GREEN FUNDINGLegal UpdatesRoderick R. C. Salazar III

GREEN FUNDING FOR A FLOATING SOLAR PROJECT – A Look at Eligibility, Legal and Regulatory Issues

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GREEN FUNDING FOR A FLOATING SOLAR PROJECT – A Look at Eligibility, Legal and Regulatory Issues
By Roderick R.C. Salazar III, Senior Partner – Fortun Narvasa & Salazar

Introduction: As early as 2009, the Philippines recognized the vulnerability of the Philippine archipelago and its local communities, particularly the poor, women, and children, to potential dangerous consequences of climate change such as rising seas, changing landscapes, increasing frequency and/or severity of droughts, fires, floods and storms, climate-related illnesses and diseases, damage to ecosystems, biodiversity loss that affect the country’s environment, culture, and economy. Thus, with the enactment of the Climate Change Act of 2009, the State policy is to cooperate with the global community in the resolution of climate change issues, including disaster risk reduction. The Philippines also adhered to the generally accepted definition of “Climate Change” as referring to a change in climate that can be identified by changes in the mean and/or variability of its properties and that persists for an extended period typically decades or longer, whether due to natural variability or as a result of human activity.

Eight years thereafter, however, the Philippines continued to rank high in terms of vulnerability, i.e. refers to the degree to which a system is susceptible to, or unable to cope with, adverse effects of climate change, including climate variability and extremes. In the 2017 World Risk Report, the Philippines ranked third most vulnerable country and was shown to have a very high danger-exposure levels due to the threat of natural disasters such as earthquakes, hurricanes (typhoons and torrential rains), and flooding. It was noted that global warming and the resulting climate change increase the intensity and frequency of these weather-influenced natural disasters. Philippines is observed to have limited protective measures available in the event of natural disasters and insufficient capacities to effectively boost disaster preparedness and thus counteract serious exposure to danger.

Three years hence, the Philippines’ ranking improved a bit as it is now ranked 9th in the world as the most affected country from extreme weather events in the 2020 World Risk Index (WRI) with a score of 20.96; 9th in high vulnerability to natural hazards; and 9th in terms of exposure to extreme weather events.

Cognizant of such high vulnerability ranking, the Philippine Government has recently launched on October 20, 2021, the Sustainable Finance Roadmap (the “Roadmap”) which will serve as the country’s masterplan to create synergy between public and private investments in providing sustainable finance for the Philippine transition to a clean, sustainable and climate-resilient economy. This roadmap shows how the country is transitioning from simply paying lip-service to the concept of climate change to its recognition of the growing trend amongst the international community of implementing practical adaptation and mitigation projects. This action appears to show a whole-of-nation as well as blended approach to harness climate finance which has three (3) crucial elements (1) grants for capacity building; (2) investments for green projects; and (3) subsidies for the financial costs and risk of communities, transitioning to a climate-resilient economy. The Department of Finance, in particular, aims to issue the first-ever sovereign green bonds.

This government undertaking follows an earlier issuance by the Bangko Sentral ng Pilipinas (BSP) of its Circular on Sustainable Finance Framework on 29 April 2020 – BSP Circular No. 1085. This Circular mandates Philippine banks to adopt sustainability principles and push for sustainable financing which it defines as “any form of financial product or service which integrates environmental, social and governance criteria into business decisions that supports economic growth and provides lasting benefit for both clients and society while reducing pressures on the environment. This also covers green finance which is designed to facilitate the flow of funds towards green economic activities and climate change mitigation and adaptation projects.”

But even prior to the DOF and BSP actions, the Philippine Securities and Exchange Commission (SEC) also earlier issued its SEC Memorandum Circular No. 12, Series of 2018 (August 31, 2018) which provides the “Guidelines on the Issuance of Green Bonds under the ASEAN Green Bond Standards in the Philippines” (“SEC Guidelines”). The SEC Guidelines effectively now allow the issuance of ASEAN Green Bonds by ASEAN corporate entities after prior registration with the SEC, the proceeds of which will be exclusively applied to finance or refinance, in part or in full, new and/or existing eligible Green Projects, such as renewable energy, that provide clear environmental benefits.

It is in the foregoing context of accessibility to green bond financing that this research will focus on with particular emphasis on the eligibility, legal and regulatory risks that floating solar photovoltaic (FPV) projects face. This paper will look into the growth of green financing in the country, cite examples of private and public green funding of eligible green projects, discuss applicable laws related to this topic such as RA 11285 or the Energy Efficiency and Conservation Act which mandates financing for renewable energy projects; and recommend measures to address the risks identified. This paper will seek to respond to the question of whether the Philippines is able to provide sufficient legal and regulatory framework for green financing, in general and to funding of FPV, in particular. This paper is a desk-based research and is not supplemented by any validation interviews of government officials involved in the country’s energy policy planning and implementation.

