Energy Security and the U.S.-Philippine Alliance

The Issue

• The Philippines’ fragile energy outlook threatens to undermine efforts to secure its strategic autonomy vis-à-vis an assertive China.
• A tabletop exercise held at CSIS this spring with U.S. and Philippine participants explored the strategic implications of different energy investments and their vulnerability to disruption.
• Bringing online renewable and clean energy sources is an imperative to providing for Philippine energy security in the long term, but fossil fuels will have a critical stabilizing role in the near term.
• The United States can support its ally through enhanced alliance programing, technical assistance, and new approaches to interagency cooperation.
   

Introduction

An Alliance Reborn

The U.S.-Philippine alliance is experiencing a renaissance. Driven by unrelenting pressure from Beijing on Philippine activities in the South China Sea, Manila has pushed forward with Washington on a range of measures to modernize the alliance and give substance to the commitments outlined in the 1951 Mutual Defense Treaty. The once-stalled Enhanced Defense Cooperation Agreement (EDCA)—which provides for U.S. construction of joint facilities, pre-positioning of equipment, and rotational deployment of troops at designated Philippine military sites—has been given new life amid a flurry of military-to-military cooperation, and was expanded from five to nine sites in 2023. This July, the United States quintupled foreign military financing to the Philippines, announcing that $500 million would be made available in the 2024 fiscal year by the Indo-Pacific Security Supplemental Appropriations Act. And in April 2024, recognizing that economic independence plays an equal part in securing the Philippines’ strategic autonomy, leaders of the United States, the Philippines, and Japan announced the Luzon Economic Corridor, an initiative under the G7 Partnership for Global Infrastructure and Investment (PGI) to accelerate coordinated investments in high-impact infrastructure connecting four locations: Subic Bay, Clark Freeport and Special Economic Zone, Manila, and Batangas.

But despite substantial progress, the alliance still faces tremendous challenges in securing the Philippines’ freedom from coercion. The country is on the wrong end of a significant capacity gap with China in the South China Sea. Outmatched by tens of China Coast Guard ships and hundreds of Chinese maritime militia vessels, the Philippines struggles to maintain access to outposts in disputed areas, even within its own exclusive economic zone. Regular confrontations with Chinese ships—and, more recently, aircraft—have injured Philippine troops, damaged vessels and equipment, and come dangerously close to resulting in the death of a service member, a contingency that could force Manila to invoke U.S. alliance commitments.

There are also challenges to the alliance from within the Philippines. While the current administration, political-military establishment, and a majority of public opinion support strong U.S. ties, there remains a vocal anti-U.S. coalition of politicians and elites with ties to the Duterte administration or China. Pro-China and anti-U.S. narratives are widespread in a fractured information environment susceptible to disinformation campaigns by China-linked media outlets. Cynics argue that Washington is only using the Philippines as a tool to contain China and defend Taiwan. Even among those who support stronger U.S.-Philippine ties, the shadow of past failures—particularly China’s 2012 seizure of Scarborough Shoal—looms large. Commitments to defense spending, military cooperation, and economic support do not necessarily answer the lingering concern that in a critical moment, the United States may not be willing or able to protect the Philippines.

A Critical Vulnerability: Energy

Even as Washington and Manila work to modernize their alliance and solidify its foundations, an emerging vulnerability threatens to undermine its potential: the Philippines’ fragile energy outlook.

The Philippine energy mix is heavily dependent on imported fossil fuels, with coal accounting for 60 percent of power generation in 2022, up from 34 percent in 2010. This reliance on fossil fuels increases vulnerability to supply disruptions, a risk amplified by the nation’s archipelagic geography. The country suffers from some of the highest electricity prices in the Association of Southeast Asian Nations (ASEAN). These vulnerabilities are compounded by operational challenges, including frequent blackouts, with most Filipinos experiencing power outages at least once a month.

The inadequacies of the power grid, including issues of transmission, storage, and inter-island connectivity, are concerns that the Philippines’ Department of Energy (PDOE) is keenly focused on. The grid also harbors a strategic vulnerability: its operator, the National Grid Corporation of the Philippines (NGCP), is 40 percent owned by the State Grid Corporation of China (SGCC). Fears in both Manila and Washington that Beijing could disable the grid in a time of crisis have lent urgency to efforts to reform its ownership and operational structure.

