GAS-FIRED power generation remains key to Philippine energy security despite the government’s efforts to increase the share of renewables on the grid, Fitch Solutions BMI said on Tuesday.
“We believe that the market is working towards increased energy security, mainly in supplying the electricity sector, evidenced by the operating license extension of the Malampaya gas field,” Fitch Solutions BMI Country Risk & Industry Research said.
In May, President Ferdinand R. Marcos, Jr. signed an agreement renewing Service Contract 38, which includes the Malampaya gas field, for 15 years, or until Feb. 22, 2039.
The Malampaya gas field is the country’s only indigenous commercial source of natural gas. It is expected to be commercially depleted by 2027.
“We expect gas-fired power generation to remain a key technology in the Philippines’ power mix, contributing about 19% to the mix over the coming 10 years, behind coal’s 58% and slightly ahead of non-hydropower renewables’ 15%,” it added.
The renewal agreement involves a commitment to drill for two new wells at the gas field, with new wells expected to be put into commercial operation in 2026.
“This will aid the market’s prospects for gas-fired power generation, and place downside risks on the market’s liquefied natural gas (LNG) imports,” BMI said.
“Through the extension of the Malampaya concession agreement, gas-fired power generation will play a critical role in ensuring energy security in the Philippines. This is due to the heavy reliance of several existing natural gas power plants from Malampaya,” Jephraim C. Manansala, chief data scientist at Institute for Climate and Sustainable Cities said in a Viber message to BusinessWorld.
Currently, the Malampaya field supplies four power plants with a combined capacity of 2,011 megawatts.
Fitch Solutions BMI said that the country’s LNG infrastructure expansions, however, will not grow at an unprecedented rate, leaving the gas-fired power sector to remain reliant on domestic natural gas production.
Meanwhile, Fitch Solutions BMI said that the renewable energy industry continues to “receive a boost from energy security concerns,” thanks to the government’s support and ongoing policies favoring the sector.
“We expect momentum to pick up for offshore wind development, though we currently note that the emergence of the sector continues to be an upside risk as projects remain in the early stages of development,” BMI said.
Last month, the Department of Energy (DoE) issued implementing guidelines for Executive Order 21, which calls for expedited processing of permits for offshore wind energy projects.
The DoE is set to conduct the second round of the green energy auction program this month, with a total of 11,600 megawatts in capacity on offer.
“Downside risks remain from the market’s transmission and distribution network, as it grapples with expanding in tandem with the rapidly growing power sector,” it said.
Fitch Solutions BMI said that with the growing power consumption which requires additional power-generating capacity, the transmission networks need to expand to allow new power projects to be integrated into the grid.
“The more ambitious renewable energy policies and targets from the government are also commendable. However, we agree that there are still gaps when it comes to transmission,” Mr. Manansala said.
Mr. Manansala said the recent yellow and red alerts over the Luzon power grid last month highlight the urgent need for an energy transition toward “flexible and distributed energy sources, enabling greater integration of renewable energy into the grid.”
“Ultimately, to achieve energy security in the Philippines, we need to determine the right energy balance between all available sources in our system, and what we need is the increase of renewable energy’s share in order to attain this balance,” he said.
The National Grid Corp. of the Philippines (NGCP) has committed to improve its power transmission services.
“We highlight that the Philippines has plans to expand the network and this will alleviate these downside risks…. continued progress on NGCP’s grids integration will unlock new areas for power project development,” Fitch Solutions BMI said. — Ashley Erika O. Jose