Philippine Green Energy Update – Regulatory and Financing Perspectives
Author Atty. Manuel Z. Gonzalez, Atty. Vina S. Villaroya
The Department of Energy (DOE) in 2019 announced its plan to allocate 2GW of RE generation capacity under a Green Energy Tariff Program (GETP). A draft circular was then issued early this 2020 entitled “Promulgating the Rules and Guidelines Governing the Green Energy Tariff Program in the Philippines.”
We at Martinez Vergara Gonzalez & Serrano (MVGS) as Projects & Energy legal practitioners consider this welcome news on account of the shortcomings and challenges encountered in the government’s Feed-in Tariff (FiT) scheme undertaken by the DOE a few years back. The FiT program received overwhelming response with an oversubscription of solar applications particularly in 2016 when the DOE reported an excess of 390MW from its initial target of 500MW. The process however faced some complications from application to implementation, which was primarily based on a first come-first serve policy of the FiT scheme.. The FiT scheme did not appear to necessarily promote the usage of renewal energy such as solar as against the more prevalent technology such as coal. Moreover, the FiT pricing often resulted in higher prices to consumers as opposed to actual market price which was often lower in the Wholesale Electricity Spot Market (WESM).
The GETP’s target is to generate 15GW of renewables capacity in the next 10 years with an investment value of about US$20 billion, with the primary objectives of ensuring flexibility, transparency, and competition in the renewable energy sector. The program will be open to all developers, including those who missed FiT deadlines under the previous FiT scheme. we expect that the number of GETP applicants will be substantial.
An anticipated obstacle facing the GETP is the current Philippines’ 40% foreign ownership limit on power projects. From our own experience, many foreign investors have expressed interest in participating in local power projects, but for as long as the constitutional basis of the foreign ownership restriction is not amended, this 40% limit may prove to limit the success of the GETP.
As regards project financing in the renewable energy sector, our experience has been that commercial and private banks exhibited little enthusiasm in financing solar projects previously because they were seen as risky investments. However, between 2017-2019 we saw a rise in private commercial banks taking more of an interest in funding the requirements renewable energy projects. The Projects & Energy Group of MVGS foresees that companies will likely form consortia with others to pursue the 2GW auction, not necessarily because they lack the resources, but because nobody at this point has that much power in terms of capacity in the renewables space to do undertake the endeavor on their own.
The GETP was expected to launch earlier this year; however, due to the COVID-19 pandemic and the community quarantine imposed in various regions in the Philippines, it will likely be launched around the fourth quarter of 2020, assuming the curve has flattened.