Parallel to addressing immediate challenges, the Philippines is setting ambitious long-term goals under its Philippine Energy Plan 2023-2050 (PEP), which envisions a significant transition to renewable energy. The PEP aims to increase the share of renewables in the energy mix to over 50 percent by 2050, a substantial shift. Key legislative changes, such as a recent bill allowing 100 percent foreign ownership of renewable energy projects, are steps toward reaching this goal.

However, the country’s heavy reliance on energy imports continues to be a pressing issue, with over 50 percent of its energy supply sourced through net imports. The impending depletion of the Malampaya gas fields in the South China Sea, which currently supply about 30 percent of Luzon’s electricity, further exacerbates this problem. China’s willingness to use its coast guard to contest any new exploration or development in disputed areas has created reluctance within the private sector to invest in such a high-risk environment.

Without smart mitigation, the Philippines’ current energy challenges threaten to leave it economically stunted and vulnerable to global supply shocks, economic coercion, physical and cyberattacks on infrastructure, and information operations that seek to undermine its strategic autonomy. How Manila calibrates its energy policy in the next several years will have critical ramifications for Philippine national security, the U.S.-Philippine alliance, and the Indo-Pacific at large.

Tabletop Exercise Design

To better understand the challenges, opportunities, and trade-offs facing Manila and Washington as they try to provide for Philippine energy security, CSIS conducted a tabletop exercise (TTX) with participants from U.S. government agencies, think tanks, and private sector energy companies, plus Philippine academics, national security experts, and former government officials. The TTX was conducted in person in April 2024 over two days, facilitating candid discussions under the Chatham House Rule.

The TTX took players through three interconnected modules focusing on energy, competition, and conflict, with the goal of determining optimal investments for different stakeholders within the context of strategic competition. Teams of participants representing the United States, the Philippines, China, and the private sector worked together to develop investment strategies and ranked seven areas of energy investment by priority: transmission and distribution, storage, renewables, nuclear, domestic oil and gas, imported oil and gas, and coal. The energy module was run three times over the course of the exercise, creating three sets of investment preferences: one after initial strategy discussions within players’ own teams, a second after each team’s preferences were shared with all other teams in a group discussion, and a third after teams had participated in competition and conflict modules.

Additionally, in advance of the TTX, a survey of Philippine public opinion was conducted by CSIS in cooperation with Philippine public opinion research firm WR Numero Research. This March 2024 in-person survey of 1,765 Filipinos informed the scenarios and design of the modules within the TTX, and results were used to inform participants of baseline attitudes among the Philippine public on key issues.

Exercise Results and Key Findings

The energy investment preferences of each team are summarized in the table below, which lists the top three priorities for each team by round.

Over the course of the TTX, several key themes emerged.

The Battle for the Grid

Transmission and distribution (T+D), and to a lesser extent storage, were key focuses of the U.S., Philippine, and Chinese teams from the beginning to the end of the game. The focus on transmission and distribution—with transmission referring to large-scale movement of high-voltage power from plants to substations, and distribution referring to smaller-scale movement of lower-voltage power from substations to consumers—was particularly acute given the contested status of the NGCP’s Chinese ownership stake. The Chinese team viewed its involvement in the Philippine electrical grid as a lever of power that it could employ in a crisis to cause paralysis among Philippine decisionmakers and, potentially, military forces. The United States and the Philippines both recognized that threat, which contributed to their own prioritization of T+D. Both additionally expressed an interest to enhance the grid and expand it to more remote areas, seeing its current state as a key bottleneck in delivering reliable power across the Philippines. 

Philippine participants emphasized that while the future of SGCC’s ownership stake in the grid is a political question, there are also practical concerns about the operation of the grid. Although the NGCP concession agreement mandates that Philippine nationals remain in charge of all operational functions of the grid, SGCC has been accused of instead hiring Chinese personnel and even having systems and operator instructions exclusively in Chinese, raising questions about whether the Philippines can easily replace Chinese functions inside the NGCP.

