Philippine Renewable Energy News Bulletin 4 – September 19, 2009
The recent passage of the Philippine Renewable Energy (RE) Law and its Implementing Rules and Regulations (IRR) now clearly defines the legal and regulatory framework for renewable energy investment in the Philippines. After almost a long 10 year wait, this important piece of legislation has passed deliberations in both chambers of the Philippine Congress and Senate and was signed into law by President Gloria.
(Please email for IRR – firstname.lastname@example.org or email@example.com)
The basic policy concepts in the RE law as expanded in its IRR are the following:
1) Setting up of Renewable Portfolio Standards (RPS) which generators, distribution utilities and suppliers of electricity shall source or produce a specific portion of their electricity from eligible RE resources as determined by the National Renewable Energy Board (NREB).
2) Adoption of feed-in tariff scheme which provides an obligation to the power industry to source RE generation at a guaranteed fixed price over a period of time, which should not be less than a period of 12 years, to be determined by the Energy Regulatory Commission (ERC).
3) Establishment of Green Energy Option program, a mechanism to be established by the Department of Energy (DOE), which shall provide end-users the option to choose RE resources as their source of energy.
4) Adoption of Net-Metering program to encourage end-users to participate in renewable energy generation without discrimination from distribution utilities.
5) Transmission and distribution utilities shall provide the needed connection facilities and ancillary services and provide the mechanism for the recovery of such additional costs to provide such service to RE generators.
6) DOE shall encourage the adoption of waste-to-energy systems and biogas systems to convert biodegradable waste materials such as animal manure and agricultural wastes using processes such as anaerobic digestion, fermentation and gasification to produce energy fuels or electricity, subject to the provision of the Philippine Clean Air Act of 1999 (RA 8749) and Philippine Ecological Solid Waste Management Act of 2000 (RA 9003).
7) The DOE shall establish the Renewable Energy Market (REM) as a sub-market of the Wholesale Electricity Spot Market (WESM) for the trading of RE Certificates in order to promote the Renewable Portfolio Standards (RPS).
8) Under the supervision of the DOE, the Philippine Electricity Market Corporation (PEMC) shall issue, keep and verify the RE Certificates corresponding to the RE generation from eligible RE facilities.
9) To promote off-grid renewable energy development, the NPC-SPUG, distribution utilities (DUs) and qualified third parties (QTPs) involved in providing rural electricity service shall source a minimum percentage of their annual generation from RE resources in their area as may be determined by the DOE upon recommendation by the NREB. Such generation is eligible for the issuance of RE Certificates.
10) Establishment of a Renewable Energy Trust Fund (RETF) under the lead supervision of the DOE. This fund shall be funded from the emission fees collected from all generating facilities consistent with the Clean Air Act, 1.5% of the net income of the PCSO, 1.5% of the net income of PAGCOR and all contributions, grants and donations which shall be income tax deductible.
11) Establishment of the National Renewable Energy Board (NREB) which shall monitor the implementation of this RE law and recommend policies to the DOE.
12) Creation of the Renewable Energy Management Bureau (REMB) under the DOE which shall develop, formulate and implement policies, plans and programs such as the National Renewable Energy Plan (NREP).
13) Definition of prohibited acts and providing sanctions thereof.
