1. RENEWABLE ENERGY – THE SUNRISE INDUSTRY
The Philippine energy mix is heavily dependent on fossil fuels and for this reason,
electricity costs are one of the highest in Asia. According to a 2007 study of the
United Nation Environmental Programme on the global trends in sustainable energy
investment, climate change concerns, coupled with high oil prices, peak oil, and
increasing government support, are driving renewable energy (“RE”) legislation,
incentives and commercialization.
Development agencies like the Asian Development Bank are uplifting institutional
capacity to develop and implement sustainable policy and regulatory framework.
Government regulatory agencies often have limited budget availability to support
these policies and possess limited capacity for public sector research and development
and project preparation. Also, RE investments are perceived to be high risk and
developing countries have difficulty promoting foreign direct investment in large
utility scale plants, and on-and off-grid rooftop projects.
The International Finance Corporation, the lending branch of the World Bank, plans
to invest more than $300 million in the Philippines power sector this year, particularly
in renewable energy projects. Nevertheless, financial institutions identified
consistencies in policies and coordination between government bodies and feed-in
tariff as main regulatory issues.
The Department of Energy seeks to adopt the use of clean and sustainable energy
sources and aims to accelerate the development and utilization of indigenous energy
such as geothermal, wind, solar, biogas, ocean and alternative fuels like biofuels and
compressed natural gas. Under the latest Philippine Energy Plan, the DOE has
identified long-term goals, namely, to (i) increase RE-based capacity by 100 percent
by 2013; and (ii) increase non-power contribution of RE to the energy mix by 10
million barrels of fuel oil equivalent in the next ten years. In support of these general
goals, the government aims to (i) be the number one geothermal energy producer in
the world; (ii) be the number one wind energy producer in Southeast Asia; (iii) double
hydro capacity by 2013; and (iv) expand contribution of biomass, solar and ocean by
about 131 MW.
The Renewable Energy Act of 2008
Republic Act No. 9513, also known as the “Renewable Energy Act of 2008” and
signed on 15 December 2008, is the first and most comprehensive renewable-energy
law in Southeast Asia which will enable the Philippines to capture a part of the
soaring investments in renewable energy development worldwide. Public
consultations were held with different stakeholders across the Philippines to assist the
Department of Energy (“DOE”) in drafting the RE Act Implementing Rules and
Regulations culminating with the signing of Department Circular No.
DC2009-05-0008 on 25 May 2009.
The RE Act is a landmark legislation which the Philippine RE industry hopes will
spur growth in exploration and development through the entry of foreign capital and
the institutionalization of a system of incentives. It also seeks to promote equitable
sharing of the benefits with stakeholders notably the host communities and indigenous
peoples. Among the important features of the RE Act are:

2. - the definition of geothermal as mineral resource paving the way for the entry of
100% foreign-owned corporation in geothermal resource exploration,
development and utilization;
- setting up a system that will allow consumers to choose green sources of energy
and providing for the establishment of a Renewable Portfolio Standard (“RPS”)
system, which will require electricity suppliers to source a certain amount of their
energy supply from RE resources;
- declaration of the RE sector as a priority investment sector that will regularly form
part of the Philippine investment priority plan;
- provision in the law allowing the environmental compliance certificate for RE
projects to be issued from the appropriate regional office of the Department of
Environment and Natural Resources; and
- institutionalizing government share on existing and new RE development projects
equal to one percent (1%) of the gross income of RE resource developers resulting
from the sale of RE produced and such other income incidental to and arising
from the RE generation, transmission, and sale of electric power except for
geothermal energy, which shall be at one and a half percent (1.5%) of gross
income.
Renewable Portfolio Standards and Feed-in Tariff
The National Renewable Energy Board (“NREB”), the regulatory agency created
under the law, shall set the minimum percentage of generation from eligible RE
resources and determine to which sector RPS shall be imposed on a per grid basis.
The RPS will also be complemented by a Feed-in Tariff (“FiT”) system to encourage
the speedy entry of RE projects by giving priority connections to the grid for
electricity generated from emerging RE resources.
The Energy Regulatory Commission (“ERC”) promulgated the FiT system rules
which took effect on 12 August 2010. The FiT offers guaranteed payments on a fixed
rate per kilowatt-hour for emerging RE sources, namely, wind, solar, ocean, run-of-
river hydroelectric, biomass and hybrid systems, excluding any generation for own
use; while exclusions were given to base-load capable impounding hydro and
geothermal facilities. To avail of the incentives under the rules, RE plants shall be
issued certificates of compliance authorizing them to operate as FiT-eligible RE
plants. The FiT shall be technology specific and must be differentiated based on the
size of the eligible RE plant, as recommended by the NREB. Under the rules,
transmission operator, National Grid Corporation of the Philippines (“NGCP”), and
distribution utilities with RE plants embedded in their systems should connect and
take in energy generated and delivered by RE plants. Whenever some RE capacity
are injected into the systems of NGCP or distribution utilities, this will be allocated
and distributed to their customers to assure RE plant operators that they have priority
connection to the grid, as well as priority purchase and transmission of their plants’
output. Payment for the use of clean energy will come from a uniform per-kilowatt-
hour charge, dubbed Feed-in Tariff Allowance, which will be collected from all
electricity end-users. These collections will go to an NGCP-administered fund from
which payments to RE developers will be taken. While the RE Law directed that the