In contrast to the national teams, the private sector team remained hesitant about investing in the grid. The concession agreement with SGCC was seen as a fundamental obstacle, as all cooperative projects would need to involve the Chinese company, which would preclude involvement from most other private partners, particularly U.S. companies. The Philippines’ archipelagic geography was also seen as making transmission or distribution development in Mindanao and the Visayas economically unattractive—a problem compounded by fears that any investment would be subject to the approval of local political leaders who sometimes have personal interests in utility markets, introducing a high level of political risk for the life of the project.

Competing Priorities: Imported Oil and Gas vs. Renewables

Strong interest in renewable energy solutions for the Philippines was evident, consistently ranking among the top four priority areas for all teams. But notable shifts in priorities occurred over the course of the game, with more groups placing a higher priority on imported oil and gas (IO&G) than renewable energy (RE) by the end of the TTX.

In round one, renewables enjoyed high interest from all teams, but did not make the top three of the Philippines team, which placed IO&G as their number one priority. The Philippine team explained that its preference was driven by the necessities of timing: only IO&G was perceived to be able to meet rising energy demand over the next 10–15 years. Following this discussion, other teams responded: IO&G rose above renewable energy for the United States in round two, and the private sector also mildly elevated priority on IO&G. After the teams played through competition and conflict scenarios, the shift became even more pronounced, with the United States elevating IO&G to its top priority. Renewables remained in the top three only for China, which continued to think that their adoption would present opportunities for increased influence in the Philippines through the provision of renewable equipment and technology. Renewables remained a close fourth, however, for both the Philippines and the United States, who both saw a transition to renewable energy as inevitable for the Philippines, current strategic exigencies notwithstanding.

Mirrored Image Problems: Nuclear Energy and Domestic Oil and Gas

Despite official efforts to accelerate cooperation between the United States and the Philippines on civil nuclear technology, nuclear energy was deprioritized by the national teams. Philippine participants placed a low priority on nuclear energy, citing popular fears of a nuclear disaster given the frequency of extreme weather events in the Philippines. The Fukushima accident in Japan, brought on by an extreme weather event itself, has remained in the public eye in the Philippines as maritime communities have voiced concerns over the potential impact of treated nuclear wastewater released into the Pacific Ocean.

The reverse disparity was observed for domestic oil and gas: though it is unclear whether untapped gas reserves in the South China Sea would make a critical difference in meeting Philippine energy needs over the coming decades, it remained a major topic of discussion almost entirely for its symbolic importance. The national teams ultimately deprioritized it, with Philippine and U.S. teams citing the risk of interference by China as a critical barrier to development. However, due in part to extensive media coverage over the last decade, oil and gas in the South China Sea are widely seen in the Philippines as valuable resources that have been unjustly denied by China.

These sensibilities were also observed in the public opinion survey conducted prior to the TTX.

While survey participants favored energy transmission and grid development as the top targets for U.S. energy investment in the Philippines, over 40 percent also supported oil and gas exploration, while less than 25 percent expressed support for nuclear power.

Planning for a Secure Transition

The U.S. and Philippine teams were aligned in their goal of enabling the Philippines to resist coercion. To do this, their final energy investment strategies sought to balance competing priorities in several dimensions:

• Near-term stability vs. long-term sustainability
• Economic efficiency vs. strategic preparedness
• Energy sourcing vs. power infrastructure
• Grid resilience vs. grid expansion
   

IO&G, especially liquidified natural gas (LNG), was seen to be a critical component of the Philippines’ energy mix over the coming decades and one of the only energy sources that could meet growing demand in the near term. Both teams sought to make investments in LNG terminals and plants to connect this resource to the transmission grid and to distribute these terminals geographically such that, in the event of a conflict, cargoes could still be delivered.

The power grid was also a top priority. The Philippine team aimed to implement an urgent review and elimination of Chinese involvement in grid systems and operations such that, even if the SGCC concession agreement itself was not altered or canceled, grid operations would remain firmly under Philippine control. Teams also identified a need to develop grid infrastructure to integrate renewable energy resources. In doing so, participants saw an opportunity to enhance the resilience of the power system by developing microgrids that would not be integrated directly into the NGCP-run central grid. This was seen as a better fit for the Philippines’ archipelagic geography as well as an opportunity for U.S. and other companies to contribute to developing the Philippine power system in a way that would avoid the difficulties of partnering with the Chinese-invested NGCP.

