Incentives for Renewable Energy Investment in ASEAN

In this article ASEAN Briefing will look at the tax and other incentives provided to companies seeking to invest in renewable energy in Singapore, as well as examine those of other countries within ASEAN. Following our previous article on the solar energy market in ASEAN, we will place an emphasis on the incentives on this industry in the countries covered.

Singapore, more than any other country in the ASEAN region depends on the import of fossil fuels for its energy needs. The smaller size of the city-state also means the country has less room available to install renewable technologies, and cannot build large solar farms like Thailand or hydropower projects as Vietnam has. Recognizing these limitations Singapore has created incentives for R&D in renewable energies that make use of the conditions specific to the country.

The increasing energy demands in Singapore and across the region have meant that renewable energy has come to be seen not only as an alternative energy source, but also as a potential area of key economic growth. Singapore for example has set the target of creating 18,000 jobs and generating S $3.4 billion (US $2.4 billion) through renewable energy by the end of this year.

Research and Development Incentives in Singapore

In order to encourage investment in energy, water and green building solutions, Singapore has invested more than S $800 million (US $570 million) since 2011. These incentives include solar energy solutions, as well as providing a wide array of incentives across most of the renewable energy sector. These have been aimed both at companies and individual citizens in an effort to make Singapore a more sustainable city. 

Singapore is seeking to take advantage of its strategic location to both harvest solar power and attract investment to the region. The country is betting on its location in the tropics, exposing it to solar rays 50 percent stronger than those received by the solar powerhouses of Germany and Japan. Additionally, it is well-connected to ASEAN in terms of physical and economic infrastructure, which could attract companies seeking to provide electricity to the millions in the region that still lack the service. The city-state has become a major hub for companies such as Phoenix Solar and Yingli, both of which have investments in other countries in the region such as Malaysia.

The government has developed a solar PV leasing plan, under which residents and small businesses can lease solar panels from solar companies and only use the energy that they need. This allows for solar energy generation in a country that does not have extensive land resources to set up large solar farms. During the leasing period solar companies still own, install, and maintain the solar panels. However, unlike some other governments in the region, Singapore does not provide a feed-in tariff through which producers can sell the power they produce.

Besides the multiple government initiatives that have attracted many companies in the R&D sector, the country currently provides 35 government funding and incentive programs. One example of these programs is the Grant for Energy Efficient Technologies (GREET) that provides up to 20 percent in funding for registered companies that invest in energy efficient equipment in new or existing facilities. Another initiative is the Design for Efficiency Scheme (DfE) which aims to encourage businesses to build new facilities or expansions to adopt green technologies into their facilities. Companies can qualify for a subsidy that covers up to 50 percent of the costs or up to S $600,000 (US $428,000).

 RELATED: Pre-Investment Services from Dezan Shira & Associates

Incentives in Other ASEAN Markets

Thailand

Thailand’s reliance on imported fossil fuels, second only to Singapore in the region, meant that in 2012 imports accounted for 55 percent of overall commercial demand for energy in the country. Recognizing the increasing demand, the government developed the Alternative Energy Development Plan in 2012 with the goal to produce 25% of its energy from renewable sources by 2021. In order to achieve this goal Thailand offers both tax-based and non-tax-based incentives for companies investing in renewable energy.  

Incentives offered include the reduction or elimination of import duties on machinery and raw materials, reduction of corporate income taxes, permission to bring foreign workers, own land and remit foreign currency abroad. Thailand also has set in place a rooftop solar feed-in tariff program (FIT), under which energy produced by through energy sources is purchased by the government and reimbursed at price dependent on the cost of the energy generation technology. Additionally, government support is provided through multiple agencies such as the Energy Policy and Planning Office and the Department of Alternative Energy Development, both of them under the auspices of the Ministry of Energy.

The Philippines

The Philippines, much like Thailand and Singapore, is dependent on imports of oil, natural gas and coal to serve its energy needs. However, the country also faces an increasing energy demand among its growing population, which often leads to power outages during the summer months. In response, it has taken multiple initiatives such as the National Renewal Energy Program which entered into effect in 2011 and calls for renewable energy production to increase from 5438MW to 15,304MW by 2030.

To achieve this goal the government has developed a feed-in tariff (FIT) program that pays companies for energy generated through non-conventional measures. FIT rates are guaranteed at a fixed rate for 20 years and help ensure that investors see a return in their investment. Additionally, renewable energy developers enjoy a seven year tax holiday, at the end of which they pay only 10 percent of income tax; as well as being able to import technologies from abroad duty-free for ten years.

Vietnam

Vietnam like many of its neighbors has seen increasing energy demands among its growing population, which has put strains on its energy grid and forced the country to invest in hydropower, wind and solar energy. Among the incentives offered to companies is accelerated depreciation in power generation, import duty exemption for clean technology products, an incentive tax rate of 10 percent for 15 years, and tax reduction of 50 percent with tax exemption for four years for new projects, among many others.

Further incentives include subsidies by the Environmental Protection Fund, which covers the difference between the real inputs costs and the selling price of the power generated.  Additionally, Vietnam also offers feed-in tariff incentives – however these are offered in the wind energy sector as opposed to the solar sector, which has helped the wind sector account for 78 percent of all clean energy investor between 2006 and 2013.

RELATED: Renewable Energy and Investment in ASEAN

Malaysia

Malaysia presents an interesting case in the region; while it is the third largest producer of solar panels in the world it has been slow to implement the technology when it comes to solar farms. In an effort to promote investment in the domestic PV market the government launched the Malaysia Building Integrated Photovoltaic Project (MBIPV) to provide financial incentives. Since 2011, Malaysia like many other countries in the region has been providing feed-in tariffs for solar energy producers, but also has extended these tariffs to other renewable energies. 

In order to benefit from the Feed-in Tariff developers need to be approved by the Sustainable Energy Development Authority and conclude a Renewable Energy Power Purchase Agreement. Under this tariff companies investing in PV panels or mini hydro power projects qualify for and FIT tariff for 21 years. Companies in the biomass or biogas industry can take advantage of the tariff for 16 years. Additionally, this past May it was announced that investments in geothermal energy that generate up to 30MW would also be eligible for the feed-in tariff.

Further Support from Dezan Shira & Associates

To learn more about investment opportunities in ASEAN’s renewables industry, or country specific comparisons on incentives for green power generation, please get in touch with the specialists at Dezan Shira & Associates for further consultation.

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