Penarroyo ARGeo 4 Paper


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Penarroyo ARGeo 4 Paper

  1. 1. Proceedings 4thAfrican Rift Geothermal Conference 2012Nairobi, Kenya, 21-23 November 20121Geothermal Exploration and Development After The Passage of the Philippine RenewableEnergy Act of 2008Fernando S. PeñarroyoNational Geothermal Association of the Philippinesfspenarroyo@punopenalaw.comKeywords: geothermal energy, Philippine NationalRenewable Energy Program, geothermal administrativerules and regulations, service contractsABSTRACTThe Renewable Energy Act of 2008 (“RE Act”), signed on15 December 2008, resulted in renewed interest inexploration and development of Philippine geothermalenergy resources. The passage of the law and itsimplementing rules and regulations established the openand competitive selection process for exploration projects.Fiscal incentives were enhanced when the geothermalindustry was declared a priority investment sector that willregularly form part of the Philippine investment priorityplan.The market framework in the Philippines is supportive asthe government is actively encouraging the development ofrenewable electricity generation in the country throughNational Renewable Energy Program (“NREP”), whichoutlines the government’s goal to increase renewableenergy capacity to 15,304 MW by 2030, three times 2010levels. This includes an increase in geothermal powercapacity by 75%.Electricity generation from high-temperature conventionalresource remains the major use for geothermal energy butthe Department of Energy (“DOE”) seeks to fosterinitiatives directed to encourage opportunities for direct use.The DOE also aims to develop new technologies likeenhanced geothermal systems and low enthalpy by creatinga market-based environment that is conducive to privatesector investment and participation. In the meantime,mainstay large and traditional geothermal developmentcompanies will focus on upgrading existing resources andfull utilization/optimization of existing geothermal projects.The open and competitive selection process, on the otherhand, will allow smaller but entrepreneurial geothermalexploration companies to operate in greenfield areas.Regulatory issues remain to be the biggest obstacle asdevelopers face complicated approval and permittingprocess with respect to environment and social acceptabilityregulations.1. INTRODUCTIONThe global research department of HSBC, one of theworlds largest banking and financial services organizations,prognosticated that by 2050, the Philippines will becomethe world’s 16thlargest economy. The country is alsoincluded in the list of the eleven countries (the Next Eleven“N-11”) identified by Goldman Sachs and economist JimO’Neill, as having a high potential of becoming the worldslargest economies in the 21st century, along with Brazil,Russia, India and China. According to Goldman Sachs, thePhilippine economy will become the 14thlargest economyby 2050.Under the Philippine Energy Plan, (2012-2030), the DOEsaid that demand for electricity will double in the next 20years but to meet this growing demand, the country mustexpand the development of its RE resources particularlygeothermal.Launched on 14 June 2011 by President Aquino, the NREPsets indicative interim targets for delivery of RE within2011-2030 timeframe, which requires periodic review toensure the program confirms to policy objectives of the REAct by addressing issues on transmission, grid integrationfor intermittent RE resources, and social and economicimpact.The National Renewable Energy Board (“NREB”)mandated under the RE Act to recommend specific actionsto facilitate the implementation of the NREP to be executedby the DOE and other appropriate agencies of government,shall ensure that there is no overlapping and redundantfunctions within the national government departments andagencies concerned. The Renewable Energy ManagementBureau of the DOE on the other hand is tasked to developformulate and implement the NREP, to accelerate thedevelopment, transformation, utilization andcommercialization of RE resources and technologies.2. GEOTHERMAL RESOURCES CAPACITYThe Philippine government has initiated major structuralreforms in the geothermal industry sector. Under theprovisions of the Electric Power Industry Reform Act of2001, the government has undertaken the privatization ofNational Power Corporation’s geothermal generating assetssuch as: the Makban Geothermal Steamfield and PowerPlants in Laguna/Batangas; Tiwi Geothermal Steamfieldand Power Plants in Albay; Palipinon I and II GeothermalPower Plant in Negros Oriental; and Tongonan IGeothermal Power Plant in Leyte. The Unified Leytegeothermal plants and the Mt. Apo 1 and 2 plants willlikewise be put on the auction block.The government also divested its interests in PNOC-EnergyDevelopment Corporation, the national geothermaldevelopment company paving the way for the entry of newplayers in the geothermal industry. The EnergyDevelopment Corp. (“EDC”), which operates the Leyte,Bacon-Manito, Palinpinon, and Mindanao steam fields andowns power plants in Leyte and Mindanao, was fullyprivatized in 2007 with the sale thru public bidding of the60% government interest to Red Vulcan Corp., aconsortium controlled by the local company First Gen Corpafter the initial public sale of 40% of its stocks in 2006.The DOE aims to make the Philippines the world’s largestproducer of geothermal energy by increasing the installedcapacity from 1,972 MWe to 3,467 MWe by year 2030 foran increase of almost 1500 MW. (Figure 1)