3. duration of the FiT rates be fixed at a period for at least 12 years, the FiT Rules
eventually fixed the period to 20 years to ensure that the ensuing cost to electricity
end-users be spread out over a longer period and therefore lower.
It was reported that the estimated tariff will range from 7 Philippine pesos to 25
Philippine pesos per kWh. Solar will carry the highest tariff, while wind will have an
average tariff of 12 Philippine pesos to 15 Philippine pesos per kWh. The tariff is
subjected to periodic change based on forecasted revenues for the expected deliveries
of eligible RE plants, applicable FiTs and administration costs of the NGCP. The
tariff will also be adjusted to account for the inflation of foreign exchange rate
fluctuations. In addition, it will be subjected to a two percent (2%) annual degression
for its whole duration to encourage RE developers to invest at the initial stage and
speed up development. The ERC will review and readjust the tariff system in certain
situations, such as when installation targets are already completed or when significant
cost changes have been made. However, readjusted tariffs will only be applicable to
new renewable energy developers.
Other RE Policy Mechanisms
Under the RE Act, the DOE shall establish a Green Energy Option program which
provides end-users the option to choose RE resources as their sources of energy.
Upon the determination of the DOE of its technical viability and consistent with the
requirements of the green energy option program, end-users may directly contract
from RE facilities their energy requirements distributed through their respective
distribution utilities. The law also establishes a net-metering system in which the
distribution grid user has a two-way connection to the grid and is only charged for its
net electricity consumption and is credited for any overall contribution to the
electricity grid. Subject to technical considerations and without discrimination and
upon request by distribution end-users, the distribution utilities shall enter into net-
metering agreements with qualified end-users who will be installing the RE system.
The National Transmission Corporation and all distribution utilities shall include the
required connection facilities fro RE-based power facilities in the Transmission and
Distribution Development Plans upon approval by the DOE of such facilities. The
connection facilities of RE power plants, including the extension of transmission and
distribution lines, shall be subject only to ancillary services covering such
connections. The National Power Corporation-Small Power Utilities Group or its
successors-in-interest and/or qualified third parties in off-grid areas shall, in the
performance of its mandate to provide missionary electrification, source a minimum
percentage of its total annual generation upon recommendation of the NREB from
available RE resources in the area concerned, as may be determined by the DOE.
To facilitate compliance with RPS, the DOE shall establish the Renewable Electric
Market (“REM”) and shall direct the Philippine Electric Market Corporation
(“PEMC”) to implement changes to the Wholesale Electric Spot Market (“WESM”)
Rules in order to incorporate the rules specific to the operation of the REM under the
WESM.
Fiscal Incentives
RE Developers of renewable energy facilities, including hybrid systems, in proportion
to and to the extent of the RE component, for both power and non-power applications,

4. are entitled to the following incentives: Income Tax Holiday; Duty-free Importation
of RE Machinery, Equipment and Materials; Special Realty Tax Rates on Equipment
and Machinery; Net Operating Loss Carry-Over; Corporate Tax Rate of ten percent
(10%) on net taxable income; Accelerated Depreciation; Zero Percent Value-Added
Tax Rate; Cash Incentive for RE Developers for Missionary Electrification; Tax
Exemption of Carbon Credits; Tax Credit on Domestic Capital Equipment and
Services; Incentive for RE Commercialization given to manufacturers, fabricators,
and suppliers of locally-produced RE equipment and components; Exemption from
the Universal Charge; and, Financial Assistance Program given by Government
financial institutions such as the Development Bank of the Philippines, Land Bank of
the Philippines, Phil-Exim Bank.
Conclusion
Compared to electric power distribution, power generation using new and renewable
energy technologies is not a regulated industry. The Philippine government hopes
that the policy mechanisms and incentives established under the RE Law will attract
enough renewable energy projects with the proposed level of feed-in tariff that are
scheduled to shrink over time and the costs of producing renewable energy are low
enough that subsidies can be lowered in the future. The first order of the day is the
implementation of the feed-in tariff rules and any delay will have a negative impact
on investment interests. Like in any resource development project, the Philippine
government also needs to address issues related to the complicated approval and
permitting process to reduce and expedite procedures particularly in land use,
environment and social acceptability regulations. The National Government should
also assist host local government units in integrating potential RE resources into the
local development land use and resources use plans.
Fernando “Ronnie” Penarroyo is the Managing Partner of Puno and Penarroyo Law
Offices (fspenarroyo@punopenalaw.com). He acquired his Bachelor of Science in
Geology and Bachelor of Laws from the University of the Philippines and Master of
Laws from the University of Melbourne. He specializes in Energy, Resources and
Environmental Law and Project Finance. He is a trustee of the International
Geothermal Association, the National Geothermal Association of the Philippines and
the Philippine Mineral Exploration Association.