Government urged to review foreign ownership rule in RE projects

MANILA, Philippines — The Philippine government should review its foreign ownership rule in renewable energy (RE) projects, as well as look into offering end-to-end project deals to enable more investments in the sector, according to an associate partner of global management consulting firm McKinsey & Company.

In a virtual forum last week, McKinsey & Company associate partner and vice president of McKinsey Transformation Jon Canto said getting sufficient foreign investment into the country would help boost the Philippines’ RE sector.

“The big question is what is the foreign ownership limit per technology and the sector overall. In a lot of markets in the region, there’s no particular limit. There may be a requirement to work with a local partner, but there is not an equity share limit for ownership and that clearly is a driver,” Canto said.

Last year, the Department of Energy (DOE) opened the country’s geothermal sector to greater foreign investments by allowing 100 percent foreign participation in large-scale geothermal projects.

This is through the third Open and Competitive Selection Process wherein foreign companies are now allowed to participate in geothermal exploration, development, and utilization activities with a minimum investment cost of $50 million and under the financial and technical assistance agreements as provided by the Philippine Constitution.

Meanwhile, in the omnibus guidelines for the award and administration of RE contracts issued in 2019, the DOE allowed 100 percent foreign ownership in biomass projects, which means foreign firms no longer need to partner with a local entity to construct such facilities.

Earlier this month, DOE Undersecretary Felix William Fuentebella said the National Renewable Energy Board relaxed foreign ownership in solar and wind projects, but this may need legislation to allow higher foreign ownership in RE technologies.

Apart from allowing higher foreign ownership, Canto said the government could provide specific incentives for investors—not just financial incentives—that can help reduce risks on the side of the developer.

“It’s not just tariff and other types of incentives. It may be an end-to-end package, just like a deal where you provide infrastructure, which includes transmission, land, like what they’re doing in India and Cambodia with their solar parks,” he said.

“That de-risks the project significantly and allows foreign investors to bid on the projects,” he said.

The government can also incentivize hybrid projects that support clean and sustainable energy development.

“The other thing that we’ve seen is also incentivizing or packaging hybrid bids between renewables and gas that will allow more flexibility in the system and get more projects sooner because of the complementary of certain technologies,” Canto said.

The Philippine government has set a target of 35 percent RE supply by 2030 and a higher percentage by 2040 as part of the country’s energy transition to a low carbon future.

To achieve a clean energy scenario, the country needs to install a total of 44,761 megawatts of additional RE capacity.

The DOE has laid down the National Renewable Energy Program (NREP) 2020-2040, which sets the target of around 34,000 MW of renewable energy installations by 2040.