Green Dreams, Bankable Schemes: How to Thrive in the Philippine Power Market
Authored by:
Patrick T. —Head of Wider Asia
Developers, lenders, and investors eyeing the Philippine solar and wind sectors face a growing array of route-to-market strategies, each with its own blend of revenue certainty and risk. These include: (1) merchant trading through the Wholesale Electricity Spot Market (WESM), (2) corporate power purchase agreements (CPPAs), often via Retail Electricity Suppliers (RES), (3) power supply agreements (PSAs) with distribution utilities, and (4) participation in the Green Energy Auction Program (GEAP). Each model reflects distinct regulatory, commercial, and infrastructure dynamics, and understanding their nuances is critical for crafting a viable investment thesis.
Overview of the Philippine Power Market
The Philippine electricity system is divided into three pricing zones—Luzon, Visayas, and Mindanao—mirroring the nation’s geographic layout and grid fragmentation. Total generation in 2023 reached approximately 118 TWh, with 80% still coming from fossil fuels, primarily coal and natural gas. Renewables, such as hydro, geothermal, and solar, contribute the remaining 20%, which is a modest share despite vast potential.
The market operates under a nodal pricing system within WESM based on Locational Marginal Pricing (LMP). This method reflects the marginal cost of delivering energy to each grid node, factoring in system-wide conditions, line losses, and congestion. WESM trades in five-minute intervals and accounts for approximately 20% of total national electricity traded.
Complementing WESM are two newer mechanisms: the Reserve Market and the Renewable Energy Certificate Market (REM). The Reserve Market, launched in January 2024, enables real-time procurement of ancillary services—Regulation Up, Regulation Down, Contingency Reserve, and Dispatchable Reserve. The market has seen prices frequently hit regulatory caps due to limited market competition, although the commissioning of 2–3 GW of battery energy storage systems (BESS) is expected to stabilise the market. REM, operational since December 2024, supports voluntary REC trading under a 241.56 ₱/REC cap, offering an emerging source of green premium revenue for developers.
Curtailment and Grid Constraints
Irrespective of market route, renewable projects in the Philippines face two structural challenges: economic curtailment and grid-induced curtailment. Economic curtailment arises when spot prices fall too low to justify dispatch, typically during midday solar peaks or off-peak demand periods. Grid curtailment stems from physical transmission limitations, particularly acute in high-renewable zones like Negros and Northern Luzon.
These risks can significantly erode project economics. While BESS co-location offers mitigation by enabling energy time-shifting, it adds capital complexity. Developers now routinely perform granular nodal studies and congestion forecasts. Lenders, too, increasingly demand curtailment modelling and revenue sensitivity analysis. Without grid investment to relieve bottlenecks, curtailment will remain a defining feature of the Philippine renewable landscape.
Merchant Trading in WESM
Going fully merchant grants developers exposure to WESM’s price signals and operational flexibility. Projects can sell power at prevailing spot prices and capture upside during periods of tight supply or fossil fuel volatility. However, this route comes with maximum exposure to market and nodal price volatility.
WESM price movements are driven by supply-demand imbalances, outages, and fuel price swings. During recent dry spells and coal import disruptions, prices spiked above 8 ₱/kWh. Conversely, periods of excess generation, especially solar, can drive prices close to zero. As more solar enters the system, price cannibalisation during midday peaks is a growing concern, steadily depressing solar capture prices over time.
Figure 3: Aurora's forecast on intraday price shape in Luzon (redacted)
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