Storage was a key piece of each team’s final strategy, and was linked with plans to both import hydrocarbons in the near term and bring online renewable energy in the long term. The Philippine team aimed to fast-track the creation of a strategic petroleum reserve that would provide for 90 days of the country’s energy consumption, a measure that the Philippine government started in 2019 but put on hold in 2022. Teams also sought to invest in power storage for the energy grid as a prerequisite for the connection of renewable energy sources—without it, the variable output of renewables could contribute to grid instability.

Renewables themselves were seen as the final essential component of a Philippine energy security strategy. Transition to renewables was seen as the best way to reduce the Philippines’ external dependencies and vulnerabilities to price shocks, blockades, and resource depletion. Solar, offshore wind, and hydropower were all raised as important sources to explore, with all likely to play some role in a renewables mix. While the Philippines is already a significant producer of geothermal energy, little opportunity was seen to expand this production, which is heavily dependent on localized areas of geothermal activity. Biomass was also dismissed as having little potential to play a major role in a future renewable energy mix, though smaller-scale efforts to incorporate biofuels for vehicles were seen as having some potential utility.

Potential for Disruption

The China team’s strategy revolved around different end goals: maintaining influence over Philippine energy sectors, displacing the United States as a provider and partner in these areas, and ultimately disrupting the U.S.-Philippine alliance. To this end, its prioritization of different energy investments was not based on any desired end state for the Philippines’ energy outlook, but instead largely sought to follow whichever area the Philippines was interested in and outcompete the United States in order to establish or maintain influence. The ability of China’s government to directly control the investment or operations of both state-owned enterprises (SOEs) and nominally private Chinese companies was seen as an advantage that would allow China to outbid U.S. or other companies on renewable projects. Facing a Philippine team that declared a clear interest in working with the United States, the China team also turned to investing in renewables and microgrids in the provinces, hoping to foster the narrative that China was in fact doing more for Philippine public good than the United States. And in response to Philippine efforts to limit Chinese involvement in the power grid, the China team aimed to leverage connections with provincial governments and local authorities to impede those efforts and prevent Philippine leadership from uniting to execute its planned strategy.

Ongoing Efforts and Potential Tools

Public and private actors in the Philippines and the United States are actively pursuing many of the secure transition strategies identified during the TTX. This section will outline ongoing, high-value U.S. initiatives that are aimed at improving Philippine energy security or that have strong potential to serve as vehicles for future efforts.

Energy Policy Dialogue

In August 2023, the United States and the Philippines launched the first U.S.-Philippines Energy Policy Dialogue. A product of agreements made during Vice President Kamala Harris’s visit to the Philippines in November 2022, the dialogue brought together representatives from the Department of State’s Bureau of Energy Resources, the Department of Energy (DOE), and the PDOE to discuss the acceleration of renewable energy, transmission modernization and expansion, and reducing dependence on imported fossil fuels. The dialogue also established priorities for future technical support and discussed nuclear energy cooperation opportunities, likely aiding in the signing of a 123 Agreement the following year.

During the fourth 2+2 Ministerial Dialogue between foreign and defense secretaries of the United States and the Philippines on July 30, 2024, the two sides committed to convening a second energy policy dialogue in Manila later this year, noting that the dialogue will provide “a platform to accelerate efforts to diversify critical minerals supply chains, promote renewable energy deployment, foster reliable and resilient power grids, and elevate energy security.”

Civil Nuclear Cooperation

In November 2023, the United States and the Philippines signed a 123 Agreement on civil nuclear cooperation. Entered into force on July 2, 2024, the agreement provides the legal framework for exports to the Philippines of nuclear material, equipment, components, and information for nuclear research and civil nuclear energy production. Even before the signing of the agreement, the PEP had targeted 1,200 MW of nuclear power generation by 2032, increasing to 2,400 MW by 2035, and up to a total of 4,800 MW by 2050. The initial 1,200 MW is envisioned to come from eight 150 MW small modular reactors (SMRs). Several Philippine companies are already exploring cooperation with U.S. SMR firms, including Ultra Safe Nuclear and NuScale Power. The United States is facilitating further connections through a civil nuclear industry working group based in Manila, which held its first virtual meeting between U.S. companies and the Philippine government on July 31.

