Energy Transition Review for Enhancing Co-operation

The Philippine power sector is undergoing a period of significant transformation, with rapidly rising electricity demand and evolving policy priorities. Electricity demand is projected to grow at an annual average of 5.4% between 2026 and 2030, driven by sustained economic and population growth, industrial development and electrification of end uses. Fossil fuels are currently the dominant source of power generation, reflecting existing resource endowments and infrastructure, but also exposing the system to global price volatility and import dependence.

Renewable energy presents major opportunities for the Philippines to diversify its power supply and meet growing demand. Government targets aim to increase the share of renewables in the power generation mix to 35% by 2030 and 50% by 2040 – up from the 22% achieved in 2024. These objectives are articulated in the Philippine Energy Plan (PEP) 2023-2050, Volume II: Transitioning to Reliable, Clean, and Resilient Energy (hereafter “Philippine Energy Plan”) and the Power Development Plan (PDP) 2023-2050, which emphasise renewable deployment, energy efficiency, grid modernisation and resilient infrastructure. Natural gas is being positioned as a transition fuel that supports the shift from coal towards higher shares of renewables, while nuclear energy is being reconsidered as a stable, low-emissions source of electricity. Achieving these targets will require sustained investment in generation, transmission infrastructure and market enhancement to effectively integrate variable renewable energy (VRE), including solar photovoltaics (PV) and wind energy, while maintaining system reliability.

Key considerations for achieving these policy ambitions remain, including energy security, affordability, import dependence, system integration and investment mobilisation. More than half of the country’s primary energy supply is imported, which can increase exposure to global price volatility and external supply constraints. The recent conflict in the Middle East has further highlighted this vulnerability, impacting the supply and pricing of imported fuels and contributing to increased volatility in Asian energy markets. Electricity prices in the Philippines are already among the highest in Southeast Asia, with household electricity expenditure averaging 11% of monthly income in 2023. Achieving universal electricity access by 2028 remains a government priority. As of December 2024, approximately 3.08 million households remain without access to electricity in the Philippines, corresponding to an electrification rate of 94.8%. Access to clean cooking stands at around 64%.

At the same time, solar PV and wind power penetration is projected to reach 16% by 2030, reflecting progressive renewable energy targets. Integrating this level of variable generation would benefit from continued enhancements relating to system flexibility, including storage deployment such as pumped-storage hydro and battery energy storage systems, demand-side response and grid reinforcement. Overall, achieving the ambitions of the PEP and PDP will require substantial and sustained investment, alongside policies that continue to encourage private sector participation. The cost of capital and currency risks also remain important factors influencing investment decisions.

Modern grids and regional interconnection – both domestically and through the ASEAN Power Grid – can support security of supply and the integration of renewables. The Philippines’ electricity system is divided into three main island grids – Luzon, Visayas and Mindanao – each with distinct infrastructure and system characteristics. The completion of interconnection between these three grids in 2023 marked a significant milestone, improving security of supply through enhanced resource sharing. Continued reinforcement of the transmission infrastructure and strengthened inter-island connections – including potential links to Palawan and Mindoro – could further optimise resource allocation and system reliability across the archipelago, while facilitating further cross-border interconnections.

The Philippines is at an important juncture in the evolution of its power sector. As demand rises and renewable deployment accelerates, the reliance on imported fuels highlights the importance of strengthening energy security, grid flexibility and system resilience.

In co-operation with the Department of Energy (DOE) of the Philippines, this report identifies three priority areas for more extensive analysis to support ongoing policy implementation and strategic planning:

First, diversification of stable and low-emissions capacity, for example through nuclear energy. The potential development of nuclear power would require robust regulatory frameworks with long-term policy stability, institutional readiness, access to financing, supply chain development, skilled personnel, appropriate market design and international co-operation. Ensuring operationalisation of the Philippine Atomic Energy Regulatory Authority (PhilATOM) with functional and financial independence consistent with international best practices will also be important.

Second, grid modernisation and system flexibility. Rising demand has increased the importance of co-ordinated, forward-looking grid planning. Strengthening transmission backbones, enhancing inter-island interconnections and expanding storage solutions can improve reliability and facilitate higher shares of VRE. Microgrids are a key opportunity to enhance electrification by offering reliable and lower-carbon solutions for remote and island communities.

Third, energy resilience. The Philippines ranks among those countries most exposed to extreme weather events. Strengthening climate resilience by integrating climate risk assessment into system planning, hardening critical infrastructure, and developing community-based resilience solutions can support both power sector stability and long-term economic resilience. Developing financing mechanisms and promoting private sector participation for mitigation and adaptation efforts can also support energy resilience.

International case studies are presented as illustrative examples throughout this publication to offer relevant insights, while at the same time recognising the Philippines’ unique geographic, institutional and market context. Experiences such as Japan's phased nuclear restart, climate-resilient infrastructure planning in Viet Nam’s Mekong region, Japan’s “islandable” microgrids and South Australia’s integration of storage and interconnections for high VRE shares provide helpful insights for these priority areas.

The Asia Zero Emission Community (AZEC) provides a practical co-operation platform that supports countries in pursuing a tailored energy transition pathway, focusing on strengthening collaboration in areas aligned with national priorities. This report offers a structured analytical foundation to inform AZEC co-operation with the Philippines, identifying practical areas where technical collaboration, capacity building and financial partnerships could deliver measurable impact.

An AZEC Task Force on Energy Resilience could facilitate the exchange of best practices on infrastructure planning, disaster risk management and cross-border co-operation. Working groups that include development partners, regulators, system operators and financial institutions could support knowledge transfer on grid modernisation, system flexibility and renewable integration. Curated study tours and institutional exchanges with Japanese regulators, operators and research institutions could contribute to capacity building in areas such as nuclear governance, workforce development and advanced grid technologies.

By aligning national priorities with AZEC co-operation mechanisms, the Philippines can leverage regional expertise while contributing its own experience in renewable integration, disaster response and island grid management.

Using evidence-based analysis and international experience, this report aims to support the Government of the Philippines and AZEC partners in identifying practical pathways to enhance security of supply, affordability, resilience and sustainability, consistent with national development objectives.