Philippines Taxes and incentives for renewable energy KPMG Global Energy & Natural Resources.
In 2009, Republic Act (RA) 9513, otherwise known as the Renewable Energy Act, was passed. The law is intended to accelerate the development and commercialization of renewable energy resources in the Philippines.It includes, among other items, the establishment of the Renewable Portfolio Standard which sets a minimum percentage of generation from renewable energy resources by power generators, distribution utilities and suppliers; the creation of a renewable energy market; and the adoption of the feed-in tariff system.
RA 9513 also provides for fiscal incentives to renewable energy (RE) developers of renewable energy facilities such as hybrid systems – in proportion to and to the extent of the RE component – for both power and non power-applications. Incentives include the following:
Income Tax Holiday (ITH): Duly registered RE developers are exempt from income taxes for the first seven years of commercial operations. Additional investments are entitled to additional income tax exemptions that do not exceed three times the period of the initial availability of the ITH.
Ten percent corporate tax rate: A corporate tax rate of 10 percent (reduced from the regular 30 percent) on net taxable income shall be imposed on all RE developers after seven years of the ITH.
Ten year duty-free importation of RE machinery, equipment and materials: This incentive is available within the first 10 years of RE certification,provided that an endorsement from the Department of Energy (DOE) is obtained before importation. The machinery,equipment, and material must be directly and actually needed and used exclusively in the RE facilities.
Net Operation Loss Carry-Over (NOLCO) of seven years: The RE developer’s NOLCO during the first 3 years starting commercial operation may be carried over as a deduction from the gross income for the next seven consecutive taxable years immediately following the year of loss, provided it has not been previously offset and is not the result of the incentives under RA 9513.
Zero percent value-added tax (VAT) rate: The sale of fuel or power from RE sources shall be subject to 0 percent VAT. All RE developers are entitled to zero-rated VAT on purchases of local supply of goods, properties and services needed for plant facilities. This incentive may be used throughout the whole process of exploring and developing RE sources up to its conversion to power, including those performed by subcontractors and contractors.
Special realty tax rates on equipment and machinery: Realty and other taxes on equipment, machinery and other improvements actually and exclusively used for RE facilities shall not exceed 1.5 percent of their original cost less accumulated normal depreciation or net book value. In an integrated resource development and generation facility, only the power plant shall be subject to real property tax.
Accelerated depreciation: If an RE project fails to receive an ITH before its full operation, it may apply for an accelerated depreciation in its tax books provided that the project or its expansions shall no longer be eligible for an ITH under an accelerated depreciation.
Cash incentive given to RE developers for missionary electrification: RE developers shall be entitled to a cash generation-based incentive per kilowatt-hour rate generated that is equal to50 percent of the universal charge for power needed to service missionary areas where it operates. This incentive is chargeable against the universal charge for missionary electrification.
Tax exemption of carbon credits: All proceeds from the sale of carbon emission credits are exempt from all taxes.
Tax credit on domestic capital equipment and services: RE operating contractor holders purchasing RE machinery, equipment, materials and parts from a domestic manufacturer shall be entitled to a tax credit that is equivalent to 100 percent of the value of the VAT and customs duties that would have been paid on the equipment, materials and parts had they been imported.
Exemption from the universal charge: Power and electricity generated through the RE system for the generator’s own consumption or for free distribution to off-grid areas shall be exempt from the universal charge.
Payment of transmission charges: Power and electricity produced from an intermittent RE resource may opt to pay the transmission and wheeling charges, on a per kilowatt-hour basis at a cost equivalent to the average kilowatt-hour rate of all other electricity transmitted through the grid.
Hybrid and cogeneration systems: Incentives and tax exemptions under RA 9513 may be claimed by registered RE developers of hybrid and cogeneration systems using both RE sources and conventional energy, but only as to the equipment and machinery utilizing RE resources.
Benefit of a priority dispatch: Qualified and registered RE generating units with intermittent RE resources shall be considered “must dispatch” based on available energy and shall enjoy the benefit of priority dispatch. RE generating units with intermittent RE resources include plants using wind, solar, run-of-river hydro or ocean energy.
Incentives for RE commercialization: Incentives are given to all manufacturers and suppliers of locally-produced RE equipment and components, provided they are duly accredited by the DOE.
Incentives for farmers of biomass resources
For a period of 10 years under RA 9513, those engaged in the farming of crops and trees used as biomass resources are entitled to duty-free importation and VAT exemption on all types of agricultural inputs, equipment and machinery.
Tax rebate for purchase of RE components
Rebates for all or part of the tax paid for purchases of RE equipment for residential, industrial, or community use.
The feed-in tariff system is a scheme that involves the obligation on the part of the power industry participants to source electricity from RE generation at a guaranteed fixed price applicable for a given period of time, which shall in no case be less than 12 years.
The feed-in tariff system is mandated for wind, solar, ocean, run-of-river, hydropower and biomass energy sources.
Meanwhile, the Feed-In Tariff Allowance imposes a uniform charge on all On-Grid electricity consumers supplied with electricity through the distribution network. This ensures that the RE developers under the feed-in tariff system will be remunerated in full for the electricity they generated. In October 2014, the Energy Regulatory Commission (ERC) provisionally approved the feed-in tariff allowance of PHP0.0406/kWh effective in the January 2015 billing of all On-Grid electricity consumers.1
The current feed-in tariff rates2 are as follows:
|ERC-approved Feed-in Tariff Rates
(Based on exchange rate: USD1 = PHP43)
|Potential Capacity MW||Installed
In March 2015, the ERC approved the Installed Generating Capacity (IGC) per Grid and National Grid, as well as the MarketShare Limitation (MSL) per Regional Grids and the National Grid for the year 2015. This aims to prevent a person or entity (solely or jointly) to operate or control more than 30 percent of the IGC of a Grid, and/or 25 percent of the National IGC.5
1ERC Case No. 2014-109 RC dated 28 October 2014.
2ERC Resolution No. 10, series of 2012.
3ERC Resolution No. 06, series of 2015 changed the feed-in tariff rate for solar power from PHP9.68 to 8.69.
4Summary of projects, renewable energy registration and accreditation, DOE website.
52015 press releases, ERC website.