  2. 2. Peñarroyo2Figure 1: RE-based On-Grid Capacity InstallationTargets (Source: DOE)In 2011, the installed (operating) geothermal capacity of thePhilippines stands at 1,902.69 MWe, from a total of sixoperating geothermal concessions scattered throughout thecountry (Figure 2). This figure is slightly lower than thecapacity reported in 2010 because steam production hadregressed significantly at the underperforming 49 MWNorthern Negros Geothermal Power Plant (“NNGP”)placed on-stream in 2007, forcing EDC to shut down thefacility on July 2011. EDC subjected NNGP’s steamresource assessment and strategy to third party peer reviewsby two teams of international experts but their conclusionsvalidated earlier study made that the steam field will beincapable of delivering 49MW and is likely to delivercloser to 10MW. The NNGP plant was then moved southto the Palinpinon steam field, which EDC expects will bemade operational by 2014. Nevertheless, the companyplans to install a smaller power plant unit in NNGP. (EDC2011 Integrated Report)Figure 2: Installed Capacity, 2009-2011 (Source: DOE)Following the passage of RE Act, its implementing rulesand regulations and the promulgation of the open andcompetitive selection process for geothermal explorationprojects, the geothermal industry has significantly changedparticularly in the area of greenfield exploration, steamfieldoperation and power plant ownership as these were gearedtowards the government’s thrust of maximum privatization.Recently, Maibara Geothermal, Inc., a joint venturecorporation owned by PetroGreen Energy Corporation –65%, Trans-Asia – 25%, and PNOC-RenewablesCorporation – 10%, began the development of its MaibaraGeothermal Power Project that is expected to bring 20 MWof geothermal electricity to the Luzon grid by 2013. EDC isalso rehabilitating its Bacon-Manito, Palinpinon, andTongonan geothermal power plants in the Philippines toensure ongoing geothermal generation. Additional 20 MWand 50 MW from Palinpinon and Mt. Apo respectively arealso expected to come on-stream. (Figure 3)Figure 3: Committed Projects (Source: DOE)A total of 32 Geothermal RE Service/Operating Contractswere awarded under the RE Act. There were seven (7)conversions of existing Geothermal Service Contracts underPresidential Decree (“PD”) No. 1442, the formergeothermal law, into Geothermal RE Service Contracts(“GRESC”) under the RE Act (Figure 4). In addition, two(2) Geothermal RE Operating Contracts and eight (8)GRESCs under the Open and Competitive SelectionProcess were awarded (Figure 5). As at June 2012, thereare fifteen (15) GRESCs under direct negotiation.Figure 4: Production Contract Areas (Source: DOE)Figure 5: Exploration Contract Areas (Source: DOE)
  3. 3. Peñarroyo33. GEOTHERMAL RESOURCES LEGALFRAMEWORKThe principal legal concept to control the utilization andmanagement of natural resources including geothermal, isthe Regalian doctrine, which declares that all naturalresources in the territory belong to the State and thereforeprivate ownership or title must emanate from it. While theState is accorded the primary responsibility fordevelopment and utilization of natural resources,participation by the private sector is not prohibited underthe Philippine Constitution. Private sector participation isallowed through three types of agreements: co-production,joint venture, and production sharing. The common elementamong these agreements is the intent to give the Stategreater participation in decision-making and in the sharingof profits.Under PD 1442, otherwise known as “An Act Promotingthe Exploration and Development of GeothermalResources”, the Government may directly explore forexploit and develop geothermal resources. It may alsoindirectly undertake the same under service contractsawarded through public bidding or concluded throughnegotiation, with a domestic or foreign contractor who mustbe technically and financially capable of undertaking theoperations required in the service contractThe RE Act is a landmark legislation, which aims to spurgrowth in exploration and development through the entry offoreign capital and the institutionalization of a system ofincentives. The law established the open and