Philippine renewable energy (RE) projects present promising sustainable returns to investors. When looking into these opportunities, investors must have a thorough understanding of the regulatory, operational, and financial factors involved therein. An overview is provided below:

Regulatory

Republic Act No. 9513, or the Renewable Energy Act of 2008, is the primary legislation that promotes the development, utilization, and commercialization of renewable energy resources in the Philippines. It offers various incentives such as income tax holidays, duty-free importation of RE machinery, equipment, and materials, special realty tax and corporate tax rates, tax credit on domestic capital equipment and services, zero percent value-added tax rate on power generated, Net Operating Loss Carry-Over, accelerated depreciation, as well as guaranteed payments for electricity from renewable sources through the Feed-in Tariff (FIT) System, among others.

The Philippine RE industry is principally regulated by the Department of Energy (DOE). Under the DOE is the Renewable Energy Management Bureau that formulates and implements policies, plans, and programs related to the accelerated development, transformation, utilization, and commercialization of renewable energy resources, including emerging energy technologies. Meanwhile, the Energy Regulatory Commission (ERC) is the independent industry regulator tasked to ensure the adequate promotion of consumer interests and customer choice, promotes competition, encourages market development, and penalizes the abuse of market power. The DOE was created by Republic Act No. 7638 in 1992 while the ERC was created by Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001.

Operational

Investors must also consider their own capability or that of their partners to navigate key operational factors including:

• Energy Demand and Supply assessment to identify opportunities and potential competition 
• Geographical and climatic conditions check especially the impact of the geographic location and weather patterns, including typhoons and seasonal variations
• Resource assessment through a thorough evaluation of the availability and quality of renewable resources such as solar irradiance, wind speeds, hydro potential, and geothermal activity
• Grid Integration check of capacity and reliability of the existing grid infrastructure and its ability to integrate new renewable energy sources
• Selection of technology that will match project requirements and local conditions as well as reliability of the supply chain to ensure the availability of local suppliers and contractors for equipment, materials, and services; and
• Operational expertise of partners to handle the permitting and licensing aspects, including the required Environmental Compliance Certificate from the Department of Environment and Natural Resources (DENR).

Financial

Cost of capital, operational costs, and return on investment are major factors to consider. Financial planning should include an understanding of the availability and cost of financing, including local and international funding sources. The Philippine market's attractiveness to investors can impact borrowing costs and investment terms. Ongoing operational and maintenance costs, including potential costs related to grid connection and upgrades, must be factored in. Investors must also be able to leverage available government incentives, such as tax breaks and FIT, as well as subsidies and Develop strategies to mitigate financial risks associated with market volatility, political and economic stability, and natural disasters to improve financial outcomes. 

In 2022, foreign equity restrictions in renewable energy were lifted through an amendment of the implementing rules and regulations of the Renewable Energy Act of 2008. Thus, foreign firms may now engage in the exploration, development, and utilization of solar, wind, hydro, and ocean energy. Due to this, the Philippines became part of the top five most attractive emerging markets for power sector investments in 2023. The Philippine government is targeting a 35% RE share in the energy mix by 2030 and 50% by 2040. As of 2023, the RE share stands at 29%, indicating significant progress toward these goals.

Investing in renewable energy projects in the Philippines offers substantial opportunities, provided investors thoroughly understand and navigate the regulatory, operational, and financial landscape. For more information, please contact us at info@gqlaw.com.ph or at redmaines@gqlaw.com.ph.