Foreign Ownership Rules in Philippine Renewable Energy Projects

Once one of the more restrictive corners of Philippine investment law, the renewable energy sector has undergone a genuine transformation. Foreign investors can now own up to 100% of a Philippine renewable energy project — a shift that has reshaped how deals in solar, wind, hydro, and other clean energy technologies get structured.

From 40% to 100%: How the Change Happened

For years, renewable energy resources like solar, wind, hydro, and ocean or tidal energy were treated as “natural resources” and “forces of potential energy” under the Constitution’s nationality restrictions — capping foreign equity participation at 40%. That changed following a pivotal legal opinion and a subsequent regulatory circular:

• The Department of Justice, in Opinion No. 21, Series of 2022, concluded that solar, wind, hydro, and ocean or tidal energy resources fall outside the constitutional restriction on natural resources. The DOJ’s reasoning: these resources are res communes — common things incapable of appropriation and not “property” the state can own — and they derive from kinetic rather than potential energy, distinguishing them from depletable resources like minerals or fossil fuels.
• The Department of Energy adopted this interpretation through Department Circular No. 2022-11-0034, issued 15 November 2022 and effective 8 December 2022, amending the implementing rules of the Renewable Energy Act (Republic Act No. 9513) to remove the Filipino ownership requirement for Renewable Energy Service/Operating Contracts.

“The Circular eliminates previous Filipino ownership requirements related to the exploration, development, and utilization of solar, wind, hydro, ocean, and tidal resources.”

The change was further reinforced by the Public Service Act, as amended by Republic Act No. 11659, which distinguished “public utilities” from other public services and opened most non-utility public services — including power generation — to full foreign equity.

What This Means in Practice

Foreign nationals and foreign-owned corporations can now establish and own 100% of a Philippine corporation engaged in renewable energy exploration, development, and utilization — including projects already structured as joint ventures, where a foreign partner may now take a controlling stake that wasn’t previously available. This applies across the major renewable technologies: solar, wind, hydro, biomass, and ocean or tidal energy.

A useful reference point: under Philippine law, a corporation is generally considered “foreign-owned” once more than 40% of its outstanding capital stock is held by non-Filipinos. For renewable energy generation specifically, that 40% ceiling simply no longer applies.

Two Important Carve-Outs to Understand

Even with full foreign ownership now permitted, two structural limitations remain critical for deal planning:

1. Land ownership is still restricted. A 100% foreign-owned Philippine renewable energy corporation still cannot own private land, except in narrow cases that rarely help typical project development. This is often the single biggest misconception among foreign sponsors entering the sector — a fully foreign-owned energy company is lawful, but it generally cannot hold title to the land its project sits on. Projects typically rely on long-term leases instead (up to 50 years, renewable once for an additional 25 years) rather than outright land ownership.
2. Water permits for hydro remain nationality-restricted. While a Renewable Energy Service/Operating Contract for hydro or ocean/tidal energy can now go to a foreign or foreign-owned entity, the water permit needed to actually harvest or extract water from the source for power generation is a separate matter — one still governed by the Water Code of the Philippines, which requires the permit holder to be a Filipino citizen or a corporation at least 60% Filipino-owned. In practice, this means a fully foreign-owned hydro project still needs a Filipino or majority-Filipino entity in the mix to hold the water permit itself.

The Regulatory Map for Renewable Energy Projects

Structuring a foreign-owned renewable energy project in the Philippines typically involves several overlapping legal frameworks:

• The Constitution, as the starting point for any nationality-based analysis, even in sectors now open to full foreign ownership.
• The Renewable Energy Act (RA 9513), the foundational sector statute governing service and operating contracts, incentives, and DOE oversight.
• The Electric Power Industry Reform Act (EPIRA), which distinguishes generation from other segments of the power sector — a distinction that matters because generation sits in a more favorable foreign-ownership position than more heavily restricted segments like distribution utility operation.
• The Foreign Investments Act and the Foreign Investment Negative List, to confirm the specific activity isn’t otherwise reserved or restricted.
• DOE circulars and project-specific rules, which increasingly determine eligibility for service contracts, project registration, and technical qualification — often more so than the underlying statutes themselves.

Practical Steps for Foreign Investors

1. Confirm your target technology qualifies. The 100% foreign ownership opening applies to solar, wind, hydro, and ocean/tidal energy exploration, development, and utilization — confirm your specific project type and activity are squarely covered.
2. Plan your land strategy early. Because outright land ownership remains off-limits, build your site control strategy around long-term leasehold arrangements from the outset, rather than treating it as an afterthought.
3. For hydro projects, map the water permit separately. If your project involves hydro or ocean/tidal energy, identify early whether you’ll need a Filipino or majority-Filipino partner specifically to hold the required water permit.
4. Distinguish generation from other segments. If your project touches transmission, distribution, or other more heavily regulated segments of the power sector, don’t assume the same 100% foreign ownership treatment automatically applies.
5. Track DOE circulars closely. Because DOE policy — not just statute — often drives eligibility for service contracts and technical qualification, staying current with circulars is essential for project bankability.

Key Takeaways

• Since December 2022, foreign investors can own up to 100% of a Philippine corporation engaged in renewable energy exploration, development, and utilization — a shift from the previous 40% cap.
• The legal basis rests on a DOJ opinion reclassifying renewable resources as outside the constitutional “natural resources” restriction, formalized through DOE Circular No. 2022-11-0034.
• Land ownership restrictions remain fully in force regardless of a project’s foreign ownership percentage.
• Hydro and ocean/tidal projects carry an added wrinkle: water permits for power generation still require Filipino or majority-Filipino ownership, separate from the service/operating contract itself.

This article is for general informational purposes only and does not constitute legal advice. Investors should consult qualified legal counsel to assess the specific ownership and regulatory requirements applicable to their renewable energy project.