Note: This artcile was written in collaboration with Jun Prosini Anave, MPA, University of the Philippines and CSR Officer of Energy Development Corporation)
Say Bienvenue! to a new era in the Philippine energy sector.
After what seemed like an eternity of agonizing wait, a legislative proposal that promotes the development, utilization and commercialization of renewable energy (RE) resources was finally made into a law of the land. A few days before Christmas last year, President Gloria Macapagal Arroyo signed Republic Act 9513—the Renewable Energy Act of 2008—and effectively set the country’s drive toward greater energy independence into high gear.
The signing of RA 9513—hailed as “the first and most comprehensive RE law in Southeast Asia”—was welcomed with megawatts-worth of jubilation and high hopes from advocates of clean and green energy. After all, the RE Bill had languished in both houses of Congress for close to two decades, and proponents had to do countless political calisthenics and live through frustrating congressional adjournments and acts of re-filing.
The RE Law comes at a very interesting time. The world’s energy state-of-affairs remains to be that of heavy reliance on fossil fuels; estimates have it that these fuels account for about 80% of global primary energy consumption. Given the ever-present threat of supply and price fluctuations of these conventional energy sources—not to mention their negative environmental impacts—much of the world is indeed mired in a very precarious situation.
Fortunately, energy planners the world over have long trained their sights on REs. For good measure, no less than the Rio de Janeiro Declaration of the 1992 Earth Summit had identified geothermal, solar, wind and hydro as environmentally desirable energy sources. The experiences of Germany with wind energy, Brazil with ethanol, and Japan with photovoltaic systems also prove that REs offer a viable and strategic alternative to fossil fuels. In the Philippines, this is evident in the electric power industry where increased generation from geothermal and hydro resources has significantly brought down the country’s imported oil bill.
A plethora of advantages
The absence of a definitive policy infrastructure for RE development coupled with a prevailing bias against RE systems (due to competition from fossil fuels, low awareness level on their advantages, and lack of efficient infrastructure for their use) were blamed for the marginal contribution of REs to the national energy mix. But with a legislated RE policy now onboard, a dramatic turnaround is in the offing.
For an archipelago teeming with RE resources like geothermal, wind, solar, hydro and biomass, the RE Law would mean a gold mine of economic, environmental and social benefits. During the signing ceremony last December 2008, President Arroyo said the RE Law will hike the country’s energy self-sufficiency level to 60% by 2010 and contribute in reducing harmful greenhouse gas emissions that are blamed for the global phenomenon of climate change.
The multi-sectoral RE Coalition expressly stated that RA 9513 will introduce an era of cleaner energy use in the country that will benefit generations to come. “The Philippines could save up to US$1.2 billion with the development of 4,000 MW of electricity from RE resources, an amount which can be directed to fund other development needs of the country,” said coalition spokesperson Catherine Maceda.
The National Government’s decades-old target of 100% barangay electrification could well be achieved in a few years because of the new law. Department of Energy (DOE) Secretary Angelo Reyes described RA 9513 as a “high watermark in our objective to energize the remaining unenergized barangays,” adding that the law would inject the necessary investments to bring electricity to off-grid areas. The country’s electrification level currently stands at 97.85%.
Figures from the DOE reveal that the national RE potential has been estimated at 200,000 MW. As much as 76,000 MW of wind energy can be harnessed, while geothermal has a reserve estimate of approximately 4,400 MW. Mini-hydro plants have a potential combined capacity of 1,784 MW; biomass has over 500 MW; and solar power has an annual potential average of between 5.0-5.1 kilowatt-hour per square meter per day.
REs are estimated to grow at an average annual rate of 2.4% in absolute terms. Per DOE’s projections, the law would enable the country to double its RE sourced power from the current 4,500 MW to 9,000 MW in 10 years.
With all these encouraging though mind-boggling data, just how would the RE Law bring the vastness of potential and the multitude of advantages into actuality? The answer lies in the menu of incentives, which is essentially at the core of this groundbreaking policy.
