Coal: Culprit or Cushion in Rising Philippine Electricity Prices?

October 24, 2025

The Philippines has long faced scrutiny for its steep electricity rates, ranking among the highest in Southeast Asia at about $0.16 per kilowatt-hour (kWh), second only to Singapore at $0.18. In comparison, Thailand and Indonesia average $0.10, while Malaysia reports one of the lowest at $0.05.

Coal is often blamed for the disparity, but is it truly the driving force behind the Philippines’ costly power? To find out, we turn to energy experts and examine the deeper factors shaping the country’s electricity.

No government subsidy

In his article, Contextualizing Power Rates in PH, Meralco Vice President and Head of Corporate Communications Joe Zaldarriaga cited a 2022 study by Australia-based International Energy Consultants (IEC) that compared electricity costs across 46 markets, including two U.S. states.

The study found that many Southeast Asian countries appear to have cheaper power because their governments subsidize more than half of the cost. Nations such as Thailand, Indonesia, Malaysia, Vietnam, and Taiwan all benefit from these subsidies, a mechanism absent in the Philippines. According to IEC, applying a similar 50% subsidy locally would require about ₱241 billion in taxpayer funds.

According to columnist Den Somera, the decision not to subsidize electricity bills reflects fiscal policy that prioritizes resilience. “It has afforded the government not to sacrifice on equally important primary development services such as education, food production, peace and order, and national security, among others,” he wrote.

Hidden renewable energy (RE) costs

Economist Robert Idel, through his Levelized Full System Costs of Electricity (LFSCOE) framework, evaluated the true costs of renewable energy in the Philippines by including storage and backup requirements. His 2024 study noted that while wind offers greater capacity, its efficiency declines in summer, making it less reliable and more expensive than solar. Wind power is further constrained by limited infrastructure.

Meanwhile, Somera used solar energy to show the wide gap between capacity and actual output. From 100 megawatts (MW) of installed solar, only about 20 MW is effectively delivered. To equal a 100-MW baseload plant, solar would need a rated capacity of around 500 MW. This variability, driven by weather and seasonality, makes renewables like solar and wind unreliable without stable sources such as coal, natural gas, or nuclear to balance the grid.

He also mentioned a 2022 LFSCOE study that found that storage and backup needs push renewable costs far higher than headline figures suggest. “Even if coal is seen to be more expensive at $76/MWh compared to onshore wind at $40/MWh and solar PV at $36/MWh, since coal has a much higher capacity factor and is less intermittent as a source, it has much less need for storage and backup power, rendering it cheaper at $78 to $90/MWh,” he stated.

By contrast, wind rises to $291 to $483, while solar climbs to $413 to $1,380/MWh, reflecting the steep cost of storage systems required to sustain their output.

Not enough baseload power

Baseload power sources are plants that can deliver electricity reliably, 24/7, at a steady output level. Key examples include large coal‐fired plants, nuclear reactors, and geothermal stations.

In April, Meralco pointed to a chronic shortage of new baseload power in the Luzon grid as the key driver of soaring spot market prices. The utility said high rates in the Wholesale Electricity Spot Market (WESM) stem mainly from inadequate supply and the lack of new capacity.

Meralco noted that most recent additions to the grid have been solar, which drops out at night and pushes up costs during peak demand. Many existing plants, meanwhile, are over 20 years old and prone to forced outages. Aside from EERI and GNPower Dinginin, which secured part of Meralco’s 1,800-MW bidding last year, the utility stated that “the Luzon grid has not had any large new or greenfield baseload plant since 2002.”

It further reiterated that addressing the supply gap requires developing new power plants, a call echoed by energy experts. Meralco said it is supporting this push by holding competitive selection processes designed to attract greenfield projects and expand the country’s baseload capacity.

RE expenses

The renewable push comes with added costs. One example is the feed-in tariff (FIT), which guarantees above-market rates for renewable producers but passes the expense on to consumers. Beginning March 2025, the Energy Regulatory Commission (ERC) approved a 42% hike in the FIT-All charge from ₱0.0838 to ₱0.1189/kWh. For a household using 200 kWh monthly, that means about ₱7.28 more on the electricity bill. The increase is meant to replenish the FIT-All Fund, strained by sustained low spot market prices.

