Lifting the 60/40 equity yoke on Renewable Energy investments, as advocated by DOE Secretary Alfonso G. Cusi, sparks an interesting debate on the ownership limits for RE.

I’M looking at allowing 100-percent investment or ownership in renewables.”
Energy Secretary Alfonso G. Cusi made this bold statement during an online forum of the Philippine Energy Independence Council in July. Cusi was also quoted having said he is “hoping it could be done with a circular through DOE, but if not, I will go through legislation. I will seek the help of the Joint Congressional Energy Commission to help expedite that so we can accelerate the development of renewables in our country.”

We agree with Cusi. The need to attract investments in renewable energy (RE) is urgent. It’s high time we tackled the 60/40 equity requirement on RE projects and the way the ownership restrictions have befuddled investors and dampened clean energy investments in the country.

Cusi posed a critical question: Can the equity requirement be lifted through a circular, without need of legislation? Our answer: Yes.

Leader to laggard

COMPARED to other Asian countries, the Philippines fares well in terms of RE share at 29 percent of installed capacity (in megawatts or MW) and 20.8 percent of power generation (in gigawatt hours or GWh) as of 2019. This is attributable to large hydropower and geothermal power plants, most of which were initiated during the Marcos administration. However, the 20.8-percent RE share in 2019 is less than half of the 44-percent peak RE generation share reached in 1996.

The Philippines installed the first utility scale solar and wind power plants in Southeast Asia. When Cagayan Electric Power and Light Co. (Cepalco) completed its 1-MW solar photovoltaic (PV) project in 2004, it was at the time the largest solar power plant in the developing world. The Northwind Bangui Bay Wind Farm at 33 MW was completed in 2005. Both projects went into operations before the 60/40 equity was imposed. Republic Act 9513, also known as the RE Act, was enacted in 2008, ahead of other Asean countries. With its host of fiscal and nonfiscal incentives, the RE Act was hailed as one of the most comprehensive laws on RE development. Despite the RE Act’s incentives, other Asean countries have surpassed the Philippines in terms of RE development. According to the International Renewable Energy Agency, the installed RE power generation capacity of Vietnam, Thailand and Indonesia were 19 GW, 10 GW and 9.5 GW, respectively, in 2018. In contrast, the installed RE capacity of the Philippines has stagnated at around 7 GW since 2016.

The Philippines has always lagged behind its Asean neighbors in attracting foreign direct investments (FDIs). In 2018 our country ranked fifth behind Singapore, Indonesia, Vietnam and Thailand with just $9.8 billion out of a total $155-billion FDI inflows to Asean. The 60/40 equity restriction was cited by many as a major obstacle to FDIs.

On the other hand, Vietnam has met great success in attracting FDIs by allowing 100-percent foreign ownership in the power sector. In 2009 Vietnam only had two FDIs in RE projects with registered capital of $90.5 million. By 2016, Vietnam’s FDIs in RE reached a cumulative amount of $8.4 billion.

Do the Constitution and relevant laws mandate 60/40 equity for RE projects?

TO determine whether the 60/40 equity requirement should be imposed on RE projects, we must start with the fundamental law of the land—the Constitution. Here is the relevant provision:

Article XII: National Economy And Patrimony, Section 2:

All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State.… (emphasis supplied)

Potential energy is the latent or stored energy in an object at rest. Did the framers of the 1987 Constitution intend that ALL forces of potential energy are owned by the State? Such interpretation would lead to absurd assumptions such as State ownership of latent energy in springs, an object on top of a building, or a rooftop swimming pool.

How about natural resources? According to the Organisation for Economic Co-operation and Development (OECD), natural resources are natural assets (raw materials) occurring in nature that can be used for economic production or consumption.

It is our view that the forces of potential energy should be attributable only to natural assets occurring in nature and NOT to those resulting from human intervention.

What does the RE Act say?

Republic Act 9513 aka RE Act of 2008: Chapter I, Section 4-(uu). Definition of Terms.

“Renewable Energy Resources (RE Resources)” 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.

Although the RE Act provides an enumeration of RE resources, it does not classify these as natural resources.

What does the DOE circular state?

Department Circular No. DC2009-05-0008. Rules and Regulations Implementing RA No. 9513: Part IV.- Rule 6, Sec. 19
A. State Ownership of All Forces of Potential Energy

All forces of potential energy and other natural resources are owned by the State and shall not be alienated. These include potential energy such as kinetic energy from water, marine current and wind; thermal energy from solar, ocean, geothermal and biomass.

