Diversifying the Philippines’ energy mix and democratising consumer choice

February 2025 | SPOTLIGHT | SECTOR ANALYSIS

Financier Worldwide Magazine

February 2025 Issue

As walls and tariffs rear up across the globe, energy security becomes a more pressing goal as nations seek to be self-sufficient within their borders. One of the long-held policy goals of the Philippine government has been to “ensure the quality, reliability, security and affordability of electric power”. In 2024, the government implemented several programmes to diversify the country’s energy mix and promote consumer choice in the electricity market.

These programmes are market-oriented, reflecting existing policy that there should be “transparent and reasonable prices of electricity in a regime of free and fair competition and full public accountability to achieve greater operational and economic eﬃciency and enhance the competitiveness of Philippine products in the global market”.

Reserve market

In 2024, the Department of Energy (DOE) declared the commencement of full commercial operations of the reserve market (RM), the market for the sale and trade of reserves, a type of ancillary services. The RM is to be integrated into the wholesale electricity spot market (WESM).

The RM allows for ancillary services providers to offer and sell their reserves without the need for an ancillary service provider agreement with the National Grid Corporation of the Philippines (NGCP). As a result, the NGCP is granted more flexibility in securing reserves through the RM and can more easily supplement existing supply.

Reserves offered on the RM are either regulating reserves, contingency reserves or dispatchable reserves. Regulating reserves refer to readily available and dispatchable generating capacity that is allocated exclusively to correct deviations from the acceptable nominal frequency caused by unpredicted variations in demand or generation output. Contingency reserves are synchronised generation capacity from qualified generating units and qualified interruptible loads allocated to cover the loss or failure of a synchronised generating unit or a transmission element or the power import from a circuit interconnection. Lastly, dispatchable reserves refer to generating capacity readily available for dispatch to replenish the contingency reserves whenever a generating unit trips or a loss of a single transmission interconnection occurs.

The RM aims to co-optimise energy and reserves, which, in the DOE’s words, may result in optimal schedules and prices for energy and reserve requirements, fostering competition and affordability while ensuring grid security and reliability.

Omnibus Rules for customer choice programmes

In the retail sector, the Energy Regulatory Commission (ERC) has issued Resolution No. 13 (2024) (the Omnibus Rules), which codifies the rules of engagement between retail suppliers and their retail customers under the available customer choice programmes.

In the Philippines, end-users that reach a certain threshold (currently, 500kW per month for the competitive retail electricity market and 100kW per month for the green energy option programme) are allowed to choose their electricity supplier, rather than being captive to the distribution utility of their jurisdiction. The goal is to “gradually reduce the threshold level until it reaches the household demand level”.

One of the issues in the retail sector of late has been the imposition by retail suppliers of ‘fuel cost recovery adjustments’, in response to the spike in prices as a result of, among other things, the Russia-Ukraine war. Existing retail customers have been forced to accept the FCRA under pain of disconnection.

Notable among the provisions of the Omnibus Rules is the ‘magna carta for retail customers’, which now protects customers from premature termination and disconnection. Under the Omnibus Rules, the ERC has made clear that retail suppliers must refrain from arbitrary premature termination of any of their retail supply contracts and will be subject to a penalty or termination fee equivalent to the termination fees imposed on retail customers in case of early termination if they engage in such acts.

The Omnibus Rules also make clear that retail suppliers are obliged to send a notice of disconnection at least 48 hours before the intended date of disconnection. The retail customer must not be disconnected on weekends, holidays or on any other day before 8am and after 5pm.

Renewable energy market

In the generation sector, promulgated Department Circular No. DC2024-12-00314, declared the full commercial operations of the renewable energy market (REM) effective 26 December 2024. With this announcement, the DOE finally implements a policy mechanism that has long been in the books but has not been given effect until now. The REM is a partner programme of the renewable portfolio standards (RPS) programme, whereby certain mandated participants are obliged to source their energy requirements from renewable energy.

RE certificates are issued equivalent to an amount of power generated from RE resources. These certificates are then traded among participants in the REM to comply with each mandated participants’ RPS requirements. Like the RM, the REM will be integrated into the WESM and be operated by the Independent Electricity Market Operator of the Philippines.

In April 2024, the ERC issued a resolution setting the price cap on RE certificates at 241.56 Philippine pesos per MWh. It is intended that “the prices of RE Certificates are, in the long-term, reflective of the benefits of bringing an additional MW/hr of RE generation into the Philippine electricity system”.

Nuclear Energy Program

Bucking international trends, the DOE is actively exploring the development of the country’s nuclear generation sector. In its Philippine Energy Plan 2023-2050, the DOE unveiled the Nuclear Energy Program (NEP), which reflects state policy to “[introduce] nuclear power energy into the State’s energy mix for power generation, [and] ensure the peaceful use of nuclear technology anchored on critical tenets of public safety, national security, energy self-sufficiency, and environmental sustainability”.

Under the NEP, the Nuclear Energy Program Inter-Agency Committee has already assessed 11 potential nuclear power sites nationwide and aims to explore the possibility of installing nuclear power plants in the Mindoro and Palawan islands.

The DOE aims to have the first nuclear energy plants commercially operational by 2032, with at least 1200MW entering the country’s power generation mix. Nuclear power generation capacity is to be increased to 2400MW by 2035, and 4800MW by 2050. Under the DOE’s Clean Energy Scenario, in which the government’s aggressive interventions in the energy sector are successfully implemented, the share of nuclear power in the generation mix rises to about 7.9 percent of total primary energy supply by 2050.

Unlike the large plants of the previous century, the DOE is considering small modular reactors and micro modular reactors, with generation capacities of up to 300MW, which are more adept and can be deployed across various regions of the archipelago.

Indigenous Natural Gas Bill

Despite the push for renewable energy, consistency and reliability remain persistent problems militating against its widespread adoption. In this regard, liquified natural gas plays an important role as a transition fuel to wean off more harmful fossil fuels such as coal while RE technology continues to develop.

Congress is currently considering a bill that would establish and govern the Philippine Downstream Natural Gas Industry (PDNGI). The bill, as currently worded, would prioritise procurement and utilisation of indigenous natural gas, including without limitation, by gas-fired power plants, over imported natural gas. Moreover, power produced from indigenous natural gas will have priority over other conventional energy sources.

To give the PDNGI a competitive edge, the bill would impose a zero-rated value-added tax (VAT) on industry players’ purchases of locally supplied goods, properties and services needed for the development, construction and installation of their facilities. Meanwhile, the purchase and sale of indigenous natural gas, aggregated gas (indigenous natural gas combined or supplemented with imported natural gas), and power generated by generation facilities using indigenous natural gas and aggregated gas will be exempt from VAT.

A copy of the bill was sent to the president on 9 December 2024. The president has 30 days from receipt to veto the bill, otherwise it becomes law.

Patricia A. O. Bunye is a senior partner, Rafael Raymundo A. Evangelista is a senior associate and Liam Calvin Joshua C. Lu is a junior associate at Cruz Marcelo & Tenefrancia. Ms Bunye can be contacted on +63 917 843 6976 or by email: po.bunye@cruzmarcelo.com. Mr Evangelista can be contacted on +63 917 832 4883 or by email: ra.evangelista@cruzmarcelo.com. Mr Lu may can be contacted on +63 917 139 4926 or by email: lc.lu@cruzmarcelo.com.

Patricia A. O. Bunye, Rafael Raymundo A. Evangelista and Liam Calvin Joshua C. Lu

Cruz Marcelo & Tenefrancia