It has been widely reported in the global media that the government of the Philippines has embarked on an unprecedented programme of infrastructure development. As an international investor with a project pipeline across the country, this is welcome news.
The simple fact is that the Philippines’ economy is falling behind its neighbours in the ASEAN region and much of this is to do with its failure to build power infrastructure at the necessary pace, according to the WEF’s World Competitiveness Report (see graphic below). Without electricity, much of the government’s ambitious programme is at risk.
The WEF data shows that that Philippines and Vietnam were ranked similarly in 2008, but that over the past decade Vietnam has performed significantly better, to a large degree due to its focus on improving electricity capacity. Vietnam now has double the amount of installed capacity than that of the Philippines, serving a smaller population.
One technology – renewable energy – can provide the Philippines with large amounts of inexpensive and reliable power which can be built out quickly to help the country regain its regional leadership position.
Switching decisively to wind and solar power and away from coal will utilise the country’s own natural resources to help deliver the infrastructure development and economic growth that the government so clearly wants.
Over the course of the last few years, the cost of these technologies has continued to fall dramatically to a point now where globally wind and solar power costs between a quarter and a half the price of the equivalent coal plant to construct, and once built the fuel is both free and inexhaustible.
At present coal is the Philippines biggest single generation source, and the country imports three-quarters of its supply, exposing consumers to price volatility and high power prices. As a result, the Philippines has one of the highest electricity rates in the region, and this acts as a drag on local business. The government has started to address this by passing into law the Tax Reform for Acceleration and Inclusion (TRAIN) Bill late last year, which includes excise and value-added taxes on imported coal from Indonesia and Australia.
Secondly, once environmental permits have been received, wind and solar can be built very quickly, with average construction times of around one year for a utility-scale plant, compared to three to seven years for a coal-fired power station.
And thirdly, unlike coal, renewable energy is by its very nature local, allowing the Philippines to increase its energy security.
Coal is also a poor investment choice; even in the Philippines new coal plant has to be incentivised with a relaxation of import duties and tax holidays. In markets across the world coal miners and coal generators are under significant financial pressure. Previously rock-solid electric utilities are now haemorrhaging cash, trying to shore up balance sheets undermined by the inexorable advance of new technologies, and the inevitability of disinvestment driven by global climate agreements.
By contrast, renewables are now an investment favourite. USD330 billion was invested in new renewable energy power plant globally last year. 98GW of new solar power capacity was added, with over half in China. That is nearly five times the total power on the Philippines grid.
The future demand for electricity is absolutely assured. Every major car company is planning to add electric vehicles to their fleet, phasing out the internal combustion engine over the next two decades. The demand for electricity will increase by up to a quarter when the conversion to electric vehicles is complete.
As the amount of electrification in any country is the main determinant of economic growth in that country, so the type of energy that a country invests in will be crucial for future economic development and define what kind of economy nations are able to build.
The Philippines has a huge opportunity to build the region’s first truly digital economy, underpinned by the government’s infrastructure plans, and powered by locally generated renewable energy. This new society will be based on full electrification, and driven by the creation and articulation of ever larger amounts of data across all areas of the economy, from autonomous vehicles to home appliances and research and advanced manufacturing.
This is a huge potential prize for the country. To leapfrog its neighbours and embrace the potential of this century’s new digital frontiers, rather than continue to shackle itself to the fossil-fuelled economic models of the early 20th century. It is a future which the government clearly sees, and its ambitions for reform and development are to be applauded. Working together, we can go further and faster on bringing forward renewables to power the country into a new century.