The focus and interest of the research paper is on FPV projects as the author is currently involved in one such potential installation. Floating solar technology is similar to that of a land-based PV system, other than the fact that the PV arrays and often the inverters are mounted on a floating platform and where the direct current (DC) electricity generated by PV modules is gathered by combiner boxes and converted to alternating current (AC) by inverters. The platform, together with its anchoring and mooring system, is an integral part of any FPV installation.

FPV installations in the country offer an alternative of land based PV projects given the land use challenges that the country is facing as well as the greater availability of water bodies since the Philippines is an archipelago. Thus, if indeed green financing is made readily available to and worthwhile with good economic returns for proponents of FPV projects, then this would greatly contribute to the country’s efforts at mitigating the risks arising from climate change.

Philippine Government Responses and Plans:

Sustainable Finance Roadmap: This comprehensive Roadmap is the result of the Philippines’ commitment under the Paris Agreement. It will be recalled that the Philippines, along with 174 countries, signed the Paris Agreement on April 25, 2016. On March 14, 2017, the Senate unanimously passed a resolution agreeing to enter into the accord, making the Philippines the 135th country to ratify the deal.

The Paris Agreement: Also referred to as the Paris Accords or the Paris Climate Accords, it is a legally binding international treaty on climate change which was adopted by 196 Parties at Conference of Parties (COP) 21 in Paris, on December 12, 2015 and entered into force on November 4, 2016. This Agreement resulted from negotiations among the member countries of the United Nations Framework Convention on Climate Change (UNFCCC). Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.

This is a long-term temperature goal where the signatory countries seek to urgently reach global peaking of greenhouse gas (GHG) emissions and achieve a climate neutral world by mid-century, even as it also recognized that peaking by developing countries, like the Philippines, will take longer. This Agreement aims to strengthen the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty, including by making finance flows consistent with a pathway towards low GHG emissions and climate-resilient development.

The Accord was in recognition of the fact that climate change is a global emergency that goes beyond national borders, an issue that requires international cooperation and coordinated solutions at all levels. The Agreement works on a five- year cycle of increasingly ambitious climate action carried out by countries. Every five years, each country is expected to submit an updated national climate action plan – known as Nationally Determined Contribution, or NDC. In their NDCs, countries communicate actions they will take to reduce their GHG emissions in order to reach the goals of the Agreement. Countries also communicate in the NDCs actions they will take to build resilience to adapt to the impacts of rising temperatures.

The operational details for the practical implementation of the Paris Agreement were agreed on at the UN Climate Change Conference (COP24) in Katowice, Poland, in December 2018, in what is colloquially called the Paris Rulebook, and finalized at COP26 in Glasgow, Scotland, in November 2021.

On ratification by the Philippine Senate, Senator Loren Legarda had this to say – “This accord is a manifesto for climate justice. It also allows our country access to international climate finance mechanisms and to acquire support from developed countries for adaptation, mitigation, technology development and transfer, and capacity building.”

Bodansky describes the Agreement as one that falls under the fourth phase of the development of the UN climate regime and one that addresses the period since 2005 which has focused on what to do after 2012 (Doha Agreement) and for the Paris Agreement from 2020 onward “after one last kerkuffle”. Bodansky describes the first three (3) phases of the UN Climate Regime as (i) agenda-setting phase (extending through 1990); (ii) constitutional phase (when the basic framework of the UN climate regime was put in place in 1991 and continuing to 1994, when the UNFCCC entered into force; and (iii) regulatory phase, focusing on the negotiation, elaboration, and operationalization of the Kyoto Protocol, which required industrialized countries to reduce their carbon dioxide emissions, and five other gases that contribute to the greenhouse effect.

La Vina, et al. assert that “as attention shifts from ratification to implementation, the Paris Agreement could be a powerful tool to tip the scale towards the sustainability pillar of the energy trilemma; (T)his, because energy is the biggest contributor to carbon emissions, and so policymakers cannot escape energy policy reform if they wish to achieve Paris goals. (T)he rapid depletion of the world’s remaining carbon budget compels countries to do their part in reducing reliance on fossil fuels to reduce carbon emissions.”

When La Vina refers to the “energy trilemma”, he refers to “the conflicting goals that governments face in securing energy supplies, providing universal energy access, and promoting environmental protection” defined across three (3) dimensions. The first trilemma is “Energy Security” which “reflects a nation’s capacity to meet current and future energy demand reliably and withstand and bounce back swiftly from system shocks with minimal disruption to supplies. The second is “Energy Equity” which assesses a country’s ability to provide universal access to affordable, fairly priced, and abundant energy for domestic and commercial use. The third aspect refers to “Environmental Sustainability of Energy Systems” which represents the transition of a country’s energy system toward mitigating and avoiding potential environmental harm and climate change impacts.”

