Market Opportunities: Green Energy Technologies
in the Philippines
Georges Sander
29 August 2017 – Brussels
2
Presentation Agenda
Green Energy in the Philippines as Business Opportunity
The Philippines Green Energy Agenda
Green Energy Technologies: Facts, Figures & Trends
Energy Efficiency Industry Development
Overview of the Energy Sector
GET Case Studies in Philippines
Setting Up in Philippines
4
Long-Term Growth Potential
Source: CIA World Factbook, World Economic Outlook Database – International Monetary
Fund, World Economic Forum – Global Competitiveness Report (2016-2017), EU Commission
• A decade of strong, consistent GDP Growth:• 2011 – 2016: 6.1% p.a. on average
• 2017 – 2021: 6.1 - 6.3% p.a.
• Large Domestic Market:• 102.6 M people, expected to reach 145M people by 2045
• Household consumption represents 70% of GDP
• Young and skilled workforce• 53% < 24 years old
• 92% English speakers,
• #Build, Build, Build! Solving the Infrastructure Bottleneck• 5% of GDP to be invested in infrastructure (up from 2.2%)
• Pending fiscal reform
• Foreign Investment Legislation under review
Source: BMI
Agency LT / LC LT / FC Outlook
S&P BBB BBB stable
Moodys Baa2 Baa2 stable
Fitch BBB- BBB- affirmed
5
Promising Business Destination
Source: CIA World Factbook, World Economic Outlook Database – International Monetary
Fund, World Economic Forum – Global Competitiveness Report (2016-2017), EU Commission
• Steady increase in FDI:
• Electrical machinery dominates trade:
• Investment Grade Rating
4%
5%
5%
11%
35%
vegetables and fruits
metalliferous ores and…
cork and wood…
office machines
electrical machinery
E X P O R T S
3%
4%
6%
18%
19%
office machines
other transport…
road vehicles
petroeum and related…
electrical machinery
IMP O R T S
1.072.00
3.213.74 5.74
5.64 7.94
2010 2011 2012 2013 2014 2015 2016
F D I IN F L O WS (U S D B )
Source: UNCTAD
Source: Worldbank
6
Strengthening EU Business Ties
Source: CIA World Factbook, World Economic Outlook Database – International Monetary Fund,
World Economic Forum – Global Competitiveness Report (2016-2017), EU Commission, BOI
• EU-28 as 4th biggest trade partner• 12B EUR in 2016 (9.2% of total trade) after China, US and Japan
• EU exports to Philippines doubled from 2006 to 2016
• EU exports include machinery, aircraft & pharmaceutical products
• 7 EU countries account for 90% trade with the Philippines:
• EU-28 largest investor into the Philippines• 2016 FDI inflows from EU at 6.1B EUR
• EU represents 20% - 30% of annual FDI inflows (2014 – 2016)
• Double taxation agreements in place with 15 EU countries
• EU – Philippines FTA negotiations launched on 22/12/2015
7
Growing Demand for Energy
2016 2017 2021 2025
Power Generation,TWh
86 91.6 111.4 136.9
Consumption, TWh 73.2 77.9 94.8 116.5
Population, m 102.3 103.8 110 116.2
95
100
105
110
115
120
0
20
40
60
80
100
120
140
160TWh Philippine power outlook• Power generation growth
from 2016 to 2025 will grow
a healthy 5.3% CAGR
• Rising affluence and
population growth of 1.4%
CAGR up to 2025, will drive
demand for electricity
• Strong potential for
renewables is forecasted,
given shift to self-sufficiency
and shelving of nuclear
power ambitions
• Privatisation & deregulation
of power sector is
progressing, with growth in
number of independent
generators and distributors
entering the market
Key power indicators and outlook, 2016-2025
Source: ‘Philippines Power Report, Q3 2017’- Business Monitor International Research,
2016 Philippine Power Situation Report – Philippine Department of Energy
• Wealth of Renewable Resources
• Highest cost of electricity in ASEAN
• Rural electrification to relieve poverty
• 82% electrification rate in rural areas
• 60% of rural population below poverty line
• Government support• Feed-In Tariffs
• Tax Incentives
8
The Green Energy Opportunity
Source: CIA World Factbook, World Economic Outlook Database – International Monetary
Fund, World Economic Forum – Global Competitiveness Report (2016-2017), EU Commission
Source Geothermal Wind Solar Biomass Ocean
Potential > 4,000 MW > 76,600 MW >5 kwh/m2/day > 500 MW > 170,000 MW
Source: DOE
Political Commitment
10
.