competitiveselection process for geothermal exploration projects. Italso seeks to promote equitable sharing of the benefits withthe host communities and indigenous peoples. Among theimportant features of the RE Act in relation to geothermalresources are:-­‐ the definition of geothermal as mineral resource pavingthe way for the entry of 100% foreign-ownedcorporation in geothermal resource exploration,development and utilization;-­‐ setting up a system that will allow consumers to choosegreen sources of energy and providing for theestablishment of a Renewable Portfolio Standardsystem, which will require electricity suppliers tosource a certain amount of their energy supply from REresources;-­‐ declaration of the RE sector as a priority investmentsector that will regularly form part of the Philippineinvestment priority plan;-­‐ provision in the law allowing the environmentalcompliance certificate for RE projects to be issued fromthe appropriate regional office of the Department ofEnvironment and Natural Resources; and-­‐ institutionalizing government share on existing and newRE development projects equal to one percent (1%) ofthe gross income of RE resource developers resultingfrom the sale of RE produced and such other incomeincidental to and arising from the RE generation,transmission, and sale of electric power except forgeothermal energy, which shall be at one and a halfpercent (1.5%) of gross income.The RE Act introduced a new contractual system for theaward of geothermal exploration and production contractsdenominated as Renewable Energy Service (Operating)Contracts which refers to service agreements between theGovernment, through the DOE, and RE developer who isgiven the exclusive right to explore and develop a particulararea over a period of time. Department Circular No.DC2009-07-0011, otherwise known as the “GuidelinesGoverning a Transparent and Competitive System ofAwarding Renewable Energy Service/Operating Contractsand Providing for the Registration Process of RenewableEnergy Developers”, was promulgated by the DOE on 12July 2009. The circular specifies the minimum legal,technical and financial requirements for a proponentapplying under the Geothermal RE Service ContractSystem and outlines the documentation in the open andcompetitive selection process.3.1 Local Government Code of 1991The Local Government Code of 1991 (“LGC”) requiresprior and periodic consultations with the local governmentunits (“LGUs”) before any RE exploration activity isconducted within their respective jurisdictions.Specifically, Section 17 of the LGC, grants LGUs theresponsibility to manage environment and natural resourceswithin their jurisdiction including implementation of localdevelopment planning and environmental protectionprograms, along with law and regulatory enforcement.The government share on existing and new REdevelopment projects shall be equal to one percent (1%) ofthe gross income of RE resource developers resulting fromthe sale of renewable energy produced and such otherincome incidental to and arising from the renewable energygeneration, transmission, and sale of electric power exceptfor indigenous geothermal energy, which shall be at oneand a half percent (1.5%) of gross income.The RE Act has basically amended the provisions ofEnergy Regulations (ER) No. 1-94, and its Attendant Rulesand Procedures, which previously prescribed the provisionsof direct benefits to LGUs hosting geothermal energyresource development projects and/or energy generatingfacilities within their territorial jurisdiction. For purposes ofdetermining the government share, gross income shallinclude proceeds resulting from the sale of RE producedand such other income incidental to and arising from therenewable energy generation, transmission, and sale ofelectric power.To address the issue of the delayed remittance of LGU’sshare in natural resources projects within their jurisdiction,House Bill (“HB”) No. 4410 entitled “An Act Providing forthe Direct Remittance to the Host Local Government of itsForty Percent Share (40%) of the Proceeds Derived fromthe Utilization and Development of National Wealth,amending for the Purpose Section 293 of Republic Act No.7160 as Amended Otherwise Known as the LocalGovernment Code of 1991” was passed in the House ofRepresentatives. The bill was approved on 16 May 2011and transmitted to and received by the Senate on 24 May2011.3.2 Indigenous Peoples Rights Act of 1997The “Indigenous Peoples Rights of Act of 1997” (“IPRA”)provides that no agreement for the exploitation of naturalresources shall be approved unless there is a priorcertification from the National Commission on IndigenousPeoples (“NCIP”) that the area does not overlap anyancestral domain or that the free and prior informed consent(“FPIC”) of the concerned indigenous cultural communitiesor indigenous peoples (“ICCs/IPs”) has been obtained.