In addition to SMRs, the Philippines is also considering the possibility of conventional nuclear reactors, including the potential restoration of the existing Bataan Nuclear Power Plant. The plant was completed in 1986 but shuttered before it was ever fired, amid public protests and concerns that it was built near a major fault line in an earthquake-prone region. Nevertheless, the PDOE is in discussions with Korea Hydro & Nuclear Power about a feasibility study on reviving the plant, which was originally engineered to provide an output of 621 MW.

Energy Secure Philippines

The U.S. Agency for International Development’s (USAID) primary workstream on Philippine energy is Energy Secure Philippines, a five-year, $34 million project that aims to improve the reliability and resilience of the Philippine power system. Running from 2020 to 2025, the program focuses on digitization of distribution and utilities, development of financing platforms for utility resiliency investments, development of a resiliency assessment system, and implementation of cybersecurity standards and best practices across the power sector.

Competitive Renewable Energy Zones

In September of 2018, the PDOE authorized the study and designation of Competitive Renewable Energy Zones (CREZ) in the Philippines. Conducted by the PDOE and the NGCP with support from USAID and the DOE’s National Renewable Energy Laboratory (NREL), CREZ is a transmission planning tool that seeks to identify high concentrations of renewable resources and plan for corresponding transmission infrastructure that would maximize efficiencies and provide the groundwork for investment in renewables generation. The process is chaired by the PDOE but also involves the NGCP as well as numerous organizations and departments associated with energy, the electricity market, and the grid. USAID and NREL have provided training and assistance to the PDOE and the NGCP in identifying CREZ and conducting load modeling, forecasting, and power system planning. The model is based on Texas’s implementation of CREZ from 2005 to 2014 to bring wind power into the state’s grid but currently incorporates only the analysis and planning phases, with no commitment to construct the planned transmission infrastructure. The project does, however, provide assistance to the PDOE in preparing and submitting new renewable transmission projects to the Energy Regulatory Commission, as well as training for the commission on how to assess those submissions. CREZ is currently in phase three, which spans from 2023 to 2025 and focuses on implementing plans from phases one and two as well as mapping offshore wind resources for future implementation.

Luzon Economic Corridor

In April 2024, U.S., Philippine, and Japanese leaders together launched the Luzon Economic Corridor (LEC) as an initiative of the G7 Partnership for Global Infrastructure and Investment (PGI). To be coordinated by the State Department, the LEC is aimed at supporting connectivity between Subic Bay, Clark Freeport and Special Economic Zone, Manila, and Batangas, with $14.75 million to support project preparation and technical assistance for infrastructure and other strategic investments.

The original announcement of the LEC mentioned energy only in the context of “clean energy and semiconductor supply chains and deployments,” one of four target investment areas that also include rail, ports modernization, and agribusiness. But a PGI fact sheet released by the White House on June 13 during the G7 summit in Fasano, Italy, touted more specific developments, including a U.S. Trade and Development Agency (USTDA) grant for a private energy developer in the Philippines to evaluate the use of a U.S. geothermal firm’s technology to increase power production. The fact sheet also lists a grant for a feasibility study and pilot for a Philippine telecom operator to develop a 5G mobile and fixed wireless network in the Philippines—a project that does not clearly fall within the specified focuses of the original LEC launch announcement. Given the broad scope of investments covered by the LEC’s stated goals and the apparent flexibility in incorporating new ones, it is likely that the LEC could function as a vehicle for further activities related to energy security.