Commitment
to
cutting Emissions
• In February 2017,
President Duterte
signed 2015 Paris
Agreement, pledging to
cut CO2 emissions by
70%, by 2030
• Domestic utility
companies stressed the
need to shift from
cheap coal to cheap
clean energy
• Government considers
power as critical to
enabling economic
growth
.
Diversification
of
Energy Mix
• National Renewable
Energy Plan (NREP)
has target of reaching
15.5TWh of installed
renewables energy
capacity by 2030, or
close to 50% of total
electricity generation
• 2030 Energy Plan aims
for 100% electrification
• Reducing dependency
on expensive thermal
energy imports and
unreliable large hydro
.
Supporting policies
already
in place
• Fiscal & non-fiscal
incentives are available
for renewable energy
developers e.g. VAT
exemption, duty-free
importation of
machinery, tax holidays
etc.
• Government support for
feed-in-tariff (FiT)
mechanisms remains
strong
• Move towards self-
sustainability, and lower
returns, remain GET
sector challenges
.
Focus on Improving
the
Grid Infrastructure
• Philippine grid
infrastructure remains
inefficient with
estimated T&D losses
of 15% of total output
• Philippine authorities
have now made grid
systems a government
priority
• E.g. Approved
US$138m
transmission-backbone
project in Mindanao for
National Grid
Corporation
Source: ‘Philippines Power Report, Q3 2017’- Business Monitor International Research,
PwC analysis
11
Ambitious Government Agenda (1) S
ho
rt-t
erm
2017-2
018
Med
ium
-
term
2019-2
022
Lo
ng
-te
rm
20
23
-2040
. Acceleration
of GET positioning
• Finalise rules and
implement Green Energy
Option
• Intensify development in
off-grid areas for wider
populace access to
energy
• Determine realistic GET
potential
• Continue and accelerate
implementation of GET
projects
. Creation of a conducive
business environment
• Streamline administrative
processes of RESC
applications
• Provide technical
assistance to lower
investment costs
• Establish GET
Information Exchange
• Explore & initiate on the
harmonisation of LGU
and government
programmes
. Reliable, efficient infrastructure
• Strengthen resiliency of
GET systems & facilities
• Harmonise transmission
Development Plan with
GET targets
• Develop geographical
installation target
• Enhance local technical
capabilities
• Conduct R&D on the
efficiency of GET
technologies on Smart
Grid Systems
OBJECTIVE
BY 2040 Increase GET installed capacity to at least 20,000MW
Source: ‘Philippine Renewable Energy Roadmap’ - Philippine Department of Energy
12
Sh
ort
-te
rm
2017-2
018
Med
ium
-
term
2019-2
022
Lo
ng
-te
rm
20
23
-2040
. Promote & enhance R&D agenda
• Strengthen the management and
operation of ARECs
• Continue conduct of GET technology
research and development studies
• Identify viability of new technologies
• Construct Ocean pilot / demo Energy
projects
• Implement, monitor and evaluate pilot /
demo projects for new GET
technologies
OBJECTIVE
BY 2040
. Other activities
• Identify parameters to determine the
viable Ocean Energy tariff rate
• Continue technical capacity-building on
GET
• Conduct research and promote low-
enthalpy geothermal areas for power
generation and direct use / non-power
application for development
• Harmonise DoE-related programmes
with agro-forestry policies for an
integrated use of biomass
• Continue conduct of IEC to attain social
acceptability
Increase GET installed capacity to at least 20,000MW
Source: ‘Philippine Renewable Energy Roadmap’ - Philippine Department of Energy
Ambitious Government Agenda (2)
14
Philippines: GET Statistics
2016
86.2TWh
Total Power
Generation
Share of power
generation by source
62%4%
16%
6%
12%
Coal
Oil-based
Natural gas
Hydropower
Non-hydrolectricrenewables
21,423MW
Installed
Capacity
35%
17%16%
16%
9%
4%
2%1% Coal
Oil-based
Natural gas
Hydropower
Geothermal
Solar
Wind
Biomass
Share of installed
capacity by source
Overview of Philippine power capabilities
Source: ‘Philippines Power Report, Q3 2017’- Business Monitor International Research,
2016 Philippine Power Situation Report – Philippine Department of Energy, PwC analysis
15
Philippines: GET statistics
84%
6%
5% 5%
Geothermal Wind Solar Biomass
75%
15%
5% 5%
Geothermal Wind Solar Biomass
13.8TWh
Generation,
Non-hydroelectric
renewables
16.0%Of total Philippine
power generation
17.2TWh
Generation,
Non-hydroelectric
renewables
12.6%Of total Philippine
power generation
Share of various non-
hydroelectric renewables
Share of various non-
hydroelectric renewables
2016 2025
Philippine non-hydroelectric renewables forecast, 2016-2025
