Taxes and Incentives for Renewable Energy

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Taxes and incentives for renewable energy

KPMG International

kpmg.com/energytax Taxes and Incentives for Renewable Energy is designed to help energy companies, investors and other entities stay current with government policies and programs that support renewable energy from wind, solar, biomass, geothermal and hydropower. Compiled by KPMG’s Global Energy & Natural Resources tax practice, the 2015 edition provides updates on renewable energy promotion policies for 31 countries. It also includes information on adoption trends for renewables, the growing prominence of emerging markets, new solar and wind initiatives, and key investments in renewable energy around the world.

Lars Behrendt Tax Partner, KPMG in Germany

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Contents Introduction 2 2015 industry trends 4 Global investment in renewable energy production 6 Renewable energy promotion policies by country 10 Argentina 12 Australia 13 Austria 15 Belgium 16 Brazil 17 Canada 19 China 22 Costa Rica 25 France 27 Germany 30 Greece 34 India 38 Ireland 40 Italy 42 Japan 44 Mexico 45 The Netherlands 47 New Zealand 48 Norway 49 Peru 51 Philippines 52 Poland 56 Romania 59 South Africa 61 South Korea 63 Spain 65 Sweden 67 Turkey 68 United Kingdom 69 United States 73 Uruguay 75 Top Five Countries 2014 77 Appendix A: REN21 2014 Renewable Global Status Report 78

Growth in taxes and incentives for renewable energy Start 2004 2013 2014 Countries with policy targets 48 144 164 States/provinces/countries with feed-in policies 34 106 108 States/provinces/countries with RPs/quota policies 11 99 99 Countries with tendering/public competitive bidding n/a 55 60 Countries with heat obligation/mandate n/a 19 21 States/provinces/countries with biofuels mandates 10 63 64

Source: REN 21 Renewables 2015 Global Status Report

The past year has seen a number generation accounted for an avoidance Equally important are economic factors. of remarkable milestones and of 1.3 gigatonnes of emissions in 2014.3 Over 7.6 million people worldwide developments related to renewable The effect of carbon emissions on global now work directly or indirectly in the energy: climate will be the main focus for the renewables sector.5 Renewables 2015 United Nations Climate Change are seen as a sound investment • Global investments in renewable Conference (COP21) in Paris during and a way to mitigate economic risk energy increased 17 percent, the first November and December. As with by increasing energy diversity and 1 increase since 2011. previous conferences, the overarching reducing dependence on fossil fuels. • Renewable energy accounted goal is to reduce greenhouse gas Renewables are also becoming more for 48 percent of new generating emissions through binding agreements attractive due to advances in technology capacity installed globally. among all the nations in the world. and decreased costs. Solar photovoltaic (PV) panels have dropped in price by Renewables also support energy access • Renewable energy provided 80 percent since 2008, with further and affordability. Currently, 15 percent 9.1 percent of global electricity declines expected in the future.6 generation.2 of the world’s population — over a billion people mostly in emerging In line with these industry drivers, • Developing economies almost Asia and Africa — has no access to policy support continues to encourage matched developed economies in electricity.4 In many emerging countries, significant investment and low costs renewable energy investments. energy sources such as wind and solar through economies of scale.7 The • Solar in China and Japan and offshore can support decentralized, mini-grid number of countries with renewable wind in Europe received record and off-grid solutions such as small energy targets and policies increased financing. wind turbines for powering remote again in 2014, and several jurisdictions telecommunications and solar-powered made their existing targets more The continued growth in renewables irrigation kits. In developed countries ambitious — including a rising number has been driven by several factors. First like Australia, Europe, Japan, and North with 100 percent renewable energy of all, we see a continued awareness America, we see significant growth in or electricity targets. As of early 2015, worldwide that renewable energy plays “prosumers”— residential customers at least 164 countries had renewable a key role in helping to mitigate the rise who produce their own electric power energy targets, and an estimated in greenhouse gas emissions. According through solar panels. 145 countries had renewable energy to recent estimates, renewable energy support policies in place.8

1. Global statistics from REN 21 Renewables 2015 Global Status Report; IEA 5. Ibid. World Energy Outlook 2015 Special Report; Global Trends in Renewable Energy 6. Solar energy to be cheapest power source in 10 years, International Business Investments 2015 (UNEP, Bloomberg New Energy Finance); Bloomberg New Times, February 24, 2015 Energy Outlook 2015 7. Op. cit., REN21 2. Excluding hydroelectric generation 8. Ibid. 3. Global Trends in Renewable Energy Investments 2015 4. Ibid.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Power generation is the focus of most accompanied by other policy tools biofuel and electric vehicles into public renewable energy policies. Feed-in such as solar-specific renewable heat transportation fleets. tariffs (FITs) and Renewable Portfolio mandates. Transport-related policies In addition, the private sector is Standards (RPS) policies remain the currently focus on the biofuel sector and rethinking its attitude about renewables. most commonly used mechanisms. on road transport, although other modes For example, Google has announced Policymakers — particularly in Europe — of transportation also are attracting agreements to fund over US$2 billion continue the recent trend of amending attention. in renewable energy projects, and the existing policies rather than adopting Cities continue to lead the way for company has set for itself a goal of new mechanisms. RPS policies are renewables by setting and achieving powering operations with 100 percent most popular at the state and provincial ambitious targets that, in turn, have renewable energy.10 levels. Tendering schemes, net metering influenced national policies. By early or net billing policies, green banks With growing energy demand, 2015, several countries had achieved and green bonds represent other a strong commitment to reduce 100 percent of their renewable energy options that are gaining support from carbon emissions, further advances or electricity targets, with the vast policymakers. Counter to these policies, in technology, greater incentives for majority of targets enacted at the city/ however are new charges or fees on investment, and continued policy local level.9 Many municipalities have renewable energy power that have been support, renewable energy will play an achieved their targets by mandating introduced in an increasing number of increasingly important role in the global energy-saving methods through building countries. energy mix for the 21st century. codes and local distribution systems. For renewable heating or cooling, Local and national policymakers have (For additional information about these financial incentives remain the most also supported the integration of policies, see appendix A/page 78). widely used form of policy support,

9. Ibid. 10. http://www.google.com/green/energy/#investments

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Over the long term, the prospects for Again, China was the leader with to expand, energy consumption will be renewable energy remain positive, US$38 billion in investments, marked by greater peak demand periods marked by steady growth across all representing almost two-thirds of driven by home appliances, cooling and sectors. Between now and 2040, wind financing in developing countries. heating systems and transportation. research and analysis suggest that:11 These investments were driven by However, renewables such as solar national policies as well as anticipated and wind are variable energy sources, • Overall energy demand will rise by reductions in FITs. Germany, the UK dependent on whether the sun shines over 30 percent. and the Netherlands invested over and the wind blows. To incorporate these • Renewables will grow to account for US$5 billion in wind power, much of renewables into their traditional energy 56 percent of power capacity. it for offshore installations. Seven mix, utilities will need to continue their projects costing US$1 billion or more development of battery storage systems, • Developing countries will build three reached “final investment decision” smart metering, demand-response times the renewable capacity as stage during 2014. The largest project solutions, and other innovations that developed countries. was the US$3.8 billion financing by increase energy efficiency while helping • Penetration of renewables will double 12 banks, three export credit agencies, to match fluctuating supply and demand. to 46 percent of electricity output. the European Investment Bank and a The following key sectors represent a Danish pension fund for the 600 MW • Costs for wind will decrease by number of recent industry trends: Gemini installation off the coast of the 32 percent and solar by 48 percent. Netherlands.14 Globally, US$18.6 billion Solar PV: Although hydropower is still • Solar will account for over a third of worth of offshore wind projects were the main source of renewable energy, global capacity additions. financed in 2014, representing an rapidly falling costs have made solar PV increase of 148 percent over 2013. the largest market for new investment. These long-term trends are clearly Europe accounted for US$16.2 billion of In fact, unsubsidized solar PV-generated reflected in the top headlines for the the world offshore wind investment, with electricity has now become cost- industry in 2014. Renewables reached China the remaining US$2.4 billion. competitive with fossil fuels in a growing almost 11 gigawatts (GW) of installations. number of locations around the world. Developing countries almost surpassed Challenges for renewables include policy The recovery that began in 2013 for solar developed countries in total investments uncertainty, a trend toward auctions and PV continued in 2014, with an estimated for renewables, increasing their share away from FITs and green certificates 40 GW installed for a total global capacity of investment activity to 49 percent — a in developed countries, retroactive of about 177 GW.15 China, Japan, and the new record.12 China alone attracted over changes in subsidies, and the need to US accounted for the vast majority of US$83 billion, representing almost a third expand electricity distribution systems new capacity. However, significant new of global investment and an increase of and integrate renewable-based systems capacity was planned or added in Latin 33 percent for that country over 2013.13 with existing power grids. In addition, the America, several African countries, and rapid drop in crude oil prices in 2015 and The largest single initiatives for markets in the Middle East such as Saudi the continued low prices for natural gas renewable energy in 2014 involved Arabia. In January 2014, Dubai Electricity in North America may have an impact on solar panel projects in China and Japan. & Water Authority awarded a contract to adoption rates for renewables, although no Almost US$75 billion was invested by build a 200 MW, US$330 million PV plant significant changes have been seen so far the two Asian countries. China dedicated to a group led by Saudi Arabia’s ACWA in policymaking or investments. In fact, the almost US$40 billion to large, utility-scale Power International.16 Most EU markets continued growth of renewables during a installations of more than 1 megawatt declined for the third consecutive year, period of historically low prices for oil and (MW). Japan invested almost US$35 but the region — particularly Germany — gas can be explained in part by the success billion in smaller solar projects of less continued to lead the world in terms of of policies that decouple the renewable than 1 MW, supported in part by FITs to total solar PV capacity and contribution to market from the fossil fuel market. stimulate the installation of solar, wind, the electricity supply. and other forms of renewable energy. The development of more sophisticated Concentrating Solar Thermal Power power storage and delivery systems Wind turbine power generation (CSP): The sector maintained strong will become increasingly important for represented the other major growth with total capacity increasing renewables and require high investments. development area for renewables. 27 percent to 4.4 GW.17 Most capacity is As the global middle class continues

11. Op. cit., Bloomberg New Energy Outlook 2015; World Energy Outlook Special 15. REN21, Technology Roadmap: Solar Photovoltaic Energy, International Energy Report, REN 21 Agency 12. Op. cit., REN21 16. Op. cit., Global Trends in Renewable Energy Investments 2015 13. Op. cit., Global Trends in Renewable Energy Investments 2015 17. REN21 14. Ibid.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. delivered through parabolic trough plants, factories and other large complexes. market for the seventh consecutive year, but 2014 saw a greater diversification In general, solar thermal technologies led by China, and overtook Europe in total of technologies such as linear Fresnel declined in 2014, especially in Europe capacity. The US was the leading country and tower plants that produce energy as and China. Cumulative capacity of water for wind power generation. After years of heat through the use of long and narrow collectors reached an estimated 406 GW- operating in the red, most turbine makers segments of mirror that pivot to reflect thermal (GWth) by the end of 2014 (with pulled back into the black with all the sunlight onto a fixed absorber tube. air collectors adding another 2 GWth), top 10 companies breaking installation Only the United States and India added providing approximately 341 terawatt- records. CSP facilities to their grids in 2014, but thermal (TWth) of heat annually.18 Hydro: Most hydro-electric projects South Africa and Morocco continued Despite overcapacity and weakening of more than 50 MW have been in construction and planning for CSP. Spain demand in 2014, China again accounted operation for decades and represent a remained the global leader in existing for about 80 percent of the world market different stage in renewable technology. capacity, although European markets for solar water collectors. Domestic sales However, mention should be made remain stagnant. However, costs are expanded in much of Asia, parts of Africa, of several recent achievements in declining for CSP, particularly in the global and Latin America. this sector. These are led by the final sunbelt, and a variety of technologies are Wind Power: Wind is still the cheapest commissioning of the giant 13.9 GW under development that can support CSP, option for new power generation, and Xiluodu Dam in Yunnan and Sichuan such as thermal energy storage (TES) global wind power added a record 51 GW provinces, China.20 In addition, Andritz, systems. in 2014 — the most of any renewable an Austrian company, has been awarded Solar Thermal Heating and Cooling: technology — for a total of 370 GW.19 a contract to supply electromechanical Solar thermal heating technologies An estimated 1.7 GW of grid-connected equipment for the 2.1 GW Lauca capture the heat of the sun and transfer capacity was added offshore for a world hydropower plant in Angola.21 Other it to air or water to heat buildings. Solar total exceeding 8.5 GW. Wind energy financings include US$904 million for the chillers use thermal energy to produce is the least-cost option for new power ICE Reventazon hydro-electric project cold air or water through absorption generating capacity in an increasing in Costa Rica and US$747 million for the cooling technology. The technology is number of locations, and new markets Nam Ngiep 1 project in Laos.22 used primarily for large domestic water continued to emerge in Africa, Asia, and heating systems in hotels, schools, Latin America. Asia remained the largest

Annual Capacity additions, 2015-40 (GW)

2012 Projected global installed capacity to 2040, by technology (GW) 2040 600 6% 21% 14% 400 36% 5% 65% 2% 14% 6% 200 26% 4% 0 2015 2020 2025 2030 2035 2040 5,584GW 14,214GW

Fossil Fuels Nuclear Solar Wind Other renewables Flexible capacity

Source: Bloomberg New Energy Finance

18. Ibid. 19. Ibid. 20. Op. cit., Global Trends in Renewable Energy Investments 2015 21. Ibid. 22. Ibid.

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Global New Investment in Renewable Power and Fuels, Developed and Developing Countries, 2004–2014

Billion USD World Total 300 279 270 billion USD World Total 256 Developed Countries 250 237 Developing Countries 232

200 182 178 190 154

150 162 149 112 139 135 100 121 131 107 113 108 89 73 97 83 75 66

50 45 61 53 46 36 29 9 20

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

DoesSource: not REN21 include Renewables investment 2014 in Global hydropow Statuser> Report, 50 MW 2015.

Global new investment in renewable energy by sector, 2014 compared to 2013, US$ billions

Growth:

Solar 150 25%

Wind 99 11%

Blomass & w-t-e 8 -10%

Biofuels 5 -8%

Small hydro 5 -17%

Geothermal 3 23%

Marine 0.4 110%

New investment volume adjusts for re-invested equity. Total values include estimates for undisclosed deals.

Source: UNEP, Bloomberg New Energy Finance.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. By the end of 2014, the renewable Equity raising by renewable energy growing consensus about the relative energy industry had achieved a significant companies on public markets rose risk of renewables when it committed to turnaround in investment activity. For 54 percent in 2014 to US$15.1 billion.27 retaining its renewables, distribution and the first time in 3 years, global new The increase was driven by the recovery transmission businesses, while putting investment was on the upswing, in sector share prices between mid-2012 its conventional generation arm into a increasing by 17 percent over 2013 and and March 2014, and by the popularity separate company.29 reaching a total of US$270 billion for with investors of US “yieldcos” and (For additional information, see appendix 2014.23 Renewables outpaced fossil fuels European quoted project funds. These B/page 79) for the fifth year running in terms of net investments in operating-stage wind, investment in power capacity additions. solar and other renewable energy China: Investment in developing economies projects raised US$5 billion from stock was up 36 percent, almost reaching market investors in 2014. Out of every three dollars spent in global the investment total for developed renewables investment during 2014, The year 2014 also saw the creation of economies, which saw an increase of only almost one dollar went to China, making two new South-South development 3 percent. it the world’s leader in investments and banks: the US$100 billion New new installations for renewable power.30 Although China, the US, Japan, the UK Development Bank created by the Investments totaled about US$80 and Germany remained the leaders in BRIC countries — Brazil, Russia, billion, with 90 percent of that amount investments for renewables, activity India and China — along with the assigned to asset financing for utility- continued to spread to new markets Asian Infrastructure Investment scale projects.31 throughout 2014. Brazil (US$7.6 billion), Bank created by 23 Asian countries. India (US$7.4 billion) and South Africa The expansion of new investment Wind predominated large-scale (US$5.5 billion) were all in the top 10 of vehicles for renewables — such as development, attracting US$37.9 billion, investing countries.24 Chile, Indonesia, green bonds, yield companies, and an increase of 30 percent over 2013. Kenya, Mexico, South Africa, and Turkey crowdfunding — have attracted new Not surprisingly, the country set a new each invested more than US$ 1 billion in classes of capital providers and are global record for wind installations — renewable energy.25 Uruguay, Panama, helping to reduce the cost of capital for 21 GW — as development accelerated the Philippines and Myanmar invested financing renewable energy projects. to beat anticipated reductions in the between US$500 million to US$1 billion. For example, more than a quarter of new FIT. Major transactions included the investment in renewable energy for 2014 200 MW Longyuan Rudong intertidal Backed by lowering costs and policy went to small-scale projects, particularly offshore wind farm (US$990 million) support, solar and wind continued to solar PV. and the 400 MW Huadian Qingyang dominate the industry. In 2014, these Huanxian Maojing onshore wind farm two sectors accounted for 92 percent of Between 2010 and 2014, investment (US$560 million). overall global investment in renewable levels in renewables remained relatively power and fuels, while biomass steady with annual totals between China also built a record volume of solar and waste-to-energy made up only US$230 billion and US$280 billion. capacity last year, supported by US$29.7 3 percent of investments.26 In terms of Although the total for 2014 was on billion in investments, a 20 percent total capacity including utility-scale and the high side of this range, there is increase over last year. As with wind, the small projects, solar led the industry no assurance that current trends will majority of investments involved utility- with US$136.3 billion in investments, necessarily continue. Nevertheless, scale plants. Major projects included up 25 percent over 2013. Wind was renewables are being increasingly the 530 MW Longyangxia PV plant the largest sector in terms of utility- perceived as a stable, relatively low-risk (US$848 million) being developed by scale asset finance, attracting US$ 92 investment by institutional funds. This is Huanghe Hydropower Development and billion, an increase of 10 percent over evident partly in the rising commitment the 300 MW Minqin Hongshagang PV last year. Large-scale solar farms grew by institutions to renewable power plant (US$420 million) owned by China 15 percent, reaching US$ 62.8 billion. projects, and partly in their backing for Singyes Solar Technologies. Small-scale The next largest sector was biomass green bonds, which reached a record PV investment rose from US$1.2 billion and waste-to-power, with US$7.4 billion, US$39 billion of issuance in 2014.28 in 2013 to US$7.6 billion, an increase of down 10 percent from last year. The German utility EON reflected the over 633 percent. In September, the

23. Op. cit., Bloomberg New Energy Finance, REN 21. Figure excludes large 27. Ibid. hydroelectric projects using traditional technology 28. Op. cit., Global Trends in Renewable Energy Investments 2015, REN21 24. Ibid. 29. Ibid. 25. Ibid. 30. Ibid 26. Op. cit., Global Trends in Renewable Energy Investments 2015 31. Ibid. Taxes and incentives for renewable energy | 7

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. government released a new policy on California-based Pattern Energy Group 82 percent (US$28.1 billion) spent on solar generation systems connected to raised US$586 million in a secondary- small-scale solar projects, a US$6 billion the distribution grid, encouraging further share placement. In California and some increase over 2013. The FIT has been development. other states, subsidies were perceived such a success that some 70 GW of as no longer necessary, shifting the solar applications were approved by more on page 22. solar policy debate to retail rates and net November 2014, prompting half of the United States metering. Investment in US small-scale country’s vertically integrated utilities to solar capacity grew by 66 percent last year announce restrictions in Q4 2014 on grid Among developed economies, the US to US$12.9 billion, with the residential access. In December, the government retained its leadership in renewable market welcoming new financing proposed changes to the rules on FIT energy investments, which increased methods and other innovations. applications, grid connection approval 7 percent to US$36.3 billion. In terms and curtailment. of financing types, venture capital Overall investments for wind declined by and private equity in solar rose from half to US$6.9 billion, driven mainly by The 2014 Strategic Energy Plan also US$373 million in 2013 to US$1.3 billion uncertainty over whether the Production includes provisions to shorten the time in 2014. The biggest deal was a US$250 Tax Credit would be extended. At the required to conduct environmental million private investment in Sunnova same time, public market investment impact assessments for wind farms; for expanding residential solar sales. in wind more than doubled last year to deregulate the process of setting up Overall, US public market activity in US$893 million. Like solar, much of this small hydropower plants; and exempt solar increased by 76 percent to reach financing was driven by yieldcos. solar power stations from regulations under the Factory Location Act, which US$5.9 billion. more on page 73 otherwise imposes a three-month Three of the top four deals in solar were Japan: requirement prior to construction. based on yieldcos — publicly-owned companies formed to own power plants Japan followed close behind the US The events of Fukushima in 2011 and pass most cash flow to investors in renewable energy investment. The continue to influence the course of as dividends. The largest yieldco was 2014 Strategic Energy Plan includes renewable energy policies for Japan. Abengoa Yield, which raised US$829 a generous FIT that encouraged Responding to fears regarding the million through an IPO on Nasdaq. In May, US$34.3 billion in investments, with safety of nuclear power after the

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. events of Fukushima, the country’s Dudgeon plant (US$2.6 billion) and the Germany: nuclear reactors were taken offline 389 MW West of Duddon Sands wind between 2011 and 2012, oil and natural farm (US$2.1 billion). The UK’s largest After the UK, the leading European gas imports were increased, and the transaction in onshore wind was also investor in offshore wind projects was government provided new incentives for the country’s largest renewable energy Germany, with financing for this sector renewable energy. However the decision public-market investment — US$200 increasing 4 percent to US$11.4 billion in to take nuclear reactors offline has now million for the Greencoat UK Wind fund 2014. Although Germany was number been reversed by the 2014 Strategic through a secondary share placement. one in European solar investments in Energy Plan and the Nuclear Regulation The UK was also one of the few countries 2013, the country saw investments Authority of Japan is reviewing 18 to attract any marine energy investment, in this sector drop by half in 2014. reactors for restart. These developments at US$123 million. Slightly over two- Only 2 GW was installed – below the will most likely affect the government’s thirds of this amount funded the first government’s target range of 2.4 to 2.6 perspective on policymaking for phase of the 86 MW MeyGen Inner GW. The decrease in FIT rates and the renewable energy in the future.32 Sound tidal stream project, projected to self-consumption charge introduced in be the world’s largest tidal array. August led to a one-third reduction in more on page 44 investment in small-scale PV to US$3 In the first round of the UK’s auction United Kingdom billion – well below the US$25 billion program for its new Contracts for level reached in 2010. The UK was Europe’s largest single Difference to support renewables, In contrast, wind attracted more than investor in renewable energy for 2014, winning bids came in at tariffs estimated 2.5 times as much investment (US$8.2 although its contribution of US$13.9 to be some 10 percent below the all- billion), of which 61 percent was spent on billion represented only a 1 percent in remuneration available under the three offshore projects. The two biggest increase over last year.33 Wind attracted outgoing Renewables Obligation (RO) deals were for the 350 MW Wikinger and US$8 billion, compared with US$2.7 incentive. The results, announced in late 277 MW Borkum Riffgrund wind farms, billion for solar. Offshore projects February 2015, also showed offshore both of which cost US$1.7 billion. accounted for 86 percent of investments wind bids winning through at 14 to 18 for wind. The biggest “final investment percent below what would have been more on page 30 decisions” were for the 402 MW available under the RO.

