It has been reported globally that the Philippine government has embarked on an unprecedented program of infrastructure development. This is welcome news for an international investor with a project pipeline across the country.
The simple fact is that the Philippines is falling behind its neighbors in Southeast Asia in terms of building power infrastructure at the necessary pace, according to the World Economic Forum’s Global Competitiveness Report. Without electricity, much of the government’s ambitious program is at risk.
WEF data show that the 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. Switching decisively to wind and solar power and away from coal will utilize the country’s own natural resources to help deliver infrastructure development and economic growth.
In the last few years the cost of these technologies has fallen dramatically to a point where globally, a wind and solar power costs between a quarter and a half the price of the equivalent coal plant to construct. And once the renewable energy plant is built, the fuel is both free and inexhaustible.
Coal is now the Philippines’ biggest single generation source, and three quarters of the supply is imported, exposing consumers to price volatility and high power prices. As a result, the Philippines has one of the highest power rates in the region, and this acts as a drag on local business. The government has started to address this by passing the Tax Reform for Acceleration and Inclusion into law late last year, which includes excise and value-added taxes on coal imported from Indonesia and Australia.
Once environmental permits have been received, wind and solar power plants can be built very quickly—around one year for a utility scale plant, compared to three to seven years for a coal-fired power plant.
And 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, a new coal plant has to be incentivized with relaxed import duties and tax holidays. In markets worldwide, coal miners and generators are under significant financial pressure. Previously rock-solid electric utilities are now hemorrhaging cash, trying to shore up balance sheets undermined by the inexorable advance of new technologies, and the inevitable disinvestment driven by global climate agreements.
By contrast, renewables are now an investment favorite. As much as $330 billion was invested in new renewable energy power plants globally last year.
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 its economic growth, 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 Philippines — to leapfrog over its neighbors and embrace the potential of this century’s new digital frontiers, rather than continue to shackle itself to the fossil-fueled economic models of the early 20th century. It is a future that the government clearly sees, and its ambitions for reform and development are to be applauded.
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Eddie O’Connor is executive chair of Mainstream Renewable Power and global ambassador of the Global Wind Energy Council.