The Philippines is likely to miss its ambitious renewable energy targets for the end of the decade, as grid constraints and high financing costs create a significant gap between government policy and market reality, according to S&P Global Ratings.

Vince Heo, S&P Global Commodity Insights director for APAC power and renewables saud that while the country aims to increase the share of renewable sources in the power generation mix to 35 percent by 2030 and 50 percent by 2040, the actual share may only reach approximately 27 percent by 2030.

The eight-percentage-point shortfall suggests the Philippines will remain more dependent on fossil fuels than originally planned, requiring a continued reliance on “firm capacity” such as coal and natural gas to meet rising demand.

Heo noted that the country faces a unique set of financial headwinds that dampen the appetite of international lenders.

He cited that the weighted average cost of capital for solar projects in the Philippines currently hovers between 10 percent and 11 percent, a figure that is three to four percentage points higher than in competing regional markets.

This disparity significantly impacts the levelized cost of electricity, as financing alone accounts for nearly a quarter of total project costs.

These elevated rates are driven in part by a sovereign risk premium and “hidden costs” that increase the risk profile for local energy developments.

Beyond financial hurdles, the build-out of wind and solar capacity is being throttled by regulatory delays and a transmission system that lacks the flexibility to integrate new power sources.

Heo noted that streamlining the permitting process is essential to fast-track project rollouts, alongside the urgent need for a more secure grid to cater to incoming capacities.

Corporate demand for clean energy also faces a potential mismatch in standards. While the Philippines uses the Renewable Portfolio Standard to encourage green energy, local renewable energy certificates are not currently aligned with international benchmarks. This could pose a challenge for the influx of global hyperscalers and data center operators, such as Google and Amazon, which typically require globally recognized certificates to meet their internal sustainability mandates.

Without reform to these tradable instruments, the Philippines may find it difficult to attract the very industries that would otherwise drive large-scale investment in the country’s energy transition.