Source: ‘Philippines Power Report, Q3 2017’- Business Monitor International Research,
2016 Philippine Power Situation Report – Philippine Department of Energy, PwC analysis
16
GET: Geographical Coverage
GET Installed Capacity (MW) by region, 2016
337 95 307 4,120
TOTAL
843 2,537
LUZON
90 101 299 1,574
TOTAL
965 20
VISAYAS
0 36 59 1,264
TOTAL
108 1,061
MINDANAO
TOTAL
Geothermal Hydro Wind Biomass Solar Total
capacity,
MW
Legend
Source: 2016 Philippine Power Situation Report – Philippine Department of Energy, PwC
analysis
17
GET: Geographical Coverage
0 4 4 13
TOTAL
2 3
LUZON
0 0 2 5
TOTAL
1 2
VISAYAS
0 3 0 8
TOTAL
0 5
MINDANAO
TOTAL
Geothermal Hydro Wind Biomass Solar Total
capacity,
MW
Legend
Summary of committed & indicative GET power projects by region, 2016
Source: 2016 Philippine Power Situation Report – Philippine Department of Energy, PwC
analysis
Summary: GET Market Trends
. GET Highlights
• Well-developed size of
Philippines’ GET sector
outperforms regional
ASEAN peers
• By 2022, non-hydro
renewables capacity
set to hit 4.3GW,
placing the Philippines
3rd in ASEAN (behind
Thailand & Indonesia)
for installed renewables
capacity
• High reliance on costly
thermal imports and
unreliable hydropower,
is encouraging a
diversified energy mix
• Despite expected power generation CAGR of 1.2% through to 2025,
geothermal will maintain its dominant position in renewables mix
• 13% of total electricity generation supplied by geothermal sources,
but most proven reserves have already been commercialised
Geothermal
• Wind capacity is expected to grow 11.3% CAGR between 2017 and
2026, totalling 1.2GW by 2026
• Improvements in technology and favourable terrain are boosting
investor interest
Wind
• High potential for power generation given low base of departure
• Estimated 4.4TW potential biomass capacity given extensive rice
production and agricultural waste
Biomass
• High FiTs for solar project developers, and a strong project pipeline has
seen 11.7% growth in solar capacity from 2016 to 2017
• Fewer new projects are expected from 2019 onwards; with installed
solar capacity expected to hit just 633MW
Solar
Key trends & growth drivers
Source: ‘Philippines Power Report, Q3 2017’- Business Monitor International Research,
PwC analysis
20
Energy Efficiency Roadmap
Short-term
2017-2018
Medium-term
2019-2022
Long-term
2023-2040
• Conduct market demand scoping
• Advocate legislation of EE&C bill
• Establish cross-sectoral energy
performance & rating systems
• Create business tool kit for
ESCOs
• Collaboration with stakeholders
for expanded financing models
for EE&C Projects
• Information, Education and
Communication campaigns on
EE practices
• Create enabling mechanisms
for private sector participation
• Enhance Demand-Side
management mechanisms
• Integrate EE&C in the
learning and education
system
• Mainstream EE&C at LGU
level
• Institutionalise EE&C
Knowledge Management
System
• Develop advanced EE&C
R&D capacity
Industry development Strengthening Sustaining
Key objective is to ensure measurable reduction in energy intensity and
consumption across all user types
Source: ‘Philippine Renewable Energy Roadmap’ - Philippine Department of Energy
22
The Regulatory Environment
NEAPSALM ERCNPC
COORDINATIONSUPERVISION
DoE
AbbreviationsDoE: Department of Energy
NPC: National Power Corporation
NEA: National Electrification Administration
PSALM: Power Sector Assets and Liabilities Management Corp,
ERC: Energy Regulatory Commission
Key stakeholders and jurisdictions under EPIRA**Electric Power Industry Reform Act (2001)
Source: Philippine Energy Regulatory Commission’s Regulatory Framework
24
Value Chain
Generation
Transmission
Distribution
Consumers
• Recently privatised to different entities to foster competition
• PMEC acts as market operator, administering the wholesale Electricity Spot Market
• NGCP operates transmission assets owned by Transco
• Private distribution utilities or electric cooperatives
• Captive customers served by Distribution Utilities
• Contestable customers ( > 750 kw) served by Retail Suppliers
Various players
Various players
Electricity industry structure after EPIRA**Electric Power Industry Reform Act (2001)
Source: Philippine Department of Energy
Stakeholders
Various players
26
GET Success Stories in the Philippines
Source: ADB
ADB Backs First Climate Bond in
Asia in Landmark $225 Million
Philippines Deal• Investment into the rehabilitation of
the life of Tiwi-MakBan geothermal
energy facilities (776 MW) to
improve performance and extend
their operating life.
