Fitch unit: Coal to remain dominant as renewable energy faces headwinds

MANILA, Philippines — Coal-fired power plants are seen to dominate the Philippine power sector in the next decade as it remains to be the cheapest power source, while renewable energy development in the country continues to face headwinds, Fitch Solutions Macro Research said.

In its latest industry trend analysis, Fitch Solutions sees coal making up 59.1 percent of the total power mix by 2028 from 52 percent in 2018, as the resource continues to be the key source for the country’s power expansion plan.

Fitch said coal remains as the cheaper and more reliable option to stimulate affordable electricity generation growth at the pace and scale needed to support continued economic growth. 

“We expect the Philippine government to turn to coal to meet the country’s power demand surge, driven primarily by strong macroeconomic and demographic fundamentals, and government goals to achieve a 100 percent electrification rate by 2022,” it said.

The forecast is based on the commitment of government and power producers to continue developing coal-fired power projects.

Fitch Solutions said the Philippine government has approved several coal-fired power projects as energy projects of national significance (EPNS) at the start of the year.

These include the 2x668-megawatt (MW) Dinginin supercritical clean-coal fired power plant in Bataan and the 2x600-MW Atimonan ultra supercritical coal fired power plant in Quezon.

Way back in 2013, the government allowed 11 mining and energy companies to explore and develop coal blocks, which “further illustrates its ambitions for the growth of the coal power segment, and this government stance has remained largely the case since,” Fitch said.

Its forecast is also underpinned by a strong pipeline of coal power projects with around 9.2 gigawatts (GW) of coal-fired capacity planned, which accounts for 56.7 percent of all power projects.

“While growing environmental and social opposition against coal pose an increasing risk to these projects, we still expect a significant amount of coal capacity to be commissioned over the coming decade,” Fitch said.

As for renewables, the group sees an upside risk for the sector due to gradually improving environment, especially after President Duterte had issued a directive to reduce the country’s dependence on coal for power generation with more gas and renewables during his State of the Nation Address (SONA) last month.

“Following the presidential directive, the Department of Energy (DOE) has also pledged to expedite two key renewable energy policies – the Renewable Portfolio Standard and the Green Energy Option which will encourage development of the market,” Fitch said.

However, it expects non-hydro renewables to corner only 10.2 percent of the total power mix by 2028 as the renewables sector faces multiple challenges.

One of the challenges seen is the 40 percent foreign ownership restriction on renewable energy plants and restrictions on foreign ownership of land.

Fitch said large-scale renewable projects require more land than a thermal project.

Another challenge is grid-related issues that have led to the curtailment of wind and solar power.