While the topic on Renewable Energy (RE) is understandably greek and unappealing to many, it is of great interest to some, as gauged from the number of queries we’ve received. So we are posting this basic Q&A, part of the literature and opinions that we’ve prepared for clients involved in Renewable Energy.

In an effort to promote and encourage the utilization of renewable energy resources and to accelerate the exploration and development of renewable energy (RE) resources, the Congress of the Philippines passed Renewable Energy act of 2008 (Republic Act No. 9513) on 16 December 2008.

To further promote the development of RE projects/systems (i.e., those which convert RE resources into useful energy forms like electrical, mechanical etc.), the law provides for substantial incentives to interested entities.

Under the same law, the Renewable Energy sector has been declared a priority investment sector that will regularly form part of the Philippines’ Investment priority Plan (IPP) so that all entities duly accredited by the DOR under R.A. 9513 will be entitled to special incentives.

Q: What are Renewable Energy (RE) resources?

A: These are 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 their renewal rate is rapid making them available over an indefinite period of time. These include, among others, biomass, solar, wind, geothermal, ocean energy and hydropower.

Ocean energy systems are energy systems which convert ocean or tidal current, ocean thermal gradient or wave energy into electrical or mechanical energy.

Q: What is the regulatory framework for the RE Energy Industry?

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

The exploration, development, production and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities or it may enter into co-production, joint venture or co-production sharing agreements with Filipino citizens or corporations or associations at least sixty percent (60%) of whose capital is owned by Filipinos.

However, under Article XII, Section 2 of the 1987 Philippine Constitution, any foreign-owned corporation duly authorized to operate in the Philippines may apply for an RE Contract in the nature of a financial or technical assistance agreement for large-scale exploration, development or utilization of RE resources such as geothermal energy (Section 19, Rule 6 of the Rules and Regulations Implementing R.A. 9513 and under DOE Department Circular No. DC2009-07-0011).

Q: What is an RE Service Contract?

A: An RE Service Contract is a service agreement between the Philippine Government, through the President or the Department of Energy, and an individual or juridical entity created, registered and/or authorized to operate in the Philippines in accordance with existing Philippine laws and engaged in the exploration, development or utilization or renewable energy resources and actual operation of RE systems/facilities (those which convert RE resources into useful energy forms like electrical, mechanical etc.). Such individual or juridical entity is called the RE Developer.

The RE Contract gives the RE Developer the exclusive right to explore, develop or utilize a particular RE contract area.

The Contract is divided into two (2) stages:

a. Pre-development stage- involves the preliminary assessment and feasibility up to the financial closing of the RE project; and

b. Development/commercial stage- involves the development, production or utilization of RE resources, including the construction and installation of relevant facilities up to the operation phase of the RE facilities.

Upon declaration of commerciality by an RE developer and after due confirmation by the DOE, the RE Developer shall apply for the conversion of the RE Contract, prior to its expiration, from Pre-development stage to Development/Commercial stage i.e. the RE Developer is now ready to sell or apply its produced energy).

Q: What is the RE Contract Area?

A: The RE Contract Area is defined through a Blocking System and shall apply only to RE Contracts on ocean, solar, wind and geothermal resources.

The Blocking System refers to the subdivision of the Philippine territory by the DOE into meridional blocks of half (1/2) half minute of latitude and half (1/2) minute of longitude with geographic Projection and Datum of the Philippine Reference System (PRS) of 1992. One (1) meridional block shall have an area of eighty one (81) hectares. Each block shall be designated a block number which shall be used exclusively in identifying the coverage of a contract area.

However, the Hydropower Contract Area shall not be defined using the Blocking System.

Q: Who may apply for an RE Service Contract?

