I. Introduction

In recent years, the Philippines has actively promoted the development of renewable energy to address challenges such as growing energy demand, energy security, and environmental sustainability. A series of regulatory developments have been introduced to optimize the development environment for the renewable energy industry and increase the share of renewable energy in the energy mix.

II. Fiscal Incentives

Eligible renewable energy developers, as well as manufacturers, processors, and suppliers of locally produced renewable energy equipment, can enjoy a range of fiscal incentives upon obtaining the necessary certifications or qualifications. These include a seven-year exemption from income tax, which alleviates a significant tax burden for enterprises in the initial stages of project operation and helps them channel more funds into project construction and technological research and development. Renewable energy developers purchasing locally produced equipment are entitled to a zero value-added tax rate, encouraging enterprises to prioritize the use of locally produced equipment and promoting the development of related local industries. Additionally, a zero value-added tax rate is applied to the entire process from the exploration and development of renewable energy resources to their conversion into electricity, further reducing costs for enterprises throughout the energy development process.

According to Section 13, Part V of the Implementing Rules and Regulations (IRRs) of the Renewable Energy Act, there are numerous other incentives: duty-free importation of renewable energy machinery, equipment, and materials; special real property tax rates for equipment and machinery; net operating loss carryforward; reduced corporate tax rate (10% after the income tax holiday); accelerated depreciation; cash incentives (for renewable energy developers involved in missionary electrification); tax exemption on carbon credits; and tax credits for domestic capital equipment and services.

General eligibility requirements for obtaining these incentives include registration with the Department of Energy (DOE), endorsement of renewable energy developers and their projects by the DOE, and registration with the Board of Investments. These fiscal incentives have effectively driven investment and development in the renewable energy sector, attracting numerous enterprises to participate in this field.

III. Renewable Energy Service Contracts

To carry out renewable energy projects in the Philippines, developers need to engage in matters related to renewable energy service contracts. In the latest green energy auctions (such as GEA-4), bidders must hold a renewable energy service contract or authoritative certification. This requirement ensures that participating enterprises have the appropriate qualifications and capabilities for project development.

Renewable energy service contracts stipulate the rights and obligations of developers in various stages of project development, construction, and operation, including requirements for project construction progress, energy production targets, and responsibilities to local communities. The standardized management of contracts helps ensure the smooth progress of renewable energy projects, coordinate the interests of developers, the government, local communities, and other parties, and ensure that projects comply with national renewable energy development strategies and relevant regulatory standards.

IV. Performance Bonds

Previously, after obtaining a license, renewable energy developers were required to submit a performance bond or other forms of guarantee not less than the amount of the annual minimum expenditure commitment specified in the contract as a condition for the contract to take effect (however, projects with an installed capacity of no more than 5 megawatts were exempt from this requirement). If a developer fails to comply with or fulfill the obligations specified in its work plan, the DOE may deduct the performance bond as a penalty.

Currently, the government is re-evaluating the requirements for performance bonds. In December 2024, the DOE announced a significant reduction in the performance bond requirement for offshore wind projects from 20% to 5%. Recently, the requirement for performance bonds has been suspended pending further notice from the government. This adjustment aims to reduce the initial capital pressure on enterprises during project development and encourage more enterprises to participate in renewable energy project development. Particularly for large, capital-intensive projects, lowering the performance bond requirement can improve enterprises' capital liquidity and investment enthusiasm for projects.

V. Feed-in Tariff Mechanism

The feed-in tariff is one of the important policy tools for promoting renewable energy development in the Philippines. The feed-in tariff mechanism aims to support the development of renewable energy by providing producers with a guaranteed price higher than the market price, typically involving long-term contracts of up to 20 years. This approach gives renewable energy power generation enterprises stable income expectations, compensates for their cost disadvantages compared to traditional energy sources in power generation, and encourages enterprises to invest in the construction of renewable energy power generation facilities.

The Philippine Department of Energy has announced feed-in tariffs for renewable energy to ensure the rapid deployment of renewable energy. Corresponding feed-in tariff standards have been formulated for different types of renewable energy, such as solar, wind, hydro, and geothermal energy, based on their power generation costs and development stages. As technology advances and the industry develops, the feed-in tariff standards are likely to be adjusted to better adapt to market changes and promote the sustainable development of the renewable energy industry.

VI. Green Energy Auction Program (GEAP)

The Philippines has actively implemented the Green Energy Auction Program, such as the recent GEA-4. GEA-4 continues the competitive framework of the Philippine green energy auctions but adds several new constraints. This auction launched a tender for renewable energy projects with a total capacity of 9.4 GW, including the first inclusion of 1.1 GW of integrated renewable energy storage systems (IRESS) for photovoltaics. The projects are distributed in Luzon, Visayas, and Mindanao and are scheduled to be commissioned in phases from 2026 to 2029. Winning enterprises will receive a 20-year government power purchase agreement.

Bidders must hold a renewable energy service contract or authoritative certification, and project electricity prices will be dynamically adjusted according to the indexing mechanism of the Energy Regulatory Commission (ERC) to ensure cost control. The Green Energy Auction Program, by introducing a market competition mechanism, can select renewable energy projects with optimal cost-effectiveness, improve resource allocation efficiency, promote the construction and operation of renewable energy projects at a more reasonable cost, and accelerate the large-scale development of renewable energy in the Philippines.

VII. Renewable Energy Portfolio Standards

The Renewable Energy Act proposes renewable energy portfolio standards, introducing a minimum proportion requirement for renewable energy power generation in grid-connected systems, namely renewable energy portfolio standards. These standards stipulate that market entities such as power suppliers and distribution companies must purchase or generate a certain proportion of renewable energy electricity. By setting portfolio standards, the development of the renewable energy market is driven from the demand side, ensuring a stable demand and share of renewable energy in the power market.

To ensure the effective implementation of renewable energy portfolio standards, the Philippines has established corresponding regulatory and assessment mechanisms. Market entities that fail to meet the portfolio standards may face penalties such as fines and restricted market access; those that exceed the portfolio standards may receive certain rewards, such as tax incentives and income from green energy certificate trading. The implementation of renewable energy portfolio standards has effectively promoted the absorption of renewable energy power generation in the Philippines and driven the green and low-carbon transformation of the energy structure.

VIII. Conclusion

The Philippines has shown positive and diverse regulatory trends in the renewable energy sector. Fiscal incentives have injected capital impetus into industrial development; the management of renewable energy service contracts and performance bonds has ensured the standardized progress of projects; the feed-in tariff mechanism and the Green Energy Auction Program have promoted the economic viability and market competition of projects; and renewable energy portfolio standards have driven industrial development from the demand side. These regulatory trends complement each other, forming a relatively complete policy system that promotes the continuous progress of the Philippines in the renewable energy field and helps it achieve the goals of energy structure optimization, energy security assurance, and environmental sustainable development. In the future, as technology develops and the market changes, the regulatory policies for renewable energy in the Philippines are expected to be further optimized and improved, continuously promoting the renewable energy industry to new heights.