Designing financeable ancillary services revenue contracts in developing economies: Learnings from the Philippines

Increasing variable renewable energy penetration, climate change, and global uncertainties will make it harder to stabilize and balance power systems. This situation will be especially challenging for developing economies with limited capital and institutional capacity, poor infrastructure, and rapid economic growth. Using the Philippines as a case study for a developing economy, the paper identified chronic underinvestment in the supply of ancillary services that play a crucial role in balancing energy supply with demand and building grid resilience. To diagnose the cause, the paper created a novel dataset with all ancillary services revenue contracts in effect at the end of 2019 and analyzed their key terms and conditions. The paper concludes that these contracts are not conducive to financing due to short durations, low and soft buying commitments, exclusive focus on incumbent versus new entrants, hour and season constraints, and a poorly implemented remuneration methodology. The literature rarely analysis this topic from a financing perspective and at this level of detail. Revenue contracts need to switch to long-term, firm, and technology-specific cost recovery mechanisms with new entrants, to incentivize financing. Storage technologies such as batteries and hydropower should be prioritized, followed by gas turbines. These changes will result in a more secure, resilient, and affordable power system.