A: Any person, natural or juridical, local or foreign, may apply for RE Contracts subject to the following:

(a). For an RE Contract both during the Pre-Development and Development/Commercial Stages covering all RE resources and including hybrid systems, the RE Applicant must be a Filipino or, if a corporation, must be a Filipino corporation at least sixty percent (60%) of its capitalization must be owned by Filipinos and duly registered with the Securities and Exchange Commission (SEC);

(b). In case the RE Applicant is a joint venture or consortium, the partners of the joint venture or the members of the consortium shall organize themselves as a corporation registered under the Corporation Code of the Philippines;

(c) In case the contract is only for exploration, development or utilization of geothermal resources, the applicant may either be a Filipino, natural or juridical, or a foreign corporation; and

(d) Consistent with Article XII, Section 2 of the 1987 Philippine Constitution and applicable existing laws, any foreign-owned corporation duly authorized to operate in the Philippines may apply for an RE Contract in the nature of a financial or technical assistance agreement for large-scale exploration, development or utilization of RE resources such as geothermal energy.

Q: What are the REQUIREMENTS for application for an RE Service Contract?

A: An Application Form with the following documentary requirements must be submitted to the RENEWABLE ENERGY MANAGEMENT BUREAU (REMB) of the Department of Energy (DOE):

1. For an individual or single proprietorship, the RE applicant shall submit a National Statistics Office (NSO) certified True copy of birth certificate, business permit, DTI Registration and other applicable documents.

For a juridical entity, the RE applicant shall submit the following:

(a) Letter of Intent

(b) an original copy of certification from its Board of Directors or officers authorizing its representative to negotiate and enter into an RE contract with the DOE;

(c) duly certified Articles of Incorporation or other equivalent legal document creating the same; and

(d) latest General Information Sheet or equivalent legal documents showing the names of its officials, ownership, control and affiliates.

In the case of foreign corporations, the documents to be submitted shall be duly authenticated by the Philippine Consulate having consular jurisdiction over the entity.

2. Map showing the applied area (RE area of application: in case of ocean, solar, wind and geothermal, must conform with the DOE Blocking System).

3. The RE Applicant must submit the following documents as proof that it possesses the necessary technical capability to undertake the obligations under the RE Contract, to wit:

(a) Track Record or Experience – By himself, the corporation itself, through the member-firms, in case of a joint venture/consortium, or through employment of service provides, the RE applicant shall include in its technical submission proof of its on-going or completed contract/agreements similar to or congruent with the nature of project/work being proposed to be covered by an RE Contract involving a specific RE resource.

The individual firms may individually specialize on any or several stages of the RE Contract.

A joint venture/consortium applicant shall be evaluated based on the individual or collective experience of the member-firms of the joint venture/consortium.

(b) Work Program – This shall be evaluated based on its viability, minimum expenditure commitments, detailed program of activities inclusive of environmental protection/conservation and social acceptability plans among others.

(c) Key Personnel Experience – The key personnel of the RE Applicant must have sufficient and relevant work experience in connection with the project being applied for. For this purpose, the following must be submitted:

(1) Curriculum Vitae of Management and Technical personnel.

(2) List of Technical Consultants with corresponding Contracts between the Applicant and Consultants showing the respective qualifications of the latter.

(d) List of Existing Company-Owned Equipment (if any) for RE Operations and Any Lease Agreement of RE Equipment – This shall be evaluated based on the technical and environmental soundness, sufficiency, and appropriateness of company-owned and leased equipment that will be used for the project.

4. The RE Applicant must submit the following documents as proof that it has adequate capability to provide the financial requirements to sustain the proposed Work Program for the exploration activities or conduct of feasibility studies during the Pre-Development Stage, and detailed engineering/geological/industrial design for the development and operation of facilities during Development/Commercial Stage, as the case may be, to wit:

(a) Audited Financial Statements for the last two (2) years and unaudited Financial Statement if the filing date is three (3) months beyond the date of the submitted audited Financial Statement;

(b) Bank Certification to substantiate the cash balance in the audited Financial Statement or updated Financial Statement;

(c) Projected cash flow statement for two (2) years;

(d) List of company-owned equipment/facilities available for the proposed RE projects;

If the RE Applicant is a newly-organized or is a subsidiary corporation with insufficient funds to finance the proposed work program and is unable to produce the requirements in paragraphs (a) to (c above, it shall submit an audited Financial Statement and duly certified and/or notarized guarantee or Letter of Undertaking/Support from its parent company or partners to fund the proposed Work Program.

