The Covid-19 pandemic hit the Philippines’ consumption-driven economy hard, with forecasts from the IMF suggesting that real GDP could contract by as much as 9% in 2020. Strict lockdowns took a heavy toll on the energy sector in the form of a steep drop in demand for both electricity and fuel, yet local power providers took steps to ease the financial impact on customers by lowering rates and extending payment windows. However, in a positive sign for the sector’s longer-term development, interest was sustained in oil and gas exploration activities and midstream infrastructure investment during the pandemic.

Beyond the health crisis, the renewable energy and natural gas segments present standout opportunities for the coming years as the Philippines looks to meet rising energy demand and alleviate pressure on the national grid. When the disruption from Covid-19 eventually subsides, overseas investors may also be given the opportunity to own up to 100% of assets in public utilities, as progress was being made in this area during the first quarter of the year before the pandemic stalled much of the legislative agenda.

Structure & Oversight

The Department of Energy (DoE) is charged with coordinating energy governance and policy, and is ultimately responsible for navigating the sector through the pandemic. It reports directly to the President’s Office and has been guiding reform under the Electric Power Industry Reform Act (EPIRA) since 2001. The Energy Regulatory Commission (ERC) acts as the sector regulator, sets utilities’ wheeling rate charges for use of their systems and approves bilateral power supply agreements (PSAs).

The state-owned National Electrification Administration steers activity towards the goal of full electrification by 2022, primarily by providing loans, subsidies and technical support to cooperatives that serve less developed parts of the country, where approximately 1.6m households still lack access to electricity. The national electrification rate stood at 93% as of December 2019.

Under the EPIRA the government absorbed P200bn ($4bn) worth of debt from the National Power Corporation (NPC), and the Power Sector Assets and Liabilities Management Corp (PSALM) stepped in to oversee industry privatisation, selling state power assets and the right to control generation capacity under long-term PSAs. The private sector, in the form of independent power producers (IPPs), now provides the bulk of generation. Even during the early stages of the pandemic from mid-March to mid-July 2020, the ERC issued 176 operating licences to new and existing power-generation facilities, 51 of which went to IPPs.

Distribution and retail supply are also primarily in private hands, as is the entirety of transmission, while the NPC administers power supply on outlaying islands and maintains the Bataan nuclear power plant. The plant was built in the 1980s but has yet to be commissioned; in July 2020 President Rodrigo Duterte created a nuclear energy committee to evaluate the viability of introducing nuclear power into the energy mix.

Other Major Players

The Philippine National Oil Company (PNOC), meanwhile, is the state oil and gas company. It was responsible – alongside multinational giants Chevron and Royal Dutch Shell – for commercialising the Malampaya offshore gas field, the Philippines’ primary conventional energy resource, as a gas-to-power project. PNOC Exploration undertakes the development of the country’s oil, gas and coal resources, as well as exploration, while PNOC Renewables Corporation promotes and develops renewable energy projects. However, the future of this stateowned renewables firm looks uncertain, as it recorded annual losses of more than P300m ($6m) between 2013 and 2019. Another of PNOC’s units, the Energy Development Corporation, was privatised in 2007 and now operates 2.7 GW of renewable generation capacity, primarily through geothermal units in Visayas.

Manila Electric Company (Meralco) is the owner of the largest distribution franchise in Manila and is also an IPP. This dual role places it on both sides of the competitive selection process for new energy investments. The National Transmission Corporation (TransCo), for its part, was originally founded under the EPIRA to sell public sub-transmission assets to electricity distributors, but its current primary duty is to administer subsidies for feed-in tariffs that support renewable power generators. In 2008 the National Grid Corporation of the Philippines (NGCP), in which State Grid Corporation of China holds a 25% stake, won a 25-year concession to manage daily grid operations. Luzon accounts for 75% of national electricity demand, with Visayas and Mindanao largely splitting the remainder.

Tariffs & Subsidies

In normal times, the NGCP levies a universal charge that is used by PSALM to bring power to rural areas and manage assets. However, both this charge and TransCo’s feed-in tariff were suspended during the pandemic. Beyond this, industry subsidies have largely been phased out, although consumer fees still subsidise “lifeline” customers with monthly consumption of 100 KWh or less, as well as senior citizens.

