The Philippines has outperformed its regional peers in terms of renewable energy development, but policy uncertainty under the project is likely to cause headwinds in capacity expansion, a research firm said on Monday.
The uncertainty can see the country’s “fairly strong” score for energy policy falling over the coming quarters, BMI Research said in a statement on Monday, referring to its risk/reward index (RRI).
“Our Renewables RRI assesses the different elements that determine the overall investment attractiveness of a country’s renewables sector and the Philippines scores above both the Asia regional average and global average for its overall RRI score and the ‘rewards’ sub-component of the matrix,” the Fitch group company said.
Philippine renewable energy policy is fairly strong at present, it said, citing targets in place for renewable energy and the support mechanism offered to encourage investment. It referred to the country’s feed-in-tariff (FiT) scheme as that mechanism.
FiT guarantees a fixed and much higher rate for the electricity produced by renewable energy developers.
“(President Rodrigo R.) Duterte did sign the 2015 Paris Agreement in February 2017, after previously saying he would not honor the deal in fear of undermining the country’s industrial competitiveness, but when and how the agreement will translate into policy is unclear,” it said.
“Furthermore, allocation limits placed on different technologies under the feed-in tariff program set a ceiling on our renewables forecasts, as investors may not be willing to develop new projects beyond the subsidized capacity,” it added.
In the next five years, it said the Philippines is set to be one of the largest renewable energy producers among member nations of the Association of Southeast Asian Nations (ASEAN), but longer-term growth will be hampered by industry-specific risks.
BMI Research said at least two gigawatts (GW) of renewable energy capacity are in various stages of development, excluding those that have recently been completed.
“The well-developed size of the Philippines’ renewables sector will mean the country outperforms many of its regional peers in ASEAN over the coming five years, as the robust project pipeline for renewable energy capacity is gradually commissioned,” BMI Research said.
The firm said the strengthening of the project pipeline was a result of the country’s relatively attractive regulatory environment for renewable energy, citing an already high electricity charges along with the government’s feed-in-tariff program and tax exemptions.
“We expect non-hydro renewables capacity to total nearly 4.3 GW by 2022, placing the country third in the ASEAN region (behind Thailand and Indonesia) for total installed renewables capacity,” BMI Research said.
However, it said industry-specific risks hamper growth over the longer term. It cited the risks to include under-developed grid network, restricted access to finance and pertinent legal risks.
“The Philippines scores poorly for the ‘financial barriers’ indicator, which means there are ongoing challenges faced by businesses in accessing financing on both domestic and international markets,” it said.
“Legal risks are also fairly high, when taking into consideration the overall strength of the rule of law, the extent of corruption and investor protection,” it added.
It also said that the Philippines’ grid infrastructure is “extremely inefficient,” resulting in very high transmission and distribution losses, which it estimated at around 15% of total output.
“[Transmission and distribution] inefficiencies present a bottleneck for the renewable energy sector, as renewables projects are notoriously difficult to integrate into the electricity grid due to their typically low voltage and intermittent supply,” it said.
“Investment into the grid system has been a government focus; however, progress in modernization of the network has been delayed due to recovery efforts following the November 2013 typhoon,” it added.