Doing Solar PV Power

*RUTH P BRIONES

Project Teaser

Philippines

“Clean energy is climate change adaptation, which must be a global

effort. It is an acknowledgment that mankind´s greenhouse gas emissions

are the ones causing dramatic climate changes. The response must be in

two forms: for unclean energy, higher efficiency; for clean energy, higher

economics. The inventing must be now; the investing must be now.” -

Ruth P Briones July 29, 2010

OUTLINE

Assessment of Philippines’s solar energy potential

Outlining the project application process to secure approval

Foreign investment opportunities and project finance

All rights reserved

―In the Philippines, the solar power investment potential is even greater than the aspirational target

of 1,528MW attributed to solar in the National Renewable Energy Plan until 2030. According to the

DOE's 2009-2030 Power Development Plan (PDP), the country's energy consumption is seen

reaching 149,067 gigawatt-hours (GWh) by 2030, from an estimated demand of 86,809 GWh by

2018 and actual demand of 55,417 GWh in 2008.

Peak demand should hit 14,311 GWh by 2018 and go up to 24,534 GWh by 2030, from 2008's

9,226 GWh. To ensure adequate power supply considering these demand projections, 17,000 MW of

new capacities should be put in place. Luzon alone will need 12,500 MW in additional capacities in

the next 20 years, while Visayas and Mindanao – both already experiencing power shortfalls – will

need 2,150 MW and 2,500 MW in new capacities, respectively, during the same period. A number of

investors have committed to put up 1,338 MW of additional capacity in the three main island grids,

with commissioning of these new facilities targeted for the 2012-2014 period.

Of these committed capacity additions, the bulk will come from coal-fired power plants in Luzon and

Visayas, while all capacity commitments in Mindanao will come from renewable sources, particularly

solar, hydro and geothermal. According to the National Renewable Energy Program (NREP), the

country's RE base should reach 15,304 MW by 2030; almost triple the current installed base. Of this

total, 10% will be attributed to solar. The projected installed base for solar can actually be increased

and accelerated, considering the need to have additional capacities now. While coal, hydro, and

geothermal can provide much-needed additional capacities, these technologies require time and,

therefore, cannot avert rotating brownouts. Such facilities usually take three to five years to put up.

Considering the current supply-demand scenario, especially in Visayas and Mindanao, a year lost

without these additional capacities means lost opportunities.‖ (www.giz.de.com; www.renewables-made-in-

germany.com)

SOLAR POWER INVESTMENT POTENTIAL IN THE PHILIPPINES

A L L R I G H T S R E S E R V E D

PART I:

ASSESSMENT OF THE

PHILIPPINE SOLAR

ENERGY POTENTIAL

SOLAR ENERGY POTENTIAL IN ASIA

A L L R I G H T S R E S E R V E D

PHILIPPINES: 5.0 -5.5 kWh/m2/day

The Renewable Energy Map Potential in the Philippines

MINDANAO

VISAYAS

LUZON

A L L R I G H T S R E S E R V E D

A L L R I G H T S R E S E R V E D

SITES/ AREAS WITH

SOLAR ENERGY POTENTIALS IN THE

PHILIPPINES

792,147,408 MWhr/year

Rank No 68 globally, 2008

Second country in Southeast

Asia in terms of irradiation

and insolation.

Solar irradiation: 1900

kilowatts a square meter

PHILIIPPINES

SECOND COUNTRY IN ASIA-

IRRADIATION AND ISOLATION

Has all the foundation to become a renewable

energy leader in the region owing to the strong semi-

conductor industry and the manpower base

Most comprehensive

Renewable Energy Law in Asia

SOLAR PV ENERGY

INVESTMENT

POTENTIAL FOR THE

PHILIPPINES

A L L R I G H T S R E S E R V E D

YEAR LONG IRRADIATION DATA IN MOST AREAS IN

THE PHILIPPINES

A L L R I G H T S R E S E R V E D

AVERAGE: 4.5 kWh/mm2/day- 5.5 kW/mm2/day

Source: US NREL

A L L R I G H T S R E S E R V E D

Installation target:

50.0 MW

(2012-2014)

Degression Rate:

6% after one-year of FIT

FIT Price:

Php 9.68 /kWhr

(US$ 0.22)

New installation

target:

500.0 MW

(March 2015-2017)

AWARDED CONTRACTS BY DOE:

1,354.156 MW

INSTALLED (2014) CAPACITY: 22.0 MW

* 80MW ( ONGOING CONNECTION ACTIVITIES)

TARGET CAPACITY FOR 2030: 285 MW

ASPIRATIONAL CAPACITY: 1,528 MW

PART II.

