November 25, 2017 | MANILA, PHILIPPINES

Industry claims benefits outweigh costs on energy efficiency perks

EACH PESO that the government forgoes through tax-based incentives for energy efficiency and conservation investment can flow back to the national treasury as P2.31 in additional tax revenue, according to a private entity backing a Senate bill that calls for the efficient use of energy.


In a position paper submitted to the Senate committee on energy, the Philippine Energy Efficiency Alliance, Inc., or PE2, said its analysis shows that each peso of tax expenditure “can be fully recovered and multiplied by 231% through the economic life of the EE&C (energy efficiency and conservation) equipment assets.”

PE2 President Alexander Ablaza submitted the organization’s position on April 18 in response to a request from Sherwin T. Gatchalian, chairman of the Senate energy committee, for hard numbers to justify the granting of fiscal incentives for energy efficiency and conservation investments. PE2 is non-stock, non-profit organization of energy efficiency market stakeholders.

Mr. Gatchalian’s call comes as the Department of Finance works to harmonize, simplify and standardize fiscal perks, a move that might be inconsistent with Senate Bill No. 30, “An Act Institutionalizing Energy Efficiency and Conservation, Enhancing the Efficient Use of Energy, Granting Incentives to Energy Efficiency and Conservation Projects, and for other Purposes.”

Backers of the proposal call for a package of tax-based fiscal incentives, including duty- or tax-free importation of capital equipment, zero-rated value added tax and six-years income tax holidays.

“The nature of EE&C investments and how monetized energy savings can be used to recoup capital outlays in off-balance sheet-financed EE&C technologies and services provide government a reliable mechanism for the full payback of tax-based incentives within the service life of the equipment assets,” Mr. Ablaza said.

“Basically, net earnings arising from these projects contribute to incremental increase in taxable income, which in turn results in additional tax revenues for the National Treasury,” he added.

PE2 said that “the full suite of tax-based fiscal incentives renders off-balance sheet EE&C investments commercial viable -- raising average after-tax internal rate of return from 5.9% to 14.6%.”

It said without the tax perks, the expected average financial internal rate of return (IRR) of third-party investments in EE&C technologies and services in non-owned premises is only 5.9%, “rendering it grossly unattractive for equity capital providers, local or foreign.”

But with the incentives, PE2 said its calculations show “a more promising after-tax IRR of 14.6%, approaching the vicinity of 15%-18% that normal equity investors ... expect to mitigate the commercial, technological and credit risks associated with this type of investment.”

It added that the incentives are needed to be part of the bill for projects to qualify as investment-grade and commercially viable.

PE2 said at least 66% or around $119 billion of the $180 billion capital requirement through 2030 will need to be mobilized through third-party, off-balance sheet-financing arrangements.

“Without the full suite of tax-based fiscal incentives in the proposed EE&C law, an estimated maximum of 34% of the capital requirement through 2030 ... can be mobilized through the business-as-usual financed and debt-financed mechanisms for the energy end-use sectors to comply with the enforced energy efficiency market regulation,” Mr. Ablaza said. -- Victor V. Saulon