OVERVIEW OF RENEWABLE ENERGY
Renewable Energy is one of the fastest growing industries in the world due to the urgent problems anticipated by climate change. Driven by worldwide technological innovation and manufacturing of “green” products and systems, the sector is an excellent investment opportunity in the Dominican Republic where there is an abundance of natural resources.
“Going green” in the Dominican Republic is governed by the Constitution, the Renewable Energy Incentives and Special Regimes Law #57-07 (a complement to General Electricity Law #125-01), and the Environmental and Natural Resources Law #64-00.
The Constitution of the Dominican Republic, amended on January 26, 2010 for the 39th time in 167 years, devotes several articles (Articles 14 to 17, 66 and 67) to the country’s natural resources, which establish the general legal framework for dealing with natural resources. Some important principles laid down by the Constitution are:
• Exploration and exploitation of natural resources can only be done under rational and sustainable environmental conditions.
• The environment must be protected for present and future generations by prohibiting detrimental activities, promoting alternative energy sources, etc.
• Ecosystems and wildlife protected by the National System of Protected Areas can be changed only by a two-thirds vote in each of the two houses of Congress.
• Non-renewable natural resources belong to the Dominican people.
General Electricity Law #125-01, enacted July 26, 2001, is the legal umbrella under which Renewable Energy is governed. It provides for the production, transmission, distribution, and commercialization of the country’s electricity in a neutral and nondiscriminatory manner. The National Energy Commission (CNE), the Superintendent of Electricity (SIE), and the Coordinating Agency for the Interconnected Electrical System (OC) are responsible for governing the activities in the electrical sector.
Renewable Energy Law # 57-07, dated May 7, 2007, is administered by the National Energy Commission (CNE), the Superintendent of Electricity, and the Coordinating Agency for the Interconnected Electrical System as a sub-sector of the Electricity sector. Law 57-07 zeros in on sustainable energy endeavors with four main objectives: (a) to increase the diversity of energy sources; (b) reduce dependence on imported fossil fuels, (c) mitigate the negative impact of fossil fuel use on the environment, and (e) stimulate private investment in renewable energy. The primary renewable sources targeted are biodiesel, ethanol, hydro, solar, wind, tidal and oceanic.
Significantly, law 57-07 allows the use of ethanol as a motor vehicle fuel, providing a potential of up to 10% in local fuel production and a productive use of unused, fallow sugar cane acreage.
RENEWABLE ENERGY PROJECT TYPES
The law provides incentives to public, private, or a combination of both, corporate, and cooperative projects that produce energy or bio-combustibles and show physical, technical, environmental, and financial viability. The law expressly encourages the installation and exploitation of:
- Wind farms and individual windmills with an initial installation that does not generate more than 50 M
- Micro and small hydroelectric installations that do not generate more than 5 MW
- Electro-solar (photovoltaic) installations with no restriction on production
- Thermo-solar installations of up to 120 MW of concentrated solar energy per central unit
- Medium-temperature thermo-solar energy installations to obtain clean hot water and condition air from cooling equipment
- Energy farms or any infrastructure of any size devoted exclusively to converting biomass into a byproduct for energy consumption, including vegetable or pressure oils to manufacture biodiesel, and plant hydrolyzation to produce ethanol or another type of bio-fuel
- Central electrical units using primarily biomass fuels either directly, or through a transformation process that generates a minimum of 60% of the primary energy, and which produce an installed energy of no more than 80 MW per thermodynamic or central unit
- Bio-fuel production plants (distilleries or bio-refineries) of any size and in any volume
- Oceanic energy installations of any size and any type.
RENEWABLE ENERGY INCENTIVES
Upon compliance with certain regulatory procedures specific to each project, the following concessions and incentives are granted to operations that produce or use clean technology:
- Exemption from import duties on equipment necessary to produce energy from renewable sources.
- Exemption from ITBIS (value-added tax) for certain equipment expressly listed in the law.
- Exemption from income tax for up to ten years until the year 2020. Income must be derived from sources dedicated to generating or selling renewable energy, or selling or installing renewable energy equipment, parts or systems specified under the law. Such equipment, parts, and systems must be produced locally with a minimum aggregate value of 35%.
- A 5% tax reduction on interest on foreign financing of renewable energy projects.
- A single tax credit of up to 75% (depending upon the energy technology) on the cost of capital equipment used in pre approved projects that change to or expand the use of renewable energy in residential, commercial, or industrial establishments. The tax credit is apportioned over a three- year period at the rate of one-third per year.
Small-scale projects destined for community use that develop renewable energy sources up to 500 Kw can apply for financing, at the lowest market rates, in an amount up to 75% of the total cost of the operation and installation of the project.