Outlining the project

application process to secure

approval of a Solar

Renewable Energy Project

The permitting, connection

and installation process

Phase IV. Registration and connection

Signing of the 20-year Renewable Energy Purchase Agreement

Phase III: Development

Certificate of Compliance

(issued by the Energy Regulatory Commission)

Phase II: Pre-Development

DOE Confirmation of Commerciality

( conversion of the SESC) to development stage)

Phase I: Project Preparation

Solar Energy Service Contract (SESC)

Solar Energy Service Contract (SESC)- a service agreement between the Philippine Government thru the Department of Energy and an individual or juridical entity created, registered and /or authorized to operate in the Philippines in accordance with the existing Philippine laws and engaged in the exploration, development, or utilization of renewable energy sources and actual operation of RE systems and /facilities converting RE resources into useful energy forms like electrical. Such individual or entity is called Renewable Energy Developer. A DOE Certificate of Registration of the SESC issued to RE Developer serves as proof of entitlement to incentives under the RE Act.

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

Certificate of Commerciality, DOR approves the successful completion of pre-development stage and converts the SESC to the development stage.

Certificate of Compliance- A certificate given to a RE developer to engage in the operation of a power plant facility used to generate electricity pursuant to Section 6 of the Republic Act No. 9136; No person may engage in the generation of electricity as a generation company unless it has secured a Certificate of Compliance from the ERC to operate facilities used in the generation of electricity.

A L L R I G H T S R E S E R V E D

PHASES OF DEVELOPMENT OF SOLAR PV PROJECTS IN THE

PHILIPPINES UNDER THE RENEWABLE ENERGY LAW FEED-IN-

TARIFF SCHEME

OUTLINING THE PROJECT APPLICATION PROCESS TO SECURE

APPROVAL OF A SOLAR RENEWABLE ENERGY PROJECT

T H E D E V E L O P M E N T S T A G E S

I. Site and project assessment

II. Design and optimization

III. Procurement

IV. Installation and commissioning

V. Operation and maintenance

VI. Customer enablement

T E C H N I C A L A N D

R E G U L A T O R Y

R E Q U I R E M E N T S

Track Record/Experience

Work Program

Key Personnel Experience

List of Existing company owned equipment

available for RE projects operations

A L L R I G H T S R E S E R V E D

Financial Requirements:

i. Audited Financial Statement

ii. Bank Certification to substantiate

the Cash Balance

iii. Projected Cash Flow for two years

iv. List of existing company owned

equipment for the project

SOLAR ENERGY SERVICE CONTRACT REQUIREMENTS UNDER DOE DC2009-07-0011

Pre-development Stages

• Preliminary Assessment

• Feasibility Study

• Financial Closing

• Declaration of Commerciality

RE Developer procure permits

•Environmental Compliance Certificate

•Free and Prior Informed Consent

•Certificate of Non-Overlap

•Local Government Endorsements

•Other government permits

Service contract as RE Developer

• Individual Filipino

• Corporation: 60% Filipino; 40 % Foreign

• 100% Foreign owned – shall register under the Philippine Laws for Technical and Financial Assistance

A L L R I G H T S R E S E R V E D

IN ITS DEPARTMENT CIRCULAR NO. 2013-05-0009, THE DEPARTMENT OF ENERGY

(DOE) ISSUED ITS “GUIDEBOOKS FOR THE SELECTION PROCESS OF RE PROJECTS

UNDER FIT SYSTEM AND THE AWARD OF CERTIFICATIONS FOR FEED-IN TARIFF

ELIGIBILITY”).

Basic requirements:

•Only those RE developers with valid and subsisting Solar Energy Service Contract (RESC) may apply for the Eligibility and inclusion of their project under the FIT system.

• In their application for conversion of the RESC from pre-development stage to the development stage, RE developers have to indicate that their Declaration of Commerciality is based upon the approved FIT rate.