In the case of foreign parent-company, the audited Financial Statement and the guarantee or Letter of Undertaking/Support shall be duly authenticated by the Philippine Consulate Office that has consular jurisdiction over the said parent company; and

(e) Proof of the ability of the RE Applicant to provide the required minimum amount of Working Capital which shall be equivalent to 100% of the costs of its work commitment for the first year of the proposed Work Program.

5. Draft Pre-Development or Development/Commercial Service Contracts

6. The RE Applicant shall pay the prescribed Application and Processing fee for each RE Proposal or RE Application.

No RE proposal/application shall be accepted without due payment or application and processing fees. However the payment shall be made only upon submission of complete documentary requirements and receipt or order of payment from the REMB.

Q: What is the procedure for awarding RE Contracts?

A: RE Contracts may be awarded either through:

(a) an open and competitive process of selection; or

(b) by direct negotiation.

Q: What Is the Open And Competitive Selection process and how is it done?

A: The following are the stages in the selection process:

(a) Invitation for RE Project Proposals – All areas for open and competitive selection shall be posted by the DOE in its website. In the event that new areas have been identified, the DOE shall update its website and may include them in the areas to be published in preparation for the conduct of open and competitive selection of awarding RE Contracts. The publication of areas shall be made as often as practicable depending on the number of identified areas and type of RE resources, among others.

Thereafter, invitation for open and competitive selection shall be published once every week for three (3) consecutive weeks in at least two (2) newspapers of general circulation. The DOE shall, likewise, post said invitation and the attachments in its website.

The invitation shall include information such as, but not limited to:

i. Map of the area being declared open for RE project proposals;

ii. Instructions to RE Applicants on the requirements for RE Contract proposal;

iii. Schedules, including the deadline to submit, the date of opening, and period of evaluation of RE project proposals; and

iv. Criteria for evaluation and the corresponding percentage/weight.

(b) Creation of a Review Committee – A Review Committee shall evaluate the RE Proposals and Applications of RE Applicants and provide recommendations to the DOE Secretary for the award of RE Contracts.

The Committee shall be composed of the following: the Assistant Secretary in charge of the REMB as Chairperson, the representative from the Office of the Renewable Energy Management Bureau (REMB) Director as the Vice-Chairperson, and one (1) representative each from the concerned division of the REMB, Compliance Division of the Financial Services, and Contracts Division of the Legal Services, as members. The Review Committee shall be assisted by a Secretariat from the REMB.

In the event that a foreign corporation shall be the winning or qualified RE Applicant, the RE Contract shall be recommended for approval of the DOE Secretary and the Contract shall be in the nature of a Financial or Technical Assistance Agreement (FTAA). The RE Contract in the nature of a financial or technical assistance agreement shall be approved and executed by the President of the Philippines, upon the recommendation by the DOE Secretary.

Q: When May An RE Contract Be Entered Into Via Direct Negotiations?

A: Direct negotiation is allowed only in the following instances:

(1) In case of Frontier Areas – The negotiation shall be subject to the following conditions:

i. In instances where there is only one application for an RE area and the submission is deemed to be incomplete, the said RE applicant shall be given thirty (30) days within which to complete its submission.

ii. In the event that there are two (2) or more interested applicants over the same RE area, the REMB shall prioritize and endorse to the Review Committee for evaluation the application of the RE Applicant whose submission was first received by the REMB. If the submission is deemed insufficient, the same shall be given thirty (30) days within which to complete its submission.

iii. Should the RE Applicant fail to complete its submission within the prescribed period as stated above, it shall be automatically disqualified and, in the case of two or more applications, it shall lose its right as first proponent and the immediately succeeding application shall be considered.

iv. The RE Application over a specific Frontier Area shall, in the interest of transparency, be posted in the DOE website within five (5) working days from receipt of payment of application/processing fees until the award of the RE Contract.

v. Upon submission of the complete documentary requirements, the DOE and the RE Applicant shall negotiate the terms and conditions of the RE Contract within a maximum period of one hundred twenty (12) days.

