour in Q1—down from PHP 6.28 a year earlier. Luzon led the decline with an 11.5% drop, followed by Visayas at 8.1% and Mindanao with a modest 0.5% decrease.
These reductions come even as demand rises alongside economic growth. Efficiency gains and higher renewable output contributed to the lower costs.
However, price pressures remain. In April, Meralco raised rates by PHP 0.7226/kWh, citing volatility in the Wholesale Electricity Spot Market and the end of a major supply agreement with Limay Power Inc.
There were also signs of solar oversupply, with WESM recording instances of negative pricing—an early indicator of the integration challenges that accompany rapid growth in renewables.
Grid infrastructure undergoes massive modernization
The National Grid Corporation of the Philippines (NGCP) is pushing forward with its Transmission Development Plan covering 2025 to 2050—an effort worth over PHP 1.1 trillion.
The upgrade goes beyond capacity expansion. The integration of variable renewables demands advanced tools: real-time monitoring, grid-forming inverters, and large-scale energy storage.
Battery energy storage is now a key component, with 1.8 GW in committed projects and another 2.5 GW in planning. These systems help stabilize the grid, support renewables, and improve reliability.
Between 2009 and 2024, NGCP added 5,475 circuit kilometers and over 40,000 MVA of substation capacity. Planned additions through 2050 are expected to far exceed that.
Regulatory support picks up speed
The Energy Regulatory Commission (ERC) processed approvals in Q1 at record pace. Nearly 1,000 permits and 14 power supply agreements were approved, with certificates of compliance issued in an average of 26 days—faster than mandated timelines.
Under Chairperson Monalisa Dimalanta, the ERC has emphasized “energy democracy,” aiming to shift power sector development from regulator-led interventions to consumer-driven competition.
New market mechanisms are gaining traction. The Reserve Market, active since January 2024, now enables real-time procurement of ancillary services. The Renewable Energy Certificate Market, operational since December 2024, offers developers new revenue streams.
Participation is growing. Net metering applications more than doubled, while enrollment in the Green Energy Option Program rose by nearly 90%. Some companies report electricity savings of up to 78% through GEOP.
Private sector investments
Investment activity shows clear trends. Luzon accounted for 74% of all new capacity commitments (5,754 MW), reflecting its role as the country’s primary demand center.
The Visayas saw 855 MW in new projects—almost entirely solar—while Mindanao added 232 MW, including hydropower, solar, and battery storage.
Several large solar farms came online, including MGreen Cordon (52.8 MW, Isabela), Bongabon Solar (19.8 MW, Nueva Ecija), and Baras Solar (80 MW, Rizal), all operated by MGen of the Meralco Group.
Investor appetite for energy storage assets is also rising, with M&A activity in the sector increasing year-on-year.
Transition challenges in the market
Fossil fuels still provided around 78% of the country’s electricity in early 2025. March brought Yellow Alerts on the Luzon grid and price caps were triggered more than 6% of the time—reminders of the fragile balance during the transition.
As aging fossil plants are retired and renewables are brought online, careful planning is needed to avoid supply gaps. Coordination of generation schedules, capacity rollouts, and infrastructure upgrades is critical.
Grid stability is also a growing concern. Research by the Philippine DOE and the U.S. NREL suggests a 30% to 50% renewable share by 2030 is achievable—but only with flexible operations, better system coordination, and potential renewable curtailment when needed.
The nuclear power discussions are back
The government is once again exploring nuclear power, including the possibility of reviving the Bataan plant or building small modular reactors, with a target deployment by 2032.
Nuclear offers a non-carbon, weather-independent source of baseload power—potentially addressing the reliability gap as fossil generation is phased out. While timelines remain tight and regulatory hurdles significant, renewed interest signals a broader view of energy diversification.
Onward with transformation
Q1 2025 showed that energy transition in the Philippines is no longer just a policy goal—it’s a real, unfolding transformation.
As the country prepares for over 11,600 MW of renewable projects set to come online by 2030, the next challenge lies in integrating these technologies without compromising reliability or cost.
Whether the Philippines becomes a regional model for clean energy will depend on continued infrastructure rollouts, investor confidence, and the system’s ability to balance supply, demand, and stability.
The path ahead remains complex—but the momentum is unmistakably forward.
This analysis is based on Q1 2025 market data, regulatory filings, and industry developments. The Philippine energy sector continues evolving rapidly as policy frameworks and market conditions develop.
