YUICHI SHIGA and RYO MUKANO, Nikkei staff writers
MANILA/TOKYO — As the global decarbonization push reaches the Philippines, conglomerates there have begun enlisting Japanese partners to reduce energy-sector emissions.
Philippine utilities rely heavily on coal and domestic gas. But with the government slamming the brakes on new coal plants, and with a key gas field expected to dry up this decade, the companies are accelerating the development of alternative energy sources.
“We look forward to working collaboratively with JERA to achieve our 10-year vision,” including achieving a 50-50 balance between clean energy and thermal power, Aboitiz Power President and CEO Emmanuel Rubio said in a Sept. 27 news release on their partnership.
JERA is a joint venture between Tokyo Electric Power Co. Holdings and Chubu Electric Power. It will acquire 27% of Aboitiz Power for $1.58 billion under the deal announced that day.
Coal accounts for about 60% of the energy produced by the Aboitiz group unit. But the Philippine Department of Energy announced in 2020 a moratorium on new coal power plants. Coal prices have also been surging of late, leading to widespread energy crunches in China and India.
Under pressure to reevaluate its strategy, Aboitiz Power looks to tap JERA’s expertise in low-emissions fossil fuel energy.
First Gen, a member of the television and real estate conglomerate Lopez Group, has joined hands with Tokyo Gas to develop an offshore liquefied natural gas terminal. They aim to receive the Philippines’ first LNG import there in 2022.
First Gen relies on natural gas for about 60% of its electricity mix, making it the Philippines’ largest consumer of natural gas. Renewables account for around 40%. It does not operate any coal-powered plants.
The Philippine company had been approached by JERA back in 2018. But it ultimately chose to partner with Tokyo Gas because the latter “had know-how in all aspects of LNG imports, from building terminals to operations,” an industry insider said.
Meanwhile, Ayala Group’s AC Energy is setting up a joint venture with a group of German solar power developer.
These moves come as Philippine utilities face mounting pressure to diversify their sources of power. On top of the coal plant moratorium, natural gas reserves are expected to completely dry up by around 2027 at the Malampaya project, believed to now power roughly 30% of Manila — the Philippines’ economic center — and the rest of the island of Luzon. The government also aims to increase renewables to at least half of the country’s total power production by 2040 from around 20% in 2019.
Partnering with experienced overseas players gives Philippine companies a head start on alternative energy sources. Japanese utilities, which have imported LNG for more than half a century, possess particularly valuable know-how in gas-fired power plants, which are less carbon-intensive than coal plants.
Philippine utilities do not have much experience in importing LNG. Partnering with Japanese companies could also help them in dealing with the government. “There is not much of a legal framework on LNG in the Philippines, so companies are dealing mostly with ordinances for now,” said a Tokyo Gas representative said.
These partnerships open up new opportunities for Japanese companies as well. The Philippines has a population of more than 100 million people — second only to Indonesia in Southeast Asia — with an average age of around 25. Electricity demand in the Philippines is expected to grow 4.2% on average each year through 2030 as its economy expands.
In contrast, Japan’s shrinking population bodes ill for any future growth in overall demand. Competition has only heated up in the years since retail sales of electricity were fully deregulated in 2016. Established utilities have since lost more than 20% of their customers to newcomers.
Partnering with Philippine utilities would also increase the volume of LNG they handle, which could bolster their procurement capabilities.
The transition toward less-carbon-intensive fuel is only expected to accelerate in Asia. While Japanese players have an edge in natural gas, they have fallen behind the European competition when it comes to renewables. They will need to demonstrate that they can create solid business models with Philippine partners and apply that success to other countries in the region.
Ella Hermonio in Manila contributed to this report.