In brief

On 15 November 2022, the Department of Energy (DOE) issued Department Circular No. 2022-11-0034 (“DOE Department Circular“) to amend Section 19 of the Rules and Regulations Implementing Republic Act No. 9513, otherwise known as the Renewable Energy Act of 2008 (“RE Act IRR“). The amendments remove Filipino ownership requirements previously imposed on the exploration, development and utilization (EDU) of solar, wind, hydro and ocean or tidal energy resources, to allow full foreign ownership. The DOE Department Circular was issued after the Department of Justice (DOJ) released Opinion No. 21, Series of 2022 (“DOJ Opinion“) stating that the Filipino ownership requirements under Section 2, Article XII of the 1987 Philippine Constitution relating to the EDU of natural resources should not apply to the EDU of solar, wind, hydro and ocean or tidal energy resources.

Since October 2019, 100% foreign ownership in biomass and waste-to-energy projects in the Philippines has been allowed, pursuant to DOE Circular No. DC2019-10-0013. Under the 1987 Constitution, 100% foreign ownership of large-scale geothermal projects is allowed through the technical or financial assistance regime.

Recommended actions

Foreign investors looking to invest in renewable energy (RE) projects in the Philippines are advised to consider the DOE Department Circular, which lifts the previous requirement that the EDU of solar, wind, hydro and ocean or tidal energy sources can only be undertaken by Filipino citizens or juridical entities that are at least 60% Filipino-owned.

The DOE Department Circular will take effect 15 days after its publication in two newspapers of general circulation and filing with the University of the Philippines Law Center — Office of the National Administrative Register. With such publication and filing being completed on 23 November 2022, the DOE Department Circular will take effect on 8 December 2022.

Upon effectivity of the DOE Department Circular, the following will apply:

Foreign investors may own up to 100% equity in Philippine entities engaged in the EDU of solar, wind, hydro and ocean or tidal energy sources and exercise full control over the operations and profits of these entities.
Foreign investors with existing investments in the Philippines relating to the EDU of solar, wind, hydro and ocean or tidal energy sources may acquire the shares of their Philippine joint venture partners to take advantage of the relaxed foreign investment restrictions.

In depth

The DOE Department Circular removes the Filipino ownership requirement imposed on entities engaged in the EDU of solar, wind, hydropower and ocean or tidal energy in the Philippines. This is intended to allow the entry of foreign capital into the country’s RE industry to achieve the target 35% share of RE in the power generation mix by 2030 and 50% share by 2040, lower the cost of RE projects and make cleaner energy more accessible to the greater public.
The prior imposition of the Filipino ownership requirement in the EDU of solar, wind, hydropower and ocean or tidal energy was based on the interpretation that such activities constitute the EDU of natural resources. Under Section 2, Article XII of the Constitution, the EDU of natural resources can only be undertaken by Filipino citizens or juridical entities that are at least 60% Filipino-owned. The relevant portion of Section 2, Article XII of the 1987 Constitution provides, as follows:

All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State … The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens.

The DOJ Opinion stated that the foregoing Filipino ownership requirement will not apply to the EDU of solar, wind, hydro and ocean or tidal energy for the following reasons:
- The term “natural resources” under Section 2, Article XII of the 1987 Constitution does not include solar, wind, hydro and ocean or tidal energy. The DOJ explained that the term “natural resources” refers to properties that are susceptible to appropriation. In this regard, the DOJ notes that the sun, wind and ocean, as energy sources, are inexhaustible and, therefore, incapable of appropriation. Accordingly, these energy sources cannot be included under the term “natural resources.”
- The term “all forces of potential energy” under Section 2, Article XII of the 1987 Constitution should likewise exclude the energy produced by the sun, wind and ocean, as the latter would pertain to kinetic energy. The DOJ explained that “potential energy” refers to “energy relative to its position in a given system,” or “energy at rest.” In contrast, kinetic energy is the “energy possessed by an object, resulting from the motion of that object,” or simply put, “energy in motion.” Therefore, the use of the term “potential energy” excludes kinetic energy. In this regard, the DOJ noted that RE sources such as solar, wind, hydro and ocean or tidal energy are considered kinetic energy sources.
The DOJ also clarified that its statements in the DOJ Opinion do not change the rule on the appropriation of waters, direct from the source, for power generation. Under the Water Code of the Philippines and based on the Supreme Court case of IDEALS Inc. v. PSALM, water is within the meaning of “natural resources” under the Constitution, and if water is harvested directly from the source, only Filipino citizens or juridical persons at least 60% Filipino owned can be validly and legally allowed to do so. Accordingly, the appropriation of water directly from the source is still limited to Filipino citizens or juridical persons at least 60% Filipino-owned. Note, however, that the 60% Filipino-owned requirement remains in place for the purchase of private land and certain government permits.
DOE Circular No. DC2019-10-0013 (or the Omnibus Guidelines Governing the Award and Administration of Renewable Energy Contracts and the Registration of Renewable Energy Developers), which was issued on 1 October 2019, removed the 60% Filipino ownership requirement that was previously imposed on biomass and waste-to-energy projects.
Under the 1987 Constitution, 100% foreign ownership of large-scale geothermal projects is allowed through the technical or financial assistance regime. Section 2, Article XII of the 1987 Constitution provides that the president may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development and utilization of minerals, petroleum and other mineral oil. The Renewable Energy Act of 2008 recognizes that geothermal resources are “mineral resources.”

* * * * *