The pandemic has spurred regulatory shifts throughout 2020 aimed at easing the burden on consumers and businesses by cutting power consumption fees. For example, in March the ERC suspended collection of the feed-in tariff, cutting power rates by P0.04 ($0.0008) per KWh to support consumers, and in October asked utility companies to offer all customers a 30-day extension on bill payments. The regulator also approved paying electricity bills in instalments for Meralco customers in April, while in September the provider cut its rates for the fifth consecutive month to P8.43 ($0.17) per KWh.

Electricity in the Philippines was the costliest in the region as of early 2019, at approximately $0.20 per KWh. However, the pandemic led utilities companies to cut consumer rates by invoking force majeure provisions that allow them to pay lower fixed prices on their PSAs with IPPs. In addition, Meralco announced in March that it would nearly halve its planned capital expenditure on infrastructure projects for 2020 to P9.3bn ($185m) as a result of lower demand and sales.

High costs are partly a result of the subsidies necessary to pay for infrastructure in rural areas, as well as inflexible policy frameworks. Take-or-pay contracts between gas-fired IPPs and utilities put a floor on gas power usage levels, which – alongside provisions in the Renewable Energy Act that mandate a renewable supply be dispatched to the grid as a priority – means that coal producers lose share during periods of weak demand.

In Luzon the share of coal in generation dropped from 56% to 48% as total electricity output contracted by 20% during the initial lockdown period of the pandemic, which began in mid-March. The share of natural gas rose from 23% to 27% during that time, and renewable energy made up the rest (25%). This structure placed coal producers under intense pressure and weakened the investment case for potential new entrants.


Distribution utilities procure power at the lowest cost available via PSAs and the Wholesale Electricity Spot Market (WESM) in Luzon and Visayas, and through a similar market in Mindanao. The NGCP-led $1.2bn Mindanao-Visayas Interconnection Project aims to unify the country’s grid to facilitate electricity sharing across the islands and minimise power disruptions. It is earmarked for completion in 2021.

The non-profit Philippine Electricity Market Corporation manages the WESM and, as of 2020, is responsible for coordinating the launch of a renewable energy market for the trading of renewable energy certificates. The Independent Electricity Market Operator of the Philippines (IEMOP) handles WESM operations – including the registration of new entrants, the receipt of electricity bids and offers, demand forecasting, realtime market pricing and power dispatch schedules – and will eventually act as the registrar for the renewable energy market as well. IEMOP is autonomous, but the DoE and the ERC serve as monitoring authorities for governance breaches and anti-competitive behaviour.

Balancing Act

The DoE’s Philippine Energy Plan 2017-40 forecasts that energy demand will rise fourfold during this period, representing annual growth of about 5% and requiring 43,736 MW of additional power generation capacity. However, it is yet unclear how that extra power will be generated. It is plausible that natural gas – primarily imported liquefied natural gas (LNG) – coal and oil-based generation will satisfy the majority of new demand, with coal providing the base load and more expensive natural gas bridging the gap during periods of higher use. The modest growth of renewables is also on the cards, particularly solar and wind, although several hydropower projects were also under consideration during 2020.

The government’s challenge is to lower the price of power and fuel for consumers while cultivating an appealing investment environment. The authorities must also strike a balance between fostering renewable energy generation and ensuring that base load power for industry remains competitively priced. Competitive pricing generally means using coal for electricity; however, coal-fired IPPs continued to grapple with pandemic-related impacts throughout the second half of 2020. Under President Duterte’s Tax Reform for Acceleration and Inclusion (TRAIN) programme, the coal excise tax was hiked from P10 ($0.20) per tonne when the TRAIN law was signed in 2017 to P150 ($2.98) per tonne in 2020, increasing the burden on coal-fired generators. The Philippines is becoming more reliant on overseas coal for its power needs, with imports rising from 26.3m tonnes in 2018 to 27.7m in 2019. The continued use of coal also has negative implications for the environment and public health, threatening the Philippines’ international climate commitments and human capital development ambitions.

