This briefing note examines why persistent power outages and high electricity costs in the Philippines are not caused by a lack of capacity, but by an overreliance on inflexible baseload power. It aims to provide a clearer understanding of how current system design and market structures contribute to grid instability and inefficiencies.

The insights are intended to guide policymakers and stakeholders in developing solutions that prioritize flexibility, improve reliability, and support a more balanced and responsive power system for the country.

Published
24 March 2025

The Philippine power system currently possesses more than enough installed capacity on paper, but recurring reliability and affordability issues persist. With a total dependable capacity of 27,927 MW against a peak demand of approximately 19,000 MW in 2025, the country theoretically operates with a significant surplus. By any conventional metric, this capacity should translate to stable and affordable electricity. Instead, Filipino consumers face frequent forced outages, price volatility in the Wholesale Electricity Spot Market (WESM), and recurring grid alerts.

The issue is not insufficient power capacity, but too much of the inflexible kind. Approximately 18,511 MW of dependable capacity (66.3%) is locked into rigid baseload coal plants designed to be operated at a constant optimal level. However, the country’s actual baseload requirement is only approximately 12,000 MW, leaving more than 6,500 MW of baseload capacity surplus during off-peak hours. To manage daily demand swings, system operators are forced to cycle these coal plants up and down, a task they were never intended to perform. Even newer coal technologies such as circulating fluidized bed boilers are not built for repeated daily cycling, leading to thermal fatigue, boiler tube leaks, and accelerated corrosion. Between 2019 and 2024, nearly 29% of forced outages in Philippine coal plants were linked directly to these operational stresses. This mismatch between design and operations accelerates wear, increases outage risks, and contributes directly to market volatility, proving that the system is not failing because it lacks power plants, but because these plants are being forced to do what they were never designed to do.

Inflexibility Extends Beyond Coal

Coal plants are not the only inflexibly deployed resources. Natural gas plants, technically capable of rapidresponse generation, are largely locked into baseload operations by contractual obligations. These power supply agreements require continuous running to deliver on their contracted capacity, effectively nullifying their inherent flexibility.

Meanwhile, existing flexible resources remain insufficient. Battery storage, pumped hydro, and open-cycle gas turbines, all designed for fast ramping, are far below the scale the grid requires, especially as more variable sources (from both generation supply and demand requirements) are integrated into the grid. Diesel-fired peaking plants exist; however, their expensive generation sources drive up power costs whenever dispatched. As a result, baseload coal bears the ramping burden, compounding the grid’s reliability challenges.

Grid Alerts Reveal the Timing of Flexibility Gap

The times at which grid alerts are raised reveal the type of capacity the Philippine grid actually needs. Historical data show that most yellow and red alerts are raised between 2:00 PM and 11:00 PM, when electricity demand peaks (Figure 1). If the grid required more baseload plants, alerts would be distributed across all hours. Instead, off-peak periods, particularly midnight to early morning, rarely trigger alerts, confirming not a lack of 24/7 capacity but a shortage of fast-ramping resources during critical evening windows.

Figure 1: Times at which grid alerts were raised from April to June 2024

Solar generation has decreased the frequency of grid alerts during morning and midday hours despite the higher demand during these periods than during the evening. As solar output fades in the afternoon and demand remains high, the grid must rely on other sources to bridge the gap. Forced outages at coal plants during these periods have repeatedly exposed this vulnerability.

Distorted Market Signals Discourage Flexibility

Electricity prices at the WESM fluctuate to reflect supply and demand imbalances, rising during peak hours and falling during off-peak periods. These price signals encourage generation when and where it is most needed. However, the secondary price cap (SPC) hampers these signals. The SPC is triggered when the rolling average market price exceeds PHP 9 per kWh over 3 days, capping prices at PHP 6.245 per kWh. Historical data show the SPC is triggered most frequently during the second quarter, coinciding with peak demand and recurring grid alerts, and predominantly between midday and nighttime, the same windows when flexible capacity is most needed (Figure 2).

Figure 2: Number of instances the secondary price cap being triggered per time of day in 2024

By artificially suppressing prices during these critical periods, the SPC reduces economic incentives for flexible capacities, such as mid-merit and peaking plants, to participate in the market. This distortion discourages investment in the flexible capacity the grid requires. The result is a power system that remains locked into inflexible baseload generation, forced to perform daily ramping it was never designed for, while the market signals that could correct this imbalance are muted.

Role of Coal in the Energy Transition

The current Philippine Energy Plan does not mandate a coal phase-out, and many plants built within the last decade will likely remain for years. However, years of imposed flexibility have already eroded reliability, as evidenced by frequent forced outages and extended maintenance schedules. The solution is allowing baseload plants to run as baseload to anchor supply while addressing the flexibility gap elsewhere.

The way forward is therefore not increasing baseload capacity but creating a more balanced and flexible generation portfolio. This process requires credible market signals and incentives for flexible resources such as batteries, pumped hydro storage, and gas peakers, which can manage daily swings and peak demand.

Flexibility, however, extends beyond meeting energy demand. The grid also requires ancillary services to maintain frequency and stability during contingencies. Unlike daily ramping, these services are episodic by nature. Coal plants already participate effectively in the reserve market, earning capacity payments for availability rather than dispatched energy. This scenario creates a practical transition pathway. Instead of forcing coal plants into daily cycling, they must be positioned to provide ancillary services that support system stability as overall variability rises. In this role, coal functions as a transitional enabler, maintaining reliability and buying time while the system gradually shifts toward a more flexible and diversified structure.

The Path Forward

As in its previous Power Outlooks, the Institute for Climate and Sustainable Cities (ICSC) emphasizes that the Philippines must shift its focus from increasing baseload capacity to establishing a flexible and diversified generation mix. True flexibility is achievable through a combination of storage solutions, such as battery energy storage systems and pumped hydro, fast-ramping gas-fired plants, and oil peakers. Baseload coal plants should be preserved for their intended role, supplying stable energy and contributing to grid stability through ancillary services and reserve capacity without daily cycling. Enabling this differentiation allows the grid to maintain reliability, reduce forced outages, and ensure efficient use of existing assets.

For more information, check out our report on coal: “Coal Dominance in the Philippines: Assessment of Operational Performance and Implications for the Philippine Energy Sector.“