Construing that ALL forces of potential energy are owned by the State does not make technical sense. As proposed by Cusi, we believe that DOE needs to re-examine and revise this provision in the implementing rules and regulations (IRR) of the RE Act.

Kinetic energy is the energy of mass in motion. When an object falls, it generates kinetic energy. For example, water flowing from a higher to lower level exhibits kinetic energy.

Is solar power kinetic energy? Is light mass in motion? Moreover, the RE Act’s IRR specifies thermal power from solar, ocean, geothermal and biomass. Solar PVs generate voltage and electric current upon exposure to light. By harnessing the light and not the heat from the sun, solar PVs are photoelectric, not thermal.

For biomass, burning converts stored chemical energy to kinetic energy as heat. But should agricultural waste and plants commercially grown specifically for biomass power be considered as natural resources? Unlike fossil fuels, biomass fuels were not formed as a result of geologic processes acting on the remains of organic matter over billions of years.

Since time immemorial, humans have harnessed wind power to generate mechanical energy for milling and grinding. If a company puts up a wind mill for milling, grinding and other mechanical purposes but not to generate electricity, the 60/40 equity rule will not apply. In wind power systems, mechanical and electrical generation are integrated. In hydropower, the water storage facility can be separated from the power plant; in geothermal plants, the steam facility is distinct from the generating plant. Thus, the power generation facility can be 100 percent foreign-owned. Water rights, however, will continue to be owned strictly by Filipinos, while steam fields are subject to mineral production sharing arrangements with government.

Most sources of energy on our planet actually derive from the nuclear reactor located 93 million miles away. That nuclear power plant does not belong to any State. The sun is the source of almost all forms of energy on earth. Fossil fuels and biomass come from plants which use photosynthesis to transform light to chemical energy. Solar energy is both thermal and photovoltaic. The sun drives the water cycle affecting all water sources, including calderas of geothermal sources. Wind is produced by the uneven heating of the earth’s surface by the sun. In turn, ocean currents are generated by winds.

While natural resources located within our national boundaries rightfully belong to the State, the same attribution cannot be applied to solar and wind energy. The earth rotates around its axis every 24 hours, causing day and night. Are the light and heat generated by the sun while shining over the Philippine territory owned by the State? When the wind blows from the ocean and passes through our territory, does the State own it? Could a country impound the wind while within its territories based on the concept of State ownership? This might be a wild or farfetched idea now. But by analogy, some countries have already built and are planning to build large dams to control the supply of water from rivers flowing through their territories. Other than the Philippines, are there any other countries claiming ownership over solar irradiation and wind flows?

Proposed IRR provision and call to action

WE maintain that solar, wind and biomass are not included among the listed forces of potential energy and natural resources defined under the Constitution. Furthermore, the RE Act of 2008 does not classify RE resources as natural resources. It was only in the IRR, where solar thermal (not PV), wind and biomass were considered as forces of potential of energy owned by the State.

The IRR is a Department of Energy circular which could be revised by DOE without having to go to Congress. We recommend the applicable IRR provision be revised as follows:

Department Circular No. DC2009-05-0008. Rules and Regulations Implementing RA No. 9513: Part IV.- Rule 6, Sec. 19
A. State Ownership of All Forces of Potential Energy From Natural Resources

All forces of potential energy directly attributable to and obtained from natural resources are owned by the State and shall not be alienated. These include potential sources of energy such as water, marine current and tides, as well as thermal energy from ocean and geothermal.

We likewise recommend the National Renewable Energy Board to actively support the policy directions of Secretary Cusi in order to more quickly realize the potential of this reform agenda.

Over the long term, the Philippines may consider 100-percent foreign ownership of all RE resources. Unlike mineral resources, renewables are not depletable. RE resources are naturally replaced with a perpetual supply for the enjoyment of future generations.

The Philippines has a lot of catching up to do in attracting foreign direct investments needed for RE development. In line with the Green Energy Tariff Program auction, and to bring in far greater FDIs, we urge the DOE to fast-track the removal of the 60/40 equity requirement by amending the IRR of the Renewable Energy Act.

*Atty. Pedro Maniego Jr. is the senior policy advisor of the Institute for Climate and Sustainable Cities. He is a former chairman of the National Renewable Energy Board.