  4. 4. Peñarroyo4IPRA grants to ICCs/IPs certain preferential rights to theirancestral domains and all resources found therein.No geothermal service contract shall be approved unlessthere is a prior certification from the NCIP that the areadoes not overlap any ancestral domain or that the FPIC hasbeen obtained from the ICC/IP concerned in accordancewith the guidelines set by the NCIP. The NCIP has recentlyrevised the rules on FPIC by implementing the RevisedGuidelines on FPIC and Related Processes of 2012 alsoknown as NCIP Administrative Order 3, Series of 2012.3.3 Environmental Impact Assessment SystemExisting environmental laws and regulations as prescribedby the Department of Environment and Natural Resources(“DENR”), tasked with environmental protection andadministration, mandates the RE developer to procure anEnvironmental Compliance Certificate (“ECC”) from theappropriate regional office of the DENR.The DENR’s Environmental Management Bureau (“EMB”)is the lead agency that implements the EnvironmentalImpact Statement (“EIS”) System and handles the reviewand evaluation of the environmental impact of developmentprojects. Under the EIS System, a project proponent ofenvironmentally critical projects and projects withinenvironmentally critical areas must obtain an ECC prior tothe commencement of the project. Under DENRregulations, resource-extractive industries are consideredenvironmentally critical projects.An ECC certifies that a proposed project or undertakingwill not cause significant negative environmental impact.The ECC also certifies that the proponent has compliedwith all the requirements of the EIS System and hascommitted to implement its approved EnvironmentalManagement Plan. The ECC contains specific measures andconditions that the project proponent has to undertakebefore and during the operation of a project, and in somecases, during the project’s abandonment phase to mitigateidentified environmental impacts.Currently, the DOE is conducting public consultations on adraft circular on RE Safety, Health and Environment Rulesand Regulations covering safety and protection againsthazards to health, life and property as well as pollution ofair, land and water from RE operations. Section 4 Rule 2 ofthe draft circular grants the Director of the DOE’sRenewable Energy Management Bureau (“REMB”) or hisduly authorized representative to issue suspension ordersagainst erring RE operators. The REMB Director is alsogiven the power to suspend any particular activity oroperation when such activity or operation causes or willcause imminent danger until such necessary actions aretaken by the RE operator. Clearly, this provision conflictsand overlaps with the rules and regulations imposed by theEMB with respect to violation of the terms and conditionsof the ECC and other environmental rules beingimplemented by the EMB.3.4 National Integrated Protected Areas SystemThe National Integrated Protected Areas System Act of1992 (“NIPAS Act”) provides for the establishment andmanagement of protected areas, defining its scope andcoverage. Section 14 of the NIPAS Act specifies the surveyof energy resources in protected areas solely for datagathering. Any exploitation and utilization of energyresources found within protected areas shall be allowedonly through passage of law by Congress. Currently,potential geothermal areas have land use conflicts with keybiodiversity areas, proposed protected areas, eco-tourismareas and forestry projects.Recently, the House of Representatives passed HB 5485,which disallows all extractive activities in protectionforestlands. The bill was approved on 13 December 2011and transmitted to and received by the Senate on 15December 2011. Concurrent with this bill is HB 5860entitled “An Act Providing for the Delineation of theSpecific Forest Limits of the Public Domain and for OtherPurposes” which was approved on 21 March 2012 andtransmitted to and received by the Senate on 26 March2012.4. STATUS ON GEOTHERMAL ENERGY USE,MARKET DEVELOPMENT AND STIMULATIONElectricity generation from high enthalpy hydrothermalsystems from operating fields closely related to andcontrolled by subduction and subsequent volcanic arcformation remains the major use for geothermal energy.(Ogena et al, 2010)Nevertheless, the DOE will also conduct inventory toidentify low temperature and low enthalpy geothermalpotential areas for exploration, development and utilization.