The World Bank Group (WBG) has specified at least “six challenges” or investment risks to investors participating in the targeted 40,000-megawatt offshore wind farm capacity in the Philippines.

The hurdles include energy costs; transmission or wheeling of generated electricity; environmental and social (E&S) impacts; limited local supply chain; and, financing and bankability of projects.

Another hurdle is that since wind power is classified as indigenous resource, foreign ownership is limited to 40 percent.

On the cost of energy, a study of the WBG on the Philippine offshore wind investment roadmap stated that “offshore wind is more expensive than other forms of renewable energy.”

To triumph over that, the multilateral lending firm qualified that the technology “could become competitive with the cost of conventional, thermal generation through large market-scale and competition.”

As noted by prospective developers of offshore wind projects, the rule of thumb for upfront capital cost for this technology installation is relatively expensive at $2.5 million per megawatt, more than twice the cost of solar, which is less than $1.0 million per megawatt.

Transmission of generated capacity has also been cited as a dilemma, with the World Bank emphasizing that “to connect projects at large scales sufficient to drive down the cost of energy, transmission grid upgrades and strengthening will be required to deliver power to demand centers.”

In the assessment of the bank, the 40,000MW installation targets could be harnessed in at least six key areas in the country. The biggest potential surveyed is in southern Mindoro for 28,000MW followed by Northern Mindoro for 5,000MW; northwest Luzon for 3,000MW; Negros-Panay West for 2,000MW; Manila Area for 1,000MW; and Guimaras Strait for 1,000MW.

The World Bank similarly stated that massive offshore wind installations could yield “risks of adverse environmental and social impacts, especially when cumulative impacts from multiple projects are considered.”

In view of that then, it propounded that “data, stakeholder engagement, careful planning and robust regulations will be required to manage this (E&S impact).”

Additionally, the World Bank pointed out that “despite the Philippines’ strong industry, a comprehensive local supply chain will not be feasible in the short and medium-term and many components will need to be imported.”

On project financing aspect, the bank accentuated that “the unique and high risks associated with offshore wind will require careful risk management and mitigation measures to ensure bankability and minimize the cost of capital.”

The lingering headache of foreign investors on restrictive ownership has likewise been highlighted, with the World Bank stressing that “no more than 40 percent of an offshore wind project can be owned by international parties, restricting the participation of experienced and financially sound project developers.”

The World Bank thus underscored that “removing this restriction will allow the use of lower cost international financing and, therefore, help reduce the cost of energy.”