32. Op. cit., Global Trends in Renewable Energy Investments 2015, REN21 33. Ibid. Taxes and incentives for renewable energy | 9

The following chart is a summary of the support schemes available for the countries highlighted in this publication. Additional details regarding the investment and operating support schemes for each country can be found in the following pages.

FISCAL INCENTIVES AND PUBLIC COUNTRY REGULATORY POLICIES FINANCING , VAT, or other taxes , VAT, 2 Renewable energy targets Energy production payment Public investment, loans, or grants Feed-in tariff/premium payment Electric utility quota obligation / RPS Net metering Biofuels obligation/ mandate Heat obligation/mandate REC Tradable Tendering grant, or Capital subsidy, rebate Investment or production tax credits Reductions in sales, energy, CO

HIGH INCOME COUNTRIES Australia * Austria Belgium Canada R* France R R Germany R Greece R Ireland Italy R R Japan R R The Netherlands New Zealand Norway Poland R R South Korea Spain R Sweden United Kingdom United States1 R* R* R* R* R Uruguay UPPER-MIDDLE INCOME COUNTRIES Argentina R Brazil R China R R Costa Rica R Mexico Peru Romania R South Africa R R R Turkey R LOWER-MIDDLE INCOME COUNTRIES India Philippines

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Market Issues KPMG’s ENR Tax Services & Due to the impact of these incentives and taxes on your investment decisions, To help clients address key challenges Solutions – Engaging the Green Agenda KPMG firms can factor them into in today’s rapidly evolving renewable tailored due diligence and tax modeling energy sector, KPMG member firms KPMG firms can help you to review services. These services apply not only provide services backed by a global your regulatory and sustainability to production or sale/purchase of green network of resources, information and business strategies and your energy goods but also to green investments experience. The KPMG Energy & Natural and emissions trading objectives. and financing arrangements. Resources practice has specialists in We can provide tax characteristics KPMG’s Global ENR Tax network the field of renewable energy, based of carbon credits, resolve Clean includes professionals who specialize in in key business locations around the Development Mechanism issues, and these tax practice areas: world, acting as a single network. In define implications of Certified Emission each location, KPMG professionals Reduction forward contracts from both • Financial Services Tax can offer practical, in-depth, renewable trading and transfer pricing standpoints. energy experience. They can also draw • Global Indirect Tax on the KPMG global network of Energy We can also help you navigate the • Global Transfer Pricing Services & Natural Resources practitioners to wide array of available global and local provide clients with immediate access Government and municipal grant • International Corporate Tax to the latest industry knowledge, skills, programs or tax incentives related to • Mergers & Acquisitions. resources and technical developments. the production and sale and purchase of alternative energy and green products. Investing in the sector With regular calls and effective These include FITs, tax holidays, communications tools, we can share accelerated depreciation, carbon tax/ KPMG member firms invest significant observations and insights, debate pricing, trading schemes, energy taxes, time and resources in deepening our new emerging issues and discuss excise taxes or VAT in relation to wind, understanding and knowledge of the issues that are critical to clients’ solar, biomass, biofuels, geothermal sector. This enables us to provide clients management agendas. This global and hydropower sources, as well as with strategic and insightful services network also produces regular surveys increased energy efficiencies, smart- that are tailored to their specific needs and commentary on key issues affecting grid technologies, and carbon capture and based on an understanding of their the sector, business trends, changes in and storage technologies. challenges. regulations and the commercial, risk and financial challenges of doing business.

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Support schemes Quota obligation Investments and other subsidies The aim is to reach a contribution of Support is available for renewable sources of renewable energy equal energy sources including biofuels, solar, to 8 percent of the total national wind, hydro and geothermal, among consumption of electric energy within others. a term of 10 years, starting in 2006, the effective date of the regime. At the local tax level: Quota obligations also include the • anticipated value added tax (VAT) use of fossil fuel mixed with at least refunds for the new depreciable 10 percent of biofuels, including property (except for automobiles) biodiesel and bioethanol. included in the project Additional information • accelerated income tax depreciation. (Filing two claims for the same project The following authorizations are is not allowed.) required for the construction of renewable energy plants: The property used for the project will not be a part of the minimum, • authorization to use the land presumed, income tax taxable base. In • environmental impact study addition, biofuel producers will not be subject to the hydric infrastructure tax, • approval by the Energy Secretariat the tax on liquid fuels and the gas oil tax • bidding offer submitted through for the amount of fuel that is marketed the Program of Electric Generation in the national territory. through Renewable Energies At the provincial level: (Programa Generación Renovable or GENREN). • real estate tax exemption • stamp tax exemption Bill: • turnover tax exemption/deferral In March 2014, a bill was brought before the Argentine Senate to make the • tax stability. application of Law 26190 more flexible The type of benefit depends on the and to achieve an 8 percent share in the geographic area in which the renewable satisfaction of the national demand of energy plant operates, so the plant’s electric energy within a 10-year term specific location must be supplied for a (expiring in 2016). In addition, the bill proper tax classification. sets a new goal for 2025, which consists in increasing the aforementioned share Operating subsidies to 20 percent. As of mid-year 2015, the Argentine Senate has approved this Subsidies at the national level: bill, and we assume that the House • wind: Argentine peso (ARS)0.015/ of Representatives´ half sanction will kWh follow. • solar: ARS0.9/kWh Apart from the benefits provided by • hydro for less than 30 MW installed prior regulations, the bill introduces capacity: ARS0.015/kWh a provision for the collection of a tax bonus to be allocated to the payment of • other: ARS0.015/kWh. Several national taxes. provinces have different incentive feed-in tariffs according to the kind of energy they want to promote.

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Support schemes by renewable energy technologies R&D portfolio.4 This initiative has had to a point where they are better two funding rounds to date which Renewable Energy Target (RET) able to compete with traditional have focused on solar excellence and Australia’s RET is designed to ensure fossil-fuel technologies. Funding is industry collaboration respectively. that 20 percent of Australia’s electricity available under two categories: comes from renewable sources by Accelerated Step Change 2020. The RET continues to act as • Projects – Offers funding for Initiative (ASCI) the principle driver of new renewable renewable energy and enabling ASCI supports exceptional, energy investment across Australia technologies and products as they breakthrough projects that are not and will achieve a target of 33,000 move through the technology otherwise eligible under existing GWh of renewable electricity by 2020. innovation chain. The application ARENA programs. Expressions The renewable energy sector has process is undertaken in two of interest from Australian and received increased certainty this year phases, with funding allocations international companies and research with the Australian Parliament passing expected to fall within the range institutions will be accepted until 2018. renewed legislation committing to of AUD2 million to 30 million. Eligible projects must require an ARENA 1 the target after a review process. • Measures – Offers funding for contribution of AUD5 million or more, No further reviews of the scheme initiatives that involve a renewable with the overall project cost expected are to occur until it ends in 2020. energy industry capacity building to be more than AUD20 million. In addition to the RET there are also activity, skills development activity Projects that are at the research a number of policies, programs or a preparatory activity for an and development (R&D) phase of a and incentives, with key initiatives ARENA Project. The application renewable energy technology or include specifically related to renewable process is undertaken in one a technology that has yet to be proven at energy which are described below. phase and is expected to fund up the pilot scale are not eligible. Projects to AUD3 million, with a maximum can, however, include R&D components Australian Renewable funding pool of AUD10 million. where they assist in the demonstration, Energy Agency (ARENA) Supporting High value Australian commercialisation or deployment of ARENA is an independent agency Renewable Energy Knowledge a renewable energy technology. established by the Australian (SHARE) initiative is in addition to these Government on 1 July 2012 and Clean Energy Finance two categories and seeks to build on the operates under the ARENA Act 2011. Corporation (CEFC) store of publicly-available knowledge It has two key objectives: to improve The CEFC was established by the about renewable energy technologies the competitiveness of renewable Australian Government under the Clean and approaches that are best suited energy technologies, and to increase Energy Finance Corporation Act 2012 to Australia. The SHARE imitative can the supply of renewable energy in and is a commercially oriented financier support the direct commissioning Australia. It has approximately AUD2.5 which aims to make a positive return on research, studies or knowledge billion in funding for renewable energy its investment. The CEFC co-finances products that meet knowledge gaps projects and research and development and invests, both directly and indirectly, within the industry or help overcome activities.2 To date, it has committed in clean energy projects using a range barriers to its growth in priority areas AUD1.1 billion to 230 projects of financial instruments but does not including understanding renewable across a range of technologies.3 issue grants. After its first 2 years in energy potential, grid integration operation the CEFC has committed Listed below are ARENA’s and international engagement. over AUD1 billion in investments current initiatives. Research and Development across 70 projects with a total value Emerging Renewables Program (ERP) Program (RDP) of AUD3 billion.5 The CEFC focuses The ERP is focused on supporting The RDP is focused on supporting on technologies and projects that are renewable energy technology at the R&D activities that will contribute in the later stage of development and development, demonstration and to increasing the commercial those that can produce a positive rate supported commercial stages of the deployment of renewable energy. of return and an ability to repay capital. innovation chain. Ultimately the aim is Up to AUD300 million in grants has to lower the cost of energy produced been allocated to develop ARENA’s

1. http://www.environment.gov.au/minister/hunt/2015/mr20150623.html 4. http://arena.gov.au/initiatives-and-programmes/research-and-development- 2. http://arena.gov.au/about-arena/ programme/ 3. http://arena.gov.au/media/arena-awarded-world-environment-day-award-2015/ 5. http://www.cleanenergyfinancecorp.com.au/media/107349/aie-ceo-series-vic- 26-may-2015-.pdf Taxes and incentives for renewable energy | 13

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Renewable Energy Venture • Smaller companies (those with an generation. The Australian Capital Capital Fund aggregated turnover less than AUD20 Territory (ACT) previously ran a Large The Southern Cross Renewable Energy million) can access a refundable 45 Scale FIT Scheme which provided Fund is a 13-year, AUD200 million percent R&D tax offset, provided the ACT government with power venture capital fund, operated by they are not controlled by income tax to grant FIT entitlements up to Southern Cross Venture Partners. The exempt entities; and 210 MW of generation capacity. fund was initially established under the • Larger companies (those with an Quota obligation Australian government’s AUD100 million aggregated turnover of AUD20 million 20 percent reduction by 2020. Renewable Energy Venture Capital of more) can access a non-refundable Fund (REVC) with the Government’s 40 percent R&D tax offset. contribution matched by an additional Additional information AUD100 million contributed by Only the first AUD100 million of R&D The Victorian State Government has Softbank China Venture Capital. expenditure per income year receives recently made renewable energy a R&D tax offsets above the corporate priority focus sector of its economy R&D Tax Incentive tax rate, and unused non-refundable and is establishing a AUD20 million The R&D Tax Incentive scheme is a offset amounts may be able to be New Energy Jobs Fund that will focus broad-based program accessible to all carried forward to future income years. on driving investment into renewable industry sectors. In many instances, energy projects and technologies. activities conducted as a part of Operating subsidies renewable energy development may Feed-in Tariff be eligible for the R&D tax incentive. There are no national-based FITs. Currently the program offers two tiers However, a number of state-based of incentive based on the turnover initiatives exist for small-scale of the company in question:

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Support schemes In open space: Investments and other subsidies • 5 kWp to 350 kWp: ct10.00/kWh. Small solar plants Geothermal: Less than 5 kWp investment subsidies • ct7.36/kWh. are granted for the plants, sufficient for them to achieve a 6 percent capital yield. Sewage gas For plants between 5 kWp and 200 • ct5.88/kWh. kWp, an investment subsidy is granted Landfill gas of 30 percent, not to exceed euros • ct4.90/kWh. (EUR)200. Compact biomass (such as forest Waste liquor plants woodchips or straw) Maximum 30 percent of the investment • ct8.81/kWh to ct13.86/kWh, (not including real estate costs) depending on the production capacity • up to 100 MW: EUR300/kW (declining tariff). • 100 MW to 400 MW: EUR180/kW Waste with high biogenic contingent • more than 400 MW: EUR120/kW. • same as for compact biomass, minus 25 percent. Small hydro plants Liquid biomass • maximum 30 percent of the investment for 500 kW capacity: up to • ct5.68/kWh; surplus of ct2/kWh for EUR1500/kW production in an efficient power-heat cogeneration. • maximum 20 percent of the investment for 2 MW capacity: up to Biogas from agrarian production EUR1000/kW • ct12.80/kWh to ct19.31/kWh, • maximum 10 percent of the depending on the production capacity investment for 10 MW capacity: up to (declining tariff). EUR400/kW Additional information • Between these set percentages, Legal the maximum is calculated via linear The feed-in tariffs are regulated by the interpolation. law for the promotion of electricity Medium hydro plants (<10 MW) production from renewable energy • maximum 10 percent of the resources (Ökostromgesetz 2012). investment The concrete feed-in tariffs have to be determined each year by a decree from • maximum EUR400/kW and maximum the Ministry of Economics. EUR6 million per plant. Duration of the feed-in tariffs Operating subsidies 15 years for liquid and concrete Feed-in tariff biomass or biogas; 13 years for all other renewable technologies. Wind energy: • cents (ct)9.36/kWh. Administrative procedures Applications have to be filed with Solar: the Renewable Energy handling On buildings: Center (Ökostromabwickklungstelle, • 5 kWp to 200 kWp: ct11.50/kWh. http:// www.oem-ag.at/). • 201 kWp to 350 kWp: ct12.50/kWh.

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Support schemes of carried forward increased investment energy certificates and/or combined deduction if this amount is higher than heat and power (CHP) certificates. Investment and other subsidies EUR2.48 million (per financial year The certificate can be considered Corporate income tax incentives 2014). as a transferable intangible asset, An increased investment deduction is Formalities demonstrating that the energy plant as available for investments made by a The Royal Decree implementing the mentioned realized a certain amount of Belgian company into newly acquired energy savings. The competent Regional or built tangible fixed assets or into new Belgian Income Tax Code contains a list of eligible investments. Some Authorities grants these certificates on intangible fixed assets, provided that a monthly basis to the owners of such these assets are being used in Belgium examples are wind turbines, solar panels, combined heat and power energy plants as a reward for the energy for the purpose of a professional activity. savings they achieved. The increased investment deduction plants, biomass and waste handling, will also be provided with respect to processing installations or heat recovery Belgian electricity suppliers have to investments made in “energy saving devices. make sure that a minimum amount of assets,” that is, fixed assets used for A certificate issued by the competent the electricity they provide to the end a more rational approach to energy Regional Authority confirming that the consumers can be considered as green consumption, for the improvement of assets are enlisted should be requested or renewable energy. To demonstrate industrial processes from an energy- within three months following the last that they have reached this minimum based point of view, and especially for day of the taxable period in which the amount of renewable energy, the the recovery of energy in the industry. assets are acquired or established. electricity suppliers need to submit a sufficient number of certificates to the Applicable rules and rates To verify the authenticity of the investment made, it is necessary Regional Authority. Electricity suppliers A percentage of the acquisition or that the application to the competent who do not produce renewable energy investment value of energy saving Regional Authority is accompanied themselves (and have not been granted assets that have been newly acquired with supporting documents and other certificates) or suppliers that do not or established during the taxable period items for determining the accuracy provide enough renewable energy will be tax deductible. This comes in of the amount and the value of the themselves are able to buy these addition to the accounting depreciations investments. certificates on the market. that are also tax deductible. Regional Support Schemes Producers of renewable energy can sell The increased investment deduction the certificates they have received to an In Belgium, renewable energy is a should therefore be applied as a one- electricity supplier who needs to reach regional matter; only offshore wind off deduction and equals 13.5 percent the minimum amount of renewable power and hydro power are governed by (indexed yearly — percentage energy. Moreover, to ensure the sale national (federal) regulations. Depending investments 2015) of the acquisition of certificates at a minimum value, the on the competent Regional Authority, value or investment value. distribution network operator, as part applications can be made for specific of its duty as a public service, will also Tax deduction support schemes. purchase certificates at a minimum The increased investment deduction will Financial support to encourage Belgian guaranteed value, upon request of an be applied on the profits of the taxable companies to invest in state-of-the-art, energy producer. period in which the assets have been ecological technologies can be obtained As a result, producers of renewable newly acquired or established (that is, via an open online system and will be energy can use the certificates that when they became depreciable). When granted by the competent Regional were granted to them by the competent the deduction cannot be fully set off Authorities. against the profits of the taxable period, Regional Authority to: the proportion of the deduction that has Provided that certain conditions have • meet the minimum renewable energy not been used can be carried forward been met, these regionally granted requirements (in case the producer is without any time limit and can be set off subsidies are tax-free for corporate also an electricity supplier) against the profits of the subsequent income tax purposes. taxable periods. The application of the Federal System of Certificates • sell the certificates on the market at carried-forward increased investment market price deduction is however limited to a In Belgium, electricity from renewable • sell the certificates to the distribution certain amount per taxable period, being sources is promoted mainly through network operator at a certain EUR620,000 for investments made in a quota system based on the trade of minimum guaranteed value. 2014, or 25 percent of the total amount certificates — in other words, green

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Support schemes – a 1.5 percent PIS rate and a 6.9 • The State Value-Added Tax on Sales percent COFINS rate levied on and Services (Imposto Sobre a Investments and other subsidies gross revenue of ethanol sales Circulação de Mercadorias e Serviços Taxes over revenue and imports (PIS or ICMS) can possibly be exempted – a fixed value of PIS and COFINS and COFINS) for some products used for biodiesel by cubic meter of commercialized or ethanol production. In addition, • A special tax regime is applicable in ethanol – BRL8.57 and BRL39.43, the ICMS calculation basis may be Brazil for producers and importers respectively, up to 31 August 2013. of biodiesel, which includes two reduced for interstate operations programs: the Social Integration The Brazilian government edited Decree related to ethanol and biodiesel Program (Programa de Integração 7.997/13, which sets forth that, from production and distribution. This Social or PIS) and the Contribution to 1 September 2013 until 31 December reduction depends on individual state the Social Security Fund (Contribuição 2016, the fixed value of PIS and COFINS law. by cubic meter of commercialized para o Financiamento da Seguridade • In the same way, operations involving ethanol shall be increased to BRL21.43 Social or COFINS). The PIS and equipment used in the generation of and BRL98.57, respectively. COFINS taxes due are definitive, wind and solar energy can possibly be meaning that the resale of biodiesel Despite this, the Brazilian government ICMS tax exempt until 31 December by wholesalers, distributors and approved Federal Law n. 12.859/2013 2021. retailers is not subject to PIS and that grants to the producers and Contribution for Intervention in the COFINS. Under this tax regime, the importers a presumed credit in the Economic Domain (CIDE) producers and importers can opt for: same values, which leads to a practical – a 6.15 percent PIS rate and a effect of zero rate of PIS and COFINS. • Ethanol sales are not subject to 28.32 percent COFINS rate levied Also, the taxpayers may opt for this new Contribution for Intervention in the on gross revenues derived from fixed value and the presumed credit in Economic Domain (Contribuição de biodiesel sales; or advance (from 8 May 2013). Intervenção no Domínio Econômico or CIDE). – a fixed value of PIS and COFINS For distributors of ethanol, the following by cubic meter of commercialized options are available, depending on the Operating subsidies biodiesel Brazilian real (BRL)26.41 option of the producer or importer: Brazil currently has no feed-in tariff policy. and BRL121.59, respectively. – a 3.75 percent PIS rate and a 17.25 Producers opting for the fixed value percent COFINS rate levied on Additional information can obtain certain reductions and gross revenue of ethanol sales Brazil is considered the world’s seventh exemptions of the amounts due, – a zero rate for the fixed PIS and largest investor in renewable energy. depending on the supplier of raw COFINS. Nationwide, 79.3 percent of the Internal material or input applicable to the Energy Supply (Oferta Interna de production (for example, acquisition • Ethanol sales carried out by retailers Energia or OIE) is renewable, whereas from castor bean producers or from and sales negotiated through the the world’s average is 20.3 percent. family farmers). Moreover, the entity Future & Commodities Exchange that sells biodiesel that is subject to (Bolsa de Mercadorias e Futuros or Furthermore, the National Bank for the non-cumulative regime of PIS and BM&F) are not subject to PIS and Economic and Social Development COFINS is entitled to a 45 percent COFINS, as long as the commodities’ (Banco Nacional do Desenvolvimento presumed credit based on the income contracts do not stipulate physical Econômico Social or BNDES) provides from the sale in the domestic market or delivery as part of contracts that are a variety of financial programs the export of biodiesel. financially settled. to stimulate the production of renewable energy. The development • Sugarcane sales are exempt from Federal and state VAT (IPI and ICMS) of the renewable energies in Brazil PIS and COFINS, provided that the • Biodiesel and ethanol sales are not is increasing, and almost half of the tax payer is under the non-cumulative subject to the Industrialized Products energy consumed in Brazil is now regime. tax (Imposto Sobre Produtos generated by renewable sources. • There is a special tax regime for Industrializados or IPI). The actual scenario is very producers, importers and distributors • Equipment used in the renewable advantageous for renewable energy. of ethanol. The producers and energy generation process is The government expectations are that importers may opt for: generally exempted from the IPI. renewable energy may be responsible

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. for 18 GW out of a total increase of 63 Additional benefits not yet in force of renewable energy. At this point in GW in the total installed capacity of the time, these benefits have not yet been segment over the next 10 years. Several other incentives being discussed implemented. in the Brazilian scenario are also worth According to the Ministry of Mines mentioning: In 2013, the government created a and Energy, Brazil is especially well program of incentives to the ethanol situated for becoming a major producer The Brazilian Commission of sector. This program involves several of biodiesel. The country contains a vast Infrastructure Services (CI) approved benefits to this market that will be amount of arable land, much of which PLS311/09, a federal project law that implemented soon: has the right soil and climate for growing establishes the Special Regime of • creation of a line of credit of BRL6 a variety of oilseeds. Taxation to encourage the development and generation of electric power from billion for the production and storage The growth of biodiesel as an alternative alternative sources (Regime Especial of sugarcane and ethanol with reduced energy source in Brazil is supported by de Tributação para o Incentivo ao interests Federal Laws 11.097/05 and 13.033/14, Desenvolvimento e à Produção de • increasing of the percentage of which mandate a minimum of 5 percent Fontes Alternativas de Energia or ethanol to be mixed with gasoline of biodiesel to be mixed with diesel and REINFA). This project foresees several from 20 percent to 25 percent the monitoring of this mixture in the tax benefits such as exemptions of PIS marketplace. The Laws also support the and COFINS, import taxes and IPI for • reduction of chemical input costs, funding of R&D for biodiesel and other companies operating under the regime. It by diminishing the chemical industry energy sources, as well as all phases of is important to emphasize that this is not costs with the increasing of its PIS and production, including the acquisition of a law in force, yet. At the present time, it COFINS credits. equipment and technology. is still awaiting internal procedures in the Finally, other general benefits that Federal Senate. In a related matter, Brazil is one of the are not specific to renewables may most promising countries for wind After COP-15, Brazil formalized its apply, such as the Special Incentives energy. The first wind energy auction commitment to reduce carbon emissions Program for Infrastructure Development was held at the end of 2009, in which and increased its goal by 2.8 percent. (Regime Especial de Incentivos para o the government bought 1,805 MW of Under the National Policy on Climate Desenvolvimento da Infra-Estrutura or wind energy at a price of BRL148.39/ Change (law 12.187/09), Brazil has REIDI), SUDAM/SUDENE incentives, MWh. Encouraged by the success of this pledged to reduce carbon emissions and technology innovation. Each one auction, the government continues to 38.9 percent by 2020. According to has its requirements for application and, hold auctions on an annual basis. this law, Brazil could grant several in some cases, depends on government tax benefits to encourage the use approval.

