Energy projects set for boost from rate cut — analysts

By Sheldeen Joy Talavera, Reporter

THE RECENT interest rate cut is expected to boost both existing and new energy projects, especially renewable energy projects that require substantial funding, analysts said.

“The rate cut reduces borrowing costs, making it cheaper for companies to finance large projects like energy projects,” AB Capital Securities, Inc. Vice-President Jovis L. Vistan said in a Viber message.

He said that cheaper credit should encourage more investment in the energy sector and that developers may be more likely to pursue new projects or expand existing ones as the lower cost of capital improves the return on investment.

Reduced interest rates could also accelerate the country’s energy transition goal by encouraging the development of new renewable energy capacities, Seedbox Securities, Inc. Equity Trader Jayniel Carl S. Manuel said.

“The rate cut is a step in the right direction, providing a more conducive environment for sustainable energy development,” he said.

The Philippine government has set an ambitious goal of increasing the share of renewable energy in the country’s power generation mix to 35% by 2030 and 50% by 2040.

“This is especially true for renewable energy like wind, solar, or hydropower, as these require substantial upfront investments. Lower interest rates make these projects more financially viable,” Mr. Vistan said.

The Bangko Sentral ng Pilipinas (BSP) cut policy rates last week for the first time since November 2020, driven by the improving inflation outlook. The Monetary Board implemented a 25-bp rate cut, lowering the benchmark rate to 6.25% from the over 17-year high of 6.5%.

Despite the accelerated inflation, BSP Governor Eli M. Remolona, Jr. said that inflation is expected to trend downward to within the government’s target range of 2% to 4%.

Juan Paolo E. Colet, managing director at Chinabank Capital Corp., said that lower financing costs should improve “the economics of renewable energy projects and encourage expansion in the sector.”

“For operating energy companies, lower borrowing costs will improve their profit margins (assuming other costs remain constant). The hope is that the interest rate savings are passed on to the consumers via lower power rates,” he said in a Viber message.

April Lynn C. Lee-Tan, chief equity strategist at COL Financial Group, said in a Viber message that lower rates will make it cheaper for companies to borrow over the longer term.

“If it encourages more power projects, then we can enjoy lower power costs,” she said.

The Department of Energy (DoE) is expecting at least 4,164.92 megawatts (MW) of conventional and renewable energy projects to come online this year. As of April, 161.20 MW of the committed projects are in full commercial operation, while 835.89 MW are under the testing and commissioning stage.

“These additional capacities will strengthen the reliability and stability of the grid, providing much-needed capacity to meet the growing energy demand in the country,” the DoE said in a statement in April.

“The anticipated increase in capacity will prevent supply deficiencies and potential power interruptions, particularly during peak demand periods,” it added.