In 2019 intermittent power outages of moderate to severe degrees illustrated the strain on the Luzon grid. In this respect, the pandemic offered something of a respite. Meralco experienced a drop in peak demand of almost 40% in March 2020, to 4516 MW, and a further drop to 4289 MW the following month. DoE estimates suggest that demand during the pandemic period to June declined by 30% in Luzon, 17% in Visayas and 25% in Mindanao. While there is an argument that the pandemic provides an opportunity for the Philippines to more aggressively pivot towards renewable energy than previously planned, caution remains among some stakeholders about how to balance such investments with the need to maintain a base load capacity that will meet growing domestic demand over the longer term.

Grid Network

Work on the Mindanao-Visayas Interconnection Project was ongoing as of the third quarter of 2020, with French company Nexans in the process of installing two 92-km-long submarine cables to link the Visayas and Mindanao grids. The €100m contract is for the manufacture, delivery and installation of a 350-KV, high-voltage, direct current, mass-impregnated submarine cable, which should bring the project into the final stage. This, however, is pending a decision on the precise location of the Mindanao substation.

At the same time, Covid-19 further postponed other critical grid infrastructure projects. Australian firm Energy World Corporation’s planned LNG terminal and 650-MW gas power plant in Quezon province were put on hold after the NGCP revealed that the construction of the necessary local substation in Pagbilao was unlikely to be completed until January 2022. The project was originally slated to go on-line in 2017. This delay – one of five similarly essential transmission projects in Luzon, as well as four in Visayas and two in Mindanao – is indicative of the problems that the NGCP faces in securing right-of-way permissions to carry out the transmission installations and upgrades that would do much to ease the burden on the national grid.


In March 2020 the House of Representatives passed a bill amending the Public Service Act to allow 100% foreign ownership of distribution and transmission assets in the power sector. However, legislation to abolish the existing 60:40 ownership structure in public utilities had yet to pass the Senate as of October, as the body prioritised laws focused on tackling the fallout of the Covid-19 pandemic.

A June 2020 letter from Ray Espinosa, CEO of Meralco, to Alfonso Cusi, the secretary of energy, captures the difficulties of the current energy investment environment: the letter requested a delay in opening the competitive selection process for the 1800 MW of new power capacity required for 2024-25, which is expected to equal an investment of over $3bn. Espinosa argued that, despite the DoE’s approval of fuel cost provisions in March, it was unfair to open the selection process because historically low and volatile energy prices were distorting the market, making it impossible to fairly price a contract. He also noted that, as the process requires various stages to be conducted face-to-face, all parties needed more time to make the necessary arrangements amid the pandemic. The project is intended to replace an earlier 1200-MW tender that was discontinued after Meralco’s power-generation unit, MG en, was the sole bidder. The DoE’s website lists all utilities’ power supply procurement plans and tenders, many of which outline potential involvement from foreign investors.

Renewable Energy

An analysis from Ateneo de Manila University notes that renewables’ share of national power generation capacity is already 30% – hydropower accounts for 16% of the total and geothermal energy 8%. However, their share of actual generation was 23.4% in 2018. Under Renewable Portfolio Standard rules promulgated in 2017, electricity producers are mandated to source or produce at least 35% of their electricity requirements through renewable means, in line with the Renewable Energy Act’s stipulation that renewables account for 35% of capacity by 2030. The DoE’s Green Energy Auction Programme, launched in July 2020, sets the framework for IPPs to acquire supply from renewable energy projects as the Philippines aims to rebalance the energy mix.

Industry also appears to be moving in line with these targets. In April 2020 AC Energy – the energy arm of Philippine conglomerate Ayala Corporation – announced it would make a full exit from coal investments by 2030, sending a strong signal to the rest of the industrial sector about the importance of sustainable energy. Four months later Meralco revealed plans to expand its energy capacity by 3000 MW over the next five to seven years, with one-third to be powered by renewables. One such project slated for completion in early 2021 is a 50-MW solar farm in Bulacan undertaken by MG en Renewable Energy.