•A RE developer holding a SESC under development stage may apply for FIT eligibility provided that it shall include in its submission a notarized proof and/or declaration that the project is not bound under any contract to supply its generated energy to any distribution utility (DU) or consumer.

•A Certificate of Endorsement (COE) under the FIT can be issued by DOE after the confirmation of the electromechanical completion of the plant.

•Certificates of Endorsement under the FIT will be issued on a first-come, first-served basis until the approved installation target is fully subscribed.

A L L R I G H T S R E S E R V E D

PERMITTING PROCESS FOR SOLAR PV

PROJECT UNDER THE RENEWABLE ENERGY LAW STAGES GOVERNMENT APPROVALS AND ACTIONS

Project Preparation File Application at the DOE Conduct of Environmental Impact Assessment

Conduct of Feasibility Study Completion of Corporate Requirements

Pre-Development Requires: i. Environmental Trust Fund ii. Environmental Monitoring Fund iii. Environmental Guarantee Fund

BOI Project Registration DOA Certificate BIR Certificate Business Permit NCIP Certificate DENR Environmental Compliance Certificate DENR Permit to Operate DAR Order of Conversion LGU Resolution of Support from host municipality and provincial government LGU Building Permit LGU Electrical Permit

Distribution Impact Study LGU Certificate of Final Inspection DOE Solar Energy Service Contract DOE Certificate of Confirmation of Commerciality

Development

Conduct of Grid Impact Study DOE Confirmation of Electromechanical Completion DOE Certificate of Endorsement for FIT Eligibility

ERC Certificate of Compliance

Registration and Connection NGCP/DU Connection Agreement NGCP Transmission Service Agreement NGCP Metering Service Agreement TRANSCO RE Payment Agreement Registration to the WESM DU Power Supply Agreement

DU Connection Agreement

A L L R I G H T S R E S E R V E D

Selection Process of RE Projects under FIT System and the Award of Certifications for Feed-In Tariff Eligibility‖ (FIT

Department Circular No. 2013-05-0009

SESC

Issued by DOE

To SPV Developer

Declaration of Commerciality

SPV developer submits to DOE

Certificate of Confirmation of Commerciality

-issued by DOE

A L L R I G H T S R E S E R V E D

Certificate of

Endorsement the

NGCP

NGCP to

conduct Grid

Impact Study

Interconnection

Agreement/

Renewable

Energy Purchase

Agreement

FACTORS IN SITE SELECTION FOR THE SPV PROJECT

Slope: the land must be flat free and not being used for years as an agricultural land.

Distance and Accessibility: Can be accessed by vehicles

Near the national grid Free of obstacles

Free of shadings Has perfect soil for ramming of the substructure

Alienable and disposable not being use for agricultural farming in 5-years

Not forest land except that a land tenurial instrument is procures

Not covered by CARP Law

A L L R I G H T S R E S E R V E D

SPV SITE LOCATION SELECTION FOR UTILITY PROJECTS IN THE

PHILIPPINES- REQUIREMENTS

Not located in flood prone and typhoon prone areas

Consider peace and order situation.

Consider the environmental, political, social, economic and technical issues in the locality.

Not blocked by the existing RE source application.

A L L R I G H T S R E S E R V E D

Legal

Instruments

• 25-year Usufruct

• 25-year Lease agreement

• Lease –Purchase

• Purchase

SITE SELECTION

CLIMATE CHANGE

MAP

IN THE PHILIPPINES

A L L R I G H T S R E S E R V E D

PART III.

Foreign investment

Opportunities and project

finance for solar pv power

LEGAL AND REGULATORY INSTITUTIONAL

FRAMEWORKS FOR FOREIGN INVESTMENTS IN

SOLAR PROJECTS IN THE PHILIPPINES

Republic Act No 9513 -Renewable Energy Law

Executive Order No. 226-Omnibus Foreign Investment Code of 1987

Republic Act No. 7042- Foreign Investment Code of 1991

Republic Act No.7721- Foreign Banks Act

Republic Act No.7652 – Investors Lease Act

Republic Act No. 7718- Build- Operate- Transfer Law

Investment Priority Projects of 2014

Philippine Millennium Development Goals

A L L R I G H T S R E S E R V E D

SOURCES AND MANNER OF FINANCING

Public Sector Loans – Government Banks ( Land Bank of the Philippines, Development Bank of the Philippines)

Private Sector Loans ( World Bank, International Financing Corporation, Asian Development Bank)

Short Term Loans Domestic Borrowings – local banks

Other Financing Institutions – international and local

A L L R I G H T S R E S E R V E D

SOLAR PV POWER HAS A GREAT DEAL OF APPEAL FOR

INVESTORS LOOKING AT OPPORTUNITIES IN THE

RENEWABLE ENERGY MARKET IN THE PHILIPPINES

Easy to assess and forecast the availability of the resource.