Columnist Bienvenido Oplas also cautioned that consumers may soon shoulder a new Green Energy Auction Allowance (GEA-All) in addition to the FIT-All charge. He noted this surcharge could exceed FIT-All, possibly doubling or even quadrupling it, given the large number of solar and wind projects already approved with guaranteed rates.

With RE’s growing percentage in the country’s energy mix, experts caution that the Philippines is not yet ready for a large-scale transition. Eduardo Araral of the Lee Kuan Yew School of Public Policy warned that the process must not be rushed.

“We should not rush to it [energy transition] and abandon our legacy simply because we want to be green,” he said. “I think we have to do this in a very, very pragmatic way, and the first and foremost principle really is energy security and affordability.”

(Also read: Advancing the Philippines’ Offshore Wind Ambitions)

Lessons from Germany’s green transition

Germany, long seen as a champion of RE, faced a setback in early 2025, when its renewable output faltered as weak winds and low river levels hit power generation. Wind, the country’s main renewable source, plunged 33% from January to April, while hydropower fell 29% after a dry winter. Solar rose sharply by 39%, yet overall RE production still slid 14%, leaving the grid short of nearly 14 terawatt-hours (TWh) and underscoring the risks of relying heavily on weather-driven energy.

The shortfall pushed coal generation up 18% and gas by nearly 14%, driving fossil fuels to their highest share of the country’s energy mix since 2018. To meet demand, Germany revived idle plants and leaned on imports, sending energy prices soaring to almost €1,000/MWh, over ten times the usual average.

Recently, the German Chambers of Industry and Commerce (DIHK) warned that its energy transition could carry a staggering price tag of €5.4 trillion by 2049. Despite the rapid expansion of wind and solar, their power costs remain among Europe’s highest, leaving consumers shouldering the burden. Grid upgrades needed to support renewable growth are expected to drive expenses even higher in the years ahead.

Chancellor Friedrich Merz signaled a retreat from Germany’s ambitious renewable rollout, stating, “My guess is that we can do a little less in terms of expansion. And that will, of course, trigger significant changes in costs.”

Economy Minister Katherina Reiche backed a more cautious pace, stressing the need to “better align” renewable growth with grid expansion. She blamed soaring grid fees on “a completely unrealistic, completely exaggerated renewable energy target.”

(Also read: Albay Electric Cooperative: Why It’s Among the PH’s Most Troubled ECs)

DOE affirms coal’s role

The Department of Energy (DOE) highlighted that while coal continues to dominate the Philippines’ energy mix, its global carbon footprint is minimal. Based on the 2023 European Commission – Emissions Database for Global Atmospheric Research (EDGAR) data, China generated 29.2% of global emissions in 2022, Indonesia 2.3%, while the Philippines contributed just 0.5%.

Building on this, the DOE clarified it has no plans for a blanket shutdown of local coal mines even as it ramps up RE. Undersecretary Mylene Capongcol said these mines remain vital for “green metals” like copper, nickel, and lithium that power clean technologies.

Energy Secretary Sharon Garin earlier signaled that the DOE may grant exemptions to the 2020 coal moratorium, citing proposals for “own-use” plants meant to supply companies’ internal needs. She stressed that while the ban was intended to ease coal reliance and expand renewables, coal remains necessary as baseload power.

Meanwhile, Oplas noted that in July 2025, inflation fell to 0.9%, the lowest in nearly six years. With coal and gas providing three-quarters of the country’s power, WESM rates held at ₱4/kWh from May to July.

“We need more conventional energy sources like coal to stabilize power supply, continue energizing our rising industry/manufacturing and services sectors, and keep overall consumer prices stable,” he wrote.

Sources:

https://mb.com.ph/2025/09/15/doe-no-plan-to-close-coal-mines

https://www.rappler.com/voices/thought-leaders/analysis-defender-public-good-timely-issue-energy-industry

https://www.rappler.com/voices/thought-leaders/analysis-present-power-situation-philippines