in a nutshell
On November 15, 2022, the Department of Energy (DOE) issued Department Notice No. 2022-11-0034 (“DOE Division Circular“) to amend Section 19 of the Rules and Regulations implementing Republic Act No. 9513, also known as the Renewable Energy Act of 2008 (“RE Act IRR”). The amendment removes the Philippine ownership requirement previously imposed on the exploration, development and utilization (EDU) of solar, wind, hydro, ocean, or tidal energy resources, allowing full foreign ownership. will be The DOE Department Circular states that the Department of Justice (DOJ) is issuing Opinion No. 21 of 2022 (“Department of Justice Opinion“) The Filipino ownership requirement under Article 12(2) of the Philippine Constitution of 1987 relating to EDUs of natural resources shall not apply to EDUs of solar, wind, hydro, marine or tidal energy resources. said.
Since October 2019, 100% foreign ownership in biomass and waste-to-energy projects in the Philippines is permitted pursuant to DOE Circular No. DC2019-10-0013. Under the 1987 Constitution, 100% foreign ownership of large geothermal projects is permitted through technical or financial assistance schemes.
Foreign investors considering investing in renewable energy (RE) projects in the Philippines are encouraged to review the DOE Department Circular. This lifts the previous requirement that his EDU of solar, wind, hydro, ocean or tidal energy sources can only be done by Filipinos. At least 60% Filipino-owned citizens or legal entities.
The DOE Department Circular will take effect 15 days after it has been published in two newspapers of general circulation and filed with the University of the Philippines Law Center — National Administrative Registry.Upon completion of such publication and submission on November 23, 2022, the DOE Department Circular will December 8, 2022.
Once the DOE Department Circular becomes effective, the following will apply:
- A foreign investor may own up to 100% equity interest in Philippine entities engaged in EDUs for solar, wind, hydro, ocean, or tidal energy sources and have full control over the operations and interests of these entities. can manage.
- Foreign investors with existing investments in the Philippines related to EDUs for solar, wind, hydro, marine, or tidal energy sources may apply for a Philippine joint venture to take advantage of the relaxed foreign investment restrictions. You can acquire stakes in venture partners.
- The DOE Department Circular removes the Filipino ownership requirement imposed on entities engaged in solar, wind, hydro, ocean or tidal energy EDUs in the Philippines. This aims to achieve a 35% share of RE in the electricity generation mix by 2030 and a 50% share by 2040, reduce the cost of RE projects and increase the availability of cleaner energy. It aims to enable foreign investment in the renewable energy industry. to the public.
- The previous imposition of Philippine ownership requirements on solar, wind, hydro, ocean or tidal energy EDUs was based on the interpretation that such activities constitute natural resource EDUs. Under Article 12, Section 2 of the Constitution, her EDU of natural resources can only be made by Filipino citizens or legal entities with at least 60% Filipino ownership. The relevant part of Article 12(2) of the 1987 Constitution provides that:
All land, waters, minerals, coal, petroleum and other mineral oils, all potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources in the public domain are owned by the State. The development and utilization of natural resources are under the full control and supervision of the State. The State may conduct such activities directly or enter into co-production, joint venture or production sharing agreements with Filipino nationals or with corporations or entities at least 60% of whose capital is owned by Filipino nationals.
- DOJ’s opinion states that the aforementioned Filipino ownership requirement does not apply to solar, wind, hydro, ocean or tidal energy EDUs for the following reasons:
- The term “natural resources” under Section 12(2) of the 1987 Constitution does not include solar energy, wind energy, water energy, ocean energy or tidal energy. DOJ explained that the term “natural resources” refers to assets subject to appropriation. In this regard, DOJ states that the sun, wind, and sea as energy sources are inexhaustible and therefore cannot be occupied. Therefore, these energy sources cannot be included in the term “natural resources”.
- Similarly, the term “all forces of potential energy” under Article 12(2) of the 1987 Constitution should exclude energy produced by the sun, wind and oceans. The latter is related to kinetic energy. The DOJ explained that “potential energy” refers to “energy associated with position within a particular system” or “rest energy.” On the other hand, kinetic energy is “energy possessed by an object when it moves”, or simply “energy during motion”. Therefore, the use of the term “potential energy” does not include kinetic energy. In this regard, the DOJ noted that renewable sources such as solar, wind, hydro, ocean, or tidal energy are considered kinetic energy sources.
- DOJ also clarified that the DOJ Opinion Statement does not change the rules for allocating water directly from the source for power generation. Under the Philippine Water Act, and based on the Supreme Court precedent of IDEALS Inc. v. PSALM, water falls within the meaning of “natural resources” under the Constitution, and water is taken directly from the source. Filipino nationals or legal entities with at least 60% Filipino ownership may validly and legally do so. Therefore, the ability to divert water directly from the source is still limited to Filipino citizens or legal entities with at least 60% Filipino ownership. Note, however, that the 60% Filipino-owned requirement still applies to private property purchases and certain government permits.
- DOE Circular No. DC2019-10-0013, issued on October 1, 2019 (or the General Guidelines Governing the Adjudication and Administration of Renewable Energy Contracts and Registration of Renewable Energy Developers), formerly Philippine Removed the requirement that a person was 60% owned. Charged on biomass and waste-to-energy projects.
- Under the 1987 Constitution, 100% foreign ownership of large geothermal projects is permitted through technical or financial assistance schemes. Article 12, Section 2 of the 1987 Constitution provides that the President shall have rights to foreign companies, including technical or financial support for the large-scale exploration, development and exploitation of minerals, petroleum and other mineral oils. It stipulates that an agreement can be concluded. The Renewable Energy Act of 2008 recognizes geothermal resources as ‘mineral resources’.
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