(Figure 6)Figure 6: Expected Milestones Over the Period 2011 to2030 (Source: DOE)4.1 Electricity GenerationHigh-temperature conventional geothermal energy resourceremains the low-hanging fruit compared to newtechnologies like enhanced geothermal systems and lowenthalpy. Unconventional geothermal technologies have yetto be developed and tested commercially and the DOEseeks public-private partnerships to foster private sectorinvestments in new technologies particularly in the field ofresearch.Geothermal accounts for fifteen percent (15%) of the powergeneration mix for 2011. The DOE aims to developframework and methodology for the pricing of geothermalresource to determine true cost of steam production, as wellas to facilitate formulation of realistic price projections.Most importantly, the DOE seeks to establish socialacceptability of geothermal power projects in thecountryside through the conduct of consultation anddialogues with IPRA, NIPAS and concerned LGUs.Steamfield and power plant operations are based on aframework that covers four types of contracts:-­‐ Steam Sales Agreements - delivery and sale of steam topower plants for conversion to electricity with aminimum take or pay provision;
  5. 5. Peñarroyo5-­‐ Power Purchase Agreements - sale of electricity with aminimum energy off-take level provision;-­‐ Energy Conversion Agreements with BOT contractors -delivery of steam to the BOT power plant and paymentfor the conversion of steam to electricity at a nominatedcapacity; and-­‐ Energy Sales Agreement with cooperatives anddistribution units - sale of electricity from ownmerchant plant. (Catigtig, 2008)4.2 Direct UseWhile the emphasis is on developing geothermal energy forthe generation of electricity, the DOE is looking to developnon-power geothermal applications, as well as formulateguidelines for non-power use. The direct-use applications ofgeothermal energy are limited to bathing and balneologyand to a lesser extent, agriculture-drying plants located inthe Southern Negros Geothermal Production Field inPalinpinon, Negros Oriental and in the Bacman GeothermalField in Manito, Albay. Total installed thermal capacity is3.30 MWt and thermal energy used is 1.25 MWt. Capacityfactor stands at 0.39 while total energy used is 39.58TJ/year. (Ulgado and Gular 2005; Aligan, 2010)Due to lack of financial resources, low market price of themain product and deterioration of the plant, the Palinpinonagro-industrial drying plant ceased operation in 2001. Theoperation of the Manito Livelihood Geothermal Project hasalso been suspended due to scaling and major turbineproblems. (Ulgado and Gular 2005; Aligan, 2010)The development of crop drying facilities using geothermalheat is still in the early stages although there exists a hugepotential but this is hampered by the traditional preferencefor solar drying. The benefits in terms of time saved indrying owing to geothermal energy’s high temperature andnon-seasonality compared to sunlight have yet to be fullydisseminated by the DOE. Since there exist geothermalprospects of the intermediate to low-enthalpy types, theDOE needs to include the development of small-scalegeothermal resources for direct utilization in its policyprogram, which will also help address public awareness andenhance social acceptability, as stakeholders will seegeothermal energy’s tangible use. (Aligan, 2010)4.3 Support Initiatives and Market StimulationThe energy crisis in Luzon experienced in the early 1990sled to passage of the Electricity and Power Industry ReformAct of 2001 (“EPIRA”) causing the state-owned NationalPower Corporation (“NPC”) to relinquish sole control onpower generation. The Build-Operate-Transfer Law in 1990allowed private sector development of geothermal and othertypes of power plant and infrastructure facilities and withthe re-organization of the DOE in 1992, the governmentwas able to develop strong initiatives and implement acountry-wide Master Energy Plan in the energy sector.EPIRA provides for significant changes in the power sector,which include among others:-­‐ the functional unbundling of the generation,transmission, distribution and supply sectors;-­‐ the privatization of the generating plants and otherdisposable assets of NPC, including its contracts withindependent power producers;-­‐ the unbundling of electricity rates;-­‐ the creation of a Wholesale Electricity Spot Market(“WESM”); and-­‐ the implementation of open and nondiscriminatoryaccess to transmission and distribution systems.Pursuant to EPIRA, NPC transferred its transmission andsub-transmission assets to the National TransmissionCorporation (“TransCo”), a government agency spun-offfrom NPC and created to operate the transmission systemsthroughout the Philippines. TransCo is also mandated toprovide open access to all industry participants