May 19, 2021

Does Mitsui’s new Philippines investment make sense?

solar panel with wind turbines against mountains and sky as back

Earlier this week Mitsui announced a major new investment in the Philippines clearly adding significant new weight behind the growing renewables sector in the country. The new project, a joint-venture with Global Business Power, is planned for the Northern Province of Rizal with a 20-year offtake to Manila Electric (Meralco). With several new LNG import projects, significant geothermal resources, competitors in the large-scale solar space, and legacy gas and coal power production, many may wonder whether Mitsui’s new bet will pay off for Mitsui and Global Business Power, and for the electricity buyers of the country.

Genesis Ray Energy has recently launched its proprietary Power Market Model for Philippines (GenRay Market) and completed an initial outlook for the Philippines Power sector out to 2040. This outlook suggests that such large-scale investments in solar will be profitable, but this profitability is highly dependent on several key assumptions, none of which are certain. Chart 1 shows the Power Capacity Mix for the Philippines out to 2040 considering Genesis Ray’s Base Case.

Chart 1: Power Capacity Mix for the Philippines projected through 2040 at Genesis Ray’s Base Case.

The GenRay Market analysis shows a need for up to 21 GW of solar to meet the countries growing energy appetite and the government’s long term Renewable energy targets. However, with active solar producers such as Udenna, AC Energy, San Miguel, and others recently announcing projects, there could well be an over-supply in the near term. Alternatively, solar could squeeze out other forms of energy which are being offered into the market. We see two likely outcomes.


Today, Philippines is still highly dependent on coal. However, the coal moratorium announced by Secretary Cusi in October 2020 means that only new coal projects with an environmental permit already approved can go ahead until some unspecified date in the future when “new baseload coal is needed”. The government of the Philippines is very wary about adding to the cost of power in the country and while solar is currently cheaper than coal, the key issue is whether the combination of solar with other more flexible sources of power, such as batteries or gas, to create a baseload product can continue to beat coal as least cost in the market. The GenRay Market outlook shows modest near-term coal increases followed by long-term flat to declining production.


The likelihood is that new solar projects such as Mitsui’s announced project will need to be even more cost competitive and may squeeze out the committed LNG import capacity. Again, GenRay Market estimates that over 9 GW of new LNG power is possible in the Philippines up to 2040. Should new solar power continue to come into the market at ever-reduced prices, the people of the Philippines and industry in the Philippines may benefit but higher cost incumbent solutions may need to be deferred or changed. Our model also shows that LNG best fits in the flexible mid-merit sector, not the baseload more traditionally associated with paying for such expensive capital infrastructure.


Finally, our analysis suggests that robust demand could lay the groundwork for growth across all supply forms. The following table shows our high-demand-growth scenario which clearly shows that the overall growth in demand will enable more solar, proposed LNG and other legacy sources such as coal.

genray reaction 19may2021 2
Chart 2: Peak Demand Forecast for the Integrated Philippines Power Market of Luzon and Visayas


GenRay Market analysis suggests the project is likely good for Mitsui, its partner and the Philippines as renewable power’s inevitable attractiveness will continue to put pressure on the Philippines authorities and project financiers which should create a less hostile environment for both solar and wind in the future. In short, sunny days ahead of solar in the Philippines!