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The Philippines has seen a rapid rise in solar energy development in recent years, supported by policy initiatives, growing private sector investment, and increasing electricity demand. Installed solar capacity is also expanding in absolute terms, with projections showing growth from around 4.25 gigawatts (GW) in 2025 to more than 5.4 GW by 2026.
However, growing enthusiasm for wind and solar can obscure a more complex reality. As noted by Eurasia Review, major energy institutions, including Organisation for Economic Co-operation and Development (OECD) and the International Energy Agency (IEA), acknowledged that, at the grid scale, these technologies can still be more costly than coal, natural gas, and nuclear power.
“The result is that the proposed ‘energy transition’ would cost over 7 – 10% of the global GDP, amounting to trillions of dollars, and as per IPCC data would supersede the cost of a warming climate,” it noted. “Claiming ‘renewable’ energy from wind and solar is cheap and comes without environmental consequences, is a crucial and detrimental energy economic misunderstanding.
Energy costs have a direct impact on both living standards and economic growth. When energy becomes expensive, it raises financial pressure on households and can slow industrial and economic development across all economies, not only in lower-income countries like the Philippines.
Globally, the IEA recently reported that global energy demand is still rising, growing close to 3% and slightly higher than the 10-year average of 2.8%. In the US, data centers are a key driver of this rising demand, accounting for about half of the increase in electricity use.
With electricity consumption from data centers jumping by 17% in 2025, IEA Executive Director Fatih Birol stated, “The IEA was early in recognizing that there is no AI without energy – and that countries that provide secure, affordable and rapid access to electricity will be one step ahead.”
However, some critics argue that as the green transition advances, energy planning may be placing too much emphasis on intermittent renewables relative to the scale and speed of rising demand. They caution that this could create gaps in meeting round-the-clock needs from data centers and industry, and that total system costs may rise once backup capacity and grid stability requirements are fully accounted for.
(Also read: Power Interrupted: How Poor Power Service Shapes Lives in Amianan)
Understanding the True Cost of Electricity
Energy economist Lars Schernikau argues that to understand the complexity of energy pricing, we need to move beyond the idea of electricity as a simple commodity priced per kilowatt-hour (kWh). In practice, electricity is a continuous service that must be delivered instantly and without interruption. Maintaining that level of reliability requires a tightly coordinated system of generation, backup capacity, storage, transmission infrastructure, and real-time balancing to ensure the right voltage.
He wrote, “We are no longer just asking ‘what does this technology cost?’ But rather, ‘what does it cost to make the entire system work?’ Because what would you do with electricity if it is not delivered to your location, ready for use?”
For years, energy discussions have been framed around simple indicators like the levelized cost of electricity (LCOE). While easy to communicate and widely used, this metric looks only at the cost of generating power from a single plant, not the broader system it depends on.
Schernikau pointed out that LCOE was never meant to capture the full picture. It reflects plant-level economics, a narrow view that works best for traditional dispatchable generation, but leaves out key system costs such as balancing, grid integration, transmission, backup capacity, and storage.
Engr. Jeremy Jay Magdaong of De La Salle University reinforced this view, noting that in research conducted with his team, conventional measures such as LCOE fall short of reflecting the real costs and system-wide impacts of an electricity grid increasingly influenced by renewable energy.
“The cost of variable renewable energy systems might seem low if we only look at the LCOE,” he noted. “But without proper calibration, they can lead to unintended outcomes like higher electricity costs and more frequent blackouts, especially during extreme weather events. Climate change adds another layer of risk, as shifting wind patterns could affect the reliability of wind power in the future.”
As a more complete way to capture the true cost of power across the entire system, economist Robert Idel, who earned his PhD from Rice University, introduced the Levelized Full System Cost of Electricity (LFSCOE).
LFSCOE takes a broader approach by assigning integration and system-level costs to each technology and assuming each must deliver the full range of grid services on its own.
Applying the LFSCOE, economist Robert Idel’s 2024 analysis of the Philippines shows how seasonal weather patterns significantly affect the real-world performance and cost of renewable energy. In particular, wind power weakens during the summer months, with output falling below solar for roughly a quarter of the year, precisely when electricity demand tends to rise.
The study also finds that wind can be more than twice as expensive as solar despite higher capacity factors, largely due to long periods of low wind availability and limited geographic coverage, especially in Mindanao. At the same time, solar faces its own constraints in a land-scarce country where large-scale deployment competes with agriculture, and where excluding land costs can significantly understate true project expenses.
