Philippines Central Bank to Introduce Incentives for Green Financing

Posted by Written by Ayman Falak Medina and Le Ha Phuong Reading Time: 3 minutes

The central bank of the Philippines, the Bangko Sentral ng Pilipinas (BSP), is proposing the introduction of new incentives to encourage sustainable and green project financing in the country. These incentives are part of the 11-point Sustainable Central Banking (SCB) strategy of the BSP to promote and scale up sustainable finance by integrating sustainability principles throughout its key operations.

The BSP intends to provide banks with an additional 15 percent single borrower limit on loans, credit accommodation, and guarantees to finance sustainable projects, such as transition activities to decarbonization until 31 December 2030, and a zero percent requirement rate for sustainable bonds. The BSP hopes this will entice other local banks to support sustainable initiatives. The reserve requirement rate is reduced to zero percent for existing and new issuances of green, social, sustainability, and other sustainable bonds, taking effect until December 31, 2025.

The Philippines expanding its green initiatives

The Philippines government is expanding initiatives to mitigate the future impact of climate change on the country.

The Philippines is vulnerable to climate change risks due to its location in the ring of fire and typhoon belt in the Pacific Ocean. An average of 20 typhoons enter the country annually between July and October, bringing devastating flooding and landslides.

Renewable energy projects open to foreign ownership

The Philippines has fully opened its renewable energy sector to foreign ownership through Circular No. 2022-11-0034, representing a significant shift to the country’s energy policies. The Philippine government hopes that allowing foreign ownership of renewable energy projects will increase the speed of the Philippines’ transition to renewable energy sources. The government aims for renewables to comprise 35 percent of power generation by 2030 and 50 percent by 2040.

With the change, foreign investors can now hold 100 percent equity in the exploration, development, and utilization of solar, wind, hydro, and ocean or tidal energy resources. The policy change comes as the Philippines seeks to attract foreign investment to boost its renewable energy sector and meet its long-term climate targets.

Namely, the circular amends Section 19 of the implementing rules and regulations by removing the requirement that the exploration, development, and utilization of solar, wind, hydro, and ocean or tidal energy sources can only be undertaken by Filipino citizens or entities that are at least 60 percent Filipino-owned. That requirement meant that foreign investors could only own up to 40 percent equity in such projects.

With foreign investors now able to own 100 percent equity in these projects, those currently operating in a joint venture with a Filipino partner may also now take a controlling stake in such ventures.

To encourage the development and use of renewable energy, the Philippine government has released an array of incentives and supportive policies. For example, the Renewable Energy Act of 2008 contains numerous incentives for investing in renewable energy, including:

  • A seven-year corporate income tax holiday;
  • A reduced 10 percent corporate income tax rate upon expiration of the tax holiday;
  • Tax exemptions for carbon credits generated from renewable energy sources;
  • A 1.5 percent realty tax cap on the original cost of equipment and facilities used to produce renewable energy; and
  • Value-added tax exemptions for the purchase, grid connection, and transmission of electricity generated from renewable sources.

The Philippines’ untapped renewable energy potential

The Philippines has an estimated 246,000 megawatts (MW) of untapped renewable energy. It has the world’s third-largest geothermal capacity at 1,900 MW with Indonesia in second and the US on top.

The country’s current mix of renewable energy consists of 4.3 gigawatts (GW) of hydropower, 896 MW from solar energy, and wind 427 MW. The Philippines adopted an ambitious plan to increase the share of renewable energy in the power generation mix to 35 percent by 2030 and 50 percent by 2040.

This involves increasing geothermal capacity by 75 percent, expanding hydropower capacity by 160 percent, increasing wind power capacity to 2,345 MW, and adding an additional 277 MW of biomass power. The Department of Energy estimates the country needs US$120 billion by 2040, presenting ample opportunities for foreign investors.

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