DOE receives PE2 comments on new guidelines for endorsing strategic EE investments to BOI for fiscal incentives
TAGUIG CITY, 22 December 2021 – Officers and members of the Philippine Energy Efficiency Alliance (PE2) actively participated in the recently conducted Virtual Public Consultation (PubCon) on the six (6) Draft Department Circulars (DC) for additional specific guidelines under Republic Act 11285. During the PubCon held via Microsoft Teams earlier today by the Department of Energy (DOE), the DOE Energy Utilization Management Bureau (EUMB) presented PE2’s previously submitted comments on the Draft DC on the Guidelines for the Endorsement of Energy Efficiency Strategic Investments to the Board of Investment for Fiscal Incentives.
PE2 president Alexander Ablaza manifested before DOE-EUMB the PE2 recommendation that DOE and BOI should first quickly exhaust all opportunities within its policy mandate to reclassify all energy efficiency (EE) projects, regardless of whether they are “strategic” or not,” as a Tier III economic activity to attract private sector investments. If the Tier III re-classification can immediately blanket all EE projects, “strategic” or otherwise, then the requirement for separate endorsement guidelines for “strategic” EE investments may no longer be required.
Ablaza explained that, on 12 November 2021, PE2 requested the Fiscal Incentives Review Board (FIRB) Chair, Finance Secretary Carlos G. Dominguez, to enable the Board of Investments (BOI) and other relevant investment promotion agencies to reclassify EE projects from Tier I to Tier III because scaling-up EE is critical to the structural transformation and industrial revolution of the economy, primarily because the steady reduction of the energy intensity of the entire economy, and the decelerated rise of energy prices due to deferred energy infrastructure upgrades, together raise the national competitiveness of the country and allow the Philippines to catch up with our ASEAN neighbors in terms of energy productivity. In addition, EE projects approach low-mid-teens after-tax IRR and start to become attractive to potential portfolio investors with at least 6-years income tax holiday (ITH) and duty-free importation. Also, Tier III re-classification compensates for the locational incentive framework of EE projects, which should be focused and targeted heavily at the urban and industrialized localities (e.g. NCR and metropolitan NCR areas).
PE2 explained to both DOF and DOE that the project-specific and site-specific process of conducting energy audits, as well as engineering a packaged system of technologies and delivering guaranteed savings, are by themselves a research and development activity resulting in demonstrably significant value-added, higher productivity, improved efficiency, breakthroughs in science, health, and high-paying jobs. The PE2 position also said that EE projects will collectively pull a market demand for more innovation in technologies and methods, thereby generating new knowledge and intellectual property to be registered or licensed in the Philippines. PE2 further believes that a growing number of EE projects will employ cloud-based energy monitoring and management systems and other IoT technologies to perform data analytics and automated energy management and demand-response functions as building blocks of smart-grid infrastructure. Furthermore, PE2 echoed its earlier position in aid of stimulus legislation that EE projects generate more jobs than other energy sector or infrastructure development activities for the same amount of stimulus or investment funding.
On 24 November 2021, the DOF Secretary replied to the PE2 letter by granting BOI the leeway to study, justify and reclassify EE projects from Tier I to Tier III. PE2 believes that the DOF letter was an implicit “no-objection” statement by the FIRB Chair and DOF Secretary.
Ablaza nonetheless presented four recommended improvements to the Draft DC, in case the guidelines for endorsing strategic EE investments would still be a legal necessity: (a) Revise clause 5.1 so that EE retrofits and system upgrades become clearly qualified among the “strategic” EE investment types; (b) Improve the definition of “Project Proponent” in clause 3.3 to shift the focus on entities that are absorbing investment risk by raising upfront capital (e.g. either the end-user or host entity, or the DOE-registered or DOE-certified ESCO or a Third-Party Project Developer (TPPD) or a Project Special Purpose Vehicle); (c) Improve the language of clauses 4.1 and 4.2 to capture innovation in business models, investment models, or new host entity or end-user classes, aside from innovative technologies; and, (d) Introduce sufficient language affording flexibility for investment promotion agencies (IPAs) other than BOI (e.g. PEZA) to register and process the same set of fiscal incentives of EE projects in their respective jurisdictions.
In his verbal response during the PubCon, DOE-EUMB Director Patrick T. Aquino assured PE2 that DOE took note of the comments and will endeavor to accommodate these recommendations, where possible, in the next version of the Draft DC. The updated guidelines will be presented during the next PubCon on the same six Draft DCs. Dir. Aquino sees the need to capture and align with the emerging guidelines of Republic Act 11534 (CREATE Act), expand the scope of EE innovation beyond pioneering technologies, work more closely with BOI to ensure the best set of fiscal incentives for EE projects, and to identify clear steps for EE projects implemented through non-BOI IPAs, including PEZA.
The five other draft DCs that were discussed during the PubCon were the Draft DC Guidelines on the Recognition of Testing Laboratories for the Examination, Testing and Verification of Energy Efficiency of Energy-Consuming Products (ECPs) and Fuel Efficiency of Transport Vehicles, Draft DC on the Adoption of Training Regulations and Prescribing Certification Process of Energy Managers (EM), Draft DC on Prescribing the Certification Process of Energy Conservation Officer (ECO), Draft DC on the Adoption of Training Regulations and Prescribing Certification Process of Individual Energy Auditors (EA), and the Draft DC on the Energy Audit Certification Guidelines for Firm, Partnership, and Corporation (FPC).
PE2 officers Alexander Ablaza, Theresa Acedillo-Lapuz and Raymond A. Marquez joined PE2 member firm attendees during the PubCon on 22 December 2021.
DOE announced that they can still accommodate additional comments until 29 December 2021 and that a second PubCon on these 6 Draft DCs will be scheduled possibly in January 2022.