Harvesting renewable energy (RE) resources in the Philippines is legislated under the Republic Act No. 9513, otherwise known as the Renewable Energy Act of 2008 (RE Law). This dictates the overall framework for exploiting and generating biomass, geothermal, solar, hydro, ocean and wind power.
It provides a strategic programme to increase utilisation of renewable energy and institutionalises development of national and local capabilities in converting RE resources into useful power.
The law also promotes efficient and cost-effective commercial application of these RE systems by providing fiscal and non-fiscal incentives to developers.
Fiscal incentives
The exploration, development and utilisation of solar, wind, hydro and ocean or tidal energy is not subject to the 40% foreign equity limitation, except in respect of appropriating water directly from the source for power generation.
Fiscal incentives are granted to qualified RE developers and manufacturers, fabricators and suppliers of locally produced RE equipment, provided that required certifications or accreditations have been secured.
These incentives include: an income tax holiday of seven years; a VAT zero rating on RE developer’s relevant local purchases; and a VAT zero rating on the whole process of exploring and developing RE resources up to conversion into power, which includes but is not limited to services performed by subcontractors and/or contractors. Customs duty exemption on importation of machinery, equipment materials and parts are part of the incentives.
Net operating loss carry-over incurred within the first three years of commercial operation may also be claimed for a period of seven consecutive taxable years, along with a special corporate income tax rate of 10% after expiration of the income tax holiday, and VAT zero rating on the sale of power generated.
RE service contract
Enterprises exploring, developing and utilising RE resources in the Philippines need to apply for an RE service (or operating) contract.
The process and procedure for the application, award and administration of this contract are prescribed by the Revised Omnibus Guidelines Governing the Award and Administration of Renewable Energy Contracts and the Registration of Renewable Energy Developers, issued by the Department of Energy (DOE).
An RE contract has a term of 25 years from execution date, which may be renewed for another 25 years. Applying to geothermal, hydropower, ocean and wind power projects, it covers two stages of development.
The pre-development stage involves the conduct of a preliminary assessment and feasibility study up to financial closing and approval of declaration of commerciality of the project, including identification of the production area.
On the issuance of a certificate of confirmation of commerciality, a development/commercial stage follows involving the development, construction and commercial operation of the project, including production and utilisation of RE resources.
For solar, biomass and waste-to-energy projects, an RE operating contract also covers two stages of development.
The development stage involves the conduct of a final feasibility study up to financial closing, construction, installation, testing and commissioning until applying for a certificate of compliance.
The commercial stage involves commercial operation of the project, which commences with the Energy Regulatory Commission (ERC) issuing a certificate of compliance licence to operate a power plant to generate electricity.
Performance bond
An RE developer was originally required to post a performance bond or any other guarantee amounting to no less than the minimum expenditure commitment for the applicable contract year as a condition for the RE contract to take effect (although projects with a capacity of 5MW or below were exempt from such a requirement).
Developers failing to observe or perform their obligations under the submitted work programme could be penalised against the performance bond by the DOE.
But the issue of performance bonds is currently being re-evaluated. In December 2024, the DOE announced that it is firming up a policy that will reduce the performance bond requirements for offshore wind projects, from 20% to 5%. More recently, posting of performance bonds was suspended until further notice.
Feed-in tariff (FIT)
The FIT system offers cost-based compensation to RE developers to promote and help finance investments. It offers guaranteed FIT payments on a fixed rate per kWh basis for 20 years to eligible plants.
The FIT allowance is the subsidy for payment of the FIT. It is a uniform charge on electricity consumers supplied with power by the distribution and transmission facilities.
The National Transmission Corporation (TRANSCO), a government owned and controlled corporation and owner of the transmission assets, collects the proceeds under the FIT allowance, the rate of which is approved by the ERC.
The GEAP
The green energy auction programme (GEAP) is a competitive bidding process aiming to accelerate development and commercialisation of RE systems while encouraging free and active private sector participation and investment.
The GEAP consists of the green energy auction (GEA) and the green energy tariff (GET).
The GEA facilitates the selection of eligible plants for RE supply through competitive bidding. Facilities will offer new and existing capacities in megawatts, and prices not higher than the GEA reserve price (GEAR price).
The ERC determines the GEAR price. The bid prices of GEA participants are ranked from highest to lowest, from which the DOE declares the winning bidders.
The GET will be determined based on the winning bidder’s bid and paid out of the Green Energy Auction Allowance.
Similar to the FIT allowance, the Green Energy Auction Allowance is a uniform change to be determined by the ERC and administered by TRANSCO.
But to date, the ERC has not issued the Guidelines on the Collection of the Green Energy Auction Allowance (GEA-All) and Disbursement of the GEA-All Fund, which will be the basis for determination of the GEA-All.
Payment of the GET is governed by the renewable energy payment agreement to be entered into between the winning bidder and TRANSCO. Since implementation of the GEAP, the DOE has conducted three rounds of the GEA. The first milestone round was conducted in 2022, awarding 1,966.93MW worth of renewable energy projects for delivery from 2022 to 2025.
The second round (GEA-2) conducted in 2023 awarded 3,440.76MW worth of projects for delivery from 2024 to 2026.
A third round of GEA (GEA-3) was conducted on 11 February 2025 with an offered capacity of 7,500MW with delivery timelines between 2025 and 2035. This exceeded the installation target of 4,650MW.
The DOE is also planning two more rounds. GEA-4 will cater to integrated renewable energy and energy storage systems, while GEA-5 will cover offshore wind technologies.
Renewable portfolio standards
Renewable portfolio standards (RPS) oblige power industry participants such as distribution utilities or suppliers to source or produce a specified fraction of their electricity from eligible RE resources.
Mandated participants are:
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- distribution utilities for their captive customers;
- retail electricity suppliers for the contestable market;
- generation companies for their actual supply to their directly connected customers; and
- other entities recommended by the National Renewable Energy Board.
Market and certificates
To facilitate compliance with the RPS, the RE Law mandated the DOE to establish the Renewable Energy Market (REM), where trading of Renewable Energy Certificates (RECs) corresponding to energy generated from eligible facilities may be made in compliance with the RPS. The DOE declared full commercial operation of the REM effective on 26 December 2024.
RECs are issued for every MW hour of renewable electricity generated by REM generators. They are issued by the Independent Electricity Market Operator of the Philippines, the renewable energy registrar. The REM is administered and operated by the renewable energy registrar.
Pursuant to REM rules, the Philippine Renewable Energy Market System was established, which is an enterprise-grade automated platform to be used by the renewable energy registrar in performing its functions, such as allocation and trading of RECs, and monitoring and assessment of compliance of mandated participants with their obligations under the RPS.