and wasgranted a monopoly over the high-voltage transmissionnetwork.The EPIRA also required the privatization of TransCo. InDecember 2007, Monte Oro Grid Resources Corp. (“MonteOro”) won the concession to manage, operate and maintainthe transmission and sub transmission assets of TransCo.On 14 January 2009, the 25-year concession of TransCowas turned over to National Grid Corporation of thePhilippines (“NGCP”), the company formed by Monte Oro.The grant to NGCP of the concession is expected to lead tobetter efficiency and improved grid interconnectivity.The EPIRA mandates the establishment of a wholesalemarket that provides the mechanism for identifying andsetting the price of actual variations from the quantitiestransacted under contracts between sellers and purchasersof electricity. The Philippine Electricity MarketCorporation (“PEMC”) acts as the market operator thatgoverns the WESM. In accordance with EPIRA, the presentstructure of PEMC will undergo changes uponimplementation of an independent market operator set up.The National Renewable Energy Board (“NREB”) hasformally endorsed TransCo to become the administrator ofthe charges that will be collected from all power consumersfor the use of RE including the feed-in-tariff allowance(FIT-All). TransCo was delegated as the FIT-Alladministrator rather than the NGCP since the proceeds to becollected from all power consumers are considered publicfunds in accordance with the opinion provided to the NREBby the Office of the Government Corporate Counsel.Other salient features of the RE Act to support initiativesand market stimulations include:4.3.1 Renewable Portfolio StandardThe RE Act provides for the establishment of a RenewablePortfolio Standard (“RPS”) system, which would requireelectricity suppliers to source a certain amount of theirenergy supply from eligible RE resources.The NREB shall set the mandatory minimum percentage ofgeneration from eligible RE resources and determine towhich sector RPS shall be imposed on a per grid basis. TheNREB is still finalizing the implementing rules andregulations for the RPS, which were initially expected to bereleased in 2012. The RPS will also be complemented by afeed-in tariff (“FIT”) system, however, the FIT systemunder the RE Act has given priority connections to the gridfor electricity generated from emerging RE resources to theexclusion of geothermal.4.3.2 Renewable Energy Purchase Agreement/WholesaleElectricity Spot MarketRE developers must enter into a Renewable EnergyPurchase Agreement (“REPA”) with the National GridCorporation of the Philippines (“NGCP”) for power
  6. 6. Peñarroyo6generated and pitched to the grid. As an alternative to theREPA there exists the Wholesale Electricity Spot Market(“WESM”), which was established under EPIRA. In orderto secure access to the WESM, generators must enter into aconnection agreement with NGCP. Given that the REgenerators benefit from priority dispatch under the RE Act,the generator possesses assurance of revenues from theNGCP and WESM. To facilitate compliance with RPS, theDOE shall establish the Renewable Electric Market(“REM”) and shall direct the Philippine Electric MarketCorporation to implement changes to the WESM Rules inorder to incorporate the rules specific to the operation of theREM under the WESM.4.3.3 Certified Emission Reduction MarketRE projects may be registered under the CleanDevelopment Mechanism (“CDM”) and earn emissionreductions, which become Certified Emission Reductionsonce they have been through the approval processesrequired by the United Nations Framework Convention onClimate Change. These can then be traded in the globalcarbon market. Geothermal projects are eligible to registerunder the CDM by virtue of utilizing RE sources thatoffsets fossil fuel generated electricity and exportingelectricity to the grid. All proceeds from the sale of carbonemission credits shall be exempt from any and all taxes.4.4 Investment TrendsWhile geothermal was defined under the law as a mineralresource opening the way for the entry of 100% foreign-owned corporation in exploration, development andutilization, the Philippine government has yet to award suchcontracts to foreign companies.Most of the steamfields are operated by large andtraditional energy companies like EDC and the local unit ofChevron, which have the ability to finance RE investmentsfunded on a non-recourse finance basis. Smaller butentrepreneurial geothermal developers seeking investors fortechnology research and development R&D and/or projectfinance hold greenfield exploration service contracts.However, new geothermal developers