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Cablegate: Philippine Renewable Energy Act: Hope for Green Energy

VZCZCXRO7240
OO RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHML #2731/01 3510902
ZNR UUUUU ZZH
O 160902Z DEC 08
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2701
RHEBAAA/USDOE WASHDC IMMEDIATE
INFO RUCPDOC/USDOC WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION IMMEDIATE

UNCLAS SECTION 01 OF 02 MANILA 002731

STATE PASS TO ENVIRONMENTAL PROTECTION AGENCY

SIPDIS

SENSITIVE

STATE FOR OES, EB/IFD/OIA, EB/ESC AND EAP/PMBS
DOE FOR TOM CUTLER
TREASURY FOR JVELTRI
STATE PASS USAID FOR AA/ANE, AA/G
STATE PASS EXIM, OPIC AND USTR
USDOC FOR 4430 ITA/MAC/ ASIA & PAC/KOREA & SE ASIA/ASEAN
TREASURY FOR OASIA

E.O. 12958: N/A
TAGS: ENRG SENV EINV RP
SUBJECT: Philippine Renewable Energy Act: Hope for Green Energy
Independence

1. (SBU) Summary: The Renewable Energy Act of 2008, signed into law
on December 16, mandates policies and measures to accelerate the
development and utilization of renewable energy in the Philippines
through incentives for investors yet allows end-users to choose
their source of energy. The bill seeks to reduce Philippine
dependence on imported fuel and encourage alternative energy
resources. The USG played a key role in helping to develop the
legislation. End Summary.

Provisions of the Act
---------------------

2. (U) The Act requires energy distributors to purchase a minimum
percentage of their annual energy supply from renewable sources,
which will be determined by the new National Renewable Energy Board.
It provides for a feed-in-tariff mechanism that sets a fixed price
for electricity from renewable sources for 12 years. Eventually,
allows consumers to choose to use renewable energy from sources such
as hydro, wind, solar, and biomass including biofuels over crude and
other petroleum products.

3. (U) Financial incentives include a seven-year income tax holiday
and a fixed five percent gross income tax thereafter; duty-free
importation for renewable energy equipment and materials; tax
credits on domestically produced capital equipment and services;
cash incentives to investors to provide clean energy to off-grid
communities; and tax exemption of carbon credits. Under the bill,
the government is entitled to one percent of the gross income of
renewable energy developers on sale of renewable energy produced, in
lieu of income tax.

Industry Impact
---------------

4. (U) The Philippines is the second largest geothermal power
producer in the world, has the highest wind power potential in
Southeast Asia, high solar penetration, and abundant hydropower and
biomass resources. The country's existing renewable energy capacity
was 5,500 megawatts at the end of 2007. The Philippine Energy Plan
projects that an additional 5,400 megawatts of capacity will be
needed for the period of 2009-2012. Last year, the country imported
101.4 million barrels of oil for $7.5 billion. The country's
Renewable Energy Coalition estimated that renewable energy sources
could eventually reduce the country's oil imports by half.

Renewable Energy Projects Planned
---------------------------------

5. (U) A total of 2,500 megawatts of renewable energy projects are
planned, according to the Philippine Department of Energy. Industry
players estimate about $850 million of renewable energy projects
were held for the final passage of the bill, including: 220
megawatts of geothermal projects, 120 megawatts of wind power
projects, and 10 megawatts of solar energy projects.

USG Support
-----------

6. (SBU) The USG supported development of the renewable energy
legislation over the past six years through the Renewable Energy
Coalition. USAID provided technical assistance to the Philippine
Department of Energy in policy, capacity building, and advocacy
activities. In 2005, USAID and the U.S. Department of Energy
supported a U.S. renewable energy study tour for key Philippine
legislators and officials, which included visits to renewable energy
facilities in California and meetings with California officials.
USG support continues through assistance in development of
implementing rules and regulations.

Comment
-------

7. (U) The Philippine Renewable Energy Act of 2008 should foster
innovation, save foreign exchange costs, reduce the country's
dependence on imported oil, and complement the Biofuels Act of 2006
in encouraging clean energy development. However, renewable energy
projects tend to be capital intensive and with current tight

MANILA 00002731 002.2 OF 002


international and domestic capital markets, investors may have a
difficult time bankrolling projects over the short to medium term.

KENNEY

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