But for Schernikau, LFSCOE still falls short of capturing the full complexity of how real-world power systems operate.
He explained using the Full Cost of Electricity (FCOE), which takes an even broader, society-level view by capturing the entire system needed to deliver reliable power. This includes not only generation, storage, backup, transmission, and grid integration, but also deeper factors such as resource inputs, environmental impacts, and end-of-life costs.
Unlike simpler metrics, FCOE reflects how introducing more of one technology can shift costs across the entire system, often raising overall expenses as integration challenges grow. It also highlights a key issue in cost allocation: as wind and solar expand, they can reduce the utilization of conventional plants, raising their unit costs and reshaping the economics of the whole grid.
The Perils of Pursuing Intermittent Solar
A 2024 report from the OECD Nuclear Energy Agency states that a higher share of variable renewable energy, such as wind and solar photovoltaic power, tends to increase overall system costs.
Earlier findings from the same organization note that as these technologies expand, they can create additional technical and social costs, including higher balancing needs, more expensive transmission and distribution networks, and greater reliance on backup systems to ensure a continuous, around-the-clock electricity supply.
Coal, gas, nuclear, and hydropower remain central to electricity grids because they provide the physical stability needed to keep one of the world’s most complex systems running reliably. Their large synchronously rotating generators supply key stability functions that help maintain grid frequency, voltage, and overall balance.
“Thus, removing synchronous generators from the system and adding ‘digital generators’ such as wind, solar, and batteries, reduces fault level and system strength,” wrote Schernikau. “The 2025 blackout experienced in Spain is a perfect example of the exact problem faced.”
On April 28, 2025, Spain and Portugal experienced one of Europe’s most significant recent blackouts, which also affected parts of southern France. The outage highlighted how quickly instability can spread in highly interconnected power systems. At the time, Spain was generating about 59% of its electricity from solar, and a voltage imbalance escalated through the grid, contributing to a cascading failure that left millions without power.
A subsequent report by the European Network of Transmission System Operators for Electricity (Entso-E) found that the blackout was driven by broader system weaknesses, including inadequate voltage control, reactive power management, and gaps in regulatory design. This incident highlighted how power systems with high shares of intermittent renewables can become more complex to operate.
(Also read: ACEN Pumps ₱3.85 Billion Into Quezon Wind, Zambales Battery Projects)
The Economic Burden of High Energy Costs
In Energy and Civilization: A History, scientist and policy analyst Vaclav Smil highlighted the close and enduring link between rising energy use and human progress. “But if today’s low-income countries are to move from poverty to an incipient affluence… then none of those factors could make a difference without the rising consumption of fuels and electricity: a decoupling of economic growth and energy consumption during early stages of modern economic development would defy the laws of thermodynamics,” he wrote.
Fossil fuels, not intermittent renewables, remain widely regarded as among the most cost-effective and efficient energy sources in supporting modern industrial systems. As Smil emphasized, “modern civilization will remain fundamentally dependent on the fossil fuels used in the production of these indispensable materials. No AI, no apps, and no electronic messages will change that.”
Germany illustrates this clearly. Despite substantial investment and wind and solar capacity that now exceeds peak demand, overall system costs remain elevated and continue to rise. In early 2026, Chancellor Friedrich Merz observed that the country still “lacks sufficient electricity generation capacity.”
As Schernikau pointed out, this underscores a key point: No technology can be fairly judged on its own; its true impact only becomes clear when viewed within the broader system it depends on and transforms.
“The central takeaway is simple and often overlooked,” he asserted. “Electricity is not just about producing kWh, but rather about delivering peak-power service, reliable, grid-ready power at all times 24/7/365. Any serious discussion about cost must reflect this reality.”
Sources:
https://www.iea.org/reports/global-energy-review-2026/key-findings
https://unpopular-truth.com/2026/04/25/rethinking-the-cost-of-electricity/
https://powerphilippines.com/rethinking-the-yardsticks-of-energy-policy/
https://drive.google.com/file/d/19PQgA5jhDs0mC8AK8RvCtapFFUV1F9R-/view
https://www.goodreads.com/author/quotes/5003.Vaclav_Smil
https://en.wikipedia.org/wiki/2025_Iberian_Peninsula_blackout
https://www.mordorintelligence.com/industry-reports/philippines-solar-energy-market
https://www.eurasiareview.com/17012024-the-energy-trilemma-and-the-cost-of-electricity-oped