• ADB backed 75% of Bond’s principal
PHP10.7 billion ($225 million
equivalent) local currency bond.
• Transaction considered mitigating
local currency risks and promoting
project bonds (as an alternative to
project finance and corporate bonds)
27
GET Success Stories in the Philippines
Source: EVEEI
Electric Vehicle Expansion
Enterprises, Inc. - Sustainable
Transport. Electrified with Passion
• Replacing diesel jeepneys with electric
powered jeepneys.
• Diesel-fueled jeepneys, buses, trucks
and other vehicles in Metro Manila are
responsible for about 70 percent of the
total soot or black carbon emissions
• World Bank estimates that some 5,000
annual premature deaths make up 12
percent of all deaths in Metro Manila,
due primarily to respiratory and
cardiovascular diseases from exposure
to air pollution
28
GET Success Stories in the Philippines
Source: Climate Action Programme - UN Environment
The Philippines pursues renewable
energy expansion largest solar power
project• Solar Philippines has recently begun work on
the 150 megawatts (MW) solar photovoltaic
(PV) project in Concepcion, Tarlac.
• 450,000 solar panels to be installed across
150 hectares, making the project one of
south-east Asia’s largest solar farms.
• Panels to be manufactured locally in addition
to using batteries to supply 24-hour
electricity.
• Project cost estimated at $195 million, and
produce enough power to fulfil the entire
province’s needs.
30
Areas of Caution
Source: CIA World Factbook, World Economic Outlook Database – International Monetary
Fund, World Economic Forum – Global Competitiveness Report (2016-2017), EU Commission
• Local Partner to facilitate stakeholder engagement:• Central Government in Manila
• Local communities and regional authorities around project site
• Foreign Exchange Risk:• PHP expected to depreciate due to
• Lower remittance flows
• Negative trade balance
• High frequency of natural disasters
• Political Instability
• Foreign Ownership Restrictions:• Maximum 40% foreign ownership
• “Negative List” currently under review
• Renewables qualified as Investment Priority by BOI
31
Investment Incentives
Incentives to doing business in the Philippines are offered by the Board of Investments (BOI), for a broad range of activities that promote the general economic development of the Philippines.
Firms engaged in
projects in the interest of
the country’s general
economic development
Export-oriented firms
locating within identified
economic zones
Firms locating in special
industrial & commercial
free port zones in Subic
Bay & Clark
Concessionary tax and
regulatory treatment for
MNCs establishing HQ
operations in the
country
. Fiscal Incentives
• Exemption from taxes and duties on
imported spare parts (NOLCO)
• Exemption from wharfage dues and
export tax, duty, impost and fees(GIE)
• Reduction of the Rates of Duty on
Capital Equipment, Spareparts and
Accessories by Virtue of EO 528
• Tax exemption on breeding stocks and
genetic materials
• Tax Credits
• Additional deductions from Taxable
Income
. Non-Fiscal Incentives
• Employment of Foreign Nationals
• Simplification of customs procedures
• Importation of consigned equipment
• Privilege to operate a bonded
manufacturing/trading warehouse
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