Enhanced Defense Cooperation Agreement

Signed in 2014, EDCA provides for the U.S. construction of joint facilities, pre-positioning of equipment, and rotational deployment of troops at designated Philippine military sites. EDCA projects to date have been focused on improving Philippine military facilities, but there have also been mentions of potential expansion of programming to include efforts aimed at benefiting surrounding communities. A May 2023 White House fact sheet on the U.S.-Philippine alliance noted that the United States was working with communities near EDCA sites to drive sustainable development and investment. A joint statement from the 2+2 Ministerial Dialogue in July mentions plans for USAID to pre-position humanitarian assistance and disaster relief (HADR) commodities for use by Philippine civilian disaster response authorities at one EDCA site. Given the interest in providing public goods to local communities, EDCA programming that could provide local energy solutions has the potential to both contribute to energy resiliency and counter anti-EDCA and anti-U.S. narratives.

Millennium Challenge Corporation

In December 2023, the Millennium Challenge Corporation (MCC) selected the Philippines for a threshold program, a grant “designed to support policy and institutional reforms that address economic growth constraints.” As of February 2024, no focus area for the grant had been decided. The July joint statement from the 2+2 Ministerial Dialogue directly referenced the threshold program agreement, urging both sides to work toward its completion as soon as possible. Given the variety of possible focus areas, it is difficult to speculate whether energy is under consideration. But the Philippines’ high electricity costs and unreliable power likely qualify as economic growth constraints that would at least lead the MCC to consider a focus on energy policy reforms.

Recommendations

Secure Near-Term Stability

Facing rapidly rising energy demand, continuous threats of maritime coercion, and the very real risk of near-term conflict, the Philippines needs help to stabilize its energy outlook and prepare for crisis scenarios. Hydrocarbons, though they may be destined to be replaced by cleaner, renewable alternatives, will remain an important component of the Philippines’ energy mix for the next several decades. They will be especially vital over the next 10–15 years, before nuclear and renewable sources can begin to contribute at sufficient scale. LNG, as a cleaner alternative to other fossil fuels, will play an important role in this context.

Washington should reconsider recent efforts to curb U.S. LNG exports, such as the pause implemented on LNG export project approvals in January 2024. While a federal court issued a stay in July that ended the pause, such efforts create uncertainty about the future of U.S. LNG that undermines investing and contracting processes. For European allies, U.S. LNG exports have been a critical backstop for sanctioned Russian gas since the invasion of Ukraine. Japan, the world’s second-largest importer of LNG, has also been a foundational buyer for several U.S. export projects. While the Philippines’ current LNG imports are not coming from the United States, future supplies almost certainly will. Given the importance of Philippine energy security to the United States’ own national security, Washington should aim to facilitate, not jeopardize, future purchases of U.S. LNG by the Philippines.

Within the Philippines, the United States should support the country’s efforts to develop LNG terminal infrastructure and connect LNG plants to the grid. It can also support efforts to improve port infrastructure and to diversify delivery points, which would ensure shipments of LNG or other hydrocarbons could continue to reach the Philippines in the event of conflict in the South China Sea or Taiwan Strait.

While LNG is a priority, other hydrocarbons may have a role to play in preparing for crisis scenarios. The United States should support the revival of a strategic petroleum reserve for the Philippines. The two countries should also conduct a cost-benefit analysis on the construction of an additional oil refinery. Following the closure of the Tabangao Refinery in Batangas in August 2020, the Philippines only has one refinery in operation, which could prove to be a vulnerability.

Investments in hydrocarbons, including LNG, will be difficult to coordinate through agencies like USAID, the Development Finance Corporation, or MCC, given strong funding preferences for clean and renewable energy. And high-profile initiatives such as the LEC may be better received by an environmentally conscious Philippine public if they avoid association with hydrocarbons. But given the strategic value of such investments, there may be opportunity for funds earmarked for regional deterrence to be channeled into energy security, or for projects to be funded through alliance programming like EDCA.

Nevertheless, in many of these areas, even Department of Defense (DOD) budgets may be insufficient to make direct contributions to infrastructure. For reference, three Philippine energy companies announced an investment in March of $3.3 billion to develop an LNG terminal in Batangas. In these cases, the United States may be able to aid by instead providing technical assistance and planning in a process that could draw from the CREZ model, focusing not on renewable energy but on determining the most efficient investments to fulfill basic crisis preparations through construction of hydrocarbon infrastructure.

