Philippine Renewable Energy Law a Regional Model

UNCLAS SECTION 01 OF 02 MANILA 001721

SENSITIVE

SIPDIS

STATE FOR OES/, EB/IFD/OIA, EAP/PMBS
DOE FOR TOM CUTLER
TRESURY FOR JVELTRI
STATE PASS EXIM, OPIC, AND USTR
STATE PASS USAID FOR AA/ANE, AA/EGAT, DAA/ANE
USDOC FOR 4430 ITA/MAC/ASIA & PAC/KOREA & SE AIS/ASEAN
TREASURY FOR OASIASENSITIVE

E.O. 12958: N/A
TAGS: ECON ENGR ECON ECIN RP CN XE XD
SUBJECT: Philippine Renewable Energy Law a Regional Model

REF: 08 Manila 2731


1. (SBU) Summary: Positioning to be a world leader in renewable
energy, the Philippine has passed a new renewable energy law that
improves the policy environment with fiscal and non-fiscal
incentives to facilitate and expand investments in the sector. A
recent USG visitor suggested the Philippine law could be a model for
the region and a possible centerpiece for a 2010 U.S.-ASEAN dialogue
on renewable energy. End Summary.

Plans for U.S.-ASEAN Dialogue on Renewable Energy
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2. (U) Office of Commercial & Business Affairs Senior Advisor
Jonathan Thompson met with various Philippine renewable energy
stakeholders on July 30-31 to discuss a proposed U.S.-ASEAN dialogue
on renewable energy to be held in an ASEAN country in the first
quarter of 2010. The meetings also highlighted how the Philippine
Renewable Energy Act of 2008, described as among the first such laws
in Southeast Asia, has created significant opportunity for further
investment in the sector. The legislation was signed into law in
December 2008 and the implementing rules and regulations released in
early June 2009. After listening to stakeholders describe how the
new renewable energy law will create new investment opportunities,
Senior Advisor Thompson suggested that it might serve as a model for
the region, and perhaps could be a centerpiece of the U.S.-ASEAN
Renewable Energy Dialogue.


3. (SBU) Asia Development Bank officials noted to Senior Advisor
Thompson that there were numerous renewable energy conferences being
held in the region, almost on a weekly basis. They suggested that
the best way to make a U.S.-ASEAN dialogue on renewable energy
attractive to potential participants would be to highlight some of
the cutting edge American technology in renewable energy, such as
projects involving biologically engineered algae.

Significance of the Philippine Law
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4. (U) The new Philippine legislation is significant because it
attempts to accelerate the development and utilization of renewable
energy to address the issues of energy self-sufficiency and
sustainability. The renewable energy law provides fiscal and
non-fiscal incentives, and creates market conditions that could
allow the private sector to move renewable energy financing and
technologies towards the full development of the sector. It also
provides policies that create a market for renewable energy and
ensure a fair rate of return for investors.


5. (U) Under the law, foreign investments are allowed in renewable
energy projects subject to the conditions provided in the Philippine
Constitution. For most projects, this means that foreign ownership
cannot exceed 40 percent. However, geothermal projects, which are
considered a type of mining, can be 100 percent foreign-owned.
Within a few days of the release of the implementing rules and
regulations, the Philippine Department of Energy received 117
letters of intent from companies interested in investing in
renewable energy projects. Some of these projects could get
underway in the fourth quarter of 2009.

The Philippines as a Renewable Energy Leader
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6. (U) Renewable energy currently accounts for over 42 percent of
the Philippine energy mix, one of the highest ratios in the world.
Geothermal alone supplies 23 percent of the Philippine primary
energy mix and 18 percent of electrical power requirements. The
U.S. company Chevron remains a leader in Philippine geothermal power
production. U.S.-based SunPower has a solar silicon wafer
manufacturing facility in the Philippines to serve export markets.
Although a recognized leader in renewable energy development, the
Philippine renewable energy capacities have not grown significantly
during recent years due to technical, financial, and market
constraints. The new renewable energy law seeks to loosen these
strictures and set the stage for fuller development and utilization
of its vast renewable energy potential, estimated at more than
200,000 MW.

Challenges Ahead

MANILA 00001721 002 OF 002


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7. (SBU) While the implementing rules and regulations were released
in early June, some mechanisms necessary for full implementation of
the law are still under discussion; such as portfolio standards,
tariffs, market arrangements, and tax incentive guidelines. The
renewable energy law complements the Electric Power Industry Reform
Act of 2001 in power sector reform. However, potential foreign
investors still have concerns about the impact of the
Constitutionally-mandated 40 percent foreign ownership limitation on
renewable energy projects, and urge the Philippine government to
remove this restriction to enlist their full support in renewable
energy development.

Comment
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8. (SBU) Sometimes a single piece of legislation can make a
significant difference in an investment landscape, such as the
legislation that allowed foreign investment in telecom value-added
services and paved the way for the call center industry in the
Philippines. Some industry observers are hoping that the new
Renewable Energy Act will have a similar impact in attracting new
investment into Philippine renewable energy projects and serve as a
model for the region.

Kenney