(2) When, during the conduct of open and competitive selection process, any of the following circumstances exist:

i. No RE Proposal was received by the REMB;

ii. No one among the applicants was able to meet the legal requirements, as determined by the Review Committee; or

iii. When one or more applicants met the legal requirements but after the evaluation of technical and financial proposals, no applicant was able to comply, as certified by the Review Committee.

The DOE may apply the mode of direct negotiation following the provisions under paragraph (a) above on Frontier Area.

Q: What are Frontier Areas?

A: They refer to areas with RE resource potentials but without sufficient available technical data as determined by DOE and are not ready for immediate development and utilization.

Q: When and How are RE Contracts Awarded?

A: Within one (1) week after the final evaluation of the RE project proposal and, in the case of RE Application, the negotiation of the terms and conditions of the RE Contract, the Review Committee shall recommend to the Secretary of the Department of Energy the approval of the RE Contract.

The DOE shall then notify the winning or qualified RE Applicant of the award and the schedule of signing of the RE Contract.

An RE Contract in the nature of a financial or technical assistance agreement shall be approved and executed by the President of the Philippines, upon the recommendation by the DOE Secretary.

The RE Contract shall take effect on the effectivity date as stipulated in the signed RE Contract.

Q: Are there additional requirements?

A: Yes. Within sixty (60) days after the effectivity date of the contract and at the start of every contract year thereafter, the RE Developer shall post a bond or any other guarantee of sufficient amount, but not less than the minimum expenditures commitment for the corresponding year.

Q: What happens after the RE Contract is awarded?

A: The DOE shall issue the Certificate of Registration to the RE Developer immediately upon the effectivity of the RE Contract whether during Pre-Development or Development/Commercial Stage.

Q: What is the significance of the DOE Certificate of Registration as an RE Developer?

A: Immediately upon the effectivity of the RE Contract, the RE Developer shall be issued a DOE Certificate of Registration which shall qualify it to avail of the incentives and privileges under R.A. 9513.

Q: What are the Standard provisions Of An RE Contract?

A: (1) The RE Contract per RE resource type shall have a TERM of not exceeding twenty-five (25) years and renewable for not more than twenty-five (25) years; Provided, That the total period of the RE Contract from the Pre-Development to the Development/Commercial Stages shall not exceed fifty (50) years.

During Pre-Development Stage, the RE Contract shall have a term of two (2) years and may be extended for one (1) year subject to terms and conditions under the RE Contract; Provided, however, That in the case of a Geothermal RE Contract, the term may be extended for two (2) years and further extendible for one (1) year upon compliance by the RE Developer of the conditions stipulated in the RE Contract.

(2) The RE Contract shall stipulate al the obligations of the RE Developer which shall include, among others, the following:

a. Comply with all its work and financial commitment in carrying out its RE operations and provide all necessary services, technology, and financing in connection therewith;

b. Observe applicable laws relating to labor, health, safety, environment, ecology and indigenous peoples rights, among others;

c. Pay the government share and taxes, as may be applicable.

d. Give priority in employment to qualified personnel in the area where the RE project is located and give preference to Filipinos in all types of employment for which they are qualified;

e. Give preference to local companies/agencies in entering into subcontracts on RE activities or services which the RE Developer may not carry out, upon approval by the DOE, provided that these companies/agencies are competitive and the services required are locally available;

f. Post a performance bond, if applicable, within the prescribed period;

g. Maintain complete and accurate technical data and reports, and accounting records of all the costs and expenditures for the RE Operations;

h. Submit technical and financial reports in accordance with the format as prescribed by the DOE and in a timely manner;

i. Be responsible in the proper handling of data, samples, information, reports and other documents; and

j. Allow DOE personnel, at all reasonable times, full access to RE Contract

There are other topics that may be of interest to those who are interested in Renewable Energy, including the following: Incentives For Renewable Energy Projects And Activities; What is a Financial and Technical Assistance Agreement (FTAA); Investing In Coal Exploration and Development;  Legal and Regulatory Framework for Mining In the Philippines.