Prepare for a Sustainable Future

Renewable energy is envisioned to form the backbone of the Philippines energy mix, with the PEP calling for renewables to provide 35 percent of electricity generation by 2030 and over 50 percent by 2050. While renewables have the obvious benefit of reducing carbon emissions, they also have many advantages over fossil fuels in terms of energy security, especially in reducing exposure to external supply shocks.

The United States should continue to support renewable energy investments in the Philippines. USAID and DOE cooperation with the PDOE and other Philippine stakeholders on the CREZ model is a prime example of how technical assistance programs can help attract and direct private capital to maximize public gains and achieve the Philippines’ goal of creating a secure and resilient renewable power grid. Though technical in nature and perhaps less eye-catching than traditional infrastructure in rail or ports, the CREZ program is setting the foundation for the Philippines’ renewable energy future and demonstrates a high level of trust between U.S. and Philippine energy policy counterparts. U.S. and Philippine leaders should consider providing additional visibility for the CREZ program in joint statements and press releases on U.S.-Philippine economic and strategic achievements. Demonstrating high-level support for CREZ would amplify the program’s ability to attract investment and highlight a critical area of U.S.-Philippine cooperation.

At the same time, renewables should not be overly securitized. Unlike in the case of fossil fuels, there is significant opportunity for investments in renewable energy to receive funding from development finance institutions. Multilateral development banks (Asian Development Bank, World Bank) and U.S. development agencies have energy transition and climate finance as priority lending areas. These same lenders, however, can have difficulty funding projects if they are overtly associated with security. Development of renewable transmission and generation, even when facilitated by smart planning efforts like CREZ, will require tens of billions of dollars in capital investment over the next several decades; efforts to champion U.S.-Philippine cooperation in these areas should be careful not to lose any funding opportunities through an over-association with military or strategic goals.

Nuclear energy is another important potential source of clean power. U.S.-Philippine cooperation on nuclear is further along than other areas and, in some ways, has a clearer trajectory. Targets for the number of SMRs and the resulting level of power generation have been set by the PEP; high-level support from leadership in both countries has been made clear in numerous announcements over the past two years; and public discussions are already occurring between Philippine firms and potential U.S. SMR providers.

Though progress has been rapid, the installation of SMRs in the Philippines is certain to be a long process that, given the relative nascency of the technologies involved, comes with a risk of delays and cost overruns. In late 2023, one of the leading SMR firms in talks to work with the Philippines, NuScale Power, saw its planned SMR project in the state of Utah canceled after costs had grown from an initial $3 billion in 2015 to $9.3 billion by 2023. In facilitating talks between the Philippines and U.S. nuclear firms, the State Department’s Bureau of Energy Resources and the DOE should help the Philippines critically evaluate proposals and compare options to ensure that any eventual agreement is based on realistic estimates. The unpopularity of nuclear power among the Philippine public means that if U.S.-provided SMRs in the country get saddled with significant delays, cost overruns, or other issues, the resulting negative impact on U.S.-Philippine relations would be substantial. Even if projects proceed as planned, U.S. energy officials should prepare to help Philippine counterparts demonstrate the benefits of clean nuclear power and prove its safety to the public. 

Prevent Disruption

The addition of new power sources is crucial to ensuring Philippine energy security, but the reliability and resilience of transmission and distribution infrastructure is just as important.

One paramount concern is China’s involvement in the transmission grid through its ownership stake and operational involvement in the NGCP. Its 25-year concession agreement means that the NGCP will, in theory, continue to operate the grid through at least 2034. But concerns over the NGCP’s performance and Chinese ownership have led media and Philippine legislators to push for a review of the company’s activities and the nature of Chinese involvement in its operations. President Marcos himself said in May 2023 that the government would “take back control” of the NGCP if necessary.

From a strategic perspective, having 40 percent of the Philippines’ grid operator owned by a Chinese SOE is far from ideal. While it may not significantly affect day-to-day operations, it likely means that Beijing has access to intimate details about the Philippine power system that could be exploited in a time of conflict to disable key functions via kinetic or cyberattack. But at this point, ousting SGCC’s minority stake would not necessarily reduce these risks, as the vulnerabilities would likely persist unless key infrastructure and grid management systems were entirely replaced. At the same time, nationalization of SGCC’s stake would almost certainly provoke a response from China in the form of economic retaliation or, potentially, escalation over maritime disputes. The operational effectiveness of the NGCP is another question: the corporation has been the subject of pointed criticism from Marcos and others over failures to adequately manage the grid.