In oil, many major players are stepping away from risky projects as global energy prices come under pressure and climate obligations increase. Nevertheless, there remains significant interest in offshore exploration around the Philippines. The government is supportive of exploration activities, in light of the country’s relative lack of projects compared to its neighbours and the fact that reserves in the Malampaya field are declining rapidly. Indeed, full-scale production in the field is projected to end by 2024, and the wells are likely to be entirely depleted by 2029. This would cut supply to five gas-fired power stations in Luzon with a combined capacity of 3211 MW, which fulfil one-fifth of the island’s current power needs.

In August 2020 Israel’s Ratio Petroleum applied to the DoE to increase the size of an oil and gas exploration block in the East Palawan basin that the firm was awarded in 2015. The next month the DoE reported that two local companies had applied to explore four offshore sites, three of which lie in contested waters in the South China Sea, also known as the West Philippine Sea. Troika Giant Power Corp applied for a block in the Mindoro basin, while PXP Energy offered to explore blocks in Recto Bank, also known as Reed Bank. PXP had previously been exploring in the area until the territorial dispute forced it to suspend operations at the Sampaguita block in 2014. Although the dispute with China remains unresolved, in mid-October 2020 President Duterte lifted the oil exploration moratorium in the contested area, which could see activity resume in the near future. As of late October China’s official response had been notably calm. China’s Ministry of Foreign Affairs cited a bilateral memorandum of understanding (MoU) from 2018 on exploration and development cooperation in the area, suggesting that any future activity could be undertaken jointly.


LNG is widely viewed as the mid-term solution to the imminent energy crunch, and there are encouraging signs in terms of infrastructure investment plans even though the Philippines has yet to sign a major LNG import contract. In October 2020 First Gen, the country’s largest gas-fired power producer, announced that it would partner with Tokyo Gas to build a floating storage and regasification unit, as well as onshore gas-receiving facilities, near Batangas in Luzon, with the aim of introducing LNG to the country as early as the second half of 2022. That same month the US’ New Fortress Energy signed an MoU with PNOC to advance the development of infrastructure to supply power and natural gas to the Philippine market. In mid-October the DoE issued notices to proceed to four companies seeking to construct LNG terminals. In addition to First Gen, these companies were Excelerate Energy, Batangas Clean Energy and Energy World Corporation.


The pandemic has had a significant impact on the downstream segment. At the end of October 2020 Petron, the Philippines’ sole local refiner, announced it would close its 180,000-barrel-per-day (bpd) Bataan refinery “very soon” unless the government could “level the playing field” between refiners and importers. Refiners were struck with a temporary 10% increase in crude oil import tariffs in May to fund the national Covid-19 response effort, which added to rising transport fuel sales taxes used to fund infrastructure spending over the previous two years. Hurt by lower oil demand, prices and refining margins over the course of the pandemic, Petron reported a firsthalf loss of P14.2bn ($282.4m) in 2020, compared to a P2.6bn ($51.7m) profit for the first six months of 2019. This opens the door to the Philippines becoming wholly reliant on imported oil products, which are sourced primarily from China and South Korea.

Meanwhile, in September 2020 Royal Dutch Shell announced plans to sell its 45% stake in the Malampaya gas-to-power project, one month after its local unit, Pilipinas Shell Petroleum Corporation, confirmed it would permanently close its 110,000-bpd refinery in Tabangao due to lower margins and a demand slump during the pandemic. The multinational’s exit plan follows Chevron’s sale of its 45% interest in Malampaya to Philippine holdings company Udenna Corporation in 2019. The Davao-headquartered player expressed interest in acquiring the second 45% stake to avoid disrupting operations and facilitate a smooth handover.


The future of the energy sector has been impacted by Covid-19, as investors struggle to price the intensity and timeline of an economic rebound, and form a plan on the type and volume of energy that will be required in the coming years. The International Energy Agency, for its part, estimates that $3trn worth of energy projects will be needed across ASEAN by 2040. While the creation of a renewable energy market is a step in the right direction to fill these needs sustainably, oil and gas projects will continue to play a significant role in the country for the foreseeable future.