The Energy Trilemma is a recognition started by the World Energy Council in 2010 that countries develop different energy policies based upon their domestic circumstances with varying natural resources, geographies, and socioeconomic systems. This divergence of differing systems and contexts mean that there is no single golden path for successful energy transition, and instead, each country will need to determine its own best energy policy pathway considering its national situation and priorities.

Philippine NDC: On April 15, 2021, the Philippines communicated to UNFCCC its NDC which it describes as supportive of the country’s national development objectives and priorities of sustainable industrial development, poverty eradication and inclusive growth, energy security, and social and climate justice, and the transformation of its socio-economic sectors towards a climate and disaster-resilient and low carbon economy. In its submission, the Philippines asserts that it shares the view that the NDC is a means to communicate opportunities for transforming our world with gender-responsive sustainable development options through the commitment of Parties to support and complement each other’s endeavors in accordance with the partnership arrangement under the UNFCCC and the Paris Agreement.

In the area of Climate Mitigation, the Philippines’ actions are aimed at strengthening the resilience and adaptive capacity of the country, including through enhanced access to climate finance, technology development and transfer, and capacity building, especially on the implementation of the policies and measures on and the uptake of circular economy and sustainable consumption and production practices.

In terms of GHG emissions, the Philippines recognized that it emits an average of 1.98 metric tons of carbon dioxide equivalent per capita in 2020, or way below the global average of four (4) metric tons per capita. Thus, the Philippines commits to a projected GHG emissions reduction and avoidance of 75%, of which 2.71% is unconditional and 72.29% is conditional, representing the country’s ambition for GHG mitigation for the period 2020 to 2030 for the sectors of agriculture, wastes, industry, transport, and energy.

For Climate Adaptation, the Philippines commits to undertake adaptation measures across but not limited to, the sectors of agriculture, forestry, coastal and marine ecosystems and biodiversity, health, and human security, to preempt, reduce and address residual loss and damage. The Philippines further undertakes to pursue forest protection, forest restoration and reforestation, and access to results-based finance in forest conservation. The country likewise asserts that it shall also endeavor to undertake equitable adaptation strategies with mitigation co-benefits and ensure their contribution to the national pandemic recovery.

Sustainable Finance Roadmap – This Roadmap is apparently designed to lay out the high level action plans of the whole of government approach to promote sustainable finance in the Philippines. It is in its First Phase that focuses more on the transition to low carbon economy.

The Roadmap also mentions the recognition by the Philippines of the imperative to transform into a more sustainable and environmentally mindful society and move to a more circular economy, “a system in which resources are used to their maximum extent before being disposed of.” This transformation is deemed as inevitable as the Philippines is faced with an increasing population, limited availability of natural resources, and extreme vulnerability to climate change. Transitioning to a circular economy is also seen as creating opportunities for investments, growth, and employment.

The Roadmap also sees that mobilizing finance to support sustainable activities will be critical to the transition towards a circular economy. The roadmap provides details of how the Philippine government will support the ongoing development of the Philippine sustainable finance ecosystem. It outlines specific actions and activities that will be taken forward.

Secretary of Finance and Climate Change Commission (CCC) Chairman-Designate Carlos Dominguez III said that the Roadmap, along with its guiding principles, will serve as the Philippines’ masterplan in formulating green and sustainable policies to raise the capital and investments needed in reducing the country’s greenhouse gas emissions while increasing its economic output. He stresses that the Roadmap underscores the Philippine commitment to deliver on its carbon reduction pledges and is an appropriate finance policy that will help in the reduction of carbon emissions.

In developing the Roadmap, the Inter-Agency Technical Working Group for Sustainable Finance (ITSF) identified some of common issues: • The need for a strong coordinating efforts in the financial ecosystem • The Lack of awareness of available resources to finance sustainable activities • The need for transparency and a sustainable pipeline database.

As a result, the Roadmap provides for three (3) pillars, thus:

    • (i) Pillar A: Creating a conducive environment (the Policy Pillar) This pillar recognizes the importance of creating an environment of transparency and risk management; the need to strengthen policies to improve transparency on climate-related finance, develop policies to promote sustainability risk management, conduct capacity building to raise awareness regarding sustainable finance, and enhance reporting of green and climate finance flows.
    • (ii) Pillar B: Mainstreaming sustainable finance (the Financing Pillar) This pillar aims to promote sustainable financial products through: incentives and penalties, leverage on available financing, and establishing a sustainable insurance mechanism.
    • (iii) Pillar C: Developing a sustainable pipeline (the Investment Pillar) This pillar acknowledges that in achieving the goals of sustainable finance, a whole of nation effort is needed. This pillar aims to establish a sustainable pipeline database for the public and private sector and monitor progress and provide for regular updating, including linking the sustainable pipeline to SDGs, PDP, and NDC targets.

