Background
In a landmark opinion [1] made by the Department of Justice (“DOJ”), foreigners are now allowed to have 100% ownership over renewable or “green” energy sectors, which includes solar, wind, hydro and ocean or tidal energy resources. In support of its opinion, the DOJ stated that the Filipino ownership requirements under Section 2, Article XII of the 1987 Philippine Constitution [2] relating to the exploration, development, and utilization (“EDU”) of natural resources should not apply to the EDU of solar, wind, hydro and ocean or tidal energy resources considering that they do not belong to the same class or kind, or have the same characteristics or qualities as those included in the enumeration it belongs, i.e. land, fisheries, forests and wildfire – all of which are subject to appropriation and depletion.
The DOJ further opined that there is a need to amend the Implementing Rules and Regulations of Republic Act No. 9513, otherwise known as the Renewable Energy Act of 2008, and revise Section 19 defining “all forces of potential energy,” to incorporate “kinetic energy from water, marine current and wind; and thermal energy from solar, ocean, geothermal and biomass”.
Pursuant to this, the Department of Energy (“DOE”) issued Department Circular No. 2022-11-0034 expressly deleting Section 19, and thereby removing the Filipino ownership restriction previously imposed on the EDU of solar, wind, hydro and ocean or tidal energy resources.
Legal developments in Renewable Energy
In 2020, the Department of Energy (“DOE”) issued Department Circular No. 2020-07-0017 promulgating the guidelines governing the policy for the conduct of Green Energy Auction (“GEA”) in the Philippines. However, it was only in June 2022 that the first auction round for the GEA Program was conducted. Through the GEA Program, private sector companies are given the opportunity to engage in competitive bidding in order to procure energy contracts. This will allow the Philippines to obtain clean energy at a competitive price and generate maximum tariffs. As stated by the DOE, “Through the GEA Program, the DOE paved the way for immediate and timely investments; supported the development of, and increased financing access for new or additional capacities under a competitive process; as well as implemented programs that promote environmental sustainability, which will aid the country’s transition to renewable energy.” [3]
As of date, two (2) auctions have been conducted. The first auction’s success in garnering USD 2.35 billion of investment and awarding 1,866 megawatts of renewable energy into the country’s energy mix, encouraged more than 100 bidders in the second auction, resulting in an award of 3.6 gigawatts of new solar and wind projects and an investment of USD 4.3 billion. The third round of the GEA will be conducted on 21 August 2024.
The Philippine government is clearly taking a more aggressive stance to increase renewable energy in the country. Historically, the Marcoses have been recognized for encouraging alternative energy programs, from the initial development of the Bataan nuclear power plant, to the establishment of the biggest wind power project in the Philippines. In his recent second state of the nation address, President Marcos announced that “Renewable energy is the way forward”. His presidential efforts to transition to renewable energy can be seen in his multiple international visits to promote investments in the Philippines. One of his successes pertains to a recent Australia visit, on 4 March 2024, where he was able to secure a PhP 86 Billion investment from 12 business deals. [4]
Trends in Philippine investments
Following such developments, the Presidential Communications Office reported that the Philippines received a PhP1.16 trillion investment approval for 2023, dominated by the Renewable Energy and Power industry. [5] The Board of Investments Executive Director Halili-Dichosa likewise announced that their agency was able to generate PhP2.06 trillion worth of investment leads as of January 2024, majority of which are coming from the renewable energy sector. [6]
According to the BloombergNEF Climatescope 2023 report, the Philippines is the 4th most attractive developing economy for renewable energy investment among 110 emerging economies by virtue of the significant progress undertaken in transitioning to renewable energy. Factors contributing to this achievement include legislation on feed-in-tariffs, net metering schemes, tax incentives, and having a strong target for renewable energy. The report also mentioned DOE’s second GEA and its supportive policy environment, including an ambitious offshore wind roadmap and the removal of foreign investment restrictions. As of 2022, the country’s renewable energy comprised 29% of the installed capacity and 22% of the gross power generation. [7]
More importantly, the trend towards renewable energy investments is not only apparent among foreign investors but also among local corporations. The Institute for Energy Economics and Financial Analysis (IEEFA) reported that investors have been more interested and have seen higher income opportunities in the Philippines’ renewable energy sectors, which are investing in solely renewable energy than in traditional or mixed utilities. Such companies include ACEN Corporation, Citicore Energy REIT Corp. (CREIT), and Solar Philippines. [8]
Benefits and opportunities available for renewable energy sectors
Other legislative efforts have been made to promote investments in the Renewable Energy industry, such as the issuance of department circulars and regulations by the two (2) major energy bodies in the Philippines, i.e., the DOE and Energy Regulatory Commission (“ERC”).
Last 30 June 2023, the DOE issued Department Circular 2023-06-0021 to prescribe the policy for the mandatory conduct of the Competitive Selection Process (“CSP”) by the Distribution Utilities for the procurement of power supply for their captive market. This was issued following the decision of the Supreme Court in Alyansa Para sa Bagong Pilipinas v. ERC, [9] holding the need to enter into a CSP in securing power supply agreements (“PSAs”). The Supreme Court reaffirmed the policies laid down in the Electric Power Industry Reform Act of 2001, which includes, among others:
(a) To ensure the quality, reliability, security and affordability of the supply of electric power;
(b) To ensure transparent and reasonable prices of electricity in a regime of free and fair competition and full public accountability to achieve greater operational and economic efficiency and enhance the competitiveness of Philippine products in the global market; and
(c) To protect the public interest as it is affected by the rates and services of electric utilities and other providers of electric power.