USAID programs to enhance Philippine grid management capacity, assess resilience, and improve utility markets are valuable tools that allow the United States to contribute to positive outcomes without getting too deeply involved in highly politicized discussions about the performance and role of the NGCP. It would be wise for Washington to allow Manila to take the lead on managing the NGCP and determining what, if anything, to do about China’s stake in it while continuing technical assistance for grid management and cybersecurity.

Where Washington can play a larger role is in showing the value that U.S.-Philippine cooperation is bringing to the Filipino people. Military cooperation, and especially the presence of U.S. troops in the Philippines via EDCA, remains a focal point of counternarratives promoted by anti-U.S. media and politicians. While the provision of HADR resources for communities near EDCA sites is an excellent project that should be expanded, efforts on local energy resilience (such as small-scale solar generation or other shared facilities that contribute to the local grid) can also be a cost-effective way to reach out to local communities and associate U.S. presence with improvements not just to peace and security, but to day-to-day life.

Align Efforts

U.S. tools and efforts involved in improving the Philippines’ energy security are spread across numerous agencies and departments. To date, there exists no cohesive platform for coordinating efforts, such that many U.S. government employees who attended the TTX were unaware of projects being pursued by other agencies that had the potential to synergize with their own work. Among the currently existing mechanisms, the Energy Security Dialogue comes closest in that it theoretically covers the full range of U.S.-Philippine energy cooperation. But its inaugural iteration lacked participation from several important implementers, including USAID, USTDA, and DOD. As a merely annual meeting between U.S. and Philippine counterparts, it fails to stimulate year-round coordination within Washington on disparate efforts that impact Philippine energy security.

There is room for a more flexible, cross-cutting mechanism to organize efforts targeted at energy security. In analyzing this problem, the Energy for Growth Hub has proposed the implementation of Energy Security Compacts, a five-year agreement on joint investments between the United States and a partner nation. Based on the structure of MCC compact agreements, an Energy Security Compact would be rooted in an initial constraints analysis and report to both Congress and the National Security Council (NSC), which would play a significant role in facilitating cooperation across agencies. The program would require legislation to establish it within either MCC or USAID; it could be made even more effective by the introduction of a mandate for global energy security at the MCC and the extension, per the Energy for Growth Hub, of certain “DOD loan and loan guarantee authorities under the Defense Production Act to specific investments in allied nations.” This last provision would be particularly useful in the Philippine case to mobilize funding for measures such as a petroleum stockpile, refinery redundancy, and other strategic energy projects that don’t meet the requirements of development lenders focused primarily on energy transition initiatives.

While an Energy Security Compact authority enacted through legislation would be ideal, the executive branch can also try to approximate some of these functions through existing authorities and workstreams. While the DOE and Department of State should continue to play a leading role, agency representation at the forthcoming second annual Energy Policy Dialogue should be increased. The two countries should also consider creating a working group subordinate to the Energy Policy Dialogue that would meet quarterly to discuss progress toward shared goals and provide a motivational mechanism for energy stakeholders across U.S. agencies to regularly harmonize efforts related to the Philippines. The NSC can also play an important coordinating role. Some projects to shore up strategic energy vulnerabilities in the Philippines may be able to be addressed through additional EDCA programming. But without additional authorizations, there will likely remain a disconnect between the deterrence value of energy security in the Philippines and the ability of DOD resources to contribute to it.

Harrison Prétat is a fellow and deputy director for the Asia Maritime Transparency Initiative at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Yasir Atalan is an associate data fellow for the Futures Lab in the International Security Program at CSIS. Gregory B. Poling is a senior fellow and director for the Southeast Asia Program and the Asia Maritime Transparency Initiative at CSIS. Benjamin Jensen is a senior fellow for the Futures Lab in the International Security Program at CSIS.

This brief is made possible by generous support from the Energetics Technology Center and Naval Surface Warfare Center Indian Head Division.