Alliance seeks 6-year income tax holiday for energy efficiency projects

Date Published: 
March 4, 2021

(PE2 note: Manila Bulletin’s Myrna Velasco reports on PE2’s position seeking the optimal income tax holiday incentive to make third-party EE and ESCO investments commercially viable under the incentive framework of E.O. 226 and RA 11285.)

Top tier incentives, primarily a six-year income tax holiday (ITH), is being sought for energy efficiency projects especially those that shall be undertaken by energy service companies (ESCOs).

That has been the call put forward by the Philippine Energy Efficiency Alliance (PE2) in its meeting with the Board of Investments (BOI) last month, as part of the process in the crafting of the energy efficiency (EE) guidelines underpinned by the Omnibus Investment Code of 1987 and the Energy Efficiency and Conservation Act.

PE2 President Alexander Ablaza (Photo: Manila Bulletin / PE2)
PE2 President Alexander Ablaza (Photo: Manila Bulletin / PE2)

As emphasized by PE2 President Alexander Ablaza, “the fiscal incentives should be effective in mobilizing a huge portion of the P8.0 trillion capital mobilization through off-balance sheet modalities, such as ESCO performance contracts, public-private partnership transactions, and large-scale government retrofit programs.”

Aside from six-year ITH, the other perks sought by the EE sector also include duty-free importation of capital equipment, “to help improve the commercial viability of ESCO and third party investments in EE equipment assets installed in commercial, industrial, transport and government facilities.”

An ESCO is a business that provides wide range of energy efficient solutions – including designs and implementation of energy savings projects, retrofitting, energy conservation, energy supply and risk management as well as energy infrastructure outsourcing.

Ablaza said “the EE guidelines should be able to mitigate the capital investment, technology, financing and credit risks associated with ESCO investments in EE equipment assets installed in premises that the ESCOs neither own nor lease.”

PE2 qualified that “ESCO investments should not be likened to BOI-registered modernization projects implemented by manufacturers and agribusinesses.”

Instead, the group noted that “income tax holidays for ESCO investments should clearly exceed the number of years wherein the ESCO projects remain in the red with net operating losses;” emphasizing then that “for this reason, the 4-year income tax holiday would clearly be inadequate.”

Ablaza pointed out “the final EE guidelines should be able to attract local and foreign investments in this new asset class called energy efficiency.”

He further explained, “it is vital that portfolio investors of energy efficiency projects are able to gain long-term certainty on the magnitude and availability of tax-based fiscal incentives.”

About PE2

Philippine Energy Efficiency Alliance Inc. (PE2), is a non-stock, non-profit organization of energy efficiency market stakeholders.

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Republic Act 11285

R.A. 11285 - An Act Institutionalizing Energy Efficiency and Conservation, Enhancing the Efficient Use of Energy, and Granting Incentives to Energy Efficiency and Conservation Projects

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IRR - Signed

Beyond COVID-19: How governments, ESCOs and innovative financial modalities can mobilize energy efficiency capital through 2040

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