    This Paper focuses on Pillar B which has the following strategic plans for implementation:
    (i) promoting sustainable financial products; (ii) improving the sustainable finance definition and creation of a principles-based taxonomy; and (iii) tracking sustainable finance flow.

    At present, the term “Sustainable Finance” is defined by the BSP as referring “to any form of financial product or service which integrates environmental, social and governance criteria into business decisions that supports economic growth and provides lasting benefit for both clients and society while reducing pressures on the environment. (T)his also covers green finance which is designed to facilitate the flow of funds towards green economic activities and climate change mitigation and adaptation projects.” Thus, the Roadmap focuses on activities related to both the greening of the financial system and the financing of sustainable activities, with a focus on climate change as a critical contributor to achievement of the SDGs.

    Promoting Sustainable Financial Products: The Roadmap recognizes that the real economy is being transformed due to sustainability considerations and that as a result, the financial services sector is also changing. The Roadmap notes that there is a growing realization that the transition to a low carbon economy cannot be achieved solely through the financing of companies with green activities (e.g. low carbon energy projects, electric vehicles). The Roadmap recommends that the process of transforming the market needs to be mainstreamed to meet global sustainability demands.

    The Roadmap found that “globally, there is a wide range of sustainable financial products, including: green loans, social loans, green bonds, social bonds, blue bonds, transition bonds, sustainability bonds, sustainability-linked bonds, gender bonds, and other related bonds. However, green, social, and sustainability bonds are the most common sustainable financial products in the market. In ASEAN, 94 sustainability bonds have been issued for a total amount of USD23.2 billion from 2016 to June 2021.

    The Roadmap notes that in the Philippines, there are currently no financial support measures for the issuance of sustainable financial products. At present, 20 sustainable bonds for a total amount of USD4.3 billion have been listed/issued from 2016 to June 2021 in the Philippines. More Philippine companies are devoting resources for environment-friendly and sustainable initiatives, suggesting that there is room to increase the quantity and volume of sustainable bonds issued in the Philippines. Thus, the Roadmap recommends that as the demand for sustainable bonds increase, there is a need to focus efforts on increasing the supply of sustainable bonds.

    The BSP Circular – Sustainable Finance Framework – This Circular sets out the expectations of the BSP on the integration of sustainability principles, including those covering environmental and social (E&S) risk areas, in the corporate governance and risk management frameworks as we as in the strategic objectives and operations of banks. It adds a new section, Section 153 to the Manual of Regulations for Banks (MORB) with a recognition of the critical role of the financial industry in pursuing sustainable and resilient growth by enabling environmentally and socially responsible business decisions consistent with the aspirations set out for the Filipinos under the Philippine Development Plan. The Circular also requires banks to add a discussion in their annual reports on sustainable finance. Full compliance by the bank is required within a period of three (3) years from the effectivity of the Circular along with a transition plan with specific timelines to implement the board-approved strategies and policies on this matter.

    SEC MC No. 12, Series of 2018 – Guidelines on the Issuance of Green Bonds under the Asean Green Bonds Standards: This SEC Circular was issued to primarily govern the issuance of the ASEAN Green Bonds (“AGB”) where proceeds will be exclusively applied to finance or refinance, in part or in full, new and/or existing eligible Green Projects (“GP”). GP’s are those that have clear environmental benefits that include (a) Renewable energy; (b) Energy efficiency; (c) Pollution prevention and control; (d) Environmentally sustainable management of living natural resources and land use; (e) Terrestrial and aquatic biodiversity conservation; (f) Clean transportation; (g) Sustainable water and waste water management; (h) Climate change adaption; (i) Eco-efficient and/or circular economy adapted, production technologies and processes; and (j) Green buildings which meet regional, national, or internationally-recognized standards or certification. Fossil fuel power generation projects are explicitly excluded from the AGB Standards.

    The Circular requires that the Issuer must establish the process for project evaluation and selection prior to issuance of the AGB and they are encouraged to position the information within the context of the Issuer’s overarching objective, strategy, policy, and/or processes relating to environmental sustainability.

    Moreover, the Issuer is required to disclose project evaluation and selection process to investors the following: (a) environmental sustainability objectives;(b) process on how the project fit within the eligible GP categories; (c) related eligibility criteria or any process applied to identify and manage potentially material environmental and social risk associated with the GP; and (d) any green standard or certifications referenced in project selection.

    Green Financing and Green Bonds: In a Paper entitled “Green Bonds: Adopting a Green Financing Initiative in the Philippines,” Francis Adrian Viernes (Viernes) defines the term “Green Finance” as the financing of investments that promotes environmentally sustainable developments. He adds that Green financing is fueled by investors around the world becoming aware of the problems in the environment and recognizing that need to allocate resources for solutions to these. These socially aware and responsible investors, then turn to the financial markets to achieve a positive impact on communities around them while achieving some financial returns.