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Support schemes – equipment generating electricity CRCE is fully deductible in any year, can from geothermal energy be carried-forward indefinitely or can Federal investments and other be transferred to investors through the – equipment generating electricity subsidies flow-through share rules. The Government of Canada has from eligible waste fuel. Scientific Research & Experimental committed that by 2020 Canada’s total o thermal energy greenhouse gas emissions be reduced Development (SR&ED) Program by 17 percent from 2005 levels and – active solar equipment The SR&ED Program is a federal tax 90 percent of Canada’s electricity be – district energy equipment that incentive program administered by generated from sources that do not distributes thermal energy from the Canada Revenue Agency that produce greenhouse gas pollution. cogeneration encourages Canadian businesses of all Here is a summary of incentives and sizes, and in all sectors, to conduct R&D grants that the federal government has – heat recovery equipment used in in Canada. Companies, including those invested in support of these goals. electricity generation and industrial carrying on business in clean energy processes generation, may be entitled to claim an Income tax incentives – ground source heat pump Investment Tax Credit (ITC) if they incur Accelerated Capital Cost Allowance equipment eligible R&D expenditure. The tax credit (ACCA) is based on money already committed Advantageous ACCA rates are available – equipment generating heat and spent by the company. The program for certain types of assets used for for industrial processes or is the single largest source of federal clean energy generation and energy greenhouses, using an eligible government support for industrial R&D, conservation: waste fuel. returning as much as a 35 percent federal cash refund. • Class 43.1 (30 percent declining o fuels from waste balance basis) for certain clean energy – equipment that recovers landfill gas Sustainable Development Technology generation and energy conservation or digester gas Canada (SDTC) equipment. SDTC plays a significant role in – equipment used to produce biogas bridging the gap between research • Class 43.2 (50 percent declining through anaerobic digestion and commercialization of clean balance basis) for certain equipment technologies. It does this by described in Class 43.1 that is – equipment used to convert fast tracking clean technologies acquired on or after 23 February biomass into bio-oil through their development and 2005 and before 2020 that is used – equipment used to remove non- demonstration phases, in preparation for clean energy generation, energy combustibles and containments for commercialization. SDTC is an arm’s conservation and higher efficiency from gas. length foundation that was created standards. Canadian Renewable and by the Federal government to invest • Recent federal budgets that support, Conservation Expense (CRCE) 1.09 billion Canadian dollars (CAD) in along with other equipment, the To promote the development and innovative technologies and projects following components: conservation of sources of renewable that deliver economic, environmental, and health benefits to Canadians. o electricity energy, many start-up expenditures on renewable projects can be grouped in a Backed by CAD915 million in funds, – high-efficiency cogeneration CRCE pool. CRCE can include intangible SDTC supports projects that address equipment expenses such as feasibility studies, climate change, air quality, clean water – small hydroelectric facilities negotiation, regulatory, site approval and clean soil. The CAD500 million costs, site prep and testing, etc. CRCE NextGen Biofuels Fund supports the – wind turbines can also include test wind turbines that establishment of first-of-kind, large – fuel cells are part of a wind farm, on projects demonstration-scale facilities for where 50 percent or more tangible the production of next-generation – wave and tidal power equipment costs are reasonably expected to be renewable fuels. – Photovoltaic (PV) equipment included in Class 43.1 or 43.2 ACCA.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. SDTC acts as the primary catalyst in the 2013 budget, the Government of recoverable reserves and increased building a sustainable development Alberta cancelled future rounds of the royalties. Successful applicants in the technology infrastructure in Canada. Bioenergy Producer Credit Program. program are provided with royalty The SDTC portfolio is currently However, the government will still be adjustments up to a maximum of 30 comprised of 285 clean technology honoring payments to existing grant percent of approved project costs. The projects, for a total value of CAD2.9 agreements. The program is valid for industry must provide the remaining billion, of which over CAD2.0 billion is bioenergy production from 1 April 2011 70 percent or more of total project leveraged primarily from the private- to 31 March 2016. costs. The total industry/government sector. In February 2015, SDTC commitment to important new Carbon Capture and Storage (CCS) announced a call for applications, which technologies, assuming full subscription Fund – Alberta was open until 15 April 2015. of the program, will be CAD1.15 billion. The Alberta government has committed ecoENERGY CAD1.3 billion to advance CCS Innovative Clean Energy Fund (ICE) – The ecoENERGY program targets technology. Approved projects can British Columbia several areas including biofuels, energy receive a maximum of 75 percent of The Innovative Clean Energy Fund efficiency and renewable energy. the total incremental cost to capture, encourages the development transport and store CO2. A maximum of new sources of clean energy • ecoENERGY for biofuels: The of 40 percent of the approved funding and technologies and supports ecoENERGY for Biofuels initiative will be distributed during the design precommercial energy technology or has a budget of CAD1.5 billion over and construction stage based on commercial technologies not currently 9 years to boost Canada’s production achieved milestones, and an additional used in British Columbia. Since 2008, of biofuels. The program runs from 20 percent of the approved funding will there are 62 projects with a total 1 April 2008 to 31 March 2017, and be granted upon commercial operation. amount of CAD77 million that have been recipients will be entitled to receive The remaining 40 percent of the funding approved throughout British Columbia. incentives for up to 7 consecutive will be provided as CO2 is captured years. SR&ED tax credit – All provinces and stored over a maximum period of • ecoENERGY for Renewable Power: 10 years. Various provinces provide refundable The ecoENERGY for Renewable and/or non-refundable investment The government of Alberta has awarded Power initiative has a budget of tax credits (ITC) worth between funding for two projects from its CAD1.3 approximately CAD1.4 billion 10 percent and 15 percent of annual billion CCS fund: over 14 years to encourage using eligible expenditures (depending on the renewable energy sources to create • Alberta Carbon Trunk Line (CAD495 particular province) for all corporations electricity. The program runs from 1 million) that do business through a permanent April 2007 to 31 March 2021. There establishment situated in that province. • Shell Quest (CAD745 million). are no new agreements signed Eligible expenditures are generally those after 31 March 2011; however, many Innovative Energy Technologies that qualify for federal ITC purposes projects with existing contribution Programs (IETP) – Alberta and are generally capped at a maximum annual credit. agreements will still receive The Innovative Energy Technologies payments up until 31 March 2021. Program (IETP) supports the Provincial Operating subsidies Energy Strategy (PES), which identifies Provincial investments and other There are no feed-in tariffs or quota subsidies the need for innovation, research and technology development. Announced obligations at the federal level, but they Bioenergy Producer Credit Program – in 2004, the IETP supports innovative are implemented in some provinces. Alberta technology development in the Quota obligation – Alberta To expand Alberta’s bioenergy sector, production of Alberta’s oil, oil sands, and the Bioenergy Producer Credit Program The province of Alberta has required gas resources. It also supports finding facilities that emit more than 100,000 was established to provide production commercial technical solutions to the subsidies for a variety of bioenergy tonnes of greenhouse gas emissions a gas-over-bitumen issue to allow the year to reduce their emissions intensity products, including renewable fuels, efficient and orderly production of both electricity, and heat using waste by 12 percent. The regulation took resources. Over time, program costs effect as of 1 July 2007. Emitters have such as manure and wood chips. In will be recovered through additional

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• make improvements to their operations • purchase offset credits from other sectors that have voluntarily reduced their emissions • pay CAD15 a tonne into the Climate Change and Emissions Management Fund, an arm’s length organization independent from the government that invests the funds into initiatives and projects that support emission reduction technologies • purchase Emissions Performance Credits from facilities that have reduced their emissions intensity below the mandatory 12 percent threshold. Feed-in tariff – Ontario The Ontario feed-in tariff program is North America’s first comprehensive guaranteed pricing structure for renewable electricity production, and it provides a way to contract for renewable energy generation. It includes standardized program rules, prices and contracts for anyone interested in developing a qualifying renewable energy project. Prices are designed to cover project costs and allow for a reasonable return on investment over the contract term, and they are subject to review periodically. Qualifying renewable technologies include biogas, renewable biomass, landfill gas, PV, water power and wind power.

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Support schemes opinions to the central NDRC for VAT further review. (According to the Investments and other subsidies • 50 percent refund of VAT is paid on Old Measures, all CDM project the sale of wind power. Corporate Income Tax (CIT) companies applied directly to the • 50 percent refund of VAT is paid on • A reduced CIT rate of 15 percent central NDRC for approval.) the sale of self-produced PV power is granted to qualified advanced • The New Measure also changes the from 1 October 2013 to 31 December and new technology enterprises. sharing percentage in the proceeds 2015. Applicable fields include solar energy, from the transfer of emission wind energy, biomaterial energy, and reductions units between the • 100 percent refund of VAT is paid on geothermal energy. government and companies involved the sale of biodiesel oil generated by the utilization of abandoned-animal fat • The Clean Development Mechanism in N2O and PFC projects. and vegetable oil. (CDM) Fund is exempted from CIT on • A 3-year exemption from the CIT is the following income: followed by a 50 percent reduction for • The portion of VAT paid in excess of 8 percent shall be refunded on the – the portion of Carbon Emissions another 3 years of the standard CIT sale of self-produced electricity by Reductions (CERs) proceeds that rate for income derived from qualified hydroelectric power stations with 1 are shared by the government environmental protection and energy or water conservation projects. This million KW installed capacity from – donations from international reduction starts from the year in 1 January 2013 to 31 December financial organizations which the first revenue is generated. 2015, while the portion of VAT paid in excess of 12 percent shall be – interest income derived from Applicable fields include biomaterial refunded on the sale of self-produced capital deposit or national bonds energy, synergistic development and utilization of methane, and electricity by hydroelectric power – donations from domestic and technological innovation in energy stations with 1 million KW installed foreign entities or individuals. conservation and emission. capacity from 1 January 2016 to 31 December 2017. • Enterprises operating CDM projects • A 10 percent credit of the amount are allowed to deduct before CIT the invested in the qualified equipment • VAT paid on the sale of goods CER proceeds that are shared by the is applied against the CIT, payable for produced from recycled materials or government. the current year, with any unutilized waste residuals is refundable. • A 3-year exemption of the CIT is investment credit eligible to be • VAT is exempt on the sale of self followed by a 50 percent reduction carried forward for 5 tax years. This produced goods including recycled for another 3 years of the standard applies only if such equipment is water, qualified powdered rubber CIT rate for income derived from qualified as special equipment related made out of obsolete tires, re- specified CDM projects. These to environmental protection, energy, trodden tires and certain construction projects include hydrofluorocarbons or water conservation and production materials made from 30 percent or (HFC), perfluorocarbons (PFC), and safety. more of waste residuals. nitrous oxide (N2O) projects, starting • Only 90 percent of the revenue • VAT is exempt for sewage treatment, from the year in which the revenue derived from the transaction is taken garbage disposal and sludge from the transfer of greenhouse into account for CIT computation treatment services. gas emission reductions is first purposes. This applies only if such received. According to the new revenue is derived from the use of In November 2011, the government Administrative Measures Governing specific resources associated with authority expanded the scope of sales the Operation of CDM Projects in the synergistic utilization of resources of self-produced goods/products by 2011, any project companies, except as raw materials in the production of using the prescribed recycled materials, for the 41 state-owned enterprises goods. waste residuals and agricultural listed, shall apply for approval with the residuals that are eligible for VAT refund National Development and Reform • A 150 percent deduction is given for at rates ranging from 50 to 100 percent Commission (NDRC) at the provincial qualified R&D expenses incurred for of the VAT payable. The rates may vary level first. Then the commission CIT computation purposes. depending on the nature of recycled would submit preliminary review materials or residuals utilized.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. As of 1 April 2013, the taxpayer is further • A qualified ESCO taking part in an areas and the electricity generated by required to meet the local/national EPC project will be provisionally different types of renewable energy pollutant emission requirements in exempt from the VAT on the transfer companies. order to receive the VAT incentive for to the energy user of goods related to Financial funds/allowance self-produced goods/ products from the project. recycled materials. Special funds are made available to • When, at the end of the term of facilitate the development of renewable Vehicle and Vessel Tax the energy management contract energy relating to the following As of 1 January 2012, qualified energy (EMC), the ESCO transfers to activities: efficient vehicles and vessels enjoy the energy user the assets that • scientific and technical research, a 50 percent Vehicle and Vessel Tax have materialized in the course standardization processes and model deduction. Qualified new energy (mainly of executing the EPC project, the engineering projects electric) vehicles and vessels may be ESCO can do so as if these assets exempted from Vehicle and Vessel had been fully depreciated or • renewable energy projects in rural Taxes. amortized for CIT purposes. In the and pastoral areas same way, when the energy user Vehicle Purchase Tax receives the project assets from • construction of stand-alone electricity From 1 September 2014 to 31 the ESCO, the energy user can do generation system in remote areas December 2017, new energy vehicles so as if these assets had been so and islands purchased will be exempted from depreciated or amortized. • renewable energy resource surveys, Vehicle Purchase Tax. • When the ESCO transfers the project evaluation and construction of Feed-in tariff incentives available assets to the energy user at the end information systems to energy performance contracting of the term of the EMC, the ESCO • localization of manufacturing facilities (EPC) projects will not have to recognize any revenue used in the renewable energy sector. • Qualified energy service companies to take into account the contributions The special funds may also be deployed (ESCOs) taking part in an EPC project the energy user has made to the price as compensation for the higher costs will be eligible for a tax exemption in of the assets. charged by renewable energy plants the first 3 years and a tax reduction • An energy user in an EPC project can and indirectly borne by the grid for by half (an effective rate of 12.5 deduct reasonable expenses actually the purchase of electricity from these percent) over the following 3 years, incurred in accordance with the EMC plants. Applicants may apply for such starting from the tax year in which the as, and when, they are incurred for funds with the local finance bureaus and revenue from the project first arises. CIT purposes. There is no need to the government agencies in charge of Where an EPC project lasts less than differentiate between service fees renewable energy projects. 6 years, the ESCO shall be entitled and asset prices in claiming such a to the incentives based on the actual deduction. Financial subsidies for energy project period. conservation technologies Operating subsidies improvement • An enterprise that invests in special equipment for energy conservation Feed-in tariff During the State’s 12th Five-Year Plan period, the central government will will obtain a credit against its tax With the revised Renewable Energy continue to arrange special subsidies payable that equals 10 percent of Law that came into effect in April 2010, to support the projects to improve the the investment amount in the year in the State Bureau of Energy and other energy conservation technologies. which the investment is made. Where departments of the State Council there is not sufficient tax payable will promulgate guidelines on the full The financial subsidies for energy to absorb the credit in the year, the purchase of electricity generated by conservation will support the following excess credit may be carried forward new energies. According to the revised activities: up to 5 tax years. law, the price of on-grid electricity • innovation for energy conservation generated by renewable energies shall • A qualified ESCO taking part in an mechanisms EPC project will be provisionally be determined by the competent price exempt from the Business Tax/ VAT on department of the State Council. The • establishment of energy conservation revenues received from the project. council will consider the difference in capacity and public platforms

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. • integrated demonstrations of fiscal Financial subsidies for renewable The amount of subsidies granted is policy for energy conservation energy development subject to the nature, goals, investment and utilization level for renewable • energy conservation in significant To promote the development and energy activities. The distribution fields, industries and regions utilization of renewable energy, financial subsidies are granted to the following methods for financial subsidies include • promotion and upgrading of activities: competitive allocation, factor allocation significant energy conservation and reimbursement on the actual cost technologies • demonstration of important basis. technologies for renewable and new • other relevant activities approved by energy, and industrialization Additional information the State Council. • development and utilization of Quota obligation The allocation of the financial subsidies renewable and new energy The guidelines for quotas in the for energy conservation is closely renewable energy sector have been linked to the nature, goals, investment, • development of platforms for renewable and new energy included in the work plan of the State achievements and utilization levels for Bureau of Energy and are expected to energy conservation. The allocation • integration of renewable and new be issued by 2015. methods of financial subsidies include energy utilization direct allowances, bonus, interest discount and reimbursement on the • other relevant activities approved by actual costs basis. the State Council.

