Philippines: Renewable energy projects

Author: | Published: 11 Jul 2016
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SyCip Salazar Hernandez & Gatmaitan

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Rafael L. Encarnacion

Despite mounting international support for renewable energy projects, the national legal regime poses challenges to foreign investors seeking a higher equity stake in such projects and greater certainty in their offtake arrangements.

The exploration, development and utilisation of natural resources remains a nationalised activity under the Constitution. It requires ownership of at least 60% by Filipinos. Power generation, including the conversion into energy of resources that have been extracted from their natural source, by itself is not nationalised. However, certain activities incidental to power generation, such as private land ownership, public land use, and extraction of water, remain nationalised. Careful and complicated structuring of these nationalised incidental activities has allowed foreigners to acquire controlling interests in power generation. However, the legal challenge to foreigners having controlling interests in renewable energy power projects has not been clearly addressed. This is because the extraction of renewable energy such as wind and solar seems to be inseparable from power generation.

With the gradual implementation of the retail competition and open access system mandated by law, developers also face growing uncertainty in their offtake arrangements. Under this system, end-users with a certain average peak demand during a 12-month period (currently 750 kW and eventually at household level) can be certified as contestable customers with a right to choose and switch suppliers. Thus, offtake arrangements with either end-users or distribution utilities (whose customers can become contestable customers) for a fixed contracted capacity might become difficult to procure. Ultimately, a power supplier's refuge could be in having a wholesale electricity spot market to sell its electricity competitively.

Effective from May 1 2016, in addition to having their offtake contracts approved by the regulator, distribution utilities are required to undertake a competitive selection process in their offtake contracts with power suppliers.

Rafael L. Encarnacion