    Viernes also defines “Green bonds” as “just like ordinary bonds, except that its proceeds must be used for “green” or environmentally-friendly projects. As such, in addition to the normal returns that bond investors get, they get an additional benefit, a positive impact on the environment. Since the issuance of the very first green bond in 2007 by the European Investment Bank, and the World Bank in 2008, demand for green bonds has exponentially increased. (Macpherson, Rieger, Horan, & Sokol, 2017). This growing demand indicates that investors are incorporating the principles of Environmental, Social and Governance (ESG) principles into their investing consciousness. As a testament to this, most initial issuance of green bonds are “oversubscribed” (Cowan, 2017), indicating strong investor confidence. The development and growth of the green bond market likewise bears similarities with that of sukuk, which are Islamic Investment certificates or Islamic bonds. These two types of financing generates passionate followers and investors and are considered more ethical than conventional bonds.”

    Philippine Market Issuances of AGBs: Since the issuance of the SEC Circular on AGBs, the Philippine financial market has responded favorably. In fact, the Climate Bonds Initiative (CBI) came up with the Green Infrastructure Investment Opportunities (GIIO) Report for the Philippines in 2020 and it declared that the Philippines is the 3rd largest green bond issuer in ASEAN and a leader in the ASEAN green bond market, thus:

    In addition to issuing the very first green bond in the region – the AP Renewables’ USD226m deal in early 2016 – it also issued the first Climate Bonds Certified green bond, a sign of best practice in the market in terms of climate ambition. The growth of the green bond market in the Philippines is notably driven by the private sector. To date, only one government entity has issued a green bond. … Most of the proceeds were allocated to renewable energy. The largest issuer of green bonds in the Philippines is AC Energy, with four green bonds outstanding, ranging in size from USD75m to USD400m. In 2020, two more bonds by Arthaland and AC Energy were issued. … This brings the cumulative green bond issuance in the Philippines to USD2.6bn. In addition to the 13 green bonds, 2 sustainability bonds have also been issued amounting to USD796m.

    xxx xxx xxx

    Four banks have issued green bonds in the Philippines.

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    The Lopez-led Energy Development Corp. (EDC) listed P5 billion worth of ASEAN green bonds at the Philippine Dealing Exchange Corp. (PDEC) on June 25, 2021. In a statement, EDC said this was the first SEC-registered AGB issuance offered by a local power company.

    BDO Unibank Inc. issued its first green bond, raising $150 million to expand financing for private sector investments that help address climate change. This marks the first green bond issued by a commercial bank in the Philippines. IFC, a sister organization of the World Bank, is the sole investor in the bond. The funds will be used exclusively to finance climate-smart projects including renewable energy, green buildings, and energy-efficient equipment.

    Although not to be listed in the PDEC, but at the Singapore Exchange Securities Trading Platform, a subsidiary of Philippine-based AC Energy Corp. planned in September 2021 to issue green bonds to raise gross proceeds of US$40 Million. The funds raised will be used to support new or existing renewable energy projects in the Philippines or abroad.

    From its most favorable findings in respect of the Philippine response to the AGB initiative, CBI basically recommended, to wit:

    In order to attract investors looking for green, the Philippines needs to be sure that there is a visible pipeline of infrastructure investment opportunities that align with internationally accepted definitions of green. There is often limited awareness and appreciation among some market participants of ‘what are green investments’ beyond solar and wind energy. The lack of understanding of what are green investments makes it difficult for governments to develop pipelines of commercially viable, green infrastructure investment opportunities that are able to support the nation’s transition to a low carbon economy.

    Commentators have observed that Green bond policies in ASEAN are effective in promoting green bond issuance. However, this does not mean that green bond policies are effective in promoting renewable energy and energy efficiency projects in ASEAN. Proceedings of green bonds issued in ASEAN can be used for financing projects abroad or re-financing past loans, thus do not necessarily promote green investments in ASEAN.

    Relevant Philippine Laws on Renewable Energy Development:

    RA No. 11285- An Act Institutionalizing Energy Efficiency and Conservation, Enhancing the Efficient Use of Energy, and Granting Incentives to Energy Efficiency and Conservation Projects – One Philippine statute that would best approximate support for sustainable financing is RA 11285, otherwise known as the Energy Efficiency and Conservation Act. This law aims to establish a framework for introducing and institutionalizing fundamental policies on energy efficiency and conservation, including the promotion of efficient and judicious utilization of energy, increase in the utilization of energy efficiency and renewable energy technologies, and the delineation of responsibilities among various government agencies and private entities (Sec. 3).

    The law mandates that all energy end users shall use every available energy resource efficiently and promote the development and utilization of new and alternative energy efficient technologies and systems, including renewable energy technologies and systems across sectors in compliance with the declared policies of this Act (Sec. 8).

