Cooler Weather Drives Down Electricity Prices in the Philippines Amid Lower Demand

In a welcome reprieve for consumers across the Philippines, electricity prices in the Wholesale Electricity Spot Market (WESM) dropped significantly in January 2025, driven by lower demand during cooler weather. According to the Independent Electricity Market Operator of the Philippines (Iemop), the average systemwide price fell by 14.3% to P2.96 per kilowatt-hour (kWh) from P3.45 per kWh in December 2024. This decline reflects a broader trend of reduced energy consumption across the archipelago’s major regions—Luzon, Visayas, and Mindanao—offering insights into the interplay between seasonal patterns, energy supply, and market dynamics in one of South East Asia’s fastest-growing economies.

The reduction in demand, which fell by 5.6% to an average of 12,529 megawatts (MW) in January, underscores the impact of cooler temperatures that typically mark the start of the year. With supply marginally dipping by 0.2% to 20,110 MW, the system margin—the difference between available supply and demand—rose by 10.26% to 7,581 MW. This wider margin contributed to the lower spot market prices, providing a buffer for distribution utilities and a temporary relief for households and businesses grappling with energy costs.

Regional Declines in Demand and Prices

Across the Philippines’ three main island groups, the story of reduced demand and falling prices played out with regional variations. Luzon, the largest and most populous island, saw demand drop by 6.4% to 8,741 MW, even as supply decreased by 1.6% to 13,962 MW. As a result, WESM prices in Luzon declined by 8.5% to P2.98 per kWh. In the Visayas, demand fell by 4.4% to 1,856 MW, with supply decreasing by 4.5% to 2,372 MW, leading to a steeper price reduction of 19.1% to P3.13 per kWh.

Mindanao, the southernmost major island, recorded the most significant price drop, with WESM rates falling by 31.9% to P2.65 per kWh. This came despite a modest 2.9% decline in demand to 1,931 MW, bolstered by an 8.7% increase in supply to 3,775 MW. These regional disparities highlight the uneven distribution of energy infrastructure and consumption patterns across the country, with Mindanao benefiting from a relatively robust supply increase compared to its northern counterparts.

Iemop, which operates WESM as the central marketplace for electricity trading in the Philippines, noted that the cooler weather in January typically curbs energy use, particularly for cooling systems that dominate household and commercial consumption during hotter months. Generators can sell excess power in this marketplace, while distribution utilities purchase additional electricity as needed, creating a dynamic system that responds to both supply-side and demand-side pressures.

Shifts in Energy Generation Mix

Amid the reduced demand, overall energy generation in January fell by 2.75% to 8,991 gigawatt hours (GWh). Coal, the backbone of the Philippines’ energy mix, saw its share decline to 55% from 58.87% in December 2024, reflecting a slight pivot away from the fossil fuel that has long dominated the country’s power sector. Natural gas maintained a steady contribution of 17%, while renewable energy sources showed mixed trends.

Hydroelectric generation experienced a slight rebound in January, capitalising on seasonal water availability, while geothermal energy held stable at around 8-9% of the total mix. Wind and solar energy, though still minor contributors, exhibited minimal changes, with wind generation slightly down and solar output marginally up. These incremental shifts in the renewable sector point to the slow but ongoing transition in the Philippines’ energy landscape, as the government and private sector grapple with balancing affordability, reliability, and sustainability.

The reliance on coal, despite its reduced share, remains a point of contention for environmental advocates who argue for a faster shift to cleaner energy sources. The Philippines, an archipelago nation highly vulnerable to climate change impacts such as rising sea levels and intensifying typhoons, has committed to increasing the share of renewables in its energy mix under international agreements like the Paris Accord. However, the economic realities of coal’s affordability and the intermittency challenges of wind and solar continue to slow progress.

Economic and Policy Implications

The drop in electricity prices offers a momentary respite for Filipino consumers, many of whom have faced rising costs of living amid global inflationary pressures. Distribution utilities like Meralco, which serves Metro Manila and surrounding areas, had already signalled cheaper power rates for January, aligning with Iemop’s findings. This could translate to lower electricity bills for millions of households, providing a small but meaningful boost to disposable incomes at the start of the year.

For businesses, particularly in energy-intensive sectors like manufacturing and retail, the reduced rates may ease operational costs, potentially spurring economic activity in a country still recovering from the long-term impacts of the COVID-19 pandemic. However, analysts caution that the seasonal nature of the price drop means it may not persist into the hotter months, when demand for cooling surges and spot market prices often spike.

From a policy perspective, the January data underscores the need for strategic investments in energy infrastructure to address regional disparities and enhance grid resilience. Mindanao’s significant price reduction, driven by a supply increase, contrasts with the more modest gains in Luzon and Visayas, where supply constraints were more pronounced. Bridging these gaps requires not only expanding generation capacity but also improving transmission and distribution networks to ensure equitable access to affordable power across the archipelago.

Moreover, the slight uptick in hydroelectric and solar generation raises questions about how the Philippines can capitalise on seasonal opportunities to bolster renewable energy output. If supported by targeted incentives and infrastructure upgrades, such trends could help reduce dependence on coal over the long term. Yet, without confirmed policy shifts or investment commitments, these remain speculative gains—potential pathways rather than guaranteed outcomes.

The Philippines’ experience with fluctuating electricity prices mirrors broader trends across South East Asia, where energy demand is often shaped by seasonal weather patterns and rapid urbanisation. Neighbouring countries like Thailand and Vietnam also face the challenge of balancing fossil fuel reliance with renewable energy ambitions, often against the backdrop of economic growth targets. In Vietnam, for instance, coal still dominates the energy mix despite aggressive plans to expand solar and wind capacity, while Thailand grapples with public opposition to new coal plants amid calls for cleaner alternatives.

For the Philippines, the January price drop serves as a reminder of the interconnectedness of climate, economy, and energy policy. Cooler weather may have driven the immediate reduction in demand, but underlying structural issues—such as the slow pace of renewable adoption and regional supply imbalances—continue to shape the sector’s trajectory. As the country heads into warmer months, the resilience of its energy market will be tested, with implications for both consumer welfare and national development goals.

As the Philippines navigates its energy future, the January 2025 data offers a snapshot of both challenges and opportunities. On one hand, the price reduction highlights the market’s responsiveness to demand fluctuations, a positive signal for consumers and policymakers alike. On the other hand, the persistent dominance of coal and the incremental nature of renewable energy growth underscore the long road ahead to achieving a sustainable energy mix.

If the government can leverage seasonal trends to boost renewable generation—perhaps through incentives for hydroelectric or solar projects during periods of lower demand—these small gains could compound over time. However, such outcomes remain conditional on policy action and private sector investment, with no firm evidence yet confirming a decisive shift. For now, Filipino consumers can enjoy the temporary relief of lower electricity bills, even as the broader question of energy security looms large on the horizon.

In a region where energy access and affordability remain critical to economic progress, the Philippines’ January experience is a microcosm of the wider South East Asian challenge. Balancing immediate needs with long-term sustainability will require not just technical innovation but also political will—a delicate equation that continues to define the region’s development path.