RE Sector Nationality Restrictions

The question of foreign equity participation in renewable energy development in the Philippines has been resolved differently for different resource types. As of 2022, solar, wind, hydropower, and ocean energy are open to 100% foreign ownership, while geothermal resources remain subject to constitutional nationality restrictions.

Prior Framework

Section 19(A) of the RE Act IRR (DC2009-05-0008, issued 25 May 2009) reserved the exploration, development, and utilization of all RE resources — solar, wind, hydropower, geothermal, and ocean/tidal energy — to Filipino citizens and corporations with at least 60% Filipino capital. This restriction was not found in the RE Act itself; it was introduced administratively in the IRR by invoking the general constitutional framework for natural resource exploitation.

DOJ Opinion (September 29, 2022)

On 29 September 2022, the Department of Justice issued an Opinion (addressed to DOE Secretary Raphael P.M. Lotilla) concluding that solar, wind, hydro, and ocean/tidal energy resources are:

1. Inexhaustible — unlike finite mineral or forest resources, these energy forms are not depleted by use. They therefore fall outside the constitutional category of “natural resources” in Article XII, Section 2 of the Philippine Constitution, which reserves natural resource exploration and development for Filipinos or corporations with ≥60% Filipino capital.

2. Not water appropriation — hydropower does not “appropriate” water within the meaning of Presidential Decree No. 1067 (Water Code); IDEALS v. PSALM (G.R. No. 192088, 9 October 2012) was cited.

The Opinion explicitly excluded geothermal resources, which are embedded in the earth and have characteristics of exhaustible natural resources under Article XII, §2.

DC2022-11-0034 — The Amending Circular

On November 14, 2022, the DOE issued DC2022-11-0034 implementing the DOJ Opinion:

• Deleted §19(A) of the RE Act IRR (the 60% Filipino ownership requirement), replacing it with “[deleted]”
• Amended §19(B) to allow the State to enter RE Service or Operating Contracts with “Filipino and/or foreign citizens or Filipino and/or foreign-owned corporations or associations”
• Repealed §§3.19, 4.2.1, and 4.2.3 of DC2019-10-0013 (Omnibus RE Guidelines), which had carried the nationality restriction into the RE contract application process

Current Framework

Geothermal FTAA Exception (Large-Scale Projects)

For large-scale geothermal development, the President may enter into Financial or Technical Assistance Agreements (FTAAs) with foreign-owned corporations under Art. XII §2 of the Constitution. DC2024-06-0018 defines large-scale geothermal as a project with initial investment ≥ US$50,000,000, inclusive of capitalization during the Pre-Development Stage through drilling of production wells [DC2024-06-0018, §15.2, 2024-06-04]. This is the only constitutional pathway for majority-foreign participation in geothermal — it requires Presidential (not DOE Secretary) approval and execution of a formal FTAA contract. Regular GSCs remain subject to the 60% Filipino capital requirement.

Hydropower: Corporate Ownership vs Water Appropriation

DC2024-06-0018 §33.1 confirms 100% foreign ownership is allowed for hydropower/ocean energy project companies. However, §33.2 separately preserves the 60% Filipino capital requirement for the appropriation of water direct from a natural source (per PD 1067, the Water Code) [DC2024-06-0018, §33.2, 2024-06-04]. This creates a structural split for hydropower projects: the generation company may be 100% foreign-owned, but the entity holding the water appropriation permit must remain ≥60% Filipino. Developers may structure this via a separate Filipino-majority water rights holder that supplies water to the foreign-owned generation entity.

Activities Remaining Reserved for Filipinos

Even under the liberalized framework, the following remain exclusively Filipino per footnote 5 of DC2022-11-0034:

1. Water appropriation from a natural source (PD 1067; IDEALS v. PSALM, GR 192088) — distinct from using flowing water to generate power
2. Geothermal resources exploration, development, and utilization — except large-scale FTAAs under Article XII, §2; these require ≥60% Filipino capital
3. Timber and non-timber forest products on public domain lands (Article XII, §2; PD 705)

Relationship to the 2022 Public Service Act

RA 11659 (2022 Public Service Act amendment, effective April 2022) reclassified electricity generation as a non-public utility activity — meaning generation companies are no longer subject to the 60% Filipino capital requirement that applies to public utilities under Article XII, §11 of the Constitution. DC2022-11-0034 addressed the separate question of RE resource exploitation rights (distinct from generation ownership).

Together, these two measures largely open the Philippine RE sector to foreign investors: generation entities can be 100% foreign-owned (RA 11659), and RE resource contracts (for solar/wind/hydro/ocean) can be awarded to foreign companies (DC2022-11-0034). Only geothermal development retains a constitutional nationality restriction.

Practical Effect

The removal of the RE nationality restriction directly addressed one of the financing constraints cited in the DOE’s PEP 2023-2050 — particularly for large-scale offshore wind projects requiring international project developers and lenders unfamiliar with Filipino participation structures. The Revised Omnibus RE Guidelines (DC2024-06-0018) issued in June 2024 reflect the liberalized framework in its contract eligibility provisions.