Philippines’ emergency and long-term coal contracts are costing consumers

Summary

Market rules in the Philippines are changing how coal is utilised amidst increasing renewable momentum.

TZ-CAT analysis shows emergency coal contracting has risen since 2022, reaching 75 contracts and up to 2.5 GW of capacity. Some are priced higher than long-term PSAs, increasing consumer costs and reinforcing exposure to fuel price volatility.

Coal contracting spans both long-term PSAs and emergency deals, showing continued reliance on coal to bridge supply gaps. Without firm, flexible alternatives, short-term coal will keep filling these gaps, slowing the shift to renewables.

New market rules, new coal dynamics

The Philippine power market has increasingly evolved to focus on consumer protection.

Rules around procurement have tightened, competition has increased, and transparency has improved.

The shift started in 2015, when the Department of Energy (DOE) required distribution utilities (DUs) to procure power through the Competitive Selection Process (CSP) — a mandatory, transparent bidding process. This matters because over 70% of electricity in the Philippines is secured through long-term Power Supply Agreements (PSAs) between power generators and DUs. Getting those contracts right has a direct impact on what consumers pay, as procurement is expected to adhere to least-cost principles.

As demand rises and the Philippines targets 35% renewable generation by 2030, balancing grid stability with affordable prices is even more critical.

Updated TransitionZero’s Coal Asset Transition (TZ-CAT) analysis brings fresh insights into this challenge. The data shows how coal's role is shifting, where price and reliability risks remain, and what this means for the transition ahead.

Coal contracts revoked, yet emergency coal procurement and prices rise

Recent data from the updated TZ-CAT reveals a volatile shift in how coal is anchored to the grid and how it affects consumer prices.

Pagbilao TLI: a US$15.1m lesson in emergency pricing

Emergency Power Supply Agreements (EPSAs) are designed to quickly plug supply gaps when actual power supply falls below its demand. They are activated in response to events such as contract terminations, capacity delays, or natural disasters, and must be filed within 30 days of the triggering force majeure event.

In theory, they provide short-term cover. In practice, some cost consumers significantly more than alternatives.

For example, the Pagbilao TLI EPSA with Meralco was priced 20–40% above prevailing Wholesale Electricity Spot Market (WESM) levels over the contract period. TZ-CAT estimates a net cost to buyers of US$15.1 million, equivalent to approximately US$6.36/MWh more than sourcing from the spot market.

The price gap is also visible when compared with TLI’s long-term contracts. Since 2020, the plant’s average PSA price has been around US$92.9/MWh. The EPSA price under the Meralco agreement averages US$119.3/MWh, about US$26/MWh higher.

This highlights a key trade-off for consumers: short-term reliability can come at a higher cost when emergency contracts are priced above spot market levels and existing long-term agreements, even within regulator-approved tariff limits.

Global fuel shocks land on local electricity bills

The Pagbilao case is not an exception; it reflects a broader structural risk.

Most coal contracts in the Philippines include fuel pass-through clauses. When global coal prices spike, those costs go straight to consumers.

The 2022 coal crisis made this visible. Average coal import prices hit around US$214/ton, a 281% increase from 2020 levels. In one DU, tariffs reached US$310/MWh.

These patterns highlight the Philippines’ exposure to global fuel markets, as the country relies heavily on imported coal and liquefied natural gas (LNG). Geopolitical disruptions, including conflicts in major energy-producing regions such as the Middle East, can tighten supply and increase price volatility.

As the Philippines approaches the drier months, demand is expected to rise, and this exposure may become more pronounced. In some cases, supply disruptions can sustain reliance on coal as a relatively price-competitive option, even as renewable capacity expands.

Government policy backs this up. Coal imports in 2026 will remain central to energy security amid global fuel market disruptions. In 2024 alone, imports rose from 35.5 million metric tons in 2023 to 39.9 million metric tons, a year-on-year increase of around 12% (or 4.3 million metric tons). This marks the largest absolute rise in coal import volumes in recent years.