    It defines “Energy efficiency projects” as cost-effective projects designed to reduce energy consumption and costs by any improvement, repair, alteration, or betterment of any building or facility, or any equipment, fixture, or furnishing to be added to or used in any building, facility, or vehicle including the manufacturing and provision of services related thereto (sec. 4)

    To address sustainable financing and encourage investments in energy projects, the Act provides both fiscal and non-fiscal incentives to energy efficiency projects, under Executive Order No. 226, otherwise known as the “Omnibus Investments Code of 1987”, as amended, and any other applicable laws for ten (10) years from the effectivity of this Act. The law exempts energy efficiency (EE) projects from Article 32 (1) of the Investments Code. This means EE projects may avail of incentives, regardless of the nationality of the company’s ownership.

    In addition, companies implementing EE projects may be entitled to non-fiscal incentives such as technical assistance from government agencies in the development and promotion of energy efficient technologies.

    In Section 27 of the Act, there is a mandate for GFIs and other financial institutions to provide concessional financial packages for the development, utilization, and commercialization of renewable energy and energy efficiency projects as duly recommended and endorsed by the DOE.

    Under its Implementing Rules and Regulations, in order to be able to avail of the fiscal incentives, a certification of the DOE that the energy efficient project is such must be issued and prior registration with the BOI is required.

    This law is seen as providing a much needed impetus for renewable energy projects to be undertaken with the end in view of availing of fiscal and non-fiscal incentives, both of which provide developers the opportunity to have added benefits in the pursuit of their projects.

    RA No. 9513- An Act Promoting the Development, Utilization and Commercialization of Renewable Energy Resources and for Other Purposes – Another law that encourages the development of renewable energy projects is this landmark law, which is known as the Renewable Energy Act of 2008. This law is aimed at establishing the framework for the accelerated development and advancement of renewable energy resources, and the development of a strategic program to increase its utilization (Sec. 3).

    In the context of this Paper, the Act defines the following terms:

      • (xx) “Solar Energy” refers to the energy derived from solar radiation that can be converted into useful thermal or electrical energy;
      (yy) “Solar Energy Systems” refer to energy systems which convert solar energy into thermal or electrical energy;

    This law offers Incentives in favor of RE developers of renewable energy facilities, including hybrid systems, in proportion to and to the extent of the RE component, for both power and non-power applications, as duly certified by the DOE, in consultation with the BOI, to wit: Income Tax Holiday (ITH); Duty-free Importation of RE Machinery, Equipment and Materials; Special Realty Tax Rates on Equipment and Machinery; Net Operating Loss Carry-Over (NOLCO); Corporate Tax Rate; Accelerated Depreciation; Zero Percent Value-Added Tax Rate; Cash Incentive of Renewable Energy Developers for Missionary Electrification; Tax Exemption of Carbon Credits; and Tax Credit on Domestic Capital Equipment and Services (Sec. 15).

    Floating Solar Projects:

    In recent times, there is a growing familiarity with the technology offered in solar energy generation with distributed photovoltaic (PV) solar systems installed on rooftops and solar farms to increase clean energy production. Given research and development innovations in this RE sector, floating solar photovoltaic panels (FPV) have likewise been developed to address particular requirements in bodies of water. These are PV modules mounted on platforms that float on water reservoirs, lakes, and where conditions are right seas and oceans. However, these solar panels floating on water are more challenging and costly to construct.

    FPV’s refers to any solar array that floats on top of a water body. Solar panels are affixed on buoyant structures, keeping them afloat on the water body surface. These floating solar panels are mostly found on lakes and dams as they are generally calmer than oceans. Floating solar is an eco-friendly method of producing electricity. It combines marine and renewable energy technology. The electricity is sent from this floating body through underwater cables to a transmission tower.

    FPV installations open up new opportunities for scaling up solar generating capacity, especially in countries with high population density and competing uses for available land. They have certain advantages over land-based systems, including utilization of existing electricity transmission infrastructure at hydropower sites, close proximity to demand centers (for water supply reservoirs), and improved energy yield thanks to the cooling effects of water and the decreased presence of dust. The exact magnitude of these performance advantages has yet to be confirmed by larger installations, across multiple geographies, and over time, but in many cases they may outweigh any increase in capital cost.

    Resort to FPV Projects has increased due to the identified advantages such as non-loss of valuable land space; environmental benefits; and improved solar performance. In a disaster prone country like the Philippines, FPV installations are seen to be able to withstand fierce winds and waves, thus, is gaining a foothold in the interest of investors.

    Proponents fancy the potential of FPV in the Philippines, an archipelago of more than 7,100 islands, with over 200,000 hectares of lakes and 19,000 hectares of water reservoirs. “The Philippines has a potential of 11 gigawatts of inland floating solar if it covers just 5 per cent of the country’s water surface, which can power up to 7.2 million households,” “Offshore floating solar may be the solution for islands with limited available land areas” relates SunAsia, an RE Developer.”