24 | Taxes and incentives for renewable energy

Support schemes • Materials to build equipment for Operating subsidies renewable energy use Investment and other subsidies Costa Rica currently has no feed-in tariff Law 7447 • Tempered glass with less than 0.02 policy. percent iron content Law 7447 (Regulation of the Rational Other aspects Use of Energy), Article 38, lists a • Thermal insulation for thermal solar number of energy-related products that collectors such as polysocyanurate Expansion Plan Generation are exempt from the following taxes: and polyurethane insulation, additives (PEG) for preparing them, or both • excise tax The Expansion Plan Generation (Plan • Plate-finned tubes and absorbent de Expansion de Generacion or PEG) is • ad valorem plates for water heaters Costa Rica’s framework for medium and long-term planning from 2014 to 2035 • general sales tax • Specific aluminum profiles to build in the electricity sector. The first period solar water heaters • specific customs tax. of the Plan covers construction sites These exempt products include: • Thermal insulation for water pipes until 2017, including the Reventazón Hydroelectric Project (300 MW), • Any heat insulator useful to improve • Multipurpose solar water heaters which will come online in 2016. The the insulation of storage tanks with next period starting in 2018 includes • Water storage tanks for solar heating solar heated water systems systems (boiler type) a recommended general program of • Measuring instruments related to action until 2035. • PV panels for power generation, any renewable energies variables, such capacity as: temperature gauges, pressure Established renewable • Control systems for PV panels, wind gauge fluids, solar radiation meters, resources and hydro generators working with and anemometers to measure wind Under the PEG, Costa Rica is developing direct current (DC) speed and direction a variety of renewable energy • Static DC to alternating current (AC) • Pump-fed systems with PV and wind resources to meet electricity demand. converters for PV systems, wind and systems Hydropower has been the main source of power, due to its abundance, quality hydroelectric generators with DC • Refrigerators, solar cookers and systems and cost, followed by geothermal and hydraulic ram pumps. wind. Biomass, based on bagasse, and • Deep-cycle, lead-acid batteries Moreover, tax reductions for green solar are also contributing to the energy and nickel-cadmium or nickel-iron technology have been introduced, such matrix. batteries, with capacities greater than as a 10 to 30 percent tax reduction for 50 amps per hour hybrid cars. Hydropower The identified potential of this resource • Head economizers for hot water Temporary import showers and sinks, with consumption includes about 1,700 MW that partially Law 7557 (General Customs Law), of less than 9.5 liters per minute or totally affects indigenous reserves. Article 165, states that the products Another 780 MW is located in national • Efficient fluorescent and halogen listed above are exempt from import parks, where the law does not allow any lighting taxes if they are imported with a kind of exploitation. temporary purpose related to a • Wind and hydro-generators for use renewable energy project. After the not related to private generation Geothermal renewable energy project is finished of electricity (Law 7200 of The identified potential of geothermal is and the imported products are no longer 28 September 1990) based on a very preliminary and limited needed, they can be exported without estimate. Most sources are located • Equipment for controlling voltage incurring any customs tax. The products within national parks in the Central and frequency for wind and hydro must remain in the country for no longer and Guanacaste volcanic mountain generators than 1 year and must then be exported ranges and are not available for use. or definitively imported without any • DC electronics equipment for use The only fields that can be developed transformations. with PV panels, wind and hydro are Miravalles and Rincon de la Vieja generators (Pailas and Borinquen). These fields have

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. a potential of 300 MW, out of which developing additional sources such as projects ranging in capacity from 1 MW 195 MW is already in operation. the following: to 20 MW. Wind Biogas Biofuels Costa Rica has been the pioneer of wind Biogas is the energy source that is Biofuels may become a significant energy in Latin America. Since 1996, obtained from biomass. As with the addition to the country’s energy mix in about 5 percent of the country’s energy sugar mills mentioned above, some the coming years. Mixtures of diesel needs are met by wind. The annual small farms have developed systems with 5 to 20 percent of biodiesel can be cycle of wind generation complements for personal consumption, with the used at any of the thermal plants in the hydropower, since the strongest winds potential for larger-scale developments country, without adjustments or major occur in the dry season. in the future. retrofits. Biomass bagasse Municipal solid waste There is still no infrastructure for large- scale production, storage or distribution For bagasse, sugar cane mills have Solid waste can be used to generate chains. Small amounts have been installed their own generation electricity through steam-producing experimentally used in thermal floors equipment and are able to produce processes. Several municipalities by the Costa Rican Electricity Institute more energy than they need at a low in Costa Rica have announced their (ICE). cost. Additional investments in new interest in adopting this technology. generation equipment have increased these benefits. The seasonality of Solar growing sugar cane complements the As prices for PV solar panels continue seasonality of hydropower plants. to decline, this technology is becoming Emerging renewable resources increasing attractive to investors. Costa Rica's Regulatory Authority for Along with existing sources of Public Services (ARESEP) has recently renewable energy, Costa Rica is proposed new feed-in tariffs for PV

26 | Taxes and incentives for renewable energy

Support schemes Credit for competitiveness and of projects (tariffs for the first quarter employment (CICE) 2015): Investments and other subsidies The tax credit is equal to 6 percent of The accelerated tax depreciation has • ground-based PV power plants: all wages paid to employees during the EUR0.0662/kWh not been renewed as of 1 January 2011. calendar year for salaries that do not However, companies can still apply a exceed 2.5 times the French minimum • simplified building-integrated declining-balance method to certain wage (salaries of employees who earn generating facilities: EUR0.1347/kWh equipment used to produce renewable more than 2.5 times the minimum wage or EUR0.1279/kWh energy. This method, which is optional, are excluded from the computation). consists of multiplying the depreciation • building-integrated generating rate for the straight-line method by a The wages used to calculate the CICE facilities: EUR0.2655/kWh. coefficient determined by law, based base are the same as wages used to As of 1 July 2011, the above-mentioned on the asset’s expected useful life. In calculate employer’s social security tariffs have been adjusted quarterly practice, when a company applies the contributions with respect to base pay, by the Ministry in charge of energy, declining depreciation method at the holiday pay, benefits in kind, etc. depending on the number of grid beginning of the depreciation period, it The tax credit may be applied to offset connection applications received by the can obtain a tax depreciation higher than corporate income tax liability and the distribution system operators over the the accounting depreciation. excess could be carried forward for 3 previous quarter. Biofuels years and may be refunded if not fully A bonus of 5 percent or 10 percent Biofuels benefit from a partial utilized at the end of this period. applicable on the above-mentioned exemption of the internal tax on Operating subsidies tariffs was granted for the components petroleum products and of the of the PV system made in Europe. This general tax on polluting activities to Feed-in tariff bonus was cancelled effective May 2014 compensate for the additional costs Remuneration is available for electricity since this system was considered as arising from biofuel production. Biofuels produced from the following sources non-compliant with EU rules on freedom in gasoline include bioethanol and ethyl according to tariffs which are revised on of movement. tertiary butyl ether (ETBE). This partial indexation formula. The above-mentioned tariffs are mainly exemption is applicable for the period Wind applicable for installations below between 2014 and 2015. • Onshore wind power plants: 100 KW power. For the installations Research tax credit EUR0.082/kWh for 10 years and exceeding this threshold, they are Companies may be granted a research between EUR0.028/kWh and subject to invitation to tender. tax credit on their environmental EUR0.082/kWh for the next 5 years Geothermal investments if the expenses they depending on the location of the wind • France: EUR0.20/kWh, in addition to incur while carrying on such projects farms and the hours of electricity an energy efficiency bonus of up to correspond to research activities eligible production. EUR0.08/kWh for this tax credit. The tax credit will • Offshore wind power plants: be equal to 30 percent of the eligible • French overseas departments: EUR0.13/kWh for 10 years and research expenses that do not exceed EUR0.13/kWh, in addition to an between EUR0.03 and EUR0.13/kWh EUR100 million and to 5 percent for energy efficiency bonus of up to for the next 10 years, depending on the eligible R&D expenses exceeding EUR0.03/kWh. the location of the wind farms and the EUR100 million. hours of electricity production. Biomaterial (Biogaz) The research tax credit will be offset These tariffs should be modified further • Between EUR0.0.8121/kWh and against the corporate income tax due for the implementation of offshore wind EUR0.1337/kWh, depending on the during the year in which the expenses farm development zones (see below). power of the plant, in addition to are incurred. Any surplus tax credit will an energy efficiency bonus of up to constitute a receivable for the company Solar EUR0.04/kWh and to a bonus for that can be used to pay the corporate Due to several recent changes in processing of animal manure up to income tax for the three following years the law, different tariffs apply to PV EUR0.0.26/kWh. and may be reimbursed afterwards. power plants, depending on the kind

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Hydro subject to the issuance of a building On 16 March 2013, the French Energy • EUR0.0607/kWh in addition to a permit. Specific authorizations exist Regulatory Commission issued a bonus between EUR0.005/kWh for wind, hydro and biomaterial power second tender for offshore wind farms and EUR0.025/kWh for small power stations. In addition to the building with 1 GW of new capacity. On May plants, as well as a bonus of up permit, an exploitation authorization 7, 2014, the French government has to EUR0.0168/kWh for electricity issued by the Minister of Energy is awarded a tender to build and run two produced during the winter required for power plants with an offshore wind farms to a consortium led installed load/installed power higher by French gas and power group, ENGIE. • EUR0.015/kWh for ocean hydraulic than 4.5 MW. For power plants with an Furthermore, the Ministry of energy (wave energy, tidal energy and installed power lower or equal to 4.5 environment indicated that France other hydrokinetic energy sources). MW, only a declaration is required. For wants to have 6000 MW offshore wind plant, an environmental permit is Biomass capacity before 2020. Therefore, also required. • EUR0.043/kWh in addition to a bonus specific organizations need to identify between EUR0.0771/kWh and Renewal of hydroelectric new zones for the construction of EUR0.1253/kWh depending on the concessions: offshore wind parks. In the coming energy efficiency, the nature of the The debate over the renewal of months, the French government should resources used and the power of the hydraulic concessions and its corollary, be announcing a new tender. plant. the liberalization of the market, goes Grid access: back several years and has been the Électricité de France (EDF) and other The producer/owner of a new power subject of many reports and changes electricity distributors must purchase plant has to apply for a grid connection by the public authorities. For the time the electricity produced by a renewable to the public distribution system such as being, the renewal of hydroelectric energies producer at fixed tariffs and for Réseau de Transport d’Electricité (RTE), concessions has not been organized. a minimum duration. For example, there Electricité Réseau Distribution France is a purchase obligation for EDF during a Therefore, the Government took two (ERDF) or a local distributing company. 15 year period for onshore wind power, approaches in the Energy Transition Some agreements have to be made by geothermal power, and biomaterial for Green Growth Act currently in the owner of the power plant for the power and a 20 year period for offshore discussion for this renewal: (i) the distribution of electricity produced by wind power, solar power (subject to the grouping together of concessions the plant: date of the operational start up of the for major valleys (known as the • public grid contract (Contrat d’accès facilities) and for hydro power. The tariffs “barycenter” method in order to au réseau public) mentioned above correspond to the optimize operations, and (ii) the tariff applied to the power plants located possibility for the State to create • grid connection contract (Contrat de in metropolitan France. Increased “public-private hydro-electric raccordement) tariffs apply with respect to Corsica and companies” to operate the renewed • contract regarding the use of the overseas departments. concession. equipment necessary for the grid Additional information Offshore wind energy: connection (Contrat d’exploitation des ouvrages de raccordement). Building and Construction France has set a target plan for installing Authorization and Permission (BCAP): 6,000 MW of offshore wind energy by New disposal currently discussed by 2020 through a tender process. The construction of a power plant is the French Parliament: subject to the issuance of a building In April 2012, the French government The final version of the Energy Transition permit. However, solar power plants announced an award of four offshore for Green Growth Act was voted on (subject to certain conditions) and wind wind farm development zones (2 GW 17 August, 2015 and the following turbines smaller than 12 meters are not of offshore wind energy capacity). measures can be outlined.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. • The introduction of a new model electricity purchase agreement called the “supplemental remuneration agreement.” This new agreement applies to facilities with a capacity of over 500 kw. The purchase obligation remains but is substantially modified as the aid is granted in the form of a bonus in addition to the market price. (This is an “ex post” bonus, that is, one that will ensure a known target remuneration for the producer.) From now on, the purchase price will no longer be set upon signing for the entire term of the agreement but will be adjusted based on the market price and other economic criteria related to the facility. • The promotion of new forms of financing renewable energy projects. To reduce the difficulties often encountered by developers in the construction of wind power facilities, the use of local financing is one of several solutions offered by the Government. To support this local financing, it is provided that “commercial companies and local public-private companies may be set up to offer ‘residents living near the Project construction site’ as well as local authorities access to their share capital.”

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Support schemes minimum of 20 percent of heat nautical mile zone or the German generated by solar energy and with Exclusive Economic Zone (EEZ) of the KfW Programs heat sales of a minimum of 500 German North and Baltic Sea. Project KfW Bankengruppe is a German kWh per year and meter of route financing for up to 10 offshore wind government-owned development parks is available in the form of: bank, supporting projects related to the – heat storages with more than 10 environment as well as other areas. cubic meters – direct loans granted by bank syndicates (a maximum of EUR400 – biogas pipes with a minimum KfW Renewable Energies Program million/project) length of 300 meters (for biogas • Investments are available in three used for CHP purposes or as – finance packages comprising loans programs: biofuel) from KfW on-lent through a bank – Standard: in plants for electricity – heat pumps with a rated heat – direct loans limited to 70 percent generation from renewable energy capacity of more than 100 kW of the total debt capital required sources such as PV, biogas, hydro, per project and EUR700 million per – facilities for the development and onshore wind or geothermal project energy and heat generation in CHP use of deep geothermal energy systems. with a drilling depth of more than – direct loans to finance unforeseen 400 meters, a minimum thermal additional costs (a maximum of – Premium: in large plants for fluid temperature of 20° C and a EUR100 million per project). heat generation from renewable minimum geothermal heat output • Eligible to apply: all project companies energies (solar panels, biomass, of 0.3 MWth. biogas, deep geothermal energy) as investing in the German EEZ or in the well as CHP installations and heat All plants shall be commissioned in 12 nautical mile zone of the North Sea networks/pumps not promoted accordance with their designated and the Baltic Sea. purpose for at least 7 years. Plants under the Standard program. • Maximum funding: EUR5 billion. eligible for remuneration under the – Storage: in new installations of Renewable Energies Act (Erneuerbare • Loan-term: up to 20 years with a stationary battery storage systems Energien Gesetz or EEG) 2014 are not repayment-free start-up period of up combined with PV systems. entitled to be promoted. to 3 years. • Premium funding was initiated to • The funding shall be granted as a • In 2013, KfW provided a credit volume strengthen the establishment of the long-term, interest-reduced loan up of EUR194 million. There was no renewable technologies in the heat to 100 percent of the investment commitment in 2014 due to delayed market through low-interest KfW costs (excluding VAT), maximum total investment activities previous to the loans and repayment subsidies by the lending of EUR25 million per project reformed EEG 2014. Federal Ministry for Economic Affairs (Standard) and EUR10 million per KfW Energy Efficiency Program and Energy. These technologies project (Premium). include: Incentives for commercial enterprises to • Level of funding shall be increased invest in energy efficiency measures are – PV systems with more than 40 up to 10 percent for small to medium- granted through low interest rates and square meters gross collector area sized enterprises (Premium). repayment bonuses and are available in for the purpose of water heating two programs: and/or space heating of properties • Eligibility for funding depends on the with three or more residential units program part. • Production Systems/Processes: for or non-residential properties with • Loan-term: 5, 10 or 20 years with a investment, modernization as well minimum 500 square meters of repayment-free, start-up period of up as reinvestment measures leading to usable area to 3 years. energy savings of at least 10 percent – biomass plants for the combustion (basic standard) or at least 30 percent • In 2014, KfW provided a total credit (premium standard) compared with of solid biomass with a rated heat volume of EUR234 million for capacity of more than 100 kW previous energy consumption or the Premium and around EUR3.9 billion typical consumption level within the – heat-controlled biomass CHP with for Standard. Funding for Storage sector. a thermal output at par with at least since initiating the program in May 100 kW and a maximum of 2 MW 2013 amounted to EUR134 million. – Eligible to apply: all domestic and foreign commercial companies – heat networks with a minimum KfW Offshore Wind Energy Program majority-owned by private of 50 percent of heat generated • Special promotion of offshore individuals as well as enterprises by renewable energies or with a wind energy projects within the 12 under an energy contract, projects 30 | Taxes and incentives for renewable energy

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. carried out abroad by German KfW Energy Turnaround Financing • Loan-term: up to 30 years with companies, their subsidiaries or by Initiative five repayment years at the most. joint ventures with major German High-volume loans are available Generally, projects shall be operated participation. for large-scale investment projects in accordance with their designated purpose for 5 years. – Outside the EU, the share provided in Germany in the areas of energy by the German partner will be efficiency, innovative projects in the Administrative procedures: financed. areas of energy conservation, electricity Applications must be filed, via credit generation, storage and transmission, institution, with the governmental- – The funding is available as a loan up as well as the use of renewable energy. owned bank KfW or, in the case of the to 100 percent of investment costs SME Energy Efficiency Advice program, and usually up to EUR25 million • Two promotional funds are available: with the BAFA. per project. Limit may be increased – direct loans under a banking if the measures are particularly consortium, with KfW contributing Sources: KfW, BMWi Förderdatenbank worthy of promotion. 50 percent to the financing of the Operating subsidies project. – Loan-term: 5, 10 or 20 years with up The EEG 2014 became effective on to 3 repayment-free start-up years. – financing package composed of a 1 August 2014. Remuneration is • Energy-efficient construction and loan on-lent through a bank and a available for electricity produced. All rehabilitation: for the construction syndicated loan with participation tariffs and ranges in principle apply to or modernization of non-residential by KfW. plants commissioned as of 1 August 2014. Plants approved prior to 23 buildings according to the standard • Amount of loan: usually from EUR25 January 2014 that began operations by of a ‘KfW Efficiency House.’ This also million up to EUR100 million per 31 December 2014 will still be governed applies to individual rehabilitation project. measures with respect to a building’s by the provisions of the previous EEG shell or technical facilities. • Loan-term: up to 20 years with a 2012. repayment-free start-up period of up The most important objectives of – Eligible to apply: domestic and to 3 years. foreign commercial companies the EEG 2014 include the integration that are majority-owned by private • Eligible to apply: large commercial of renewable energies into the individuals, companies purchasing enterprises in and outside Germany electricity market by mandatory direct existing non-residential buildings with an annual group turnover marketing and a focus on cost-effective and enterprises providing services EUR500 million to EUR4 billion. technologies. for non-residential buildings under • Commitment volume in 2014: Current regulations pave the way for an energy contract involving third EUR140 million. another revision of the EEG expected parties. by the end of 2016. By the beginning of BMUB Environmental Innovation 2017 at the latest, financial support for – Maximum funding: usually EUR25 Program million per project, up to 100 all technologies shall be determined by The Federal Ministry for the percent of eligible investment costs auctions. This transformation process Environment, Nature Conservation, as well as repayment bonuses of up will be structured in light of experience Building and Nuclear Safety (BMUB) to 17.5 percent. gained through a pilot project testing funds major industrial pilot projects in a tender scheme for ground-mounted – Loan-term: 5, 10 or 20 years with up environmental sectors such as climate solar plants. The pilot tender project was to 3 repayment-free start-up years. protection and resource efficiency. KfW initiated in February 2015. is responsible for the administrative and Program incentives are complemented financial side of the program, while the Expansion Corridors by the SME Energy Efficiency Advice Federal Environment Agency manages The percentage of renewable energies program of the Federal Office for environment technology issues. Funding is to be expanded within specific Economic Affairs and Export Control is available as an interest subsidy or as a corridors: (BAFA), which subsidizes small and loan with interest grant from the BMUB. medium enterprises that identify energy • by 2025 renewables are to produce savings potential and reduce costs by • Interest grants up to 30 percent of 40 to 45 percent of the total energy improved energy efficiency. financeable costs, loans up to 70 mix percent. No maximum amount. – Commitment volume in 2014: • by 2035 renewables are to produce EUR3.2 billion. • Eligible to apply: domestic and foreign 55 and 60 percent of the total energy companies, SMEs receive priority mix. funding.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. These targets are to be achieved by • Operators of small plants can decide exceeds or falls below the targets of individual corridors laid down for the to demand the fixed statutory the expansion corridor. specific technology. payment from the grid operators • degression: according to ‘breathing instead of direct marketing. Fixed Captive Consumption of Renewable caps’ between 0.5 and 1.27 percent statutory rate will be reduced by the Electricity Generation per quarter as of 2016. saved direct marketing expenses, Consumption of self-generated namely, ct 0.4/kWh or ct0.2/kWh Other methane gas (mine, landfill, electricity from new plants is charged depending on the respective energy sewage sludge gas, etc.) with 30 percent (until the end of 2015), source. 35 percent (in 2016) or 40 percent of • fixed statutory payment depending the EEG surcharge (from 2017). Existing • In case of ‘default marketing,‘ plant on nominal generation capacity of the plants and in exceptional cases new operators temporarily unable to individual plant: ct3.8/ kWh to ct8.42/ plants (for installations without grid market their electricity are entitled to kWh connection, auto-generation without a tariff in the amount of 80 percent • plants with a nominal generation electricity purchasing source as well as of the respective fixed statutory capacity of more than 100 kW: small plants with an installed capacity payment. up to 10 kW) are exempted. – fixed statutory payment just for Technology-specific corridors and 50 percent of nominal generation Mandatory Direct Marketing remunerations capacity per annum Plants are to market their power directly. Hydro – additional flexibility premium: Compulsory direct marketing is being • no individual expansion corridor EUR40/kW installed capacity per introduced in stages: • fixed statutory payment depending annum. • as of 1 August 2014, plants with an on nominal generation capacity of the • degression: 1.5 percent per annum as output of 500 kW and above individual plant: of 2016. • as of 1 January 2016 for plants with – up to 5 MW: ct6.31/kWh to ct12.52/ Geothermal an output of 250 kW kWh • fixed statutory payment: ct25.20/kWh • as of 1 January 2017 for plants with an – more than 5 MW: ct4.28/kWh to output of 100 kW or more. ct5.54/kWh • degression: 5 percent per annum as of 2018. Market Premium – more than 50 MW ct3.5/kWh. Wind In addition to the revenue from directly • degression: 0.5 percent per annum as Onshore sold electricity a market premium of 1 January 2016. can be claimed. The market premium • expansion corridor: annual expansion consists of a fixed statutory payment Biomass 2.5 GW (net) (anzulegender Wert) differentiated by • expansion corridor: annual increase of – Repowering measures will be technology and rated power minus a up to 100 MW (gross) considered only with respect to the technology-specific monthly market • fixed statutory payment depending net increase of nominal power. value (Monatsmarktwert). on nominal generation capacity of • fixed statutory payment: In order to receive the market premium, the individual plant: ct5.85/kWh to plants must be remote-controllable as of ct13.66/ kWh (biowaste installations – ct4.95/kWh (basic payment) 1 January 2015, including plants already and small manure gas ct15.26/kWh to – increased basic payment (initial commissioned. ct23.73/kWh). payment) of 8.9 ct/kWh for at least Fixed statutory payment for plants • plants with a nominal generation 5 years; possibility of extension being commissioned as of 2016 will be capacity of more than 100 kW: for locations with a reference yield reduced to zero if the value of hourly below 130 percent. – fixed statutory payment just for contracts at the EPEX Spot in Paris 50 percent of nominal generation • breathing caps is constantly negative for at least six capacity per annum hours. • degression: – additional flexibility premium: Exemptions from Mandatory Direct – basically 0.4 percent per quarter as EUR40/kW installed capacity per Marketing of 2016 annum. Exemptions from mandatory direct – decreases or increases in a range marketing exist for small plants and in • breathing caps: financial support between zero and 1.2 percent case of so called ‘default marketing‘: increases or decreases if growth

32 | Taxes and incentives for renewable energy

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. depending on reaching breathing – 0.5 percent per month as of – No Degression: awarded rate caps. 1 September 2014. remains unchanged. Offshore – degression decreases or increases • For plants operational before • expansion corridor: 6.5 GW until according to breathing caps 1 September 2015: in a range between zero and 2020, 15 GW until 2030. – Fixed statutory payment: up to a 2.8 percent on a quarterly basis. • fixed statutory payment: nominal generation capacity of Ground-mounted plants in open 10 MW ct9.23/kWh – basic payment: ct3.90/kWh spaces – Support available for plants in areas – increased initial payment (Basic Support of plants in open spaces was being subject to an approved land- model): ct15.4/kWh during the shifted from feed-in tariffs to a support use plan that has been: first 12 years after commissioning involving a competitive tender process. (extended depending on water The pilot project of tendering an average o approved prior to 1 September depth and distance from shore) of 400 MW in three annual rounds 2003 or was launched by the Federal Network – acceleration model: If the offshore o approved after 1 September 2003 Agency. Details are regulated in a wind farm is commissioned before where plants were erected either separate ordinance (FFAV). In the first 31 December 2019, the operator on land to be devoted to different round, a total of 150 MW was put out can select an increased initial usage (Konversionsfläche) or for tender, with the maximum rate set payment of ct19.4/kWh for 8 years alongside freeways (Autobahnen) at ct11.29/kWh. The highest awarded (extended depending on location or railroad lines or bid amounted to ct9.43/kWh, while the with a payment of ct15.4/kWh for average successful bid was ct9.17/kWh. o a land-use plan that designated the prolonged period). the area as commercial-industrial • For plants operational as of • degression: prior to 1 January 2010. 1 September 2015: – for the Basic model: annually ct0.5/ – Degression: equivalent to plants – Plants must participate in the kWh as of 1 January 2018, ct1.0/ erected on buildings. tender process and be awarded in kWh as of 1 January 2020, and order to obtain financial support in Additional information ct0.5/kWh as of 1 January 2021. form of the market premium. Duration of subsidized market – for the Acceleration model: – Contracts are awarded to the premium: Up to 20 years plus the year ct1.0/kWh as of 1 January 2018 tenders with the lowest offered of initial operation. p.a. (in 2019 degression will be fixed statutory payment value until suspended). the total volume put out for tender • Grid connection from the offshore has been reached. switch station to the shore supported – Eligible to apply: by the transmission system operator (Sec 17 par 2a EnWG). o For the year 2015, only those sites already being permitted Solar under the EEG 2014 (certain • Expansion corridor: annual growth of sealed areas, land conversions, 2.5 GW (gross) land along freeways and railway • Plants from 10 kW installed capacity tracks) are eligible. must be remote-controllable. o Bids must amount to at least • Plants of 800 watts to 10 kW 100 kW and may not exceed must be equipped with adjustable 10 MW, multiple bids per round performance inverters. allowed. In and on buildings o Bids for energy generated in the installations must be stated in • depending on the amount of nominal ct/kWh and have to indicate the generation capacity: ct9.23/kWh to capacity of the installation in kW. ct13.15/kWh – Duration of support: up to calendar • degression: 20 years (year of initial operation included).