The 2026 outlook is likely to be shaped by emerging supply disruptions and relative fuel price movements, including faster increases in gas prices compared to coal. In this context, coal plants may operate at higher dispatch levels, running counter to the planned shift away from coal as supply adequacy concerns persist.

With power supply gaps come emergency coal contracts

TZ-CAT analysis shows coal EPSAs have surged since 2022, reaching 75 contracts covering up to 2.5 GW of capacity to date.

Most EPSA uptake has been concentrated in Luzon and the Visayas. In Luzon, higher demand and tighter supply margins have driven greater reliance on short-term contracts. Uptake rose by around 450% in 2023 compared with 2022.

In the Visayas, where renewables make up a larger share of electricity supply, 43 coal EPSAs have been filed during periods of firm capacity disruption.

Mindanao shows a more stable pattern, supported by lower demand growth and continued reliance on long-term contracts. These include contracts with Power Sector Assets and Liabilities Management Corporation’s (PSALM) legacy hydro and coal assets.

While EPSAs can support reliability in the near term, they may also delay the shift toward more competitive and renewable-based procurement, particularly when short-term coal contracting becomes a default response to supply disruptions.

Coal remains profitable and continues to operate despite revocations

Tighter regulatory scrutiny is putting some coal contracts under the spotlight.

Most of the affected contracts were among DUs in Luzon and Visayas. Issues emerged at several stages of the CSP process, from procurement preparation to bid evaluation, award, and post-award compliance. These contracts were tied to the GNPD and MPPCL plants, with contract tenors of 10–25 years.

But revocation does not mean these plants have stopped operating. GNPD still holds nine active PSAs (up to 15 years), while MPPCL holds nine (up to 18 years). TZ-CAT estimates profitability at US$46.94/MWh for MPPCL and US$49.41/MWh for GNPD. With 19–20 years of remaining economic life and existing contracts locking in supply, both plants have strong incentives to keep running.

EPSAs, on the other hand, can also provide meaningful near-term cashflow support for generators. Estimated short-term margins of roughly US$70–74/MWh from EPSAs suggest additional revenue may help asset owners offset the loss of revoked long-term contracts.

The resulting revenue exposure is concentrated among a handful of generators. FDC Misamis alone holds 22 of the 75 contracts. The remaining 53 are spread across 11 other coal assets. This concentration is sufficient to influence average generation costs, particularly among the higher-priced contracts discussed previously.

What comes next: fossil lock-in or renewable-led shift?

The Philippines' power market is changing in ways that could either accelerate the transition or entrench coal further, depending on how procurement decisions are made.

On the positive side, market reforms are expanding consumer choice. The contestability threshold for retail electricity has been lowered to 100 kW, meaning more commercial and industrial customers can now choose their supplier. Procurement is becoming more competitive, consistent with the goals of the Electric Power Industry Reform Act (EPIRA) law in the Philippines.

This creates real opportunities. Contestable customers can opt for renewable energy contracts. DUs can adapt with more flexible market procurement, lowering costs for captive consumers while improving supply diversity.

If emergency coal contracting becomes the default response to every supply gap, the system gets locked into short-term coal costs and misses the window to bring in competitive renewable capacity. The data suggests that risk is already materialising.

Applying TZ-CAT insights: test these dynamics in Scenario Builder

The TZ-CAT tool maps today's contracting risks. TransitionZero's Scenario Builder lets you test what they mean for the future. The following scenarios could be worth exploring:

Underused coal as renewables scale: As renewable energy gets cheaper and more available, coal plants locked into long-term contracts may become less competitive, even before those contracts expire. Scenario Builder can be used to model how declining utilisation rates affect system costs and increase the risk of stranded capacity.

Supply gaps from construction delays: New projects don’t always finish on time. Users can model what happens if coal plant builds are delayed while electricity demand continues to grow. Scenario Builder uses hour-by-hour modelling to show if the system can still handle the pressure under these tight supply conditions.

Explore Scenario Builder now and build your own scenario using TZ-CAT data.

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