Philippines sets course for offshore wind development

In October, the Philippines’ Department of Energy (DoE) issued 40 offshore wind contracts totalling about 30 GW of capacity to 20 offshore wind development companies.

The announcement signifies an intent to launch the country into the offshore wind sector and make it one of Asia’s most significant markets for the fast growing technology. The government is also removing restrictive ownership conditions on international developers, which is expected to increase interest in the country’s wind potential.

The case for starting the country’s offshore wind journey could not be stronger. However, the Philippines’ offshore wind sector is starting from scratch, and the number of business contracts awarded exceeds likely capacity even on a 2040 timeframe by some margin, as a Roadmap outlined by the World Bank shows.

Clean energy needed to meet rapidly rising demand

Offshore wind looks well suited to the Philippines’ archipelagic geography. Situated in the western Pacific Ocean, the Philippines consists of more than 7,500 islands, of which about 2,000 are populated. The country is the 13^th most populous in the world with 116 million people.

Along with its expanding population, the Philippines has seen primary energy consumption rise by an annual average of 4.6% in the period 2011-2021, one of the highest rates worldwide, faster than either China or India. Last year, primary energy consumption jumped 7.1%, above both the world and Asia-Pacific average.

The need for more clean power is clear. The Philippines has no offshore wind capacity at present and at the end of 2021 hosted only 443 MW of onshore wind and 1,370 MW of solar PV. In fact, renewable energy generation has fallen substantially as a percentage of total generation since 2008.

Fossil fuel import dependence rising

Given its island nature, building an integrated electricity grid has always been a challenge. Instead, three main grids with limited interconnections exist, covering Luzon, home to the capital Manila, Visayas, which is itself an archipelago, and the much smaller Mindanao grid.

Each is supplied by a different mix of energy sources. Only Luzon has natural gas supplied primarily from the Malampaya gas field, which is in decline and expected to run out by 2027. Gas supplies are already somewhat erratic. Two liquified natural gas (LNG) terminals should start operating from next year and there are a number of additional LNG import projects in the pipeline.

This should support power generation and gas-for-coal substitution in Luzon, which currently depends 30% on gas and 50% on coal. Visayas gets around half its electricity from geothermal power and Mindanao benefits from about 27% hydro power, but both rely on diesel generation for grid stability and to meet peak loads, as well as having some baseload coal-fired generation.

Offshore wind benefits stack up

Very high prices for LNG and coal over the past 12 months have highlighted the value of developing clean domestic energy resources, even without considering the beneficial climate impacts.

30 GW of offshore wind would be transformational on a number of levels (total generation capacity in the country was 26 GW in 2020).

It would reduce the country’s growing dependence on imported fossil fuels, thereby increasing its energy security. It would lower greenhouse gas emissions by pushing out coal and oil-fired generation and help meet the country’s fast-growing demand for power. It would reduce demands on land use in an economy in which the agricultural sector remains large, while at the same time delivering high-quality employment.

The potential use of multi-purpose interconnectors from offshore wind farms to the island’s different grids could also increase the efficient use of offshore generation and provide much greater interconnectivity between those grids.

Contract awards exceed realisable targets

However, the number of contracts awarded in October alone exceeds even a high-growth scenario for offshore wind outlined earlier this year by the World Bank. The Philippines Offshore Wind Roadmap outlines two divergent pathways.

In the slow-growth scenario, which is aligned with the DoE’s national renewable energy program, the World Bank estimates 3 GW of offshore wind is possible by 2040. But, in the high-growth scenario, with the right long-term vision, infrastructure development and policies, there is potential for 21 GW.

The problem is not one of resource, which is estimated at 178 GW, of which about 90% is in water depths of more than 50 metres, requiring floating offshore wind farms. Six zones identified in the offshore wind roadmap could host 40 GW. All six are based around Luzon.

However, developing an offshore wind sector of the size envisaged requires development of a supportive and clear policy framework, as well as investment in enabling infrastructure, all of which would have significant benefits for the Philippines’ economy.

Transmission capacity is a problem as many of the best offshore wind sites are located far from demand centres. The existing grid could only support a limited number of connections, according to the roadmap. Port infrastructure would also need significant upgrades.

In addition, there is no domestic offshore wind supply chain, meaning the majority of components would have to be imported, at least in the short to medium term.

Furthermore, policy remains under-developed in key areas such as marine spatial planning and environmental assessments, while suitable mechanisms to award capacity which both protect consumers and support developers are lacking.

Ownership restrictions lifted

Signalling the government’s positive intent, one key roadblock is being removed.

Formerly, international developers could own no more than 40% of an offshore wind project, deterring the participation of large, experienced offshore wind developers. The big European renewable energy companies, which have shown much interest in other emergent Asian markets, were notably almost entirely absent from the recent award of business contracts.

However, the Department of Justice issued an opinion in late September which said the 40% limitation should not apply to renewable energy resources. The opinion was not binding, but was followed in October by the DoE releasing proposed amendments to the Renewable Energy Act of 2008, which would exclude most renewable energy projects, including wind power, from the 40% rule.

In November, the DoE approved the amendments with Energy Secretary Raphael Lotilla saying that an “impressive” number of investors had already expressed an interest in the country’s offshore wind potential.