Taxes and incentives for renewable energy | 33

Support Schemes Incentives Available under Law 3908/2011), cash grants Investment Incentives Law 3908/2011 and leasing subsidies may not be Investments and Incentives under became effective February 2011, available to all qualifying investments. Investment Incentives Law 3908/2011 replacing the previous incentive Law General Eligibility Requirements: Article 6 of Law 4242/2014 stipulates 3299/2004. However, investments According to Law 3908/2011, certain that the final deadline for submitting made under the previous incentive Law criteria should be met in order for applications with regards to investment 3299/2004 continue to be subject to the the aforementioned incentives to projects under the provisions of requirements of that law and are eligible be granted. In general, these criteria Law 3908/2011 was determined to for the incentives of that law. According include the following: be 5 March, 2014. At this time, the to Law 3908/2011, the following competent Ministry is not accepting incentives are available: • The investment should be initiated further applications for launching after the official eligibility approval. investment projects. In order for • Tax relief, which constitutes an Under certain conditions, the respective incentive framework to income tax exemption on profits investment may be initiated prior remain active for new applications, a before taxes as determined on the to the official approval as above but legislative amendment is required to be basis of tax legislation. The amount in any case after the filing of the introduced to the Greek Parliament. of the tax relief granted becomes a tax free reserve for the equivalent respective application. In light of the above, various entities — amount. • The minimum amount of the including joint ventures (JVs) that qualify investment is set at EUR1 million as synergy and networking JVs and • Cash grants provided by the State for large enterprises, EUR500,000 engage in the production of energy from that cover part of the expenses of the for medium-size enterprises, renewable resources such as wind and investment project EUR300,000 for small enterprises hydro — are generally eligible to apply • Leasing subsidies provided by the and EUR200,000 for very small under the provisions of Law 4242/2014 State that cover part of payable enterprises. The above minimum (assuming that the relevant provisions of installments related to the leasing of amounts are reduced to 50 percent the law are re-activated and applications’ new equipment. The leasing subsidies for General Business Investments. submissions are re-initiated). Entities do not exceed a 7-year period. These active in the production of energy from incentives may be granted solely or • The enterprises must be established PV systems are not eligible (NACE Code in combination. However, apart from in Greece and have the form of 35.11.10.09). Investments are divided tax relief (which is available to all either a sole trader, a commercial into General Business Investments and investments qualifying for incentives entity/partnership or a co-operative. Special Investment Plans. Enterprises must maintain double- entry accounting books or an income and expenses book (category B of the Code of Books and Records). Also, enterprises that submit business plans exceeding EUR500,000 (instead of EUR300,000 which was provided by the prior investment scheme of Law 3299/2004) must operate in the form of a commercial entity or co-operative • Investor’s own participation of at least 25 percent is required for investments for which cash grants or tax relief is provided • Certain requirements exist in respect to loans received that are to be used for the subsidized investment • Special requirements may apply depending on the nature of each investment project.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Operating Subsidies According to the provisions of the relevant legislation (Laws 3468/2006, 3734/2009, 3851/2010, 3889/2010, 4062/2012 and 4254/2014) the following apply:

Price of energy (EUR/MWh) Electricity generated by: Electricity Price (EUR/MWh) Connected Non-connected System Islands (1) Wind energy generated from onshore wind farms with capacity less 105 85 than or equal to 5 MW (2) Wind energy generated from stations with capacity of more than 5 MW 105 82 (3) Wind energy generated from stations in non-connected islands 110 90 (4) Hydroelectric plants with a capacity less than or equal to 1 MWe 105 85 (5) Hydroelectric plants with a capacity from 1 MWe up to 5 MWe 105 83 (6) Hydroelectric plants with a capacity between 5 MW and 15 MWe 100 80 (7) Solar energy from solar thermal stations with no storage 260 200 (8) Solar energy from solar thermal stations with a storage system which 280 220 ensures at least 2 hours of operation in the nominal capacity (9) Geothermal energy of low temperature pursuant to par. 143 130 1f of article 2 law 3175/2003 (‘A 207) (10) Geothermal energy of high temperature pursuant to par. 110 100 1 of article 2 law 3175/2003 (‘A 207)

(11) Biomass (or bio liquids) exploited through thermal processes 198 180 (combustion, gasification, pyrolysis) from stations with installed capacity of less than or equal to 1 MW (excluding the biodegradable fraction of household waste) (12) Biomass (or bio liquids) exploited through thermal processes 170 155 (combustion, gasification, pyrolysis) from stations with installed capacity between 1 MW and 5 MW (excluding the biodegradable fraction of household waste) (13) Biomass (or bio liquids) exploited through thermal processes 148 135 (combustion, gasification, pyrolysis) from stations with installed capacity more than 5 MW (excluding the biodegradable fraction of household waste) (14) Gas release from landfills and biological cleaning installations and 131 114 biogas produced by biodegradable fraction of waste and organic material/wastewater treatment and sludge recovered from plants generated from stations with capacity of less than or equal to 2 MW (15) Gas release from landfills and biological cleaning installations and 108 94 biogas produced by biodegradable fraction of waste and organic material/wastewater treatment and sludge recovered from plants generated from stations with capacity of less than 2 MW (16) Biogas derived from the anaerobic digestion of biomass (energy crops, 230 209 silage, green fodder agricultural crops, livestock and agro-industrial organic residues and waste edible oils and fats, expired food) and generated from stations with capacity of less than or equal to 3 MW (17) Biogas derived from the anaerobic digestion of biomass (energy 209 190 crops, silage, green fodder agricultural crops, livestock and agro- industrial organic residues and waste edible oils and fats, expired food) and generated from stations with capacity of more than 3 MW Taxes and incentives for renewable energy | 35

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Price of energy (EUR/MWh) Electricity generated by: Electricity Price (EUR/MWh) Connected Non-connected System Islands (18) Other RES (including the stations for the energy exploitation of the 90 80 biodegradable fraction of municipal waste, not integrated in another category, which meet the requirements of the European legislation as in force from time to time) (19) CHP1 using natural gas power less than or equal to 1 MW regarding 88 + GPA2 76 + GPA2 the categories (α) “Combined cycle gas turbine with heat recovery” or (γ) “condensing steam turbine” pursuant to article 3 of Ministerial Decision Δ5-ΗΛ/Γ/Φ1/οικ.15641/14.07.2009 (‘B 1420) (20) CHP1 using natural gas power less than or equal to 1 MW pursuant to 92 + GPA2 80 + GPA2 article 3 of Ministerial Decision Δ5-ΗΛ/Γ/Φ1/οικ.15641/14.07.2009 (‘Β 1420) (21) CHP1 using natural gas power between 1 MW and 5 MW regarding 80 + GPA2 70 + GPA2 the categories (α) “Combined cycle gas turbine with heat recovery” or (γ) “condensing steam turbine” pursuant to article 3 of Ministerial Decision Δ5-ΗΛ/Γ/Φ1/οικ.15641/14.07.2009 (‘Β 1420) (22) CHP1 using natural gas power between 1 MW and 5 MW and other 84 + GPA2 74 + GPA2 categories pursuant to article 3 of Ministerial Decision Δ5-ΗΛ/Γ/Φ1/ οικ.15641/14.07.2009 (‘Β 1420) (23) CHP1 using natural gas power between 5 MW and 10 MW regarding 74 + GPA2 65 + GPA2 the categories (α) “Combined cycle gas turbine with heat recovery” or (γ) “condensing steam turbine” pursuant to article 3 of Ministerial Decision Δ5-ΗΛ/Γ/Φ1/οικ15641/14.07.2009 (‘Β 1420) (24) CHP1 using natural gas power between 5 MW and 10 MW and other 78 + GPA2 70 + GPA2 categories pursuant to article 3 of Ministerial Decision Δ5-ΗΛ/Γ/Φ1/ οικ.15641/14.07.2009 (‘Β 1420) (25) CHP1 using natural gas power between 10 MW and 35 MW regarding 68 + GPA2 62 + GPA2 the categories (α) “Combined cycle gas turbine with heat recovery” or (γ) “condensing steam turbine” pursuant to article 3 of Ministerial Decision Δ5-ΗΛ/Γ/Φ1/οικ15641/14.07.2009 (‘Β 1420) (26) CHP1 using natural gas power between 10 MW and 35 MW and other 72 + GPA2 66 + GPA2 categories pursuant to article 3 of Ministerial Decision Δ5-ΗΛ/Γ/Φ1/ οικ.15641/14.07.2009 (‘Β 1420) (27) CHP1 using natural gas power more than 35 MW regarding the 61 + GPA2 57 + GPA2 categories (α) “Combined cycle gas turbine with heat recovery” or (γ) “condensing steam turbine” pursuant to article 3 of Ministerial Decision Δ5-ΗΛ/Γ/Φ1/οικ15641/14.07.2009 (‘Β 1420) (28) CHP1 using natural gas power more than 35 MW and other 65 + GPA2 60 + GPA2 categories pursuant to article 3 of Ministerial Decision Δ5-ΗΛ/Γ/Φ1/ οικ.15641/14.07.2009 (‘Β 1420) (29) Other CHP1 connected to the interconnected system 85 80 (30) Other CHP1 connected to the non-interconnected system 95 90

1 CHP: Combined Heat and Power 2 GPA: Gas Price Adjustments

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Additional Information Operating Incentives: Law 3468/2006 implemented the EU directive 2001/77 concerning the promotion of renewable energy sources and regulates the production of electricity from renewable energy sources in Greece, (not including the feed-in tariffs for solar energy parks for which specific feed-in tariffs have been determined by Law 3734/2009) as amended by Laws 3734/2009 3851/2010, 3889/2010 and 4254/2014. The feed-in tariffs referred to in the previous table were introduced by Law 4254/2014. Duration: In general, the sale agreement for electricity produced by stations using renewable resources and CHP (High-efficiency co-generation of electricity and heat) and combined heat and power is valid for 20 years and may be extended under certain conditions. The sale agreement for electricity produced by solar thermal stations is valid for 25 years and may be extended under conditions. Administrative Procedures: The specific licenses required depend on the installed power. Main licenses and authorizations include the following:

• production license • establishment/installation license • operation license • approval of environmental terms • conclusion of connection agreement with Public Power Corporation (PPC) • conclusion of sale agreement of electric power with the Administrator (DESMIE or PPC). Grid Access: Generally, priority access to the grid is provided to renewable energy producers for connection to the mainland grid, subject to the fulfillment of all conditions and requirements provided by the Code of Grid’s Administration.

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Support schemes providing tax incentive to power by companies engaged in the business companies. However, the new of generation or the generation and Investment and other subsidies government stated in the current distribution of power in addition to Foreign Direct Investment (FDI) budget that they do not intend to go normal depreciation. ahead with the DTC. The growth of the clean energy sector Further, power companies have been in India has been impressive. India Financing provided with an option to claim permits FDI up to 100 percent in the depreciation under the straight line sector under the automatic route in The Indian Renewable Energy Development Agency (IREDA) has method. However, a company can renewable energy generation and claim either accelerated depreciation distribution projects that are subject to been established under the Ministry of New and Renewable Energy (MNRE) or generation-based incentives (GBIs) the provisions of the Electricity Act of but not both. 2003. Under the Act, no prior approval (formerly known as the Ministry for of regulatory authorities is required for Non-Conventional Energy Sources) as a Quota obligations infusion of foreign investment, the only specialized financing agency to promote Renewable Purchase Obligation exception being if investment is made and finance renewable energy projects. (RPO) in a limited liability partnership (LLP). Operating subsidies The National Action Plan on Climate According to Reserve Bank of India Feed-in tariff Change (NAPCC) has recommended (RBI) guidelines on external commercial Generation Based Incentives (GBI) an increase in renewable energy borrowings (ECBs), the definition of penetration to 15 percent by 2020 at the To attract foreign investors, the infrastructure covers sectors such national level. as energy which in turn covers sub- government has taken several initiatives sectors such as electricity generation/ such as introducing GBI schemes to In accordance with this goal, SERCs transmission/distribution, oil pipelines, oil/ promote projects under independent are required to set fixed Renewable gas/liquefied natural gas (LNG) storage power producer (IPP) mode for wind and Purchase Obligations (RPOs) for facilities, and gas pipelines that support solar power. distribution companies to enable the purchase of a certain percentage of gas distribution networks for cities. Under MNRE’s Generation Based their total power requirement from Incentive scheme, wind power projects With a view to strengthen the flow of renewable energy sources. Currently, (which are not availing the Accelerated resources to the infrastructure sector, state-level RPOs vary between Depreciation benefit) are eligible for an RBI also permits raising ECBs for project 2 percent and 14 percent of their total incentive of INR0.50 per unit of power use in special purpose vehicles (SPVs) in energy demand. Open access and fed to the grid for a minimum period the infrastructure sector. captive consumers are also required to of 4 years and a maximum period of comply with RPOs. A company’s ECB funding (under 10 years, subject to a ceiling of INR10 the automatic route/approval route) million per MW. To align the availability of renewable is subject to restrictions on use, energy sources with the requirement This incentive can be claimed by wind tenure, etc. of the obligated entities to meet their projects commissioned on or after RPO across states, the Renewable Tax holiday under the domestic 1 April 2012, through IREDA, and is Energy Certificate (REC) market has income tax law over and above the tariff approved been introduced, and RECs started Undertakings engaged in the generation by the State Electricity Regulatory trading in February 2011. However, or generation and distribution of power Commissions (SERCs). the REC mechanism has not been have been offered a 10-year tax holiday Accelerated depreciation widely adopted, and steps are being for renewable energy plants if power considered to review the market. generation begins before 31 March Under the domestic income-tax law, We believe that going forward the 2017. However, the plants have to pay companies involved in renewable energy enforcement of RPOs will create the a minimum alternative tax at the rate such as solar and wind are provided with volumes needed for the REC market. of approximately 20.4 to 21.4 percent accelerated depreciation at 80 percent (based on the income), which can be on a written down value (WDV) basis. Additional information offset over the next 10 years. However, windmills installed on or after 1 April 2012, but before 1 April 2014, would Renewable Energy in India The former Finance Minister had be eligible for depreciation at the rate of India’s grid-connected renewable energy released the Direct Taxes Code, 2013 15 percent on WDV basis. capacity has reached 36.5 GW as of 30 (DTC 2013) for public discussion/ June 2015 with wind energy at 23.8 GW comments which, among other things, An additional 20 percent depreciation on and solar energy at 4.1 GW (MNRE). The offered alternative mechanisms for a WDV basis is also available on assets that are installed after 31 March 2005 Indian government has announced an

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. ambitious plan to scale up India’s solar incentives in the form of a VAT at EPC contracts energy capacity to 100 GW and wind 5 percent, a significant reduction over The taxation of EPC contracts offers energy capacity to 60 MW by 2022. the 15 percent VAT rate levied by some various challenges and opportunities. other states. Given the variety of tax and National Solar Mission (NSM) The EPC contract can be either fiscal incentives available, one needs structured as a single contract or as a The objective of the Jawaharlal Nehru to quantify the tax cost and explore the divisible contract. The selection of either National Solar Mission (JNNSM), which structuring options before investing in option can cause a sizeable impact on was launched in 2010, is to establish the solar sector. the tax costs and working capital of the India as a global leader in solar energy. Tax planning project. MNRE has recently revised the National For investors based overseas, an entry The selection of schemes for the Solar Mission target from 20 GW by strategy for India is highly important. payment of indirect tax liabilities 2022 to 100 GW by 2022. The ministry To achieve tax efficiency with regard on renewable energy power plant plans to focus on deploying large-scale to taxability of gains on sale of shares, construction offers various tax planning rooftop projects to achieve a capacity of many companies opt to route the avenues for renewable energy power 40 GW by 2022, developing several solar investments through an intermediate projects. Furthermore, any scheme parks to build further 40 GW capacity, entity in a tax-friendly jurisdiction. can involve difficulties in compliance, and encouraging large-scale projects to However, the provisions of General Anti such as a restriction on procurement of generate the remaining 20 GW. Avoidance Rules to be effective from goods outside the state. In Phase 2 – Batch 1 of the National 1 April 2017 need to be kept in mind The procurement of goods and supply Solar Mission, the Solar Energy while structuring the investments. chain structuring play a vital role in the Corporation of India (SECI) auctioned Typically, renewable energy companies solar power project costs, since the tax 750 MW of solar projects divided into in India procure equipment and services rates are different for procurement of open and domestic projects, with from overseas. In this scenario, contract goods from outside India, from other each kind offering 375 MW. This has structuring from a tax perspective helps states or from the same state. prompted a strong interest, with bids renewable energy companies to achieve from 58 developers totaling 2,170 MW, Generally, the EPC contractor major tax efficiency upfront. In the case a number significantly higher than the also undertakes the operation and of multiple parties coming together original offer. maintenance of the power plant. and bidding as a consortium, contract The taxability of an operation and Besides the national program, solar structuring is critical to avoid the risk management (O&M) contract has programs at the state level are also of the consortium being taxed as an been the subject of disputes in various driving solar growth in the country. “Association of Persons” that would decisions. result in the denial of tax treaty benefits Tax and fiscal incentives and other incentives. The exemption provided under the Tax cost forms a substantial part Customs and Excise Act is subject to In India, based on the nature of of engineering procurement and various conditions and compliances. operation, different forms of entities construction (EPC) project costs, Hence, it is very important to ensure the can be established. Operating through which can range from 10 percent to compliance of the respective conditions an LLP by forming a joint venture or 20 percent of the total renewable because the benefits envisaged may not wholly owned subsidiary could be energy project cost. Considering the be available otherwise. special focus on renewable energy, the one of the possible options where the Central Government has offered various foreign company is looking at a long- The proposed introduction of the incentives for developing renewable term presence in India. However, one Goods and Services Tax will also play energy power projects, including needs to rule out other relationships a major role in estimating the cost of a exemption from customs and excise and entities before proceeding with any renewable energy power project. particular option. duties on specific goods required for Given the variety of tax and fiscal setting up these projects. In addition, the renewable energy incentives available, one needs to However, these exemptions are sector is capital intensive, so investing quantify the tax cost and explore the subject to the fulfillment of prescribed companies need to carefully explore structuring options, before planning the conditions and compliances to be the options available for funding their capex, at the tender/bid stage and also undertaken by the EPC contractor or IPP. projects and repatriating profits in a tax- at the time of awarding contracts, so efficient manner. that tax costs are optimized. Furthermore, some of the state governments have provided the

