ECCP and PE2 team up anew to update market on EE fiscal incentives

Date Published: 
October 19, 2021
  • ECCP and PE2 team up anew to update market on EE fiscal incentives
    (Image: ECCP)

MAKATI CITY, 19 October 2021 –The third webinar “Understanding Fiscal Incentives for Energy Efficiency Actions” under the energy efficiency (EE) track of the 2021 Energy Smart Forum Series co-organized by the European Chamber of Commerce of the Philippines (ECCP) and the Philippine Energy Efficiency Alliance (PE2) was held earlier today in line with the theme, “Building a Competitive, Sustainable and Resilient Energy Future” that highlighted the collaborative efforts of energy stakeholders to support business continuity and productivity as well as to access emerging business opportunities in the energy sector. The two-hour virtual event was designed to increase market understanding of the fiscal incentives that would be made available to EE projects in the country.

ECCP Renewable Energy and Energy Efficiency Committee chair and PE2 vice-president for internal affairs Ruth Yu-Owen opened the webinar and served as moderator of the panel discussions. She welcomed the support by PE2 member Hi-Cool Engineering Corporation to the third in the series of five ECCP-PE2 EE-related webinars this year.

A screenshot from the ECCP-PE2 webinar on EE fiscal incentives held on 19 October 2021 shows (clockwise from upper left) Ruth Yu-Owen of ECCP and PE2, Dir. Raquel Echague of BOI, Theresa Acedillo-Lapuz of Hi-Cool Engineering and PE2, Alexander Ablaza of PE2 and Dir. Patrick Aquino of DOE. (Image: ECCP, PE2)

Director Patrick T. Aquino of the Department of Energy (DOE) – Energy Utilization and Management Bureau (EUMB) said that the DOE has issued on 11 May 2021 Department Circular No. DC2021-05-0011, containing the approved Guidelines on the Endorsement of Energy Efficiency Projects to the Board of Investments (BOI) for Fiscal Incentives. He explained that the EE project must be able to meet the minimum 15% energy savings measured at project boundary and require a minimum project investment of PHP 10 million to be eligible for bracketed savings-based income tax holiday (ITH), which are defined separately for third-party investors such as energy service companies (ESCOs) and third-party project developers (TPPDs) and for facility owners who opt to self-finance their EE measures. Section 8 of the Department Circular sets a maximum 20-day processing period from the time the application is received by DOE until the DOE endorsement is released to BOI.

Dir. Aquino explained the two types of eligible EE projects. A simple EE project involves new installation, upgrading or retrofitting of a specific equipment or devices in the system such as but not limited to lighting retrofits, automated lighting control systems or smart control systems, HVAC upgrades, boiler replacements, and other similar devices or equipment within a system. On the other hand, a complex EE project involves new installation, retrofitting or upgrading of system or a combination of systems. This includes demand-side management (DSM) projects or any other innovative DSM scheme with the intention of reducing overall energy consumption in the grid through measures implemented by an electric distribution utility or ESCO. The EUMB director also shared that EE projects implemented by ESCOs in 2020 alone amounted to PHP 689 million in total investments, which are estimated to deliver PHP 209.8 million in annual energy savings.

Raquel B. Echague, OIC-Director, Resource-Based Industries Service of the Board of Investments (BOI), presented the framework for fiscal incentives for EE projects which includes the regulatory framework for fiscal incentives, specific guidelines for EE projects, incentives under the CREATE Act and the criteria for investment priority determination.

She explained that under RA 11285 or the Energy Efficiency and Conservation (EE&C) Act, EE projects shall be included in the Investment Priorities Plan (IPP) of the BOI and entitled to incentives provided under EO 226 or the Omnibus Investment Code of 1987. The EE project must however be certified as such by the DOE and registered with the BOI. Dir. Echague also highlighted the fact that the EE&C Act provides that, after 10 years from effectivity of the Act, the inclusion of EE projects in the IPP shall be reviewed and may be extended by BOI. She assured the webinar participants that an ESCO or TPPD that will invest and provide services under a contract with the owner of the plant, facility or establishment, and not merely for the rendering of any energy management consultancy services, may qualify for BOI registration. Self-financed EE projects of existing plant, facility or establishment subject to the provisions of Article 11 of EO 226 and endorsement by the DOE, may also qualify for registration. It was clarified that the income eligible for ITH of an ESCO or TPPD shall be limited to the income of the registered enterprise directly attributable to the energy savings generated by the registered EE&C project corresponding to the implementation period as indicated in the service contract between the ESCO or TPPD and its client. Under EO 226, the ITH period shall not be more than four 4 years for non-pioneer projects, and six 6 years for pioneer projects.

Dir. Echague also reported that RA 11534 or the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) took effect on 11 April 2021 and the incentives provision of EO 226 was repealed by CREATE and that the  2020 IPP serves as the transitional Strategic Investment Priority Plan (SIPP). The CREATE Implementing Rules and Regulations (IRR) also provide that the SIPP shall include sectors or industries that are mandated by special laws to be listed in the IPP and granted incentives. The BOI-RBIS director also said that the Fiscal Incentives Review Board (FIRB) Resolution No. 05-2021 approved on 14 April 2021 states that projects or activities that will qualify under the transitional SIPP shall, at the minimum, be registered under Tier I without prejudice to an upgrade if qualified under the newly formulated SIPP.

