Lighting the last mile: How hybrid systems can save billions and power our remote islands
The Philippines’ off-grid islands, home to millions of Filipinos, represent the remarkable progress and the urgent unfinished work of national electrification.
While many island communities now have access to electricity, it often comes at a high, hidden cost—masked by public subsidies that are becoming increasingly unsustainable. Fuel delivery to these islands remains costly, logistically difficult, and vulnerable to disruptions.
Meanwhile, energy demand continues to grow, putting additional pressure on the system.
Without strategic action, President Marcos’ commitment to achieving 100-percent household electrification by 2028 risks slipping out of reach.
The Microgrid Systems Act (Republic Act No. 11646), passed in 2022, was a significant step forward. It created a framework for accelerating electrification in underserved and unserved areas through microgrids powered by renewable energy. However, more than two years into its implementation, it is clear that critical adjustments are needed to achieve the law’s transformative potential.
Diesel dependency
It is important to recognize why diesel generators have long been the backbone of off-grid energy systems across the Philippines. Diesel fuel is widely available, even in remote areas.
Diesel generators are compact—an essential advantage for rugged island terrains—and the country benefits from widespread technical know-how for their installation and maintenance. Diesel solutions also require a relatively low upfront investment, making them the default choice for decades.
However, today’s real challenge is not diesel availability—it’s diesel affordability and sustainability. Transporting diesel to remote islands is expensive, and global fuel price volatility makes budgeting difficult. Many of the current diesel generators currently in use are outdated and poorly maintained, leading to lower efficiency and higher operational costs.
While sustainability is an issue, the deeper, structural issue is financial: diesel generation in off-grid areas routinely exceeds P20 per kilowatt-hour in generation costs, compared to P7.00 per kilowatt-hour for on-grid areas like those served by Manila Electric Co. (Meralco).
All Filipino consumers currently cover the difference through the Universal Charge for Missionary Electrification (UCME)—but this subsidy system is being stretched to its breaking point. As energy demand rises, the cost of maintaining diesel-dependent systems will become even more unsustainable.
Practical path forward
The solution lies in Hybrid Renewable Energy Systems (HRES)—smartly integrating solar photovoltaics, wind power, battery storage, and optimized diesel backup.
Hybrid systems lower fuel consumption dramatically while improving reliability and cutting emissions. They offer the best of both worlds: the cost-reduction and environmental benefits of renewables combined with the backup reliability of diesel for periods of poor weather or peak demand.
Pure 100-percent renewable energy systems, while ideal in theory and technically feasible, are not yet practical for most islands. The capital costs for such systems can be up to 10 times higher than hybrid alternatives, as they require massive oversizing of solar panels and battery storage to account for worst-case weather scenarios.
Moreover, such systems would demand extensive land area—a scarce resource on our small, remote islands—potentially destroying the pristine natural environments that define these communities. For now, hybridization is the pragmatic middle ground, balancing economic viability, reliability, and sustainability without sacrificing our islands’ natural beauty.
Studies from our research group at the University of the Philippines Diliman on 600+ NPC-SPUG mini-grids and other smaller islands show that hybridizing systems can reduce generation costs and lower UCME subsidy requirements by 20-30 percent. Larger islands offer commercial viability for private investments, while smaller islands will still require strategic, targeted public support.
Four critical actions
To realize the full promise of the Microgrid Systems Act and accelerate off-grid electrification, four urgent and strategic reforms are needed.
First, implementers must improve the Competitive Selection Process (CSP) by Q3 2025. The initial CSP conducted in 2024 exposed serious flaws—complex procedures, insufficient bidder support, and delays. A streamlined, transparent, and supportive CSP is critical to attracting more players, particularly small and medium-sized enterprises that can bring innovation and local solutions.
Success metrics should include: doubling the number of qualified bidders in the next CSP round, reducing the bidding timeline from six months to three months, and establishing a dedicated technical assistance facility for prospective bidders by end of 2025.
Moreover, to accelerate deployments, it is important to adopt a template-based approval approach for smaller projects (e.g. 100 kW and below) instead of subjecting them to the same extensive process and scrutiny as megawatt-scale projects. Differentiating approval procedures based on project size and complexity will unlock faster implementation in hundreds of smaller islands, allowing innovation and service delivery to flourish where they are needed most.
Second, UCME subsidies must be reallocated smartly, with a phase-in period of 2026-2027. Subsidizing outdated diesel-heavy systems cannot continue.
Government agencies must redirect public funds to hybridization projects that deliver better value for money, enabling larger islands to move toward cost recovery while smaller, less viable islands receive strategic support.
The Energy Regulatory Commission should establish a clear timeline for subsidy reforms: by Q1 2026, complete a comprehensive review of all subsidized areas; by Q4 2026, implement a new subsidy framework that targets a 30-percent reduction in total UCME costs by 2028.
Third, funding sources must be diversified and expanded, with targeted commitments of P20 billion by 2026. Sovereign wealth funds present opportunities. For example, Masdar has a $15 billion commitment to the Philippine renewable energy market and the Maharlika Investment Fund. Government agencies must actively leverage these resources, alongside public-private partnerships and multilateral financing, to scale investments in off-grid energy projects.
By mid-2026, the government, the private sector, or both working together should establish at least five large-scale blended finance agreements, leveraging P5 of private capital for every P1 of public funds invested in off-grid electrification.
Fourth, a clear, actionable national hybridization roadmap must be established by Q1 2026. Congress or the Department of Energy should establish a clear actionable national hybridization roadmap by Q1 2026. The Missionary Electrification Development Plan sets general directions but lacks a detailed, time-bound roadmap for outcomes.
2030 goals
A national hybridization plan, built on empirical studies and updated regularly, will drive focused action, ensure accountability, and align efforts toward NPC’s 2030 goals. This roadmap should include quarterly milestones, assign specific responsibilities to implementing agencies, and establish a public monitoring dashboard that tracks progress across the hundreds of off-grid islands, with priority designation for the 100 most populated islands to be hybridized by 2027.
Similarly, strategic CSPs inviting investments in microgrid technologies replace NPC’s aging assets can significantly lower the UCME commitment by reducing dependency in diesel.
Current pilot projects in Romblon, Bicol, El Nido, Batanes, and Tawi-Tawi are encouraging. But the enormous challenge is that hundreds of off-grid islands are still waiting for reliable, affordable, and sustainable energy solutions.
The time for pilot projects alone has passed. The country must move aggressively toward scaled deployments, leveraging both public and private resources, to meet the 2028 target and fulfill the constitutional promise of energy access for all. To all Filipinos consuming electricity, it could mean lower power bills due to reduced UCME subsidies and lower generation costs.
The electrification of off-grid islands is not just about technology—it is about delivering justice, opportunity, and resilience to communities historically left behind.
By decisively shifting toward hybrid renewable systems, fixing broken processes, and embracing strategic financing, the Philippines can build a secure, inclusive, and sustainable energy future.
Joey D. Ocon, Ph.D., is an engineering professor and scientist at UP Diliman whose research covers energy, technology, policy, and sustainability. He is an author of over a hundred publications in international journals, a mentor to over 50 MS and Ph.D. graduates and students, a cofounder of a battery technology start-up, a coconvener of an independent energy think tank, and a consultant for government and the industry, bridging the gap between science and technology, innovation, and real-world implementation.