Taxes and incentives for renewable energy | 39

Support schemes expenditure incurred on R&D of certain energy-efficient equipment or activities. For accounting periods vehicles. This scheme has been extended Investments and other subsidies prior to 1 January 2015, a credit can for 3 years, to the end of 2017. Corporate tax relief be claimed on incremental qualifying Operating subsidies Irish tax law provides tax relief for expenditure over the amount spent on corporate equity investments in certain R&D activities in the base year (that Quota obligation is, an accounting period ending in renewable energy projects. Commonly Under an EU Directive, the Irish 2003). Companies can use a volume- known as Section 486B relief, the law government has an obligation to based regime (a 25 percent credit allows a deduction from a company’s ensure that, by 2020, 16 percent of all for every EUR incurred) on the first profits for its direct investment in energy consumed in Ireland across the EUR200,000 of qualifying expenditure new ordinary shares in a qualifying electricity, heat and transport sectors for periods commencing between renewable energy project. There are is from renewable sources. The Irish 1 January 2013 and 31 December 2013 a number of conditions that must be government has planned that the 16 and the first EUR300,000 for periods satisfied for the investment to qualify percent overall target will be achieved commencing between 1 January 2014 for the relief, and the relief is capped at by 40 percent of electricity consumed and 31 December 2014. For accounting certain levels. Examples of renewable being from renewable sources, periods beginning on or after 1 January energy projects that would qualify for 12 percent of consumption in the heat 2015, the requirement to subcontract the relief include those in the solar, sector being from renewable sources, the base year (2003) R&D expenditure wind, hydro and biomass categories. and 10 percent of consumption in the has been removed and all qualifying This relief expired on 31 December 2014 transport sector being from renewable R&D expenditure will be eligible for the and investments made after this date sources. will not qualify for the relief. 25 percent tax credit. Feed-in tariff EII scheme Qualifying expenditure includes expenses such as salaries, overhead, Ireland currently has two Renewable In 2011, the Irish government Energy Feed in Tariff (REFIT) schemes introduced the Employment and materials consumed, etc. [A tax deduction is also available against the open for applications. The REFIT 2 Investment Incentive (EII) scheme, scheme applies to onshore wind, designed to promote the creation of company’s profits which are taxable at 12.5 percent. This can result in a small hydro and landfill gas. The jobs and encouraging R&D activities. REFIT 3 scheme applies to biomass The EII scheme provides tax relief 37.5 percent net subsidy for a trading entity (12.5 percent corporation tax technologies. The schemes operate by for eligible individuals who invest in guaranteeing a minimum floor price certain qualifying small and medium deduction and a 25 percent R&D tax credit)]. The tax credit can be used in the for supplies of energy generated from sized trading companies. The relief renewable sources. The 2015 reference takes the form of a deduction from an first instance to shelter a group’s current year corporation tax liability. It can also prices for the REFIT 2 and REFIT 3 individual’s taxable income in the year schemes are as follows: of investment and a further deduction be carried back for offset against the after a three-year investment term has company’s corporation tax liability in the REFIT 2 preceding period, or carried forward to passed (subject to certain conditions Category Price being met). A number of conditions reduce future corporation tax liabilities. Onshore wind EUR69.72/MWh must be satisfied for an investment to Instead of carrying the credit forward, a (above 5 MW) qualify under the scheme. However, company may elect (subject to certain the legislation includes some helpful conditions) to have any remaining Onshore wind EUR72.167/MWh provisions designed to ensure that excess credit paid as a cash refund by (equal to or less renewable energy projects meet the Revenue over 3 years. than 5 MW) qualifying criteria. Accelerated capital allowances Hydro (equal to or EUR88.068/MWh less than 5 MW) R&D tax credit Companies are entitled to claim Biomass Landfill EUR85.622/MWh A company can claim an additional accelerated capital allowances (tax Gas tax credit of 25 percent on qualifying depreciation) of 100 percent for capital expenditures incurred on the purchase

40 | Taxes and incentives for renewable energy

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. REFIT 3 Additional information includes expertise in fund servicing, administration and asset management. Category Price In addition to the above, the Irish Fund promoters are attracted to Ireland AD CHP (units EUR157.613/ government has committed to a due to its open, transparent and well less than or equal MWh 20 percent national energy savings regulated investment environment, its to 500 kW) target by 2020 which represents a strong emphasis on investor protection, reduction of approximately EUR2.4 AD CHP (units of EUR136.598/ its efficient tax structure (with a billion in energy spend across all greater than 500 MWh 12.5 percent corporate tax rate) and its sectors. To support this target, the kW) dynamic, innovative business culture. government has set itself the target AD (non CHP) EUR115.583/ of achieving a 33 percent reduction In addition to Ireland’s credentials as (units less than or MWh in energy use in the public sector. As a leading investment funds location, equal to 500 kW) a result of these energy reduction the case for Ireland as a global center AD (non CHP) EUR105.076/ measures, substantial investments in for green asset management is even (units of greater MWh renewable energy projects/funds are more compelling. For many years a than 500 kW) being actively encouraged, resulting in large number of Irish companies have Biomass CHP EUR147.106/ real investment opportunities in Ireland. successfully developed renewable and sustainable projects and related (units less than or MWh Ireland as a hub for green asset equal to 1500 kW) technologies on a global scale. As a management result, Ireland has been able to create Biomass CHP EUR126.091/ Global investment is booming in green an unparalleled talent pool with the (units of greater MWh and clean-tech industries that produce requisite expertise to support green than 1500 kW) renewable energy, increase energy investments. The combination of these Biomass EUR99.822/MWh efficiency or provide sustainability two factors sets Ireland apart. combustion (non- for using energy solutions. Major investors include CHP) crops pension funds, life funds, large A number of green investment funds have established operations in Ireland EUR89.314/ corporations and high net worth individuals. These investors are attracted and all indications would suggest that MWh for all other the scale of this activity will increase biomass to a variety of fund structures to diversify the risk between different green considerably in the short to medium investments and different geographies. term. A public private partnership body The energy supplier is also entitled to known as the Green IFSC (GIFSC) has a balancing payment for every kWh With almost 25 years expertise been established to promote Ireland as purchased from the generator. The and experience, Ireland has one of a center of excellence for green asset balancing payment under REFIT 2 and the most sophisticated investment management. REFIT 3 is fixed at EUR9.90/MWh. The management industries globally. This full EUR9.90/MWh is payable to the supplier where the market payment is equal to or less than the reference price. If the market price exceeds the reference price but is less than the combination of the reference price plus balancing payment, the balancing payment shall be EUR9.90 less the amount by which the market payment exceeds the reference price. However, where the market payment is equal to or greater than the combination of the reference price plus balancing payment, no balancing payment is payable.

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Support schemes and 500 kW, 7 percent for plants Subsidies available under the Fifth whose output is between 500 kW Energy Incentive Decree Renewable energy in Italy: recent and 900 kW, and 8 percent for plants The Fifth Energy Incentive Decree , changes in legislation whose output is higher than 900 kW. which redefined the subsidy scheme for In 2014, the Italian Ministry of Economic Incentives for plants producing other the production of photovoltaic energy, Development issued three decrees continues to apply. implementing the general provisions forms of renewable energy contained in Law Decree no. 145/2013 Under the decree of 6 November 2014, The decree established that both feed- and Law Decree no. 91/2014, which owners of certain plants that benefit in tariffs (for plants with a production provided incentives for the energy from incentives provided under Law capacity of up to 1 MW) and premium sector. Decree no. 145/2013 can request tariffs (for plants with a production that the incentives be extended by capacity higher than 1 MW) would be Two of the decrees concerned the solar another 7 years. This option is available available as follows: photovoltaic industry while the third for existing plants that benefit from decree extended incentives to non- • EUR20/Mwh for plants going into incentives such as green certificates and photovoltaic renewable energy sources. operation by 31 December 2013 all-inclusive tariffs (a type of premium New feed-in tariff system tariff). • EUR10/Mwh for plants going into operation by 31 December 2014 The decree of 16 October 2014 has Certain types of plants are excluded: made certain changes to the way in photovoltaic plants whose incentives • EUR5/Mwh for plants going into which feed-in tariffs are paid for energy end on 31 December 2014, and biomass operation after 31 December 2014. produced by photovoltaic plants. The and biogas plants whose output is not The decree also provided: GSE now offers feed-in tariffs in the higher than 1 MW and whose incentives following way: end on 31 December 2016. • an inclusive feed-in tariff for plants with a capacity of up to 1 MW. This • through a fixed monthly premium — a Companies wishing to take advantage capacity is the sum of a base feed-in bonus on top of the market price of of this new scheme must submit their tariff (determined for each energy electricity — equal to 90 percent of a request to the GSE. source, type of plant and capacity plant’s annual production capacity New opportunities for companies class) and any premiums, such as • through a final balance paid by operating in the wind sector those for high efficiency, emission 30 June of the following year Law Decree no. 91/2014 established reductions, etc. and based on the plant’s actual various measures to promote • a special incentive for plants: production. development and boost production of – with a capacity higher than 1 MW Photovoltaic plants whose output is renewable energy. In particular, the higher than 200 kW decree established an incentive for – with a capacity of up to 1 MW that investments in new capital goods listed Under the decree of 17 October 2014, do not choose the all-inclusive feed- in one of the sub-categories of division which came into effect on 1 January in tariff. 28 of ATECO 2007 (machinery, systems, 2015, owners of photovoltaic plants equipment, etc.). These goods must be Other types of subsidies whose output is higher than 200 kW located and used in Italy. Division 28 is are now able to choose between three Support for energy saving important for the energy sector because options for feed-in tariff payments. These improvements it also includes wind turbines. three options, paid by the GSE, are: There is a rebate for energy saving The incentive, is a tax credit of improvements. The rebate is 65 percent • a feed-in tariff paid over 24 years from 15 percent of the difference between of the cost of investments made in the plant’s first period of production the new investment and the average 2014 and 50 percent of the cost of and recalculated annually from the amount of investment in the same kind investments made in 2015. second part of the 24-year period of capital goods over the previous 5 In particular, the rebate is available for • a feed-in tariff paid over 20 years, with years (it is possible to exclude the period the documented costs of: a lower tariff in the first period and a in which investments were highest). higher one in the second period to The facilitation affects investment made a) installing solar thermal panels to make up the difference from 25 June 2014 to 30 June 2015. produce hot water for industrial or The tax credit has to be indicated in the • a feed-in tariff paid over 20 years, domestic use, or for swimming pools, tax return. reduced by 6 percent for plants sports facilities, nursing and care whose output is between 200 kW homes, schools and universities

42 | Taxes and incentives for renewable energy

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. b) replacing winter heating systems burden from 34 percent to 27.5 percent. For the moment, the reverse with condensing boilers and However, the court’s decision does not charge method will only be used for simultaneously installing a apply retroactively. transactions concluded within4 years distribution system of the entry into force of the 2015 Although companies no longer have to Stability Law. c) purchasing and installing solar pay RHT from 12 February 2015, those shading systems that adopt the calendar year as their tax Non-operating or dormant year must still pay RHT for 2014. These companies d) purchasing and installing winter heating companies’ RHT obligations will end systems that run on biomass fuels. The IRES rate is 38 percent for dormant upon payment of their 2014 balance. companies. A company is considered These rebates may not exceed Reverse charge mechanism dormant if: EUR60,000 for costs a) and c), and EUR30,000 for costs b) and d). The 2015 Stability Law extended • it reports a tax loss in its tax return for the application of the reverse charge 5 consecutive years Support for energy plants in method for the payment of VAT to the • it is subject to minimum IRES and Southern Italy renewable energy sector. VAT payments IRAP The Ministry of Economic Development now have to be made by the purchaser has allocated EUR120 million to and not the supplier. This is the case for • it is not eligible to claim a VAT refund. companies in the south of Italy that companies involved in the transfer of: There is a special test to determine invest in renewable energy plants. • greenhouse gas emission shares whether a company is dormant: if the This is for companies of all sizes in the under the EU emissions trading actual amounts reported in the profit regions of Calabria, Campania, Apulia system (“EU ETS System”) and loss account are lower than the and Sicily. presumed amounts, the company is • certificates and similar documents deemed to be dormant. Additional information relating to energy and gas within the Taxation EU ETS System Depreciation Companies are still subject to IRES • gas and electricity to a taxable dealer Wind and solar plants are subject to (corporate income tax) of 27.5 percent (defined as a taxable entity whose ordinary amortization/depreciation rules and IRAP (a regional business income core business is the resale of gas, for tax purposes. tax) of between 3.9 percent and 4.82 electricity, heat or cooling energy and For solar plants, the depreciation rate percent. whose own consumption of these is 4 percent if the asset is considered products is insignificant). Robin Hood Tax immovable property and 9 percent if the asset is considered movable property. On 11 February 2015, the Italian On 19 December 2014, the GSE Constitutional Court declared the Robin announced that, from 1 January 2015, For wind plants considered as Hood Tax (RHT), a surtax on energy invoices issued to it for electricity and immovable property, the depreciation companies, to be unconstitutional. This electricity certificates would be subject rate is 4 percent. decision significantly lowers their tax to the reverse charge method, as the GSE is a taxable dealer.

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Feed-in tariff 2. The development plan applied for acquires solar or wind power generation Feed-in tariffs for renewable energy interconnection to transmission line equipment and places in business became available in Japan in July 2012. with the electric power company. within 1 year from the acquisition. The The feed-in tariff rate for solar energy taxpayer can choose one incentive from 3. The applicant is required to submit is Japanese yen (JPY)31.32/kW for the the following, assuming the equipment copies of land register and purchase period from 1 April 2015 to 30 June is placed in business by 31 March 2016: agreement/order for equipment to 2015 and JPY29.16/kW for the period the Ministry of Economy, Trade and 1. 30 percent special depreciation in from 1 July 2015 to 31 March 2016, Industry (METI) within 180 days from addition to ordinary depreciation respectively. The feed-in tariff rate for the next day of approval. wind power energy is JPY23.76/kw 2. 100 percent depreciation (that is, total from the period from 1 April 2015 to The METI rescinds its approval if the acquisition costs expensed upfront) 31 March 2016. The operation period is required documents are not submitted for wind power generation equipment 20 years. The feed-in tariff rate is revised within the deadline or the submitted 3. Tax credit (7 percent of acquisition annually. documents are not sufficient to costs, only available for small and substantiate land and equipment for In order to obtain the feed-in tariff, medium sized enterprises (SMEs). solar energy. the applicant is required to meet the An SME is a company with its paid-in following conditions: Green Investment Tax incentive capital of JPY100 million or less and Green Investment Tax incentive is is not 50 percent or more owned by 1. The power plant development plan is available for the taxpayer who obtained a large corporation with its paid-in approved by the government. approval for the feed-in tariff and capital of JPY100 million.

44 | Taxes and incentives for renewable energy

As a result of the Energy Reform Act a Clean Energy Certification. These Electricidad or CFE) initiative, which of 2014, Mexico has become more terms may increase in the following aims to fund energy efficiency projects, appealing to foreign investors, and the years. It is possible to relocate this electrical and thermal energy programs, country’s potential for renewable energy Certification, granted by the Energy cogeneration and distributed production has not been overlooked. Mexico is Regulatory Commission to any other with renewable sources for industries, one of the leading countries in terms of period, allowing for the transfer of businesses, services and housing. This installed capacity of geothermal energy, excess or missing certificates, which trust has two different categories: and wind and solar are showing strong will promote price stability. • FIDE Energy Efficiency – Its main growth rates. The country also enjoys Support Schemes objective is to increase the efficient abundant sunshine, with solar energy application of electricity by linking potential higher than 5 kWh/m per day. Tax Incentives projects between technological • Accelerated depreciation. Mexico now has one of the most innovation and electricity consumption Investments in machinery and ambitious goals for renewable energy through the implementation of equipment for the energy production in the world. The Renewable Energies efficient technologies. The following derived from renewable energy will Exploit and Energy Transition Financing equipment is included in this program: be fully depreciated in a 12-month Law (Ley para el Aprovechamiento air conditioners, thermal insulators, period. This applies to solar, wind, de Energías Renovables y el remote monitoring systems, hydraulic kinetic and potential energy, Financiamiento de la Transición electronic ballasts, water pumps, air power derived from the oceans, Energética or LAERFTE) stipulates that compressors, processing equipment, geothermal, and from biomass or 35 percent of the nation’s electricity will light-emitting diode (LED) lighting and residues. come from non-fossil fuels by 2024. transformers, among others. • Exempt duty. The polluting equipment Potential Renewal Resources in • FIDE Business Eco-credit – This and its parts will be exempt from the Mexico by 2030 fund promotes the efficient and Import and Export General Tax. Energy Type WW cost-effective use of electricity. This Other schemes program applies to all production Wind 40,268 CONACYT – This is a program scheme sectors in Mexico. In the current Geothermic 40,000 created to provide resources for year, FIDE submitted the Distributed Hydraulic 53,000 those companies interested in R&D Generation Support Program which Solar 24,300 investment, technology and innovation aims to grant incentives to domestic users, specifically a 10 percent Biomass 83.500-119,498 development to create new products, procedures or services. There are three incentive of the total cost of each *SENER/Electrical Research Institute (IIE) types of approaches: system with the remaining 90 percent funded by patrimonial resources Mexican Energy Reform 2014: • Innovapyme: exclusively for small and of FIDE. (As of today, this program relevant matters concerning clean medium-sized entities (SMEs) that is pending to be released, and it is energy and environmental protection carry out R&D projects individually convening specialized companies In accordance with the Power Industry or with universities and/or research which are part of the distributed Law — a part of the Energy Reform centers. generation sector). Act of 2014 — public and private power • Innovatec: focused on large entities. Other Practical Tools industry infrastructure projects must It also can be carried out individually, achieve sustainability for the areas FOTEASE (Fund for Energy Transition or with universities and/or research that are planned to be developed. and Sustainable Exploit of Energy) – centers. Any party interested in carrying out A fund created to promote the use, energy projects must submit before • Proinnova: for every type of entity. development and investment in the Ministry of Energy an assessment The project must be proposed with at renewable energy and energy efficiency. of the social impact caused by the least two collaborations (universities Last year, an amount of Mexican peso performance of such project as well or research centers). In some cases, (MXN)1,000,000,000 was granted by as its mitigation measures in order there must be a balance of the the Federal Government to support to obtain necessary permissions or designated resources among the energy efficiency and renewable energy. involved parties. authorizations. One-Stop Window for Renewable In this regard, the Ministry of Energy FIDE – Private Trust, founded in 1990, Energy – Its main purpose is to will establish during the first quarter of based on the Federal Electricity contribute to the promotion of every year, the terms required to receive Commission (Comisión Federal de investment in renewable energy

Taxes and incentives for renewable energy | 45

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. projects through the simplification of Developing Programs requirements and the administrative Integrated Energy Services Program – process. It is a mechanism created seeks to provide to the Federal Public to increase the installed capacity of Administration buildings (Administración electricity generation through the Pública Federal or APF) self-supply automation of involved processes. capacity for electricity through Preferential rate – It consists in a lower renewable energy, thereby reducing the service charge for the transmission of cost for operation and site maintenance. renewable energy; the normal energy Mini-hydroelectric projects – promotes rate is 0.30 MXN/kWh and a 0.14 the use of technologies for the MXN/kWh rate will apply in the first exploitation of renewable energy; mentioned cases. the use of clean technologies in the Energy bank – This tool will allow the development of productive activities; conservation of excess energy produced and the diversification of primary energy by the supplier for its future consumption sources that include renewables. or potential sale to the CFE. Program of productive activities with Net Metering – In scale projects of renewable energy in rural areas – 30kWp, the electricity cost for energy supports rural electrification with delivered to the national grid will be technical and economic activities that offset. use renewable energy.

46 | Taxes and incentives for renewable energy

Support schemes or 36 percent of the investment o Certain formal conditions apply costs. The maximum qualifying to requests for the accelerated Investment and other subsidies investment cost that is taken into depreciation. The following schemes are applicable account is €25 million per taxpayer o Free depreciation/depreciation at for solar, wind, geothermal, hydro, per calendar year. biomaterial and offshore technologies. will is subject to a maximum annual o Investments must be included on budget, to be determined annually • An additional deduction of 41.5 the Environmental List (Milieulijst) (€38 million in 2015). percent of the amount invested in to be qualifying assets. qualifying assets is available under Applicability: Not directly applicable to the Energy Investment Allowance o The amount per qualifying renewable energy, although assets for (Energie-investeringsaftrek or EIA): investment must be more than which this tax incentive is applicable €2,500. can be used as part of the production of o Investments must be included on the energy from renewables. Energy List (Energielijst) to qualify. o A granted MIA will be revoked partially or in full (added back to the • Capital invested in green funds o The maximum amount of fiscal profit) on alienation of the (appropriated funds invested in investment for which the EIA can assets within a five-year period. environmentally friendly projects be claimed per calendar year per or groene fondsen) is exempt from o No prior use of asset that is the taxpayer is €118 million. Pro rata personal income tax: calculation applies in the case of object of investment is permitted. o A private investor will not be taxed transparent entities. o The EIA and the MIA cannot be for capital invested in green funds. o The amount per qualifying applied simultaneously. o The maximum amount of invested investment must be more than o Certain formal conditions apply to capital exempted on an individual €2,500. requests for the MIA. basis is €56,928. o A granted EIA will be revoked o The MIA is subject to a maximum o A tax credit will be granted of 0.7 partially or in full (added back to the annual budget, to be determined percent of the invested capital, fiscal profit) on alienation of the annually (€93 million in 2015). assets within a five-year period. with a maximum amount of Applicability: Not directly applicable to invested capital of €56,928 on an o No prior use of the asset that is the renewable energy, although assets for individual basis. object of investment is permitted. which this tax incentive is applicable Applicability: Investments in green funds. o The EIA and the Environmental can be used as part of the production of Investment Allowance (see below) energy from renewables. Operating subsidies cannot be applied simultaneously. • Free depreciation/depreciation Feed-in tariff at will is granted on qualifying o Certain formal conditions apply to As of 1 April 2014, the regulation for the environmentally friendly assets requests for the EIA. feed-in tariff (Stimulering Duurzame (Willekeurige afschrijving Energieproductie or SDE+) for 2014 has o The EIA is subject to a maximum milieuinvesteringen or VAMIL): opened. This regulation includes the annual budget, to be determined following features: annually (€119 million in 2015). o Investments must be included on the Environmental List (Milieulijst) • a budget ceiling established for all Applicability: Not directly applicable to to qualify. renewable energy, although assets for types of renewable energy such as which this tax incentive is applicable o Free depreciation of up to wind, geothermal, solar photovoltaic, can be used as part of the production of 75 percent of the investment biomass and hydro costs of the qualifying asset is energy from renewables. • phased opening granted. The maximum qualifying • An additional deduction is granted investment costs that are taken into • a ‘free category’ to enhance of up to 36 percent of the amount account amount to €25 million per investments in certain technologies invested in qualifying environmentally taxpayer per calendar year. friendly assets under the • feed-in tariff granted for a certain Environmental Investment Allowance o The total amount of qualifying period (5, 8, 12 or 15 years) investments must be more than (Milieu-investeringsaftrek or MIA): • a maximum subsidy amount for €2,500 per application. o Depending on the asset, the the Netherlands, to be determined amount that can be deducted o No prior use of asset that is the annually (EUR3.5 billion in 2015). from the fiscal profit is 13.5, 27, object of investment is permitted. Taxes and incentives for renewable energy | 47

Support schemes Additional information Investments and other subsidies Operating incentives Schemes are applicable for solar, wind, Wind generation is required to be hydro and biomaterial energy sources. bid into the market. However, it is automatically dispatched, and the Historically, renewable generation generator receives the same pool projects may have qualified for free price as other dispatched generation. allocation of carbon credits. Current Generation from all other renewable policy is that generation which results sources is treated the same as in greenhouse gas emissions will incur generation from carbon. The lowest bid a carbon cost under the NZ Emissions price is dispatched first. Trading Scheme. This includes geothermal generation. Operating subsidies Feed-in tariff Remuneration is available for electricity produced.

