As a country of more than 7,000 islands with a lagging power system and some of the highest electricity prices in Asia, one might expect the Philippines to be a hotspot for energy storage.
Although widespread deployment of energy storage in the Philippines is yet to come, there are some significant drivers, both on and off-grid, that are already attracting energy storage players to this emerging market.
As a tropical archipelago with few fossil fuel resources, the Philippines faces unique energy challenges. According to the Philippines Department of Energy (DOE) 49% of installed capacity relied on imported oil and coal in 2011, leaving Filipinos highly exposed to international price volatility. This is especially true in rural islands, where microgrids are powered primarily through diesel generators.
The Philippines is also expected to undergo significant demand growth. By 2030, projected demand is expected to be 29.3 GW, a 60% increase from 2012, according to a KPMG report from 2013.
Filipinos are also concerned about the effects of climate change. Because the Philippines is densely populated near coastlines and is highly reliant on agriculture, it faces some of the most serious consequences of climate change. This reality has driven the Philippines to search for clean energy solutions that are resilient to extreme climate events.
In this context, the Philippines are actively promoting an energy reform agenda that aims to ensure energy security, improve energy prices, and develop sustainability. Since 2008, favorable policies for renewable energy have driven growth in solar and wind deployments. As intermittent renewables begin to take up a greater share of power generation, the grid is likely to require energy storage technology to ensure grid reliability.
Applications for energy storage in the Philippines
Several potential applications for energy storage stand out in the Philippines, particularly in grid-side storage, island storage, and behind-the-meter applications. At this time, lithium-ion batteries are the primary advanced energy storage technology in use, though lead acid batteries -- mostly imported from China -- have been used in off-grid storage applications for at least a decade.
Frequency regulation is in its early stages in the Philippines. A local subsidiary of energy giant AES Corporation announced plans in July 2015 to deploy 200-250 MW of battery energy storage in the Philippines. This announcement came on the heels of a resolution made by the Energy Regulatory Commission (ERC) allowing battery energy storage systems to provide ancillary services.
The Philippines is also shifting toward renewables in power generation. In April 2014, the ERC revised its solar target from 50 MW to 500 MW, and raised its solar feed-in tariff cap accordingly. As of June 2015, that cap was already maxed out, and industry advocates are pushing for a further revision. This suggests that the Philippines solar market is picking up speed. The rise of renewable energy as a significant part of the Philippines’ energy mix will necessitate further energy storage deployments to ensure the stability of the electric grid
Although the Philippines achieved 86% electrification in 2013, that rate falls to 65% in rural areas. According to the National Electrification Administration, there is a market potential of 2.5 million unconnected households in the Philippines.
Additionally, electrified rural island communities often rely heavily on diesel generation, which is both expensive and sensitive to disruption. A study conducted by the Reiner Lemoine Institute in 2014 estimated that a hybrid system comprised of 6.7 MW of solar PV plus a 1 MW lead acid battery system and an existing diesel generator could achieve savings of $0.073 per kWh, serving over 100,000 inhabitants.
Another study from German development organization GIZ estimated that, given the deployments of off-grid diesel generation in the Philippines, the expected potential revenue from battery sales in off-grid diesel hybrid applications will be around $27 million in 2030.
Due to the fact that the price of diesel has dropped significantly since these studies were conducted, the value proposition for diesel hybrid systems may not be as attractive as it was in 2013, but energy security remains a key driver for battery systems that can reduce diesel consumption.
Consumers in the Philippines pay some of the highest electricity tariffs in Asia. At least one utility, the Manila Electric Company, offers voluntary time-of-use rates for their customers, which could provide a value opportunity for battery installers.
More importantly, as the GIZ report notes, consumers such as factories and hotels benefit highly from back-up energy storage devices due to the unreliability of the grid. These entities are also more likely to have access to the financing necessary to install these systems.
As is true of other emerging energy storage industries, there are regulatory and market challenges to the deployment of energy storage technologies in the Philippines.
AES planned to begin operation of a 40 MW battery storage project in Kabankalan, Negros Occidental to provide ancillary services as early as March 2015. Regulatory hurdles have resulted in delays, and the project has yet to come online. This suggests that challenges from regulatory bodies and grid operators continue to hamper the deployment of energy storage technology. According to a GIZ report, this may be especially true for foreign enterprises, which are most likely find success by partnering with local players.
The GIZ report also notes that access to capital is a particular challenge. Projects under EUR 5-10 million may have difficulty acquiring funding from development banks. However the report also notes that there is a growing number of programs organized by the International Finance Corporation and the Philippines DOE which provide financing for sustainable energy projects.
In terms of off-grid battery storage applications, the sharp decline in the cost of diesel will likely impact the attractiveness of hybrid solar/diesel/storage projects. According to statistics from the DOE, diesel prices in the Philippines have fallen by 40% since the summer of 2014. This will squeeze margins for potential solar storage projects, which rely on long-term fuel savings to counterbalance high upfront costs.
Due to the fact that the Philippines are prone to natural disasters such as flooding and typhoons, energy storage systems must be built to withstand extreme weather. This may increase the upfront cost of energy storage systems. However, successful demonstrations may also highlight the advantages of battery-supported systems in the aftermath of natural disasters, when logistics networks, grid services, and diesel deliveries are disrupted.
Overall, while the challenges facing energy storage technology in the Philippines are significant, the fundamental drivers of storage are strong. Partnerships with local developers and support from development agencies may help overcome regulatory and financing hurdles.
Additionally, as battery prices continue to fall, this market will become increasingly attractive.