No variability associated with the cost of the main fuel, sunshine.

Compared to other renewable sources of energy, solar PV is quick to deploy.

A utility scale solar PV plant can be developed in 1.5 years as compared to an average of 2 years for onshore wind and up to 7 years for a geothermal power plant.

Rapid deployment makes solar an attractive solution in the Philippines in order to meet the country’s renewable portfolio standards and keep up with increasing energy demand.

A L L R I G H T S R E S E R V E D

INVESTMENT

PROPOSAL

AND APPROVAL

Any investment proposal

shall comply with certain

requirements under

Philippine laws.

A L L R I G H T S R E S E R V E D

Merger - must comply with the legal requirements under the Corporation Code of the Philippines;

Acquisition - must comply with Section 40 of the Corporation Code and subject to the restrictions regarding foreign equity ownership under the 1987 Constitution.

Management Contract - must comply with Section 44 of the Corporation Code.

Joint Venture - may be entered into without legal restriction on registration unless the parties thereto form another business organization requiring registration such as a corporation or partnership

Project Funding

Scheme

INVESTMENT PROPOSAL AND APPROVAL

B A S I C I N F O R M A T I O N U S U A L L Y S O U G H T B Y A N I N V E S T O R / F U N D E R

i. Name of proponent, Physical address, Postal address, Telephone number, Fax Number, E-mail address, name of contact person, Mobile Phone Number of contact person.

ii. Brief description of investment proposal

iii. Proposed Value of Investment

iv. Proposed Corporate status of the proponent

v. Proposed capital of investment entity and timing of capital take up

vi. Name and references of the EPC contractor

P R O J E C T I N F O R M A T I O N

R E Q U I R E D

i. Site of proposed investment

ii. Basis of access to site

iii. Proposed duration of investment

iv. Anticipated rate of return on investment

v. Environmental Impact of the investment

vi. Amelioration and remediation of environment impact

vii. Proposed employment impact

viii. Number, grades and source of any proposed expatriate staff and proposed duration of their employment

ix. Anticipated benefits of the investment to the economy and infrastructure

x. Audited balance sheet for proponent organization

xi. Due diligence certificate for proponent

xii. Company profile of proponent

A L L R I G H T S R E S E R V E D

THE SOLAR

POWER

INVESTMENT

BANKABILITY

CHALLENGE

Technology:

is it proven?

Can the EPC provide references and has

capability to deliver the project on time?

What is the anticipated ROI?

Will it be viable commercially with the

Feed-in-tariff rate of Php9.68 per kWhr?

When is the facility

generate a good return?

A L L R I G H T S R E S E R V E D

KEY DRIVERS IN

SOLAR PV PROJECT FINANCE

Project Analysis — Completion Risk Contractors

Manufacturers

Transmission Construction Contract Terms

Construction Technology Risk

Project Analysis — Operation Risk

Operator Operating Costs

A L L R I G H T S R E S E R V E D

FOREIGN INVESTMENT OPPORTUNITIES AND

PROJECT FINANCE

Solar projects can be complex and funding sources fickle. It is important for

developers to complete the solar project while funding is still available and

to ensure investors the project will operate as planned.

FOREIGN INVESTMENT

OPPORTUNITIES AND PROJECT FINANCE

A L L R I G H T S R E S E R V E D

Foreign and local solar technology developers are pushing for a massive installation of solar panels on rooftops of households, commercial establishments and buildings in the country.

Potential market for solar industry players : estimated at about $450 million, or P19 billion, yearly. Based on the 50,000 households (representing 10 per cent of the half a million constructions yearly) that can install solar panels with a capacity of 2 kilowatts.