48 | Taxes and incentives for renewable energy

Support schemes such project costs. From the income • hydro plants generating 1 MW and year 2015, the maximum funding for built after 1 January 2004 Investments and other subsidies R&D projects using in-house R&D • existing renewable power plants Energy Fund resources is Norwegian krone (NOK)15 that permanently increase their The state-owned corporation Enova is million per year. The SkatteFUNN R&D electricity production with new the driving force for an environmentally cost ceiling for R&D projects also using construction beginning on or after friendly energy conversion by private external pre-approved R&D resources is 7 September 2009. and public enterprises. Enova is funded NOK 33 million per year. Total costs for through the Energy Fund that supports in-house and external resources must Any entity that delivers power to end environmental change in the use and not exceed NOK 33 million. consumers is obliged to purchase electricity certificates, and it is the end production of energy. The management Operating subsidies of the Energy Fund is governed by an consumer who finances the scheme agreement between the Norwegian Feed-in tariff through increased costs when invoiced Ministry of Oil and Energy and Enova. There are no national-based feed-in for usage. The electricity certificate scheme is managed by the Norwegian Enova offers financial support based on tariffs in Norway. However, there is a Water Resources and Energy defined programs for various renewable green certificate scheme. Directorate. energy and environmentally friendly Premium projects based on an application Quota obligation Electricity – green certificates principle. In 2014, the Energy Fund Starting in 2008, the Norwegian The issuance of electricity certificates is supported 1400 new projects in emissions trading system for an economic subsidy scheme that will the private and public sectors, and greenhouse gas emissions expanded make it more remunerative to invest in supported 4500 new energy measures to include nearly 40 percent of the power production based on renewable in residential buildings. emissions related to Norway. It is energy sources such as hydro, wind, also affiliated with the European Other allowances solar and bio energy. The scheme is system for quotas. The Norwegian The Norwegian General Tax Act includes regulated by the Green Certificates Act. system for quota obligation applies to regulations regarding tax allowances The Norwegian government has greenhouse gas emissions in Norway known as SkatteFUNN to support entered into an agreement with the and to emissions from activities on the R&D projects. The SkatteFUNN R&D Swedish government establishing a Norwegian part of the continental shelf. tax incentive scheme is a government common electricity certificate market program designed to stimulate R&D in The quota system applies to emissions for electricity that will contribute to Norwegian trade and industry. Under in connection with: increased production of renewable the SkatteFUNN scheme, any type of energy. Moving toward 2020, Sweden • energy production business enterprise engaged in R&D and Norway will increase their power activities may apply to the Research • refining of mineral oil production from renewable energy Council for support for their projects. sources to 26.4 TWh. Power plants • coke production R&D projects under the SkatteFUNN that are included in the scheme receive scheme are aimed at obtaining new • production and processing of iron and electricity certificates that can be sold knowledge or technical skills that can steel including roasting and sintering in the Norwegian-Swedish electricity benefit the company in connection with of iron ore certificates market. Power suppliers the development of new or improved and certain power users are required • production of cement, lime, glass, goods, services or means of production. to purchase electricity certificates for a glass fiber and ceramic products, as Support for R&D projects is granted share of the electricity they sell or use. well as the production of paper, board in the form of a tax deduction. When and pulp from timber or other fibrous The following power producers may determining the tax deduction under materials apply, subject to certain requirements, the SkatteFUNN scheme, a distinction for electricity certificate approval for • aviation activities. is made between SMEs and large whole or parts of its production based enterprises. SMEs may be granted Any person engaged in any of on its total production: a tax deduction of 20 percent of the the activities mentioned above is R&D costs associated with a given • power plants based on renewable required to surrender allowances R&D project. Large enterprises may be energy sources and built after corresponding to any emissions granted a deduction of 18 percent of 7 September 2009 to which the duty to surrender

Taxes and incentives for renewable energy | 49

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. allowances applies. The Norwegian used in connection with the extraction Enterprises that join the Environmental Emissions Trading Registry shall or transportation of petroleum on the Agreement on NOx are entitled to a contain information on the allocation, Norwegian continental shelf. The tax is tax exemption from the date when issue, holding, transfer, surrender classified as a deductible operating cost they joined. From the same date, and cancellation of allowances. An associated with petroleum activities, the enterprise will have a payment operator will, by 30 April each year, which contributes to reducing the obligation vis-à-vis the business sector’s transfer a number of allowances ordinary tax and special tax actually paid NOx Fund. According to the Participant corresponding to the volume of by the oil companies. Agreement, affiliated enterprises will emissions for which reporting develop a measure plan identifying The CO tax was reduced according to is mandatory, generated by the 2 possible NOx reducing measures within the estimated emissions trading price installation in the previous calendar 2 years after affiliation. when the Norwegian emissions trading year to a specified settlement account system was introduced. The purpose of the plan is to identify in the registry. profitable measures the enterprise can Nitrous Oxide (NOx) tax: The NOx tax implement on its own accord, and to Additional information is calculated per kg for NOx emissions identify cost-effective NOx reducing generated during the production of Indirect taxes: Indirect taxes are measures whose implementation are energy from the following energy used as a policy instrument to reduce dependent on support from the NOx sources: the consumption of products that are Fund. As of 23 May 2014, a total of 787 detrimental to the environment. • propulsion machinery with a total enterprises, ships and rigs had joined installed capacity of over 750 kW the Environmental Agreement on NOx CO2 tax: Gasoline, mineral oil, gas for inland usage and petroleum activities 2011–2017. The Norwegian government • motors, boilers and turbines with a are subject to a CO tax. A CO tax wishes to begin negotiations regarding 2 2 total installed capacity of more than related to petroleum activities shall continuation of the Environmental 10 MW be paid per liter of oil and natural gas Agreement on NOx after 2017. This liquids and per standard cubic meter of • flares on offshore installations and on is stated in the government’s new gas burnt off or emitted directly to air facilities on land. maritime strategy. on platforms, installations or facilities

50 | Taxes and incentives for renewable energy

Support schemes income tax liability by each contract and operation of electricity plants generating activity. power through renewable resources. Investments and other subsidies Peru has not implemented subsidies, If one of the contracts generates tax Electricity generated with RERs is but it has implemented certain tax losses that carry forward, such losses considered when it is first delivered into incentives for energy producers could be offset against the profits the electricity distribution network. derived from another contract or producing energy on renewable This benefit will be in force until geothermic related activities. resources. 31 December 2020. However, it could However, Peru has not implemented Investments applied to a geothermic be expected that further provisions feed-in tariff schemes, premiums resource concession agreement that would be enacted in order to extend the to renewable energy producers or may not have reached the exploitation referred benefit. stage can be accumulated with renewable energy quota obligation to Early recovery of the Input VAT derived the same kind of investment made energy producers. by electricity generating corporations: with another contract that may have Concessionaires of electricity- reached the exploitation stage. These Additional information generating activities through RERs are accumulated investments can be Peru is a country with abundant natural entitled to the early recovery of the amortized either on a production basis resources, but whether a particular Input VAT paid for capital expenditures, or proportionally over a five-year period resource is considered renewable is services and building contracts directly on a straight line method. determined only by a general consensus related to the electricity generating rather than by legal definitions. This Import of goods: Import of goods and activities, provided they do not enter consensus appears to be changing, and inputs required to exploit geothermic into the productive stage. some resources like water, which was resources under concession are exempt Selective Consumption Tax (Impuesto once considered renewable, are no from all existing or to be existed taxes Selectivo al Consumo or ISC): The ISC longer considered as such. provided such goods or inputs were excise tax is applicable to, among included in the specific list approved by Apart from issues related to water, other goods, fuels. As of 1 January the Energy and Mining Ministry. no clear tax policy exists that might 2008 until 1 January 2016, the Peruvian promote investment into renewable Contribution: Geothermic government has established a schedule energy. However, a number of benefits concessionaires are obliged to pay a for applying a specific amount as an can be identified in the Peruvian taxation 1 percent contribution applied to the ISC on certain fuels such as diesel system. energy average price up to the level 2, kerosene and others that contain of hydroelectric generation. Such harmful contaminants like sulfur. Geothermic resources law: The Peruvian contribution cannot exceed 1 percent of government grants 30-year concessions the annual sales of the concessionaire. to explore and/or exploit aboveground and underground geothermic resources Accounting: Local accounting could be that are not hydrocarbon-based. carried in foreign currency. For such purpose, concessionaires must be Income tax stability: Geothermic authorized by the Ministry of Economy. concessionaires will be subject to the common tax regime of income Investment in generating electricity tax in force at the time of signing the through hydro-power and other Renewable concession agreement during the Energetic Resources (RER): Electricity term of the concession. For 2015 and generation through hydro, wind, solar, 2016, the income tax regime will be geothermic, biomass, wave or tidal 28 percent, for 2017 and 2018, it will be powers or other RERs is subject to 27 percent and from 2019 and onward, it an annual maximum of 20 percent will be 26 percent. accelerated depreciation regime for Income Tax purposes. Income tax assessment: Geothermic concessionaires having more than Accelerated depreciation is applicable to one geothermic resource concession electricity plants entering into operation agreement that may also perform as of 29 June 2008. Accelerated activities related to geothermic depreciation is applicable to machinery, resources and connected activities shall equipment and building infrastructures individually and annually assess their required for the installation and

Taxes and incentives for renewable energy | 51

Investments and other subsidies equipment, and material must be Republic Act 9513 or the Renewable directly and actually needed and used Energy Act of 2008 exclusively in the RE facilities. In 2009, Republic Act (RA) 9513, Net Operation Loss Carry-Over otherwise known as the Renewable (NOLCO) of seven years Energy Act, was passed. The law is The RE developer’s NOLCO during intended to accelerate the development the first 3 years starting commercial and commercialization of renewable operation may be carried over as a energy resources in the Philippines. deduction from the gross income for It includes, among other items, the the next seven consecutive taxable establishment of the Renewable years immediately following the year of Portfolio Standard which sets a loss, provided it has not been previously minimum percentage of generation offset and is not the result of the from renewable energy resources incentives under RA 9513. by power generators, distribution utilities and suppliers; the creation of Zero percent value-added tax (VAT) rate a renewable energy market; and the The sale of fuel or power from RE adoption of the feed-in tariff system. sources shall be subject to 0 percent VAT. All RE developers are entitled to RA 9513 also provides for fiscal zero-rated VAT on purchases of local incentives to renewable energy (RE) supply of goods, properties and services developers of renewable energy needed for plant facilities. This incentive facilities such as hybrid systems – in may be used throughout the whole proportion to and to the extent of the RE process of exploring and developing component – for both power and non RE sources up to its conversion to power-applications. Incentives include power, including those performed by the following: subcontractors and contractors. Income Tax Holiday (ITH) Special realty tax rates on equipment Duly registered RE developers are and machinery exempt from income taxes for the first Realty and other taxes on equipment, seven years of commercial operations. machinery and other improvements Additional investments are entitled to actually and exclusively used for RE additional income tax exemptions that facilities shall not exceed 1.5 percent do not exceed three times the period of of their original cost less accumulated the initial availability of the ITH. normal depreciation or net book value. In Ten percent corporate tax rate an integrated resource development and A corporate tax rate of 10 percent generation facility, only the power plant (reduced from the regular 30 percent) shall be subject to real property tax. on net taxable income shall be imposed Accelerated depreciation on all RE developers after seven years of If an RE project fails to receive an ITH the ITH. before its full operation, it may apply Ten year duty-free importation of RE for an accelerated depreciation in its machinery, equipment and materials tax books provided that the project This incentive is available within or its expansions shall no longer be the first 10 years of RE certification, eligible for an ITH under an accelerated provided that an endorsement from the depreciation. Department of Energy (DOE) is obtained before importation. The machinery,

52 | Taxes and incentives for renewable energy

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Cash incentive given to RE Hybrid and cogeneration systems are entitled to duty-free importation and developers for missionary Incentives and tax exemptions VAT exemption on all types of agricultural electrification under RA 9513 may be claimed by inputs, equipment and machinery. RE developers shall be entitled to a cash registered RE developers of hybrid and Tax rebate for purchase of RE generation-based incentive per kilowatt- cogeneration systems using both RE components hour rate generated that is equal to sources and conventional energy, but Rebates for all or part of the tax paid 50 percent of the universal charge for only as to the equipment and machinery for purchases of RE equipment for power needed to service missionary utilizing RE resources. residential, industrial, or community use. areas where it operates. This incentive is Benefit of a priority dispatch chargeable against the universal charge Operating subsidies for missionary electrification. Qualified and registered RE generating units with intermittent RE resources Feed-in tariff Tax exemption of carbon credits shall be considered “must dispatch” The feed-in tariff system is a scheme All proceeds from the sale of carbon based on available energy and shall that involves the obligation on the part emission credits are exempt from all enjoy the benefit of priority dispatch. of the power industry participants to taxes. RE generating units with intermittent source electricity from RE generation at RE resources include plants using wind, Tax credit on domestic capital a guaranteed fixed price applicable for solar, run-of-river hydro or ocean energy. equipment and services a given period of time, which shall in no case be less than 12 years. RE operating contractor holders Incentives for RE commercialization purchasing RE machinery, equipment, Incentives are given to all manufacturers The feed-in tariff system is mandated materials and parts from a domestic and suppliers of locally-produced RE for wind, solar, ocean, run-of-river, manufacturer shall be entitled to a tax equipment and components, provided hydropower and biomass energy credit that is equivalent to 100 percent they are duly accredited by the DOE. sources. of the value of the VAT and customs • Tax and duty-free importation of Meanwhile, the Feed-In Tariff Allowance duties that would have been paid on the components, parts and materials – imposes a uniform charge on all On- equipment, materials and parts had they exemption from VAT and importation Grid electricity consumers supplied been imported. tariffs and duties with electricity through the distribution Exemption from the universal charge network. This ensures that the RE • Tax credit on domestic capital developers under the feed-in tariff Power and electricity generated through components, parts and materials the RE system for the generator’s own system will be remunerated in full for the consumption or for free distribution to • ITH and exemption – available for electricity they generated. In October off-grid areas shall be exempt from the 7 years from day of accreditation 2014, the Energy Regulatory Commission universal charge. (ERC) provisionally approved the feed- • Zero-rated VAT transactions with local in tariff allowance of PHP0.0406/kWh Payment of transmission charges suppliers. effective in the January 2015 billing of all Power and electricity produced from an Incentives for farmers of biomass On-Grid electricity consumers.1 intermittent RE resource may opt to pay resources the transmission and wheeling charges, For a period of 10 years under RA 9513, on a per kilowatt-hour basis at a cost those engaged in the farming of crops equivalent to the average kilowatt-hour and trees used as biomass resources rate of all other electricity transmitted through the grid.

1. ERC Case No. 2014-109 RC dated 28 October 2014. 54 | Taxes and incentives for renewable energy

ERC-approved Feed-in Tariff Rates Resource/Technology (PHP/kWh) (USD/kWh) Installation Targets Run-of-River Hydropower 5.9 0.14 250 Biomass Energy 6.63 0.15 250 Wind Power 8.53 0.19 200 Solar Power 8.693 0.22 50 Ocean Energy – – 10 Total 760

(Based on exchange rate: USD1 = PHP43)

Additional information

• Green energy option – End-users are given the option to choose RE resources as their source of energy by enrolling under this program. • Nationality requirement – Under the Philippine Constitution, the exploration, development and utilization of natural resources in the Philippines is an area generally reserved for Filipino citizens or domestic companies with at least 60 percent of their capital owned by Filipino citizens. • The DOE has awarded 664 projects under the RE Law, as of April 2015.4

Awarded Projects Potential Capacity MW Installed Capacity MW Resources Grid-Use Own-Use Grid-Use Own-Use Grid-Use Own-Use Hydro Power 403 1 7,621.54 1.50 122.73 - Ocean Energy 8 - 31.00 - - - Geothermal 42 - 750.00 - 1,896.19 - Wind 50 1 1,272.00 0.006 336.90 - Solar 82 11 1,749.53 3.580 108.90 - Biomass 44 22 345.00 5.80 191.80 143.18 Sub-Total 629 35 11,769.07 10.886 2,656.52 143.18 Total 664 11,779.96 2,799.70

• In March 2015, the ERC approved the Installed Generating Capacity (IGC) per Grid and National Grid, as well as the Market Share Limitation (MSL) per Regional Grids and the National Grid for the year 2015. This aims to prevent a person or entity (solely or jointly) to operate or control more than 30 percent of the IGC of a Grid, and/or 25 percent of the National IGC.5

2. ERC Resolution No. 10, series of 2012. 3. ERC Resolution No. 06, series of 2015 changed the feed-in tariff rate for solar power from PHP9.68 to 8.69. 4. Summary of projects, renewable energy registration and accreditation, DOE website (https://www.doe.gov.ph/summary-of-projects/2707-summary-of-re-projects-as-of-30-april-2015) 5. 2015 press releases, ERC website (http://www.erc.gov.ph/ContentPage/29629) Taxes and incentives for renewable energy | 55

Support schemes – production of electricity in high and employment (such as new efficiency cogeneration biomass – manufacturing plants, innovative Investment and other subsidies from 40 kWe to 5 MWe. technologies), R&D activities (such • Support schemes are applicable as development or improvement of • All companies may apply for support. for solar, wind, geothermal, products, services or technologies), hydro, biomaterial and offshore • The level of support, given in the other activities such as environmental technologies. form of preferential loan, is up to protection, training sessions, and • Renewable energy is exempt from 85 percent of eligible cost of the logistics project (depending on the investment excise tax. • incentives from the Polish type). The amount of support reaches Government (R&D projects, • In some cases solar photovoltaic up to Polish Zloty (PLN)40 million. modules could be excluded from real environmental projects, and estate tax as other constructions. • The Stork Program will be investments of considerable implemented in the years 2015 – importance for the Polish economy • Agriculture tax payers may claim a 2023, whereas concluding loan from 2011 to 2020). refund of investment costs if the agreements is possible up to 2020 Incentives obtained by the investors investment relates to renewable and the spending is possible up to in Poland are subject to Polish and EU energy (up to 25 percent). 2023. state aid rules which determine, among • Subsidies and grants from the EU – Support for a low-carbon and other things, the maximum level of Structural Fund in Poland or other resource-efficient economy: Part support, beneficiaries and the detailed domestic institutions (for example, 1) energy and electricity audits, conditions of support. the National Fund of Environmental Part 2) improvements of energy Protection and Water Management). effectiveness of companies, and Operating subsidies Currently the following sources of Part 3) e-accumulator-ecological Green certificate system/feed-in tariff battery for industry financing for renewable energy projects Remuneration for renewable energy are available: • Companies investing in undertakings produced: the average market price of PLN163.58/MWh for the last year The Stork Program – financing leading to energy savings may apply (2014) plus the market value of green of distributed, renewable energy for support. certificate (certificate of origin) granted sources (RES) • Support under Part 1) will be given by the Energy Regulatory Office. • Support under the Stork Program will in the form of grant up to 70 percent be given for investments involving of eligible investment costs. Support Quota obligation construction or reconstruction of RES under Part 2) and Part 3) is given in the Rates (2015): 14 percent of all energy installations with capacities from the form of preferential loans. The amount produced (floors relate to all types following ranges: of support extends from PLN300,000 of renewable energy). The quota is to PLN50 million. The maximum level increasing in stages and will reach – wind power plants – from 40 kWe of the loan may not exceed 75 percent 15 percent in 2016 to 20 percent in 2021. to 3 MWe of eligible cost of the project. Additional information – photovoltaic systems – from • All three parts will be implemented in 40 kWp to 200 kWp the years 2014 – 2017; the spending is Legal basis – photovoltaic systems (installed possible up to 2017. The Act of Energy Law enacted on 10 April 1997 and the respective on buildings / on lands) – from Other incentives 200 kWp to 1 MWp decrees from the Ministry of Economy, Besides aid sources mentioned above, which will be subject to several – energy from geothermal waters – the investor may also apply for other amendments in 2016. Moreover it from 5 MWt to 20MWt incentives related to a broadly defined should be noted that beginning in 2016, – hydropower plants – to 5 MWe energy sector, in particular: the provisions of the new Renewable Energy Sources Act (RES Act) will enter – biomass-fired heat sources – from • grants from EU funds for the Financial into force. 300 kWt to 20MWt Framework from 2014 to 2020 and national programs designed for, The following is a summary of key – biogas plants – from 40 kWe to among other things, investment changes. 2 MWe