The United States is keen on supporting clean energy, low-carbon, climate-resilient projects in the Caribbean through private investment or bilateral programs, and pledged US$30 billion in funds between 2010 and 2012 to accelerate developing countries’ progress in combating global warming. With some of the highest electricity prices in the Caribbean, the Dominican Republic offers lucrative opportunities to investors in this area. Some of the U.S. supported initiatives are:
Energy and Climate Partnership of the Americas (ECPA). Leaders of the Western Hemisphere voluntarily partner with countries in the hemisphere to accelerate clean energy development by sharing best practices, encouraging investment, and cooperating in the research and implementation of new technologies. Initiatives may be multi country or bilateral and can involve the private sector, academia, civil society, and international organizations.
The U.S. National Export Initiative, intent on doubling the number of U.S. exports by 2012, promotes the use of clean energy technologies among U.S. exporters.
The U.S.-Brazil Biofuels Partnership Initiative attempts to leverage Brazil’s global expertise in the development and use of biofuels. In 2007, the United States and Brazil entered into a memorandum of understanding and have collaborated with the Inter-American Development Bank, the Organization of American States (OAS), and the United Nations to promote scientific cooperation, development, and use of biofuels in developing countries to mitigate the effects of greenhouse gas emissions. The primary goals of this initiative are to develop sustainable biofuels for aviation, and develop common standards for, encourage research in, and create a multilateral forum in aviation biofuels. The initiative targets the Dominican Republic, Haiti, El Salvador, St. Kitts, and Nevis as the initial beneficiaries, and the Dominican Republic has already been the beneficiary of a US$300,000 private contract to obtain technical assistance in blending ethanol with domestically sold gasoline.
The Global Bioenergy Partnership, comprising the U.S., Brazil, and thirty other governments and international organizations, promotes the sustainable use of bioenergy in developing markets by converting biomass to energy. It brings together public, private, and civil society to create a forum for suggesting tools, facilitating investments, implementing projects, and fostering research and development in bioenergy. The three strategic areas of interest are sustainable development, climate change, and food and energy security.
In 2010, the Organization of American States (OAS), the world’s oldest regional organization uniting thirty-five member states in political and social discussions to improve economic development, received a U.S. grant to assist Caribbean energy ministries, in partnership with CARICOM, to conduct renewable energy dialogues within the region, and to provide technical assistance to qualified projects.
Funding assistance needed to harness reliable and affordable energy in developing countries is delivered through traditional U.S. channels such as Embassy programs and AID missions, the Peace Corps, and the Millennium Challenge Corporation (MCC), and international channels such as the United Nations Framework on Climate Change (UNFCCC), and multilateral financing organizations such as the Climate Investment Fund and the Global Environment Facility.
The Millennium Challenge Corporation (MCC) is an independent U.S. foreign aid agency created in 2004 to grant aid to well-performing developing countries to achieve sustainable economic growth and reduce poverty.
The United Nations Framework on Climate Change (UNFCCC), conceived in 1992 as an international environmental treaty, is dedicated to stabilizing greenhouse gas emissions globally to prevent further interference with the climate by setting mandatory emission limits through protocols. The principal protocol is the Kyoto Protocol under which member countries commit to reduce a cluster of greenhouse gases within their territories.
The Climate Investment Fund is a funding agency of the World Bank formed in 2008 to combat global climate change. It comprises two funds. One, the Clean Technology Fund, is aimed at public and private investments promoting low-carbon economies, and provides an innovative model for development and climate control financing by working with embedded national plans and strategies. Fund recipients must be ODA eligible and have an active Multilateral Development Bank program. The sister fund, the Strategic Climate Fund, is designed to help developing countries create climate-resistant economies, reduce deforestation, and increase new economic opportunities with renewal energy.
The Global Environment Facility (GEF), established in 1991 as an independent financial organization, partners 182 member nations with international organizations and the private sector to assist developing countries in identifying, developing, and implementing eligible projects in biodiversity, climate change, international waters, land degradation, persistent organic pollutants, and agricultural, forest and grazing adaptation. It serves as the financial mechanism for several international conventions, including UNFCCC, and is heralded as the largest funder of global environmental projects. Since the organization’s inception, the Dominican Republic has been the beneficiary of eight grants with the latest received in 2009.
GUZMÁN ARIZA ON RENEWABLE ENERGY
Guzman Ariza’s service in the renewable energy sector is informed and responsive. We are attuned to continually evolving legislation and international initiatives that address the intertwined challenges of mitigating climate change and obtaining energy security for the Dominican Republic. We rapidly deploy the information you need to invest wisely, and apply our legal expertise to help you develop, produce, transport, and market your green project. Our practice areas span energy, tax, environment, finance, real estate, public procurement, contracts, business and companies, intellectual property, and labor and employment. We will help you procure your site, obtain regulatory approvals and permits, secure intellectual property rights, negotiate construction contracts and clean technology licensing agreements, and meet labor and employment requirements. The time to “go green” in the Dominican Republic is now, and Guzman Ariza has the background and dedication to clients needed for a vital renewable energy investment.