    Other potential advantages of FPV include:

      • • Reduced evaporation from water reservoirs, as FPV provide shade and limit the evaporative effects of wind
      • • Improvements in water quality, through decreased algae growth
      • • Reduction or elimination of shading of panels by their surroundings
      • • Elimination of major site preparation, such as leveling or the laying of foundations, required of land-based installations
      • Easy installation and deployment in sites with low anchoring and mooring requirements, with a high degree of modularity, leading to faster installations.

    Alfonso Cusi, DOE Secretary, noted that the potential of floating solar would provide a much-needed boost to the energy supply as the country demand for power reaches 11,000 MW.

    The first FPV system was built in 2007 in Aichi, Japan, followed by several other countries, including France, Italy, the Republic of Korea, Spain, and the United States, all of which have tested small-scale systems for research and demonstration purposes. The first commercial installation was a 175 kWp system built in California in 2008. The system was floated atop a water reservoir to avoid occupying land better used for growing grapes.

    In the Philippines, the 223kWp floating solar demonstrator, developed by the Norwegian floating solar specialist Ocean Sun, has celebrated two years in operation during which it successfully weathered through two typhoon seasons with intense winds and high precipitation without any damage or other negative impacts. Ocean Sun’s demonstration plant, developed for renewable energy companies SN Aboitiz Power-Magat (SNAP) and Scatec, is built on the Magat Dam, located in the middle of the Philippine typhoon belt. The unit has been designed to withstand wind speeds of up to 275km/h.

    Laguna Lake FPV Project:

    A most recent development in this field, one where this writer had the privilege to be a part of, is the bidding out by the Laguna Lake Development Authority (LLDA), through its Renewable Energy Committee, to Renewable Energy Developers for Renewable Energy Areas (REA) with the pre-determined areas (PDA) in Laguna de Bay. Under Executive Order No. 927, the LLDA was granted the exclusive jurisdiction to issue permits for the use of all surface water for any projects or activities in or affecting the said region including navigation, construction and operation of fish pens, fish enclosures, fish corrals and the like.

    Taking advantage of this mandate and the vast area of Laguna de Bay, the LLDA first allowed four (4) pilot projects with the purpose of constructing, developing, operating, and maintaining floating solar test beds, in the Laguna de Bay area, specifically in Baras, Los Baños, Bay and Cardona for a period of one (1) year. After noting that there were no adverse effects on the water quality and the community acceptance thereof, an initial area of not more than two thousand (2,000) hectares in LDB and within the PDA were allocated by LLDA for the renewable energy development. The REA to be allocated to the Renewable Energy Utilization (REU) Contract Holder shall be within the PDA and shall be located at least two hundred (200) meters away from the LDB shoreline, reckoned at 10.50-meter elevation of the LDB.

    The LLDA is offering the REA to interested Parties thru a Public Bidding for long-term utilization for a period of twenty-five (25) years commencing on the signing of the REU Contract with option for extension unless pre-terminated/cancelled or forfeited the REU Project.

    Relevant to the discussion of this Paper is the condition on the Financial Proposal. The Financial Proposal is required to state the one-time bid amount for the specific block or blocks the bidder wishes to participate. This amount is a key element of the Bid Proposal which will be used to rank the bids offered by all eligible bidders. The minimum bid price shall be PHP 6.00 per square meter, regardless of location of the REA. Bids received lower than the minimum bid price shall be automatically rejected at bid opening. The Financial Bid Letter should likewise state the minimum investment commitment within the first year of development phase of the Project, in the amount of no less than Philippine Pesos: ONE HUNDRED MILLION (PHP 100,000,000.00). The RE Applicant shall post a security bond and/ or Bid Security issued by a reputable financial institution accredited and recognized by the Bangko Sentral ng Pilipinas in the amount equivalent to 10% of the bid amount.

    Thus, it can be seen that a project of this nature and magnitude requires a significant amount of financial commitment that is likely to require the need for financing. This is where the matter of GREEN BONDS come in.

    Attractiveness of Green Bond and Green Financing for the Floating PV Project:

    While there are the usual recognized sources of funding, i.e. equity funding; debt funding from banks and other lending institutions, the possibility of accessing green bonds is now made easier with the mechanisms set out in the Sustainable Financing Roadmap; the BSP Circular and the SEC Guidelines on Green Bonds.

    Studies would show that “in terms of development cycle, renewable energy (RE) projects entail funding supports from the technological innovation stage onwards. Due to uncertainties in resource availability and technical risk, only a limited variety of funding sources are available for startups. As the RE development project passes through this early stage into technical maturity, more funding sources may be attracted to bring it to commercial fruition. When the technology is eventually deployable to mass applications, even more funding venues exist, sometimes enabling exit of the original innovators via transfer of ownership, or fostering asset growth with investor participation in built facilities. Due to the environmental benefits to be harvested, governments have a pivotal role to play in relation to funding, either directly or indirectly at all stages.”

