A recent report from S&P Global casts doubt on the Philippines' ability to achieve its renewable energy goals, citing weak grid infrastructure, cumbersome approval processes, and high financing costs as major obstacles to the country's energy transition.
Current Challenges in Energy Transition
Renewables currently account for just a quarter of the Philippines' energy mix, with projections showing only a modest increase to 27% within the next four years. While the government aims to reach 50% renewable energy by 2050, S&P Global warns this target remains uncertain. The report highlights solar power's intermittent nature and insufficient grid storage capacity as critical barriers to renewable adoption, forcing the country to continue relying on coal and natural gas for stable electricity supply in the near term.
The Financing Hurdle
The financial landscape presents another significant challenge. Clean energy projects in the Philippines face substantially higher capital costs compared to other markets, with solar projects carrying a weighted average cost of capital (WACC) of 10-11% — 3-4 percentage points above comparable markets. Elevated country risk further discourages international financial institutions from supporting local projects, creating additional pressure for developers.
Potential Amidst Obstacles
Despite these challenges, the Philippines' decision to fully open its renewable energy market has generated considerable interest from foreign developers and investors. However, the country's ability to streamline approvals, upgrade grid infrastructure, and reduce financing costs will determine whether this interest translates into tangible progress toward its renewable targets.
The Philippines' renewable energy struggles manifest not only in its current capacity share but also in critical financial metrics. The high WACC values directly impact project returns and investment attractiveness. Addressing these financial and infrastructure bottlenecks has become an urgent priority for Philippine policymakers as they navigate the complex path toward sustainable energy.