Foreign Equity in Renewable Energy Projects in the Philippines: Ownership Rules

Foreign equity in renewable energy projects in the Philippines is governed mainly by the Renewable Energy Act of 2008 (Republic Act No. 9513) and the Electric Power Industry Reform Act of 2001 (Republic Act No. 9136, or EPIRA). Under EPIRA, power generation is not a public utility operation, so a generation company is not required to secure a national franchise. Under the Renewable Energy Act, an RE Developer is simply an individual or group of individuals formed in accordance with existing Philippine laws engaged in the exploration, development and utilization of RE resources. The practical path for a foreign investor is to form a Philippine entity, register with the DOE, and then secure the incentives and contracts the law provides.

What the Renewable Energy Act says about developers

Section 4(pp) of the Renewable Energy Act defines "Renewable Energy Developers" or "RE Developers" as "individual/s or a group of individuals formed in accordance with existing Philippine Laws engaged in the exploration, development and utilization of RE resources and actual operation of RE systems/facilities." The law does not, on its face, impose a nationality requirement on who may be an RE Developer.

Under Section 25, RE Developers must register with the DOE through the Renewable Energy Management Bureau. Upon registration, a certification is issued, and that certification is the basis for entitlement to the incentives under Chapter VII of the Act. Section 26 requires the DOE to issue the certification within fifteen (15) days upon request, without prejudice to further requirements imposed by other agencies administering fiscal incentives.

Why power generation is treated differently from distribution

EPIRA draws a clear line between generation and distribution. Section 6 provides that generation of electric power "shall be competitive and open," and that "power generation shall not be considered a public utility operation." As a result, a person or entity engaged in power generation and supply of electricity is not required to secure a national franchise.

By contrast, Section 22 states that the distribution of electricity to end-users "shall be a regulated common carrier business requiring a national franchise." Section 27 vests the power to grant franchises for transmission and distribution exclusively in Congress.

This distinction matters for foreign investors. A generation project is not automatically a public utility under EPIRA, while a distribution business carries franchise and public-utility implications.

Registration and incentives available to RE developers

Once registered, an RE Developer may avail of the incentives in Section 15 of the Renewable Energy Act, including an income tax holiday, duty-free importation of RE machinery and equipment, special realty tax rates, net operating loss carry-over, a preferential corporate tax rate after the income tax holiday, accelerated depreciation, and zero percent value-added tax on the sale of power generated from renewable sources.

Section 21 also declares the Renewable Energy Sector a priority investment sector that regularly forms part of the country's Investment Priority Plan, unless declared otherwise by law. Entities duly accredited by the DOE under the Act are entitled to the incentives provided.

The RE Contract and the DOE's role

Section 4(tt) defines the Renewable Energy Service (Operating) Contract as the service agreement between the Government, through the DOE, and the RE Developer over a period in which the developer has the exclusive right to a particular RE area for exploration and development. The contract has two stages: the pre-development stage and the development/commercial stage.

The DOE is the lead agency mandated to implement the Act under Section 5. Registration and certification both run through the DOE's Renewable Energy Management Bureau.

Frequently asked questions

Is foreign ownership allowed in renewable energy in the Philippines? The Renewable Energy Act does not impose a nationality requirement on RE Developers. It defines them as individuals or groups formed under Philippine laws. A foreign investor typically participates through a Philippine-formed entity.

Is power generation a public utility in the Philippines? Under Section 6 of EPIRA, power generation is not considered a public utility operation, and a generation company is not required to secure a national franchise.

Do I need to register with the DOE to get RE incentives? Yes. Section 25 requires RE Developers to register with the DOE through the Renewable Energy Management Bureau. The certification issued upon registration is the basis for the incentives under Chapter VII.

Practical takeaways

• Foreign investors in Philippine RE projects generally participate through an entity formed under Philippine laws, consistent with the definition of an RE Developer in Section 4(pp) of the Renewable Energy Act.
• Register with the DOE through the Renewable Energy Management Bureau, since the certification under Section 25 is the basis for incentives.
• Power generation is not a public utility operation under Section 6 of EPIRA; distribution, under Section 22, requires a national franchise granted by Congress.
• The RE Service (Operating) Contract with the DOE governs the exclusive right to an RE area and is divided into pre-development and development/commercial stages.
• The Renewable Energy Sector is a declared priority investment sector under Section 21 and regularly forms part of the Investment Priority Plan.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 9513 - AN ACT PROMOTING THE DEVELOPMENT, UTILIZATION AND COMMERCIALIZATION OF RENEWABLE ENERGY RESOURCES AND FOR OTHER PURPOSES

• REPUBLIC ACT NO. 9136 - AN ACT ORDAINING REFORMS IN THE ELECTRIC POWER INDUSTRY, AMENDING FOR THE PURPOSE CERTAIN LAWS AND FOR OTHER PURPOSES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.