Fossil gas and nuclear investments risk locking in costly, outdated infrastructure for the long-term
The United States has spent the past four years pushing expensive, unreliable energy infrastructure in the Philippines, rather than promoting cheap renewable technologies better suited for the Philippines market and its clean energy goals.
The former Trump administration’s “energy dominance” agenda aimed to stimulate Southeast Asian demand for US fossil gas and nuclear exports as a key pillar of its regional strategy. Through the administration’s Asia EDGE initiative, multiple agencies looked to expand markets for US liquefied natural gas (LNG). In 2019, federal funding for fossil fuel projects abroad reached its highest level since 2005.
In the Philippines, US officials have worked closely with Filipino agencies to publish investor guides and clarify permitting rules for potential investors in LNG import terminals and gas-fired power plants. The US has also backed legal and regulatory reforms, while private American companies are aiming to develop LNG import facilities that could lock in dependence on American gas.
Similarly, the US has ramped up support for nuclear projects abroad. The US Development Finance Corporation—a federal agency that finances private development projects in emerging markets—recently repealed a longstanding policy that blocked support for international nuclear power projects. In April, the Biden administration announced additional funding for partner countries developing small modular reactors.
Nuclear and fossil gas projects don’t fit in the Philippines energy puzzle
The problem is fossil gas and nuclear power plants are not reliable, cheap, or flexible and risk locking in infrastructure that will likely become obsolete as more cost-effective, domestic renewable resources come online.
For example, the Philippines’ Joint Congressional Energy Commission (JCEC) recently found that 12 plants—mostly fossil gas and coal facilities—exceeded limits for planned and unplanned outages, resulting in energy shortages and at least 1,900MW of generating capacity cut from the grid.
Moreover, imported LNG prices are extremely volatile. Asian LNG spot market prices jumped from all-time lows of USD1.85/MMBtu in May 2020 to record highs of USD32.50/MMBtu in January 2021, raising electricity prices throughout the region. Even slight disruptions to global trade, such as a container ship getting stuck in the Suez Canal, can raise LNG and electricity prices for Asian end-users. “Reliable” and “cheap” are not accurate descriptions for power dependent on imported fossil gas.
Conventional nuclear energy, meanwhile, is one of the most expensive forms of electricity generation. The average construction time for new reactors globally is roughly 10 years, and projects are often subject to massive cost overruns and completion delays. Unless the Philippines can invest in expensive best-in-class safety and storage facilities, accidents resulting from typhoons or volcanic activity could leave Filipino taxpayers—not the US or private companies—on the hook for trillions of pesos in environmental damages.
Industry proponents also argue fossil gas and nuclear can accommodate renewables due to their operational flexibility, or the ability to ramp up and down quickly. However, while some smaller types of gas turbines can fill gaps in renewable power, most proposed gas-fired power plants in the Philippines are slower and less flexible. Nuclear is traditionally one of the most inflexible power sources and can balloon in price if operated below full capacity.
Moreover, research demonstrates that renewables and fossil gas can be mutually exclusive, as large-scale investments in fossil gas infrastructure—including pipelines, regasification terminals, power plants, and storage—can siphon funding away from clean energy projects.
Some stakeholders argue fossil gas and nuclear are necessary for baseload power. But the baseload focus is an outdated approach to power sector planning that ignores technology and market trends. Through programs like the Renewable Portfolio Standard, the Green Energy Auction Program, the Green Energy Option Program, and Retail Competition and Open Access, the Philippines government is actively implementing policies that reduce the need for large-scale, baseload capacity additions.
Rapid renewable energy deployment means that potential investors in Philippines’ gas-to-power projects risk exposure to at least PHP670 billion (USD14 billion) in stranded assets. Similarly, nuclear projects will face massive liability risks, construction delays, and cost overruns, as demonstrated by the idled Bataan Nuclear Power Plant—a US-backed, PHP110 billion project that, although defunct, still costs the Philippines government PHP40 million per year to maintain.
Low-cost, domestic renewables are a win-win for the US-Philippines relationship
Instead of burdening Filipino consumers with costly options designed to serve US interests, the focus of US partnerships should be on projects that lower electricity prices, improve energy self-sufficiency, and contribute to climate goals. One example of a positive program supported by the US is the Clean Energy Investment Accelerator.
Rather than continue to promote imported fossil gas and nuclear technology in the Philippines, the Biden administration should step up and support well-designed government programs to boost renewables deployment. Investments in renewable energy would be a win-win given that the Philippines was recently ranked the second best investment destination for renewables projects in Southeast Asia. For starters, US companies, diplomatic offices, and residences should take advantage of the Green Energy Option Program rolling out this year, which allows end-users to purchase clean energy directly from retail power suppliers.
US and Filipino policymakers collaborating under the Asia EDGE initiative should embrace the findings of the just-released International Energy Agency (IEA) net-zero report and reorient the program toward promoting renewable energy cooperation. The initiative could facilitate partnerships between US and Filipino renewables companies, as well as boost regulatory support and private sector participation in the Philippines Green Energy Auction Program. IEEFA estimates the auction program could generate USD20 billion in clean energy investments this decade.
The Philippines has committed to rapidly deploying renewable technologies and reducing greenhouse gas emissions by 75% by 2030. Although some argue fossil gas is cleaner than coal, fossil gas emits significantly more methane—a greenhouse gas with 80 times the global warming potential of carbon dioxide.
Given the Philippines’ renewable energy and climate goals, why is the US still pushing technology that would lock-in expensive, unreliable, and outdated infrastructure in the Philippines? It’s high time the Biden administration change tack.
By Sam Reynolds
Sam Reynolds is an Energy Finance Analyst at IEEFA.
