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Renewable energy accelerates

Philbert E Varona

The renewable energy market has experienced rapid growth over the last few years. This is partly due to an increased global consciousness of the dangers of climate change and the need to focus on sustainable and environmentally friendly sources of energy.

In 2008, the Philippine Renewable Energy Act was signed into law. The Act declares it state policy to accelerate the exploration and development of renewable energy resources, increase the utilisation of renewable energy and establish the necessary infrastructure and mechanisms to develop the Philippine renewable energy market.

The Act aims to achieve this objective through the establishment of fiscal incentives for enterprises engaged in the exploration, development and utilisation of renewable energy sources or the actual operation of renewable energy systems or facilities.

These fiscal incentives include: (a) an income tax holiday for the first seven years of commercial operations; (b) duty-free importation of machinery, equipment and materials for a period of 10 years from accreditation; (c) special, lower rates of taxation on civil works, equipment, machinery and other improvements used for renewable energy facilities; (d) the carry-over of net operating losses incurred during the first three years of operations for the next seven years; (e) after the lapse of the seven-year income tax holiday, the imposition of a reduced corporate income tax rate of ten percent of net taxable income (as opposed to the normal thirty percent income tax rate); (f) option to apply an accelerated depreciation rate for plant, machinery and equipment; and (g) the imposition of a zero percent value-added tax rate on the sale of fuel or power generated from renewable sources of energy.

The Act also provides that all proceeds from the sale of carbon emission credits shall be exempt from any and all taxes.

Renewable energy sources recognised by the Act include biomass, solar, wind, geothermal, ocean energy and hydropower. Other emerging renewable energy technologies may also be recognised in the future.

Electric power industry participants will be required to purchase a specified fraction of their electricity from renewable energy sources. The Act also requires the establishment of a feed-in tariff system, whereby electricity produced from wind, solar, ocean, run-of-river hydropower and biomass is entitled to priority connection to the Philippine electric grid and to priority purchase, transmission and payment at a fixed price. The fixed tariff will be in place for a minimum period of 12 years.

The Act also envisages the establishment of a renewable energy market where participants may trade in certificates confirming the amount of electricity sold or used and produced from renewable energy sources. To be entitled to the fiscal incentives, developers must be certified by the Department of Energy and register with the Board of Investments.

The Department of Energy has issued several sets of regulations aimed at implementing the provisions of the Act. Nonetheless, the infrastructure of the Philippine renewable energy market is still in its infancy and the details of the market need to be threshed out by the relevant government agencies in consultation with other stakeholders. We anticipate further, significant developments in this market over the next few years.

Philbert E. Varona

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