The BOI-RBIS head confirmed that the ITH rate of EE projects will be according to the ITH schedule of the CREATE law for domestic-market enterprises, which assigns ITH benefits according to location and industry tier. For now, BOI classifies EE projects under Tier I, which are entitled to 4-year ITH for EE projects in the National Capital Region (NCR), 5-year ITH for EE projects in metropolitan areas or areas contiguous or adjacent to NCR, and a maximum 6-year ITH for all other areas. On top of the ITH incentive, EE projects can benefit from an additional 5 years of enhanced deductions (ED), and duty exemption on importation of capital equipment, raw materials, spare parts, or accessories.

Dir. Echague said that PE2 could help provide justifications to the BOI for their purposes of seeking FIRB reclassification of EE projects as Tier III to benefit from longer ITH periods. She said that BOI would welcome industry manifestations positioning EE investments as “critical to structural transformation and industrial revolution of the economy.”

PE2 president Alexander Ablaza the EE and ESCO industry’s perspective on the critical role of fiscal incentives in scaling up EE investments through 2040 in the overarching objective of mainstreaming EE as the economy’s first fuel. Incentives will be needed to mobilize an estimated PHP 12 trillion in EE capital flows through self-financed, debt-financed, lease-financed EE projects, ESCO performance contracts, public-private partnership transactions, joint-venture agreements, large-scale government retrofit programs and other off-balance sheet modalities in the next two decades. He explained that tax-based fiscal incentives for EE are over 500% recoverable through incremental tax collections flowing back to the national treasury, excluding huge social, economic and environmental benefits.

Ablaza summarized PE2’s key positions on fiscal incentives during the period 2016-2021. While many of these positions are being incorporated in policy measures, the more recent ones relating to the CREATE-SIPP guidelines will still need urgent attention. The 12 key PE2 positions on EE fiscal incentives include: (1) Fiscal incentives need to make third-party and ESCO projects investment-grade; (2) Tax-based incentives for EE are over 500% recoverable through incremental tax collections; (3) Restrictions to type of sector for EE host entity should be removed; (4) Incentives should flow to various types of EE proponents such as ESCOs, TPPDs, project special purpose vehicles and end-users; (5) EE projects, regardless of ownership by nationality, should have equal access to fiscal incentives; (6) EE projects need long-term certainty to availability of fiscal incentives and insulated from short SIPP review cycles; (7) Fiscal incentives should cover all components of EE project cost and not be limited to capital equipment only; (8) Guidelines should avoid limiting scope of EE technologies, but instead open up to all savings-based EE measures; (9) Guidelines under CREATE-SIPP should remove location-based distortions to ITH benefits of EE projects; (10) EE projects critically need Tier III classification under CREATE-SIPP; (11) EE projects may be treated as “exporters” due to avoidance of fossil fuel importation; and, (12) EE can generate 45% more jobs that infrastructure development.

Ablaza also made an early announcement that PE2’s EE Outlook 2021-2040 will be released soon. It shall incorporate DOE projections of final energy consumption in the recently approved Philippine Energy Plan 2020-2040 as well as a dampened growth scenario. He explained that the new projections will consider the EE sector reset triggered by the steadily increasing enforcement of the EE&C Act and the post-pandemic economic recovery. The outlook will attempt to break down the final energy consumption of “Services” sector into those of commercial buildings, public buildings and public services.

Theresa Acedillo-Lapuz, marketing director of Hi-Cool Engineering Corporation and PE2 vice-president for external affairs, proudly showcased their sustainable cooling systems upgrading projects for commercial and industrial facilities to demonstrate the type of EE projects that can be enabled by fiscal incentives.

Lapuz gave examples of their retrofit projects and how Hi-Cool can help change the energy landscape of commercial and industrial cooling systems in the country. One of their clients, International Wiring Systems Phils. Inc. was even recognized under the Don Emilio Abello Energy Efficiency Awards program after they replaced its air-cooled system with a water-cooled screw-type direct cooling system.

During the panel discussion, Dir. Aquino said that the DOE will be developing new EE programs, projects and activities as the energy agency’s top management led by Sec. Cusi recognize EE as a primary resource, and that energy saved is energy produced for the economy. He said, “We really need to focus on sustainability and that’s where EE comes into the picture. It should not be merely a battle-cry, but an actual way of life for all of us.”

Dir. Echague quickly built on the DOE position as she announced that BOI is currently working on enhancing the guidelines and would like to make sure that the EE projects are endorsed by DOE. She said she looks forward to continue working with the private sector as BOI seeks growth in EE investments and impacts to the economy.

Lapuz also saw that one challenge in growing the EE sector is the Filipino mentality that “one should not fix what is not broken,” and this hinders our response to the International Energy Agency call to deliver 44% of targeted emission reductions through EE.

Ablaza concluded that fiscal incentives are needed to mobilize capital into this new asset called energy efficiency and that one pragmatic outcome from a successful implementation of an EE fiscal incentive program is that traditional and non-traditional energy developers would embrace EE as a long-term and attractively viable investment.

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

RA 11285 - Text

RA 11285 - Signed

IRR - Signed

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

Working Together to Bridge an Energy Efficiency Financing Gap


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