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The Philippines is stepping up as an active participant in the global shift to renewable energy (RE), setting clear targets to transform its power mix. The government aims for renewables to reach 35% of generation by 2030 and 50% by 2040, reflecting its intention to align with international efforts to cut emissions and expand sustainable power.
Progress is already visible in the country’s energy landscape. As of early 2025, total installed capacity reached about 30,487 megawatts (MW), with renewables supplying roughly 34%. This amounts to a diverse mix that includes hydro at 3,836 MW, solar at 2,857 MW, geothermal at 1,952 MW, as well as wind, biomass, and a growing volume of energy storage.
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Major barriers to the RE rollout
Investments in low-emissions power across Southeast Asia (SEA) have been climbing since 2021, and the International Energy Agency (IEA) expects them to exceed $19 billion by 2025. The momentum is real, but it is tempered by several obstacles.
- High cost of capital
The cost of capital reflects the return investors need to justify putting money into a project, shaped by both real and perceived risks. The weighted average cost of capital, or WACC, captures the combined cost of financing from debt and equity. When this figure is high, renewable projects become harder to fund, stall at the planning stage, or fail to move beyond early development.
In 2024, the median weighted average cost of capital (WACC) for solar PV in local currency, nominal, and post-tax, stood at 8% in the Philippines. The IEA noted that this is higher than the 5 to 6.5% range typical in advanced economies, highlighting the higher financing hurdles faced in the region.
- Scarce utility-scale solar projects
IEA’s survey respondents observed intense competition among commercial lenders and development finance institutions to secure deals, as available opportunities are few. While the WACC for solar in the region is comparable to, or below, that of other emerging markets, investment volumes have yet to reach the levels seen in countries such as India and Brazil, where predictable, large-scale auctions have spurred rapid growth.
The slow uptake is largely tied to complex procurement and permitting processes. Multiple government bodies are often involved, creating delays and low predictability for project volumes. The IEA emphasized that expanding the pipeline is critical, alongside measures to lower the cost of capital. Steps include improving transparency, standardizing procurement, and enhancing the grid’s ability to integrate variable renewables.
In the Philippines, the IEA stated that investment volumes between 2020 and 2024 fell slightly compared with 2015 to 2019.
- Costly financing for battery energy storage system (BESS) and Offshore Wind (OSW)
In SEA, the cost of capital for OSW and BESS remains higher than for solar PV. Among its neighbors, the Philippines stands out as a relatively mature market, with stand-alone BESS deployment spurred by ancillary service procurement and participation in the reserve market launched in 2024.
Despite strong OSW potential across the region, no capacity has yet been installed. The IEA underscored that the expected WACC for OSW is the highest among surveyed technologies, further complicated by limited demonstration projects, unclear regulatory frameworks, and underdeveloped grid infrastructure.
Transmission risks in Vietnam and the Philippines also threaten project timelines and potential revenue.
RE development costs passed to consumers
The IEA’s findings reveal the hidden costs of the RE transition. While renewables are praised for low operating costs compared to fossil fuels, building the infrastructure and scaling them as a main energy source comes at a significant expense.
The Department of Energy (DOE) aims to boost RE through its Green Energy Auction programs. These initiatives, ranging from GEA 1 to GEA 5, target greater investment in solar, wind, and OSW projects.
However, PhilStar columnist Bienvenido Oplas pointed out that the current support for renewables, provided through the feed-in-tariff (FIT-All) scheme, is set to become more costly for consumers. Under FIT-All, wind, solar, biomass, and run-of-river hydro projects receive a guaranteed price for 20 years, with the difference between this rate and the wholesale market price covered by all on-grid users nationwide.
With most FIT-All allocations already filled, new wind and solar projects are now entering through the Green Energy Auction (GEA) program. By 2026 or 2027, the government’s Transmission Company (Transco) will calculate a GEA allowance (GEA-All) and submit it for regulatory approval. This additional cost will be added to existing FIT-All charges, effectively increasing electricity bills for all consumers to cover both old and new renewable projects.
“The DOE produced their own estimates of GEA-All starting 2026,” he wrote. “If WESM prices are low like P2/kWh, P3/kWh, P4/kWh, GEA-All in 2026 in centavos per kWh would be 20, 15, and 10, respectively. Then the GEA-All in 2027, still in centavos per kWh, would be 45, 30, 15, respectively.”
With OSW being the most expensive RE at P12 to 15 per kWh, Oplas conducted his own calculations to estimate the impact as capacity expands. He projected that as more offshore wind comes online—reaching 3,300 MW by 2030—the GEA-All surcharge per kWh would start at P0.04 in 2026 and rise steadily, surging to P1.57 by 2030. The charge would continue slightly higher in subsequent years, reaching P1.68 in 2031 and P1.63 in 2032.
