Until just a few weeks ago, the exploration, exploitation, and utilization of renewable energy in the Philippines, such as solar, wind, hydro, ocean, or tidal energy, could only be carried out by Filipino citizens or entities that were at least 60% owned by Filipino citizens. This meant that foreign investors could only own 40% of the shares in corresponding projects, making it impossible for them to take a majority stake in these projects and, consequently, significantly limiting the attraction of foreign investment in renewable energies in the Philippines. I say until just a few weeks ago because, since last December 8th, circumstances have changed with the coming into force of Circular 2022-11-0034 from the Filipino Department of Energy. This Circular modifies the regulations for the development of Law 9513, dated December 16, 2008, on Renewable Energies, which was in force until then.
In order to attract foreign investment and thus make possible the objective set out in the Philippine National Renewable Energy Program 2020-2040 (NREP), which aims for a 35% generation of this type of energy by 2030 and 50% by 2040, the new regulation has facilitated conditions for foreign participation in the renewable energy in the Philippines. It allows a foreign investor to own 100% of the shares in the projects concerned or even, in those currently being carried out with a Filipino partner, to acquire a controlling position in them. This is particularly important considering that the Philippines has some 246,000 megawatts (MW) of untapped energy, has the third-largest geothermal capacity in the world with 1,900 MW after the United States and Indonesia, and expects to increase this capacity by 75%, while hydroelectric by 160%, wind by 2,345 MW, and biomass by 277 MW.
In this context, the Filipino Department of Energy, aiming to leverage its potential in renewable energies, starts from the basis that the current mix of renewable energies is composed of 4.3 gigawatts (GW) of hydroelectric power, 896 MW of solar energy, and 427 MW of wind energy. It considers that the Philippines needs an investment of $120 billion by 2040, which opens up broad possibilities for foreign participation. To achieve this, significant investment is required in the renewable energy in the Philippines. Now, apart from the full liberalization of this participation as we have seen, what kind of incentives exist or are open to such participation that were previously limited? In principle, the previously mentioned Renewable Energy Law provides, among other facilities, an exemption from corporate tax for a period of seven years, an additional reduction of 10% once this exemption expires or a cap of 1.5% on property tax on the original cost of equipment and facilities.
Additionally, the Philippine Strategic Investment Priorities Plan (SIPP) for 2022 adds additional incentives for activities related to renewable energies in the Philippines, thus strengthening the attraction of foreign investment in this promising sector. Thus, incentives are increased in areas such as electric vehicles, medical devices, artificial intelligence, or renewable energies, describing activities that can benefit from those provided in Law 11534, dated March 27, 2021, on Corporate Recovery and Tax Incentives for Enterprises (CREATE). Among these incentives are exemptions from corporate income tax, enhanced deductions or preferential tax rates for certain industries such as assembling electric vehicles, manufacturing their components, renewable energies, energy storage, recycling, and other green economy industries, thereby consolidating the policy of attracting foreign investment for the renewable energy in the Philippines.
Antonio Viñal
Lawyer
AVCO Legal
madrid@avco.legal