“RE Defined. Renewable energy (RE) resources, as defined in Sec. 4(uu) of RA 9513, refers to energy resources that do not have an upper limit on the total quantity to be used. Such resources are renewable on a regular basis, and whose renewal rate is relatively rapid to consider availability over an indefinite period of time. These include, among others, biomass, solar, wind, geothermal, ocean energy, and hydropower conforming with internationally accepted norms and standards on dams, and other emerging renewable energy technologies.”
It’s all about incentives
Through fiscal and non-fiscal incentives to RE investors, RA 9513 hopes to up the ante of RE resources development. The fiscal incentives include, among others:
- An income tax holiday (ITH) for the first seven years of commercial operations of RE projects considered as “new investments”;
- A 10% corporate income tax rate (as opposed to the prevailing rate of 32%) after the seven-year ITH has expired;
- Duty-free importation of RE machinery, equipment and materials;
- A 1.5% special realty tax rate on equipment and machinery;
- Accelerated depreciation are also given to RE investors (if an RE project fails to receive an ITH before full operation);
- Zero-rated value-added tax on the sale of fuel from RE sources, as well as on purchases of local supply of goods, properties and services needed for the development, construction and installation of plant facilities; and
- Tax exemptions for the carbon emission credits generated from RE sources.
These financial benefits actually give teeth to Section 34 of the Electric Power Industry Reform Act (EPIRA) of 2001, which provides for the equalization of taxes and royalties applied to indigenous or RE sources vis-à-vis imported energy fuels.
As for the non-fiscal benefits, the RE Law mandates the establishment of the so-called Renewable Portfolio Standard (RPS). This mechanism will require electric power generators and distributors to source a certain percentage of their supply from RE sources. A “feed-in-tariff” scheme for electricity produced from intermittent RE sources like wind, solar, ocean and biomass resources is also embedded in the law, to facilitate the integration of these RE forms into the grid and make them more competitive. The law likewise extends to consumers the power of choice through the provision on “green energy option,” which enables end-users to choose the REs and RE facilities that would supply their power requirements.
Other non-fiscal incentives include the establishment of a Renewable Energy Market (REM) where “green energy credits” are validated, certified and traded; and a net-metering system which allows independent RE producers to sell their excess power to the grid.
“With these incentives, the clear goal is to ensure that cleaner energy alternatives may not turn out too expensive for the consumers,” explained DOE Assistant Secretary Mario Marasigan, who is also one of the stalwarts of the RE Coalition.
While the responsibility of planning and directing the implementation of the national RE program rests on DOE’s shoulders, making sure that the RE Law will not go the way of many well-crafted, well-intentioned but unimplemented policies is the National Renewable Energy Board (NREB). The NREB is an advisory body on RE policies created under Section 27 of the new law and it will be made up of stakeholders from the government, business sector, and non-government organizations.
An investment for the future
Arguably, the RE Law has ushered in a “brave new world” as far as the Philippine energy sector is concerned. It is certainly not a panacea to the country’s mounting energy concerns, but it has elevated the importance of REs in the national energy plan several notches higher.
The law should be viewed as an investment for the future. With the volatility and uncertainty of fossil fuel price and supply, there is no doubt that renewables will emerge as the most important energy source in no time.
The bigger task of ensuring the success of the Law—and the resurgent RE industry—lies in the cooperation of every RE stakeholder. The euphoria over the signing of the law in December 2008 and the promulgation of its implementing rules and regulations last June may still be lingering, but the challenge is on. There are plenty of things going in favor of REs which must be capitalized on immediately if the country is to tread the path of energy diversification, self-sufficiency and sustainability within a decade.
Greenergized. 2008 Annual Report, Energy Development Corporation.
Republic Act 9513, An Act Promoting the Development, Utilization and Commercialization of Renewable Energy Resources and for Other Purposes
Abad, Roderick L. “Changing the Power Mix.” Business Mirror, 31 July 2009.
Torres, Ted P. “Renewable Energy Can Fully Energize RP – Reyes.” The Philippine Star, 9 August 2009)
Velasco, Myrna M. “Renewable Energy: The Next Frontier?” Manila Bulletin Special Feature, 7 August 2009.