    This writer’s client which submitted several bids and recently won certain REA’s in the LLDA invitation is currently availing of equity funding and loan facilities offered by a foreign partner. But near actual development, it may be to its advantage if it can tap the facilities of green bonds. In terms of eligibility of the FPV Project, it is clear from the guidelines that it is likely to qualify given that is admittedly a renewable energy (green project).

    Nonetheless, the writer’s client still finds bank and equity financing relatively easier to access than the green bonds market as there is a perception that raising funds through a company’s issuance of green bonds to the financial market requires more management time and offers a costlier exercise. The notion is that because the green bonds market is relatively young in its development, it might not generate a lot of interest from serious investors, thus, the risk of not being able to raise the much needed development funds for the PV project is seen as great.

    On the other hand, having a dedicated foreign partner that will provide both technical and financial support on a long standing basis given the execution of shareholder agreements, funding agreements and joint venture agreements, the certainty and accessibility of funding remains attractive and offers lesser risk. Also, a FPV Project developer ought to be able to convince potential investors of the bankability and the profitability of the project, and these factors need to be considered when raising funds through green bonds.

    Viernes, in his paper, sees that the current issues surrounding the green bonds are its definition, the verification of proceeds and regulation. These issues are due to the fact that green finance is relatively novel compared to traditional corporate finance. Thus, Viernes recommended the harmonization of definition of a “green” project, requirement of a third-party verification or second opinion, and institution of regulatory frameworks and processes.
    He also asserts that certain incentives are necessary as well to entice both issuers and investors but also to mitigate the risks that comes with investing in a long-term bond.

    Conclusion: The foregoing discussion has shown that the Philippines is gaining significant ground in the development of renewable energy in support of its NDC under the Paris Agreement. Its recent completion of a Sustainable Finance Roadmap and the earlier issuances of the BSP Circular and the SEC Guidelines show that the Philippines remains committed to the whole-of- government approach to promote sustainable finance in the Philippines. Indeed, the presence of possibilities for improving on the green bonds and green financing augurs well for the Philippines shift to renewable energy, such as the floating PV projects.

    It is just a matter of being able to tap this market with relative ease and lesser risk which needs further evaluation and support both by the Philippine government and the private sector. To be sure, a floating PV Project given the technology and financing it requires should be able to readily access this mode of financing if more successes in this innovative field is to be achieved and encouraged.

    Policy makers, however, should not lose sight of the fact that apart from access to sustainable financing, there must be consistency in rules, efficient permitting and licensing, less transactional costs, and more attractive incentive programs must be in place if one is to see more renewable energy projects in the country.


    1. Laws/Issuances:

      • i. RA 11285 or the Energy Efficiency and Conservation Act
      • ii. BSP Circular on Sustainable Finance Framework on 29 April 2020 – BSP Circular No. 1085. –
      • iii. SEC Memorandum Circular No. 12, Series of 2018 (August 31, 2018)
      • iv. RA 9513 – Renewable Energy Act of 2008
      • v. Department of Energy Circular No. DC-2019-11-0014 dated November 22, 2019
      vi. Laguna Lake Development Authority – Terms of Reference – Allocation And Grant Of Renewable Energy Area In Laguna De Bay

    2. Reports:

      • i. Solar Energy Research Institute of Singapore (SERIS) Floating Solar Market Report – Where Sun Meets Water (2019).
      • ii. 2020 World Risk Index Report
      • iii. 2017 World Risk Report
      • iv. National Framework Strategy on Climate Change 2010-2022.
      • v. Sustainable Finance Roadmap
      • vi. The Paris Agreement (Treaty)
      vii. Philippine Development Plan (PDP) 2017-2022

    3. Articles/Links – this list of articles and links provides the background on the growth and current status of green financing and green bonds in the country.

      • i. Bodansky – Evolution of the United Nations Climate Change Regime
      • ii. World Energy Council – World Energy Trilemma Index
      • iii. Antonio GM La Viña, Joyce Melcar Tan, Teresa Ira Maris Guanzon, Mary Jean Caleda, Lawrence Ang – Navigating a trilemma: Energy security, equity, and sustainability in the Philippines’ low-carbon transition
      • iv.

      • v.

      • vi.

      • vii.

      • viii.

      • ix.

      • x.

      • xi.

      • xii.

      • xiii.

      • xiv.

      • xv.

      • xvi. Josef T. Yap, et al. Managing the energy trilemma in the Philippines, citing World Energy Council (2011) Policies for the Future, 2011 Assessment of Country Energy and Climate Policies
      • xvii. Dina Azhgaliyeva, Anant Kapoor – Green bonds for financing renewable energy and energy efficiency in South-East Asia: a review of policies
      xviii. Patrick T.I. Lam and Angel O.K.Law- Financing for renewable energy projects: A decision guide by developmental stages with case studies –

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