The decision by the Supreme Court and the subsequent issuance by the DOE ensure the promotion of all types of energy and the grant of equal rights to all industry participants, especially those engaged in providing renewable energy. Further, the DOE stipulated exceptions from the conduct of a CSP, thereby encouraging more non-conventional participants. Such exceptions include (i) Power supply procured by any Distribution Utility (“DU”) exercising the Opt-in Mechanism under the Green Energy Auction Program; (ii) Embedded generation plant/s with a contracted capacity that does not exceed 10MW per DU; or (iii) Off-Grid Areas served or to be served by New Power Providers with less than 1MW demand with 24-hour electricity service.
Although the aforementioned exceptions may not explicitly mention renewable or green energy sectors, it is generally understood that non-conventional energy providers, such as renewable energy, are typically smaller than conventional energy projects. Since no CSP is needed to enter into smaller scale energy projects, the exceptions will encourage more investments from industries engaged in supplying renewable energy. Thus, giving them a competitive advantage against conventional and large scale energy industries.
As part of its mandate under the Circular, the ERC issued Resolution No. 16, Series of 2023, prescribing the guidelines for the procurement, execution, and evaluation of PSAs entered into by DUs (“CSP Guidelines”). Notably, the CSP Guidelines made waves in regulating PSAs by incorporating provisions that will allow equal advantage for all types of energy industries, specifically by distinguishing between physical and financial PSAs, and providing a maximum term limit of 10, 15 and 20 years. Financial PSAs can help promote the development of renewable energy projects by giving such industries the opportunity to secure financial and investment support, no longer restricting PSAs to physical plants. Further, considering that the majority of power suppliers, as of date, are still reliant on conventional energy, i.e. diesel, gas, and coal, the maximum term limit will encourage entry of new industry participants in the energy sector, whether renewable or conventional.
The ERC, thereafter, issued ERC Resolution No. 17, Series of 2023, prescribing the revised rules for the issuance of a certificate of compliance (“COC”) for generation facilities (“Revised COC Rules”). Significant revisions made under the Revised COC Rules, comprise, among others, the removal of the expiration for COCs, the option to secure only one (1) certificate application for a Generation Facility consisting of several Generating Units, and a streamlined process for amending the COC, including a change of rated capacity.
Relevant to this, the DOE recently published a Draft Circular suggesting a guideline to govern the award and administration of renewable energy contracts and the registration of renewable energy developers. Consistent with the abovementioned revisions made by the ERC in the Revised COC Rules, the DOE included in its Draft Circular provisions that would allow renewable energy developers to expeditiously increase their registered capacities, giving solar energy developers the option to secure a single operating contract for multiple solar power projects.
The Draft Circular introduced guidelines for onshore and offshore wind energy resource, biomass and waste-to-energy resources, significantly increasing the market for renewable energy investments. In submitting the Draft Circular, the DOE also incorporated provisions granting advantages to renewable energy developers that are not found in legislations or regulations governing conventional energy developers. These refer to sections allowing direct application; requiring a pre-application process that will accelerate contract approvals; and requiring data sets and data set access specifically for wind energy projects. Such data sets give other potential wind energy developers easier entry into the market by giving them access to information pertinent to the desired location.
Finally, the Draft Circular mandates upon the Renewable Energy Management Bureau the obligation to identify pre-determined areas for geothermal, hydropower and wind and ocean energy projects. Not only does this mandate shift the burden to government agencies to find potential areas for the development of renewable energy projects, but it also gives foreign and local renewable energy industries better understanding of the Philippine’s renewable energy market, and potential investments in the future.
Conclusion
The Philippines is witnessing a pivotal moment in its energy landscape, marked by significant legal reforms and government initiatives aimed at promoting renewable or green energy. With progressive policies showing a shift from conventional to renewable energy sectors, there is a clear incentive to invest in and engage in the development, generation, and supply of renewable energy.
Moreover, the Philippines’ current and approaching regulatory environment favoring renewable energy provides a conducive platform for renewable energy industries to thrive. The potential for investments in the renewable energy sector is undoubtedly recognized by foreign and local industries, as evidenced by the increasing amount of investments flowing into the country’s renewable energy projects.
As the country continues its transition towards renewable energy, early investments in this sector are expected to yield substantial returns while contributing to a greener and more sustainable future for all.
Footnotes:
[1] DOJ Opinion No. 21, 29 September 2022.
[2] “All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State … The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens.”
[3] DOE, DOE Conducts First Green Energy Auction in the Philippines, 20 June 2022, <accessible at: https://www.doe.gov.ph/press-releases/doe-conducts-first-green-energy-auction-philippines>
[4] PCO, PBBM secures PhP86 billion investment deals in Australian visit, 4 March 2024, <accessible at: https://pco.gov.ph/news_releases/pbbm-secures-php86-billion-investment-deals-in-australian-visit/>
[5] PCO, 2023 PH investment approval scores all-time high Php1.16-T, says DTI, 27 December 2023 <accessible at: https://pco.gov.ph/news_releases/2023-ph-investment-approval-scores-all-time-high-php1-16-t-says-dti/>
[6] Catherine Talavera, PhilStar Global, Renewable energy makes up bulk of investment leads – BOI, 4 March 2024, <accesible at: https://www.philstar.com/business/2024/03/04/2337804/renewable-energy-makes-bulk-investment-leads-boi>
[7] Richmond Mercurio, The Philippine Star, Philippines 4th most attractive emerging nation for renewable energy, 4 December 2023, <accessible at: https://www.philstar.com/business/2023/12/04/2316178/philippines-4th-most-attractive-emerging-nation-renewable-energy>
[8] Ramnath Iyer, IEEFA, Renewable energy sector in the Philippines is poised to grow faster as investor interest rises, 22 August 2023 <accessible at: https://ieefa.org/articles/renewable-energy-sector-philippines-poised-grow-faster-investor-interest-rises>
[9] G.R. No. 227670, 3 May 2019.