Norwegian companies that are interested to inject fresh capital into the country’s renewable energy (RE) sector have been batting for the easing of legal restraints on foreign ownership, primarily on solar and wind installations.
In a virtual launch of the Report on RE Opportunities in the Philippines for Norwegian Companies, Norway Ambassador to the Philippines Bjørn Staurset Jahnsen sounded off that” the limits on foreign ownership is a challenge,” although he qualified that this is a predicament that can be surmounted once investors prudently navigate their way into the market.
The Norwegian envoy qualified that while there are opportunities for Norwegian companies in the energy sector, the Philippines is still widely regarded as “a challenging market,” thus, he advised the Norwegian firms “to know your market and you would have to be able to use resources and time to enter here.”
During the event’s roundtable discussion, Senate Committee on Energy Chairman Sherwin T. Gatchalian has acknowledged that the restriction on foreign ownership is “a very tricky question,” primarily for wind and solar project installations.
“I said it’s tricky because it’s never been tested although we’re continuously consulting legal experts, because this is actually a legal question – Constitutional and a legal question. And we’re constantly consulting with our legal luminaries and legal experts on how to find some justification on allowing foreign investors to come in,” the lawmaker explained.
It was the biomass sector that was first opened to full foreign equity ownership in 2019; then it was followed by the geothermal sector last year – through the declaration of that RE venture as mineral resource-based, hence, it can be covered by the Financial or Technical Assistance Agreement (FTAA) policy of the government.
Gatchalian highlighted that if the country has to fully optimize enticements of capital flow for the 31,000 megawatts of RE potential in the Philippines, “we need foreign capital to come in and I understand that foreign capital will not deluge in the country if they don’t have adequate control in their investments, so I do agree that foreign capital must come in so we can maximize that potential of 31GW (gigawatts),” and one way to hurdle that is relaxing Constitutional barriers on foreign ownership of RE projects.
Director Mylene Capongcol of the Department of Energy (DOE) further indicated that “we’re still hoping that we’ll be able to find ways on how we’ll be able to improve the investment climate with respect to foreign ownership.”
Apart from foreign equity restriction, Torbjørn Kirkeby-Garstad, senior vice president of Hydropower Asia Scatec ASA, also accentuated the other stumbling blocks that have to be addressed, so fresh capital influx could gain traction into the Philippine RE sector – and these include much-needed expansion in power transmission capacity; sufficient and reliable ancillary services procurement; as well as the need for further streamlining of project permitting processes, especially on required land conversion for solar projects.
“The transmission capacity has been, is and will continue to be a challenge in the Philippines, and this is the biggest bottleneck that we see as part of SNAP (SN Aboitiz Power) on trying to put different renewable energies at play,” he said, adding that “the other challenge that will come with success of putting renewable into the grid is that: this will create instability due to the fundamental features of wind and solar in particular – and this necessitates the need for more ancillary services.”
On tax enforcement for RE ventures, Garstad contended that the lack of clear rules of the Bureau of Internal Revenue (BIR) “is actually a disincentive to foreign investor-projects. I think we need to ease up on that and create stability and transparency and reliability – that this is there, so it’s going to be there for the agreed period of time and we’re not going to rock the boat on that, I think that is fundamentally important as well.”
Atty Monalisa Dimalanta, former chairperson of the National Renewable Energy Board (NREB) admitted that the BIR does not have Revenue Regulation yet on the value added tax (VAT) zero rating claims of suppliers and service providers to RE developers; and final rules have yet to be rendered also on the entitlement of the RE developers to 10-percent income tax rate upon the expiration of their income tax holiday (ITH) incentives under the Renewable Energy Act.
Rodolfo Azanza Jr., president of Norconsult Mgt. Services Phils. Inc., stipulated that another hurdle to foreign investors is land ownership on properties that shall serve as their project sites.
“One of the things that is a concern of investors coming in into the RE sector is that…for them to finance their investment, they’ll have to turn to the banks or project finance and it is a key concern of the banks as to the ownership of the land underlying the power plants – that is always been a key concern,” he stressed.
On the upside, he pointed out that investors somehow view the efficiently working Wholesale Electricity Spot Market (WESM) of the country as a favorable precept for investors when it comes to capacity market de-risking because they can sell their generated electricity via the spot market if they don’t have power supply agreements.
“WESM is a great example where it actually worked very well. Although it has not worked in some other countries, but here it actually worked very well. So it is a great attraction for investors to come in into the RE sector, knowing that you don’t have to really rely on power supply agreements – you can come in as a purely merchant participant because we have a well-working spot market where you can sell your power,” Azanza emphasized.