Most electricity in the Dominican Republic is generated by thermoelectric plants that use gas, coal, heavy fuel oil or diesel oil. About 15% is generated by hydroelectric plants and wind farms. Independent power producers, many of them recipients of foreign capital, provide about half the electricity generated in the country, which is then sold to CDEEE at prices fixed by contract. In the last five years, foreign direct investment in the sector topped 1.24 billion dollars. In 2012, the Caribbean Association of Investment Promotion Agencies (CAIPA) recognized the Dominican Republic as the number one attraction for investment projects in the field of green energy in the Caribbean region.
Because energy demand still exceeds supply, significant potential for investment exists both in traditional and alternative energy sources, as evidenced by the US billion Punta Catalina project currently under construction, consisting of two identical coal-fired units, both incorporating technology designed to reduce CO2 emissions and comply with the latest international environmental standards.
Incentives for Investors in Renewable Energy Sources
The Dominican Republic encourages investment in the renewable energy sector. Under Law 57-07 on the Development of Renewable Sources of Energy, investors in this area are granted, among other benefits, the following incentives: (a) no custom duties on the importation of the equipment required for the production, transmission and interconnection of renewable energy; (b) no tax on income derived from the generation and sale of electricity, hot water, steam power, biofuels or synthetic fuels generated from renewable energy sources; and (c) exemption from the goods and services tax in the acquisition or importation of certain types of equipment.
The National Energy Commission is the governmental entity in charge of granting incentives in this industry, which has attracted substantial interest from international investors.
International Funding for Investments in Renewable Energy
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 many grants.