are required todemonstrate their competency by selecting experienced andwell-respected consultants, and using equipment withproven reliability.Most if not all capital prior to the geothermal project’sproven feasibility is done through equity and not debt.Financing of exploration and confirmation drilling usuallycomes from company equity or risk capital provided byinvestors. Generally, investment is sourced from seedcapital, venture capital, or equity financing. Due to thehigh risk involved with geothermal exploration, Philippinebanks do not provide loans until the later stages in thedevelopment process.Critical collaboration between civil society organizationsand the resources industry needs to be pursued further. Wecannot discount the role of civil society in the resourcesindustry as in the case of the WWF, which has initiated aprogram called the “Ring of Fire” to unleash the potentialof geothermal energy in Southeast Asia particularly in thePhilippines and Indonesia. WWF hopes the program willshow it is possible to achieve the use of geothermal energyin a sustainable way, conserving biodiversity, and at thesame time support innovation and green economic growth,counter climate change and improve the living conditions oftargeted communities.4.4 What Government Must DoPhilippine government regulators must develop guidelinesfor the inclusion of non-conventional geothermaltechnologies like engineered geothermal systems and lowenthalpy for inclusion in feed-in tariff rates that willprovide guaranteed payment to RE investors through auniversal charge.The DOE should also develop publicly available databaseprotocols and tools for geothermal resource assessments tofacilitate access by developers to risk capital. It isnoteworthy that the Philippine Stock Exchange is relaxingthe rules for RE firms seeking to list on the local bourse tofund the development of their expansion by proposingrules, which were drafted with the DOE. Presently, theexchange does not implement a specific and separate set oflisting requirements and reporting standards applicable forRE companies similar to the Philippine Mineral ReportingCode for mining companies.The DOE in cooperation with the National GeothermalAssociation of the Philippines, the local industryassociation, is currently spearheading the implementation ofa geothermal resource reporting code and development of apublicly available database. New geothermal explorationcompanies have heeded the call of government by taking upexploration acreage. In time these companies will be cullinginvestments locally through initial public offerings orprivate equity placements. For the protection of theinvesting public, there is thus a need for a standardizedreporting by these exploration companies similar to thePhilippine Mineral Reporting Code. Protocols and tools forresource assessment will help also in developing technicalexpertise.Public-private partnership must be encouraged in the fieldof research, development and demonstration for newtechnologies in resource exploration. With the Filipinos’propensity to easily adapt to new technologies and theirgood command of the English language, the Philippineswith its enormous resources potential can be a hub forgeothermal geoscientific research. Private investments areneeded in the establishment of research institutions andmore data acquisition stimulated by financial incentives bythe government and probably grants from developmentagencies. Current discussions between the governments ofthe Philippines and New Zealand aim at building morecompetence for personnel at the DOE through scholarshipsand development of opportunities not just for investmentbut also for transfer of technology. As well as developmentopportunities in both countries, New Zealand ForeignMinister Murray McCully believes that both countries arewell placed to develop opportunities around the world,including in Indonesia and South America.5. DEVELOPMENT CONSTRAINTSWhile the DOE vowed to speed up support systems for REdevelopment, progress has been slow as the DOE admittedthat implementation of the RE Act policy reforms has beenhobbled by delays. Initially, the National RenewableEnergy Board (“NREB”) took a while to organize as theDOE consulted stakeholders rather than unilaterallydeciding the membership of the board. The DOE still hasto come up with renewable portfolio standards (“RPS”)which will set the capacity needed from each REtechnology, including geothermal, as well as the mechanicsto connect the main grid to all operational RE plants. Thegreen-energy option program is also expected to be donethereafter.