A Global Wind Energy Council (GWEC) study highlighted that OSW projects in the Philippines remain costly under current market and financing conditions. Early projects could see tariffs between ₱9.10 and ₱16.40 per kWh, with floating foundations in Luzon far more expensive than fixed-bottom setups. Without support from multilateral banks, development finance institutions, or export credit agencies, these high costs are likely to persist.
Meanwhile, Manila Bulletin’s Myrna Velasco wrote that fixed‑bottom installations can require $3 to 7 million per MW in capital investment, and despite the DOE lowering performance bond requirements from 20% to 5%, the upfront costs are still a major barrier. This has made OSW projects in other countries risky.
“The treacherous currents of offshore wind development in major markets like the United States and Canada have even driven some investors into courtrooms, with a number of projects either significantly delayed or scrapped,” she wrote.
Oplas added that the lower the Wholesale Electricity Spot Market (WESM) prices, the higher the GEA-All surcharge becomes, due to the widening gap between the guaranteed high prices under the GEA and the actual market rates.
“As more must dispatch intermittent RE generation goes into the grid, it distorts WESM prices, eliminating the much-needed price signals for new capacities for mid-merit and base load. It is a vicious cycle,” he explained. “As the merit order moves closer to the demand line, WESM prices become optically low. But GEA-All and FIT-All will be adjusted upward to cover the contract for difference with WESM prices.”
Adding to the burden is the rising cost of meeting higher reserve requirements, as the National Grid Corporation of the Philippines (NGCP) must contract more ancillary services. As a result, “OSW and GEA programs are big risks in affordability and inflation in the Philippine economy,” concluded Oplas.
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Lessons from the UK Experience
According to the IEA, investments in low-emissions power in SEA have been rising steadily since 2021 and are expected to top $19 billion in 2025. Despite this growth, funding remains far short of what the region’s vast renewable resources and climate targets demand. Meeting these goals would require a fivefold increase in investment over the next decade, reaching $95 billion by 2035.
Additionally, a significant boost in investment is needed to integrate new power generation and strengthen grid reliability. Supply chain pressures have nearly doubled the cost and lead time for key grid components since 2021, making careful planning essential to ensure timely deployment and infrastructure upgrades.
However, the UK stands as a cautionary example of how rushing the energy transition can be costly. Once home to some of Europe’s lowest electricity prices, the country now faces some of the highest in the developed world. Businesses pay at least 50% more than many European competitors, with Oxford economist Dieter Helm pointing to the aggressive push for RE as a key driver.
He argued that the true cost of OSW, including transmission upgrades, curtailment payments, and standby gas plants, far exceeds the advertised £110 to £120 per MWh contract price. Developers often do not cover the full cost of intermittency or remote locations, resulting in projects that are poorly aligned with the needs of the electricity system.
For the Philippines, investing heavily in grid infrastructure could come at a high development cost. Bill Gates recently urged a rethink of global resource allocation, warning that the focus on emissions reduction should not eclipse urgent human needs. He argued that the alarmist framing of climate risks has diverted resources toward quick carbon-cutting measures rather than addressing pressing crises like poverty and disease, which he sees as the world’s true emergencies.
“I’ve argued that we should measure success by our impact on human welfare more than our impact on the global temperature, and that our success relies on putting energy, health, and agriculture at the center of our strategies,” he wrote.
A Daily Tribune editorial echoed this warning, urging careful planning as the Philippines navigates its journey toward decarbonization. “For a developing nation like the Philippines to be forced to get into the expensive grid adjustment would be nothing less than criminal,” it declared. “While enormous resources are lost to the corrupt practices of its government leaders, the shift to RE threatens to add roadblocks to development through unnecessary expenses.”
Sources:
https://www.pna.gov.ph/index.php/articles/1263768
https://www.philstar.com/business/2025/11/20/2488453/new-es-ai-effect-osw-and-gea
https://theweek.com/tech/why-britains-electricity-bills-are-some-of-the-highest-in-the-world
https://www.gatesnotes.com/home/home-page-topic/reader/three-tough-truths-about-climate
https://tribune.net.ph/2025/10/20/plunderous-folly
https://powerphilippines.com/high-costs-high-stakes-philippine-offshore-winds-path-to-bankability
https://mb.com.ph/2025/09/15/tackling-offshore-winds-toughest-development-challenges
https://mb.com.ph/15/12/2024/doe-to-slash-offshore-wind-performance-bond-to-5