To produce a kilowatt of solar power from these rooftop panels, one would need to invest about $ 3,500 for the actual components and installation works.

Investment can be recovered in about seven years;

Solar panels usually last for at least 25 years.

Proposed offtake for a Solar

Renewable Energy Project in the Philippines

•The electricity to be generated has the following offtake options:

•20-year Renewable Energy Purchase Agreement (REPA) under the Renewable Energy Act whereby the National Grid Corporation of the Philippines is the offtake counterpart;

•Sale of electricity directly to the Wholesale Electric Spot Market (WESM) or directly to the registered participants of the WESM;

•Sale of electricity under a 25-year Power Purchase agreement (PPA) with the local electric cooperative

•Sale of electricity under the Net Metering Scheme under the Renewable Energy Act.

A L L R I G H T S R E S E R V E D

A L L R I G H T S R E S E R V E D

The Renewable Energy Law (Republic Act No. 9513): This law

establish the framework for the accelerated development and advancement of renewable energy resources and development of a strategic program to increase its utilization. The pertinent provisions are as follows; The feed-in-tariff (FIT) system: providing the priority

connections, priority purchase and priority transmissions of the solar energy generated; Providing a fixed tariff for the sale of solar energy generated to be sold on the grid at Php 9.68 per kWh or US $ 0.225; The FIT is applied to the Solar energy generated in compliance with the Renewable energy portfolio standard (RPS);

Renewable Energy Market (REM). This is established in connection with the rules of the wholesale electricity spot market; Renewable Energy Option. The Philippines established the

Green Option program providing the end-users the option to choose RE resources as their source of energy;

The role of the Philippine government’s incentives is important in Solar

Renewable Energy Project, and it will take advantage of these incentives

to the maximum extent.

Philippine

Government

Renewable

Energy

Investment

Concession

• Income Tax Holiday (ITH) - for the first seven (7) years of its commercial operations; Additional investments in the project shall be entitled to additional tax income taxation after seven (7) years attributable to the investment;

•Duty Free Importation of RE machinery, equipment and Materials. – Within the first ten (10) years upon the issuance of a certification of an RE Developer, the importation of machinery and equipment and materials and parts thereof;

• Special Realty Tax Rates on equipment and machinery- realty and other taxes on civil works, equipment, machinery and other improvements of a Registered solar RE facilities shall not exceed one and a half (1.5) per cent of their original costs less accumulated normal depreciation;

• Corporate Tax Rate. After the seven (7) years of income tax holiday, if there are no improvements or additional investments on the solar energy facility, the Solar Energy Operator shall pay a corporate tax of ten per cent (10%) on its corporate net taxable income

• Accelerated depreciation. In case the solar energy developer failed to receive an ITH before full operation, it may apply for accelerated depreciation in its tax books;

• Zero Percent Value-Added Tax Rate- the sale of solar energy generated shall be subject to zero percent (0%) value-added tax (VAT);

• Cash incentives of Solar Renewable Energy developers for Missionary Electrification. The solar renewable energy developer shall be entitled to a cash generation-based incentives per-kilowatt hour generated, equivalent to fifty percent (50%) of the universal charge for power.

Philippine Government Incentives under Renewable Energy Law (R.A. 9513)

A L L R I G H T S R E S E R V E D

SOLAR ENERGY PROJECT INCENTIVES:

OMNIBUS INVESTMENT CODE OF 1987 (AMENDED BY RA 7918

• Income tax holiday for 6 years;

• Exemption from value-added tax;

• Simplified customs procedure;

• Unrestricted use of consigned equipment;

• Employment of foreign nationals;

• Deduction on taxable income of expenditures on necessary infrastructure related to project development;

• Additional deduction on taxable income of 50% of wages corresponding to the increment in direct labor hired within the first five years of registration;

• Deduction on taxable income of expansion expenses if additional deduction for labor expense were not claimed.

The Investment Code provides investment incentives to enterprises registered with the Board of Investments (BOI). Solar RE projects can be registered with the BOI for its “pioneer” status to avail privileges.

A L L R I G H T S R E S E R V E D

PLEASE CONTACT:

A L L R I G H T S R E S E R V E D

Ruth P Briones

Email: hrpbriones@gmail.com

Phone Nos: +632 263 5871

Mobile No: +63 916 627 0910