  7. 7. Peñarroyo7The DOE has the mandate over energy resources but mostof these projects are located in NIPAS or areas covered byother land use agreements like mining or loggingconcessions under the jurisdiction of the DENR. Thecontractor is thus prevented from accessing its contract areabecause of land use conflict despite having a valid andsubsisting contract. The DOE and DENR should reviewprocedures for permitting and consult private industry insetting up timeframes for obtaining licenses and permits.Certain provisions introduced in the new free and priorinformed consent (“FPIC”) guidelines are tantamount toexercise by the indigenous peoples (“IPs”) of ownershipover natural resources within ancestral domains, which theSupreme Court declared in Cruz v Secretary ofEnvironment and Natural Resources, et al. [2000], theIndigenous Peoples Rights Act (“IPRA”) does not confer orrecognize. The Supreme Court further held in Cruz that therights given to the IPs regarding the exploitation of naturalresources under IPRA only amplified what has been grantedto them under existing laws but the State retains full controlover the exploration, development and utilization of naturalresources. Any provision in the proposed FPIC guidelinesthat will give veto powers to IPs infringes upon the State’sownership over natural resources within the ancestraldomains.The DOE is currently lobbying that the Philippinelegislature promulgate a new law that will set theparameters for “energy project of national significance”.Energy projects are unduly delayed because of “non-aligned and non-harmonized laws” and legal roadblocksfrom local government units, indigenous people and someinterest groups whose opposition to these projects are oftenbased on misinformation or lack of awareness. The DOE’sinitiative in pushing for a law that will recognize projects ofnational significance announced by Secretary Jose ReneAlmendras during the recent Philippine Energy InvestmentForum held last December 2011 is a welcome developmentas a number of exploration projects including the setting upof transmission lines cannot move forward because ofproblems with local government units.In the radar of resource developers currently is how thenational government will address the implementation of aban on open-pit mining by a provincial legislative councilthat highlighted a policy conflict between the national andlocal governments. The ban stalled the development of themineral resource and deprived the government of much-needed revenue. For this reason, the national governmentimplemented an executive order that addresses issues ofregulatory conflict at the national and local levels.Devolving the mandate of environmental protection toLGUs including the power to impose local taxes is nowbeing brought to the limelight with the interrelated issues ofresource development, environment and revenuegeneration. In the meantime, resource developers arekeenly observing the outcome. (Saligumba, 2012)On the fiscal aspects, there are provisions in the RE Act andits IRR pertaining to tax incentives that still needclarification and necessitate the issuance of pertinentinternal revenue rules and the necessary technical studies.Under Section 15 (e) of the RE Act, an RE developer willpay a 10% corporate income tax instead of the normal 30%rate. Rules must be issued to ascertain whether the REdevelopers who are using the current 30% income tax rate,but are subsequently found to be entitled to the 10% tax ratecan claim a refund of the excess income tax paid in prioryears. (Mendoza, 2012)There should also be a clarification on which kind ofincome that is attributable to additional investments in anexisting RE facility or project is entitled to income taxholiday (“ITH”). Should the ITH only cover the increase inincome from sale of energy be by reason of additionalinvestments resulting in an increase in capacity of anexisting RE facility? Or should the ITH also apply when theadditional investment does not result in increased capacitybut has the effect of reducing production/operational costs,increasing efficiency and better product quality? (Mendoza,2012)The RE Act provides that the government’s share inexisting and new RE development projects will be equal to1% of the gross income of RE developers, which includenot just income from the sale of RE produced, but alsoincidental income arising from the generation, transmission,and sale of electric power. Will requiring the RE developersto pay the 1% government share based on gross income, inaddition to national and local taxes, effectively increasegovernment share? (Mendoza 2012) The nationalgovernment should also develop a transparent system ofaccounting for and allocation of sharing of revenues andtaxes with LGUs. It must expedite and streamline therelease of LGU shares thru a simplified process withtimeframe requirements. It should also enhance thecorrectness and accuracy of tax collections for purposes ofensuring that full benefits from tax collections will bereceived by the concerned LGUs. The expedited release ofhost communities’ share in the national wealth will lessenlocal opposition to geothermal projects.6. CONCLUSIONThe Philippine government aims to ensure energy securityby optimizing the use of geothermal energy by investmentpromotions and identification and implementation of sectorreforms. Through the RE Act, the DOE will continue topromote the use of geothermal resources for power utilizingthe open and competitive selection process, and developnon-power geothermal applications as well. While the fiscalterms and policy mechanisms under the RE Act are beingslowly put into place, there is the pressing need to addressenvironmental and social acceptability issues byharmonizing the permitting process and intensifying effortsto increase the level of awareness for geothermal energy.REFERENCESAligan, M.: Opportunities for Direct Use of GeothermalResources in the Bicol Region, Philippines,Proceedings, World Geothermal Congress (2010)Catigtig, D.: Geothermal Energy Development in thePhilippines with the Energy Development CorporationEmbarking into Power Generation, 30thAnniversaryWorkshop, United Nations University GeothermalTraining Program (2008)Department of Energy: The 2010-2011 Report (2011)Department of Energy: Philippine Energy Plan 2012-2030Energy Development Corporation 2011 Integrated ReportLayug, J.: The Philippine National Renewable EnergyProgram, Proceedings, Geothermal Regulation – TheNew Zealand Experience (2012)Mendoza, J.: Tax issues related to RE, Business World, 07October 2012National Geothermal Association of the Philippines:Position Paper on Republic Act No. 9513 (2008)
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