The incentives for renewable energy projects and activities are again listed below:
1) income tax holiday for 7 years, maximum of 21 years including new RE investments
2) corporate income tax of 10% of net taxable income (versus 32-35%)
3) 10-year exemption from customs tariff duties on imported capital equipment
4) net operating loss carry over (NOLCO)
5) accelerated depreciation (either declining balance method or sum-of-the-years digit method)
6) zero percent (0%) value added tax (VAT) rate
7) cash incentive for renewable energy developers such as qualified third parties (QTPs) in missionary electrification equivalent to 50% of the universal charge on the power needed to service the missionary areas where it operates
8) special realty tax (1.5% of net book value = original cost less accumulated depreciation)
9) tax exemption on custom credits
10) tax credit on domestically sourced capital equipment
11) 10-year duty free importation on capital equipment
12) VAT exemption of all types of agricultural equipment and machinery
13) tax rebates on purchase of RE components
14) tax exemption or incentives on hybrid and co-generation systems shall apply only to the equipment, machinery or devices utilizing renewable energy
15) all manufacturers, fabricators and suppliers of locally-produced RE equipment and components shall be entitled to tax and duty free importation of components, parts and materials, tax credit on domestic capital components, parts and materials, income tax holiday of 7 years, and zero-rated value added tax transactions
16) incentives for farmers engaged in the plantation of biomass resources such as crops (jatropha, sugar cane, coconut) and trees shall include duty-free importation and exemption from payment of value added tax on all types of agricultural inputs, equipment and machinery within 10 years
17) tax rebates for purchase of RE components for residential, industrial and community use
18) financial assistance program from government financial institutions (GFIs) such as Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP) and Philippine Exim Bank which shall provide preferential loan package for the development, utilization and commercialization of RE projects that are duly recommended and endorsed by the DOE
19) exemption from the payment of the universal charge being collected by PSALM for the recovery of stranded costs of NPC if the electricity generated is consumed by the generator itself or if it is distributed free of charge in the off-grid area
20) a registered RE developer producing power and electricity from an intermittent RE resource (e.g. wind, solar) may opt to pay transmission and wheeling charge to TRANSCO at the average rate per kilowatthour rate for all other electricity transmitted thru the grid
21) qualified and registered RE generating units with intermittent RE resources shall be considered “must dispatch” based on available energy and shall enjoy the benefit of priority dispatch
Under this new RE Law, a Renewable Energy Service / Operating Contract similar to that given to oil, gas, geothermal and coal operating contracts shall be required before such RE resource could be exploited by individuals and companies since the state owns all forces of potential energy and natural resources such as kinetic energy from water, marine current and wind, thermal energy from solar, ocean, geothermal heat and biomass.
As such, any joint venture or co-production sharing agreements with Filipino citizens or corporations or associations at least 60% of the capital is owned by Filipinos subject to Article XII, Section 2 of the Philippine Constitution.
The government share on existing and new RE development projects, except geothermal energy, shall be 1% of the gross income incidental to and arising from the generation, transmission and sale of electric power. Gross income shall comprise of gross sales less returns, discounts and allowances, and cost of goods sold.
Except for government-owned and controlled corporations, the government shall be distributed as 60% national government and 40% local government.
In the case of geothermal energy, however, the government share shall be 1.5% of gross income from the sale of geothermal electricity less cost of goods sold which shall consist of the direct cost of geothermal steam production.
The local government share shall further be distributed as follows: province – 20%, city/municipality – 45%, barangay – 35%.
When the natural resource is located in more than 2 provinces, cities or barangays, the sharing shall be based on the following weights: population – 70%, land area – 30%.
In the case of highly urbanized cities, the sharing shall be as follows: city – 65%, barangay – 35%.
All provisions under the WESM rules and Distribution and Grid codes which do not allow “must dispatch” status for intermittent RE resources shall be deemed amended or modified.
For the purposes of entitlement to the incentives and privileges under this law and IRR, the existing and new RE developers, manufacturers, fabricators and suppliers of locally-produced RE equipment shall register with the Renewable Energy Management Bureau (REMB) of the DOE and will be issued a Certificate of Endorsement by the DOE.
The DOE shall issue a Certificate of Registration to RE Developer holding a valid RE Service / Operating Contract.
The DOE shall likewise issue a Certificate of Accreditation to RE manufacturers, fabricators and suppliers of locally-produced RE equipment in coordination with the Department of Trade and Industry (DTI).
The RE sector is hereby declared a priority investment sector that will regularly form part of the Investment Priority Plan (IPP) provided they register with the Board of Investments (BOI).
Prospective Investors are encouraged to get in touch with the author for assistance in selecting projects your company would wish to invest in.
Likewise, if you need project finance models that incorporate the RE law incentives, please contact the author for your specific needs.
For more details about oil and energy pricing, energy technology information and renewable energy investment opportunities in the Philippines, please visit my website:
Marcial T. Ocampo
(Friendly note: All content written by Engr. Marcial T. Ocampo are copyrighted and may not be redistributed in any way or form.)
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