The Philippines could outpace its 2040 renewable energy targets

Summary

Coal remains embedded in the Philippines’ power system. New TransitionZero data shows that more than 100 coal contracts have been signed since 2024 despite declining use. This trend highlights the fuel’s ongoing role in power supply and pricing.

Modelling shows that renewable energy growth could outpace official targets. While the current goal is 50% by 2040, RE share is projected to reach 54%. As solar and wind expand, coal and gas utilisation would fall to between 13% and 39% in the 2030s.

Underutilisation of fossil fuels creates new planning hurdles. Keeping inefficient coal plants locked into the grid could push up system costs. In a least-cost system, costly and less efficient units are the first to be displaced, opening opportunities for retirement.

Coal’s contractual hold on the Philippine power supply

Coal utilisation in the Philippines is beginning to decline as renewable energy (RE) grows, but its influence on the power system remains strong.

A recent rebound in contracting since 2024 shows this persistence.

Recent analysis* from TransitionZero reveals that 109 new coal Power Supply Agreements (PSAs) have been signed since 2024. These contracts lock in approximately 2.6 GW of capacity across 54 distribution utilities, with 10 years remaining on average, and some lasting up to 15 years. This resurgence in contracting suggests a continued reliance on baseload supply from coal, even as renewable capacity expands.

Because these contracts guarantee offtake, coal plants often run to fulfill contracted supply obligations. In the Philippines’ Wholesale Electricity Spot Market (WESM), coal plants also frequently appear at or near the dispatch margin, meaning they often set the market-clearing price that feeds through to consumer tariffs. As a result, coal dominates bilateral supply while continuing to influence prices in the spot market.

Over the same period, solar power has grown faster than coal. It has added 2.5 GW of new capacity, which is 400 MW more than coal additions. Much of this growth has been driven by government-backed auctions supporting national RE targets, while some coal projects continue under moratorium exemptions linked to supply adequacy.

The result is a system where clean energy is expanding, but coal remains embedded in how electricity is contracted, dispatched, and priced. The Department of Energy’s (DOE) reference or business-as-usual scenario in the Philippine Development Plan (PDP) (2023 to 2050) reflects this dynamic: renewables expand, but coal remains part of the generation mix through existing and committed coal plants.

This raises an important question: if renewable targets are met, how does the role of coal change in the power system?

This is the question Scenario Builder can help answer.

Model and scenario set-up

Model set-up

Scenario Builder follows the national RE targets of 35% by 2030 and 50% by 2040 in the DOE’s PDP 2023-2050. Renewable shares exceed 50% by 2050 in line with the PDP outlook, with planned capacity additions across technologies incorporated in the model.

For this analysis, the Philippines is represented at a three-node level (Luzon, Visayas, Mindanao) using a least-cost capacity expansion framework.

Key calibration assumptions of the scenario are outlined below:

The 50% minimum coal utilisation floor applied from 2030 to 2045 reflects real PSA obligations; it is a contractual reality built into the model, not a market outcome. For full details on the input data, please download our documentation here.

Renewables surge reshapes fossil fuel use

The modelling results reveal several key trends and insights.

RE targets could be more ambitious beyond 2040

Even with a minimum renewable target of 50% by 2040 imposed in the model, the modelled pathway slightly exceeds these levels. Renewable generation reaches 35% by 2030, rises to around 54% by 2040, and reaches about 56% by 2050. This suggests the power system can sustain a somewhat higher share of clean energy than the minimum policy targets while maintaining least cost outcomes.

Most of this growth is driven by solar, emerging as the largest renewable source by mid-century in the model. Onshore wind expands steadily, while offshore wind begins to appear later in the transition, adding another source of large-scale renewable generation. Hydro and geothermal remain relatively stable as it continues to provide firm renewable output.

Renewables in the model approach their assumed limits — 16-20% for variable RE and 30-90% for firm RE power. This suggests the power systems largely utilise available clean resources. Deployment could therefore exceed current policy ambitions if projects stay on schedule as demand grows.

Coal vs coal: efficient plants crowd out older technologies

The real tension is not only between coal and renewables — it also emerges within the coal fleet itself.

Newer and more efficient supercritical and ultrasupercritical coal plants use less fuel to make the same amount of power. Because they cost less to run, the model shows them running close to full baseload levels at 75-80% of their total capacity.

As these efficient plants take over, older subcritical technologies may run much less. Their use is seen to drop from 60% in the late 2020s to just 39% by 2036. Subcritical plants in the Philippines have also recorded higher forced outage rates than newer units, adding reliability risk on top of cost disadvantage.

In practice, coal plants are expected to operate as baseload units, running continuously to provide the grid’s minimum supply. However, real-world constraints such as derating and frequent outages can reduce availability and further lower realised utilisation. Relying on these plants for stable supply can therefore introduce price risk if their performance is less reliable than assumed.

At the same time, the coal fleet shifts toward newer technologies. As aging subcritical plants retire — assuming a 30-year economic lifetime — the system increasingly relies on supercritical and ultrasupercritical units, which remain in the generation mix longer.

This creates a structural imbalance: thermal capacity remains in the system even as utilisation declines for parts of the fleet. Keeping underused plants online can further make power expensive. Current contractual agreements in the Philippines allow automatic pass-through clauses that shift fuel and cost risks onto electricity consumers, leaving them exposed to price volatility rather than having generators and investors absorb those risks.

Gas rollercoaster: 71% plunge before rebounding later in the transition

Gas is often described as a transition fuel because it can support the shift away from coal while renewables expand. In the Philippines, however, this role is complicated by the decline of Malampaya’s reserves and the growing reliance on higher-cost imported liquefied natural gas (LNG). The model shows its role evolving over time.

As renewable generation increases, utilisation of combined cycle gas turbines (CCGT) falls sharply to 13% in 2037, a 71% decline. CCGTs in the Philippines are often used as baseload and/or mid-merit plants, meaning they normally operate for longer hours due to contractual reasons. The modelling suggests CCGTs may need to run fewer hours to make space for growing renewable generation.

However, this trend does not persist throughout the transition. Gas remains part of the system. As coal generation declines and demand grows, new gas capacity enters in the late 2030s and CCGT utilisation recovers to over 40% by the late 2040s. Whether that recovery materialises depends on LNG infrastructure build-out and whether import parity gas costs remain competitive against accelerating renewables deployment.

Why this matters: the Philippines could lower power costs by making space for renewables

The growth of RE has created an opening to retire inefficient coal plants, but whether that space is used depends on how the power system is managed.

Keeping underused plants locked into PSAs creates a ‘must-run’ trap, where guaranteed offtake allows generators to pass fixed costs and fuel price exposure through distribution utilities to consumers. This can keep both emissions and electricity prices elevated, particularly when global fuel prices rise.

By understanding how plant utilisation changes over time, policymakers can design better policies that protect consumers from unnecessary system costs while keeping the grid dependable.

The DOE’s updated coal moratorium advisory in October 2025 reinforces this shift, calling for clearer pathways to retire or repurpose coal plants while considering plant lifespans, financing, and replacement capacity.

The transition is not just about adding clean energy. It is about making space for renewables in a system still built around coal, while maintaining electricity affordable and the grid stable.

Build your own scenario

There are many ways to model the dynamics and trade-offs involved. With Scenario Builder, users can test alternative pathways that vary the pace of data centre growth, renewable deployment and coal retirements, helping to reveal the pressure points that lie ahead.

Visit Scenario Builder now and build your own model of the Philippines.

*Analysis based on PSA data from the TransitionZero CAT dataset as of September 2025. The total may increase as several PSA applications are still pending approval.

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