56 | Taxes and incentives for renewable energy

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Green certificates scheme licensed activity and requires a permit the relevant green certificate, however, Current RES law is based on the support granted by the president of Energy no longer than until 31 December 2035. Regulatory Office. Such a permit can scheme in the form of green certificates The certificate’s substitution fee will be be sought by an entity that meets and stays in force until the end of 2035 frozen at the current (2014 – 2015) level, requirements specified in the Energy for all operating wind farms and projects that is, PLN300.03/MWh (approximately Law, especially the ability to provide the completed before implementation of EUR70/MWh) and will not be subject to financial, organizational and technical the new RES law. indexation in the coming years. resources required to perform the Electricity producers may apply to the licensed activity. As a rule, permission Option to pay substitution fee will not president of Energy Regulatory Office is given for the fixed term but not longer be available in the event when green for green certificates (also known than 50 years. certificate prices fall below 75 percent as certificates of origin), if they have of the substitution fee (PLN225/MWh or Grid access produced renewable energy or if they approximately EUR54/MWh). are required to pay substitute fees Priority access is granted over calculated in line with the energy law. nonrenewable electricity producers. The Existing biomass co-firing installations The green certificates are similar to costs of connecting to the electricity will receive half of a certificate per each securities; they are transferable and grid are determined by the actual costs MWh produced (with an overall cap on tradable on the regulated market (for incurred to construct the line. Those production equal to the average amount example, the Polish Power Exchange) costs may be partially refunded to the from 2011 to 2013). By 31 December or within the over-the-counter market. investor, depending on the year and 2020 the Ministry of Economy should Generally, if energy producers do production capacity. announce a new ratio. not achieve the minimum level of Overview of the implemented Hydro plants above 5 MW capacity will share of renewable energy (for 2015 – changes to the RES supporting be excluded from the support system. 14 percent), they are obliged to mechanism (based on the RES Act purchase green certificates at the All projects under the green certificates enacted on 20 February 2015) – market (for redemption) or has to make system will have an opportunity to move binding from 2016 a compensation payment. Currently the to the reverse auction system (within certificate’s substitution fee amounts New RES Act (which is the the proposed support period). implementation of the provisions to PLN300.03/MWh (approximately Key provisions for new of Directive 2009/28/WE into the EUR70/MWh). installations — reverse auction Polish law) is based on the reverse system Sale auction system, providing support in Electricity distributors have a legal form of a feed-in tariff for the auction The support system for RES obligation to acquire a certain amount winner through 2035 (and 2040 for installations producing the energy for of renewable energy generated in off-shore farms), mainly in force from the first time after 1 January 2016 shall Poland. For the year of 2015, the above 1 January 2016. be organized through a reverse auction percentage limit of renewable energy system, giving fixed price for the energy Key provisions for existing will amount to 14 percent. Otherwise, (indexed by CPI on an annual basis) for installations — modified green the electricity distributor is obliged to 15 years until the end of 2035 (or the certificates system buy the missing amount of renewable end of 2040 for offshore wind farms). The green certificates system shall be energy (by means of green certificates) Auctions will be arranged at least once available for the installations in which on the market. The prices of renewable a year, separately for small (installed the energy has been produced for the energy have been determined based power under 1 MW) and large (installed first time before 1 January 2016 and for on average prices of energy in the power over 1 MW) installations and also installations which have been modernized previous year. (The amount for 2014 separately for the new (first production after that date (under specific conditions was PLN163.58/MWh). The renewable after winning an auction) and previous described in the RES Act). electricity producers have priority over (participating previously in the green other producers with regards to the The green certificates shall be granted certificate system) installations. distribution of produced energy. to the RES energy producers for However biomass units of over 50 MW, Administrative procedures 15 consecutive years from the first large multi-fuel installations as well production of the energy confirmed by as large hydro power plants will be Business activity in the area of excluded from auctions. production of renewable energy is a

Taxes and incentives for renewable energy | 57

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. The pool of offers with the lowest prices introduction of separate reference new RES fee added to distribution fees that meet volume specification under prices for each type of the renewable (approximately PLN2.51/MWh in the the given auction shall qualify for the technology (the reference prices first year of the auction system). support. The annual cap for volume will be set each year by the Minister The provisions of the new support and value subject to the tender(s) will of Economy, 60 days prior to the system for RES introduce a limit to the be determined by the government relevant auction). As for the previous state aid. The total value of support through 31 October of the preceding installations, the reference price shall granted under these provisions taken year. The RES support shall depend be calculated as a sum of (i) the average together with any other state aid shall not on the installed power in the relevant market price of energy in the last quarter exceed the difference between the value RES installation. The RES operators of (published by the President of URE) of the volume of electricity generated by the installations with power lower than and (ii) the average price of the green the installation calculated by multiplying 500 kW will be obliged to sell energy certificates for years 2011–2013 (i.e. that volume by the reference price and in the declared amount at the tender PLN239.83). Tenders submitted during the value of the same volume calculated price (regardless of current market the auction in excess of the reference by multiplying it by the average market conditions). The other RES operators price will be automatically rejected. price announced by the President of URE (installed power of at least 500 kW) will The winning party of the auction will valid as of the day of the submitting of an be entitled to the difference between have to start production of electricity offer in a tender. average market price and the price within approximately two months offered in the tender (in case the market The state aid includes: a) a difference regarding the previous installations and price is lower than the price offered in between revenues earned from within 48 months regarding the new the auction) payable by the Renewable tenders and the equivalent of revenues installations (for solar energy within Energy Settlements Operator, a State- calculated based on the average market 24 months and offshore wind farms owned company responsible for price announced by the President within 72 months) under penalty of settlements of reverse auctions. of URE, b) revenues earned from losing the RES support for 3 years. certificates of origin, c) tax reliefs, and d) In regard to the new installations, A portion of costs of the system will other investment-related aid. the auction mechanism entails the be charged to end customers, via a

58 | Taxes and incentives for renewable energy

Support schemes – The profit which can be reinvested Administrative procedures: The activity of represents the balance of profit production of electricity from renewable Investment and other subsidies (loss) account for the period, sources requires a license granted by Tax incentives namely the accumulated ANRE. Such a license can be obtained In Romania, the following tax incentives accounting profit from the by an entity by filling a request for may be applicable to energy produced beginning of the year, in the year in accreditation and accompanied by a from the following renewable sources: which the investment is realized. specific set of documentation. The tax relief is granted up to the wind, solar, geothermal, hydraulic The license is granted for a fixed term, limit of corporate tax due for the utilized in power plants with an installed but no longer than 25 years. In case of period in which these investments capacity of maximum 10 MW, biomass production of electricity from renewable are made. and residues fermentation gas. sources, the maximum period during • Electricity from renewable sources is – The corporate tax relief applies which ANRE should issue the relating excise duties exempt. only for new fixed assets. Also, license is of 30 days. taxpayers which benefit from this Green certificate scheme: In order to • Accelerated depreciation for incentive are required to keep the promote investments in renewable tax purposes can be used for specific fixed assets for at least half electricity production capacities, a technological equipment, tools and of their normal economic useful Tradable Green Certificates (TGC or GC) installations computers and related life established according to the system has been in place in Romania peripheral equipment. accounting applicable regulations, since 2004, coupled with a supplier but no more than 5 years. • Buildings and land used within quota obligation system. Under this hydroelectric, thermoelectric and – Taxpayers who benefit from framework, energy producers are nuclear power plants, as well this incentive cannot apply the entitled to receive a set amount of GCs as buildings and land relating to accelerated depreciation method according to the amount of electricity transformation and connection posts, for this equipment. generated and delivered by them from are not subject to local taxes. renewable sources. The revenue from Operating subsidies • Reinvested dividends can be dividend GC sales represents additional revenue tax exempt, provided the dividends Green certificate system for eligible renewable producers on top of electricity sales on the market. are used for the purpose of creating The price of a green certificate has new work places or developing the been set between the Romanian According to Law 220/2008, the activities of Romanian entities. new leu (RON) equivalent of EUR29/ producers of electricity from renewable • Incentives (for example, exemption General Certificate (GC) and EUR59/GC. sources benefit from a different number from payments to unemployment Currently, the price of a green certificate of green certificates depending on the funds or income tax) can be is equivalent with the maximum value of fuel used. For example: EUR59/GC, since the demand of GC is applicable for the companies which • 0.7 GC/MWh for new hydroelectric higher than the offer. fulfill certain conditions imposed by power plants with installed capacity the legislation in force. Quota obligation of maximum 10 MW • Reinvested profit starting 1 July The Romanian Regulatory Authority in • 1 GC for each 2 MWh for 2014 is applicable for tax relief. the Field of Energy (ANRE) calculated hydroelectric power plants with an This involves profit reinvested in the estimated quota of GCs acquisition installed capacity of maxim 10 MW the production and/or acquisition for 2015 for the electricity suppliers of technical equipment (machines, • 0.5 GC/MWh for wind power, up to as 0.274 GC/MWh supplied to final equipment and work installations) 31 December 2017 and 0.25 GC/ consumers. used for carrying out economic MWh beginning 1 January 2018 activities put into operation no later Additional information • 3 GC/MWh for solar power. than 31 December 2016. Legal basis: Electricity Law 123/2012 The support scheme is granted for a – The types of equipment eligible and Law 220/2008 for approval of the period of 3 to 15 years, depending on for this tax relief are defined in support scheme for electricity from the age of the plants and the installed subgroup 2.1 of the Catalogue renewable sources (Law 220/2008) and capacity. Eligible electricity producers regarding the classification and the the secondary relating legislation issued will be able to enter the scheme only if normal useful life of fixed assets. by ANRE. the commissioning/refurbishment of

Taxes and incentives for renewable energy | 59

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. the power plant are performed before Electricity suppliers and electricity the RON equivalent of EUR29/GC and 31 December 2016. producers previously mentioned have EUR59/GC. Currently, the price of a the obligation to acquire annually a green certificate is equivalent with the Sale: The annual mandatory GCs number of GCs which is equivalent maximum value of EUR59/GC, because acquisition quota is established to the product between the annual the demand of GC is higher than the offer. based on the quantity of renewable mandatory GCs acquisition quota and electricity produced and on the During the period 1 July 2013 to the quantity of electricity detailed in the final electricity consumption of the 31 March 2017, trading is temporarily paragraph above, supplied annually to previous year, without exceeding the deferred for a certain number of GC for final consumers. level corresponding to the mandatory each 1MWh generated and delivered quota for the electricity produced from For 2015, the estimated quota of by the electric energy producers from renewable sources. acquisition of GCs for the electricity renewables resources, accredited by suppliers is 0.274 GC/MWh delivered ANRE up to 31 December 2013, as The quantity of electricity for which the to final consumers. Any supplier that follows: annual mandatory GCs acquisition quota fails to fulfill this obligation must pay is established includes the electricity the equivalent value of the GC at a • 1GC for hydroelectric power plants purchased by electricity suppliers for premium of EUR119.7702 per each non- with installed capacities of maximum their own consumption or for the sale to purchased certificate. 10 MW final consumer, the electricity used by the electricity producers for their own The GCs are issued by the transmission • 1GC for wind power plants consumption (other than CPT), and for system operator and are valid for 12 • 2GC for solar power plants. the supply of end consumers directly months. The trading value of a GC has connected to the power plant. been established by ANRE as between

60 | Taxes and incentives for renewable energy

Support schemes Section 12I provides for an additional of assessment. The deduction is allowance on assets (new or used), calculated at 95 cents per kilowatt hour Investment and other subsidies applied to a project that qualifies (or equivalent) of energy efficiency Carbon emissions incentives as an Industrial Policy Project (IPP) savings. The energy efficiency savings defined in relation to assets used in the have to be measured and confirmed Certified emissions reduction manufacturing sector. The project must by a measurement and verification exemption be approved by the Minister of Trade and (M&V) body as defined in the published Section 12K of the Income Tax Act Industry. The only projects that qualify regulations in relation to section 12L. provides for a tax exemption on for this allowance are greenfield projects No deduction is allowed if the taxpayer any amount received or accrued in costing more than South African rand receives a concurrent benefit in respect respect of the disposal of any certified (ZAR)50 million or brownfield projects of energy efficiency savings. emission reduction (CER) derived in costing more than ZAR30 million, less No person may receive the section the furtherance of a qualifying clean than ZAR50 million or 25 percent of 12L allowance in respect of energy development mechanism (CDM) project expenditure on existing assets. carried on. generated from renewable sources The incentive in relation to a qualifying or co-generation other than energy To stimulate the uptake of CDM projects project comprises: generated from waste heat recovery. in South Africa, income from primary Furthermore, a person generating CERs, which was exempted from • 75 percent of the cost of a new energy through a captive power plant income tax from 2009 to 2012, will be and unused manufacturing asset may not receive the allowance unless extended to 31 December 2020, in used in an IPP within an Industrial the kilowatt hours of energy output of line with the adoption of the second Development Zone (IDZ); or that captive power plant for that year of commitment period of the Kyoto • 35 percent of the cost of a new and assessment is more than 35 percent Protocol. unused manufacturing asset that is of the kilowatt hours of energy input in The VAT Act does not provide for used in an IPP respect of that year of assessment. exemption from VAT on the disposal of • If the qualifying project constitutes Production of renewable energy a CER. It is arguable that the disposal a Preferred Project (as defined), the allowance of a CER should be viewed as a supply incentive comprises: Section 12B provides for an accelerated of services for VAT purposes and that, capital allowance for machinery, plant, on exportation of a CER, this service is – 100 percent of the cost of a new implements, utensil and articles owned zero-rated for VAT purposes. and unused manufacturing asset by the taxpayer or acquired by the used in an IPP within an IDZ; or Energy efficiency incentives taxpayer in terms of an installment – 55 percent of the cost of a new and credit agreement which was brought Industrial policy projects additional unused manufacturing asset used into use for the first time by the taxpayer allowance in an IPP. for purpose of its trade. This is an incentive in relation to The incentive (i.e. tax deduction) is This section applies where the assets industrial policy projects, including limited to: are used for purposes such as the greenfield and brownfield manufacturing generation of electricity from wind projects. One of the qualifications • ZAR900 million for greenfield projects power, solar energy, hydropower to for eligible projects is the use of with preferred status produce electricity of not more than improved energy efficiency and cleaner • ZAR550 million for greenfield projects 30 megawatts and biomass comprising production technology. Measurement with qualifying status organic wastes, landfill gas or plant and verification (M&V) of savings will material. be required to verify that savings are • ZAR550 million for brownfield sustained over the incentive benefit projects with preferred status The allowance is calculated as 50 percent period. of the cost of the assets and the direct • ZAR350 million for brownfield cost of installation or erection thereof for Under Section 12I of the Income Tax projects with qualifying status. the taxpayer in the first year, 30 percent Act (Industrial Policy Projects), projects Energy efficiency savings allowance in the second year, and 20 percent in the that have already received incentives or third year. The allowance also applies to grants under other types of schemes Section 12L allows as a deduction, all improvements (other than repairs) and will be excluded. Such projects need in determining the taxable income supporting structures that would form to be ring-fenced and taken out of the of a taxpayer, an amount in respect part of the machinery, plant, implement, equation when calculating and reporting of energy efficiency savings by the utensil or article. savings for the tax claim. taxpayer with regard to that year

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Research and development Environmental incentives Deductions in respect of allowance environmental conservation and Environmental treatment and Aside from the section 11(a) general maintenance recycling or waste disposal asset deduction of 100 percent, section 11D Section 37C states that expenditures allowance provides for an additional 50 percent incurred by a taxpayer to conserve or deduction for revenue expenditure Section 37B provides for an allowance maintain land in terms of a five-year incurred in respect of eligible R&D with regard to the cost incurred biodiversity management agreement activities, as well as for prototypes and in acquiring a new and unused entered into in terms of the National pilot plants created solely for purposes environmental treatment and recycling Environmental Management: of R&D that is not intended to be asset or environmental waste Biodiversity Act will be deemed to be used for production purposes after disposal asset used in the context of expenditures incurred in the production completion of the R&D. From 1 October manufacturing and which assets are of income and for the purposes of trade 2012, the additional 50 percent uplift required by any law for purposes of and will therefore be deductible. will only apply to R&D projects for protecting the environment. Land used by the taxpayer for the which a pre-approval application form The allowance in respect of an production of income and for the was submitted and approved by the environmental treatment and recycling purposes of trade (the productive land) Department of Science and Technology. asset is 40 percent of the cost of the needs to be in the immediate proximity For capital expenditure, an accelerated asset in the first year and 20 percent per of the land that is subject to the allowance is available of 50 percent in annum for the next 3 years. The cost of biodiversity management agreement the first year, 30 percent in the second waste disposal assets can be written off for section 37C to find application. In year, and 20 percent in the third year. on a straight line basis over 20 years (5 addition, the expenditure deductible in percent per year). terms of this section is not allowed to exceed the income generated by the taxpayer on the productive land. Special Economic Zones (SEZ) (legislation not yet in force) Special Economic Zones In terms of section 12R, any qualifying companies, which are South African incorporated companies, alternatively, companies which have their place of effective management in South Africa, and which are located in a SEZ, will be entitled to apply a reduced income tax of 15 percent (as opposed to 28 percent). The precise requirements to qualify for the reduced rate of tax referred to above have not yet been determined by the legislature. New or improved buildings in a SEZ A qualifying company located within a SEZ may deduct from its income an allowance equal to 10 percent of the cost to the qualifying company of any new or unused building owned by the qualifying company or any new or unused improvement to a building owned by the qualifying company. The building must be used by the qualifying company and used by it in the course of trade.

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Support schemes Operating subsidies Quota obligation Investments and other subsidies Feed-in tariff • In 2012, the existing feed-in tariff In 2004, the South Korean government • The feed-in tariff was abrogated at the was replaced by an RPS that was passed the Act on the Promotion of end of 2011 due to the introduction approved by the government the Development, Use and Diffusion of the Renewable Portfolio Standard assembly in March 2010. of New And Renewable Energy (the (RPS) in 2012. (The government • The RPS requires 17 state-run and Act). With the goal of becoming one of maintains a feed-in tariff only for private power utilities, as of 2015, the five largest producers of new and existing recipients. The existing with a capacity in excess of 500 MW renewable energy, the government has recipients may have options to to generate three percent of the announced that a total of South Korean either maintain their feed-in-tariff or energy production from renewable won (KRW)40 trillion (EUR25.8 billion, exchange them for REC (Renewable sources in 2015. This percentage will USD34.2 billion) will be invested in Energy Certificate) that enables be increased in stages to 10 percent renewable energy by 2015. transactions under the RPS). by 2024. This investment includes KRW22.4 • To accommodate small renewable • In terms of the standard price per trillion invested by the nation’s 30 energy facilities that could not certificate, REC for solar power was largest industrial groups by 2013, KRW7 receive support by RPS, the Seoul KRW175,503 averagely in 2013, trillion of government contribution, Solar Power Plant Support Plan while REC for non-solar power was and KRW10.6 trillion from other private was announced in May 2013. The determined to be KRW 137,844. In sectors. South Korea has already plan supports operations from the 2014, the average price of REC for seen substantial financial investment installation of solar power plants to solar power was KRW113,997, and in renewable energy in recent years, sales for small entities under 100kW that of REC for non-solar power was including KRW1.8 trillion (EUR1.3 billion, capacity established since 2012 in KRW113,174. USD1.8 billion) from the government in Seoul. According to the plan, the the last 2 years (2012–2013). small entities can receive KRW50/ • The total RPS target for 2015 is set kWh (approximately 10 percent of by 12,339,927 MWh, increased from According to the second national installation cost) for the amount the last year’s target of 11,578,809 energy plan announced in January 2014, generated in 2014, and KRW100/kWh MWh, while the RPS target for solar the former renewable energy target, for 2015. The subsidy is given for 5 power rose 46 percent from 1,353,000 11 percent of the total energy supply years from the first year of provision. MWh to 1,971,000 MWh in 2015. from renewable sources by 2035, has It was announced that the total RPS been reaffirmed. Premium target for 2015 is 12,339,927 MWh; To reach this goal, the government is The R&D tax credit program is applied increasing 9.3 percent from the target implementing initiatives in four major for renewable energy technologies. for 2014, while the RPS target for areas: Import duties are reduced by 50 percent solar power after 2015 is 1,971,000 for all components and/or equipment MWh increased by 6.8 percent from • strategic R&D and commercialization used in renewable energy power the last year target. The Renewable • promotion of industrialization and plants that cannot be manufactured Fuel Standard (RFS) has been market creation domestically. This import duty premium launched on 31 July 2015. The RFS will be abrogated on 31 December 2015. requires oil refiners and oil importers • promotion of exports of new and and exporters to blend a certain The Financial Support Program for renewable energy products amount of new and renewable energy Renewable Energy in South Korea is fuel into their transportation fuels. The • infrastructure development. comprised of four main categories: RFS target in 2015 has been affirmed R&D support, soft loans for renewable The total budget for renewable energy as 2.5 percent with biodiesel only. in 2015 has reached KRW7.8 trillion projects, feed-in tariffs and renewable (EUR619.09 million, USD697.2 million) energy distribution support. Additional information to develop technologies; support The total budget of 2015 consists One Million Green Homes Project: As a part renewable energy distribution, and of KRW6.4 billion for R&D support, of the 2009 budget, the government promote entering overseas markets. KRW319.2 billion for the feed-in appropriated KRW94.3 billion (USD72 The government also supports overseas tariff, KRW115 billion for soft loans, million) for the One Million Green renewable energy business for small and KRW102.9 billion for distribution Homes Project. The intent is to build and medium-sized enterprises with a support. one million homes by 2020 that use budget of KRW10 billion in 2015.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. one of the following renewable energy • independent microgrids technologies: solar thermal, solar • PV rentals photovoltaic, geothermal, biomass and wind energy. Each year, the government • electric vehicle servicing and charging will set a new budget for the coming • recycling wasted heat from thermal year. The budget in 2014 is KRW54.9 power plants. billion, and the cumulative budget for the Project reached KRW671.2 billion The new energy businesses are from 2004 to 2014. expected to create a market worth KRW4.6 trillion by 2017. This is based The green homes being built are on an investment of KRW1.83 trillion in environment-friendly and use new 2015, including KRW800 billion raised in and renewable energy resources. In the private sector. addition, green homes create no carbon emissions and use less energy, water and natural resources. New Energy Businesses: The government announced six new energy businesses in 2014:

• electricity demand response • integrated energy management service

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Support schemes applied in a given fiscal year and that • tax on electricity generation have not been used in that fiscal year • tax on spent nuclear raw and Tax incentives because the tax due was insufficient radioactive waste The following includes a brief may be carried forward to the following description of certain tax incentives that 18 tax years. If the tax due is insufficient • tax on spent nuclear raw and have not been specifically created for for the application of these tax credits, radioactive waste storage the renewable energies sector. Careful a cash refund in the amount of the • fee on use of continental waters to tax planning is therefore required to take pending tax credits can be requested to generate electricity (hydroelectricity advantage of these tax incentives. the Spanish Tax Administration, with a generation). Reduction of income from certain discount of 20 percent of the amount of intangible assets the pending tax credits (i.e. the payment The electrical energy attributable to in cash implies a reduction of the the use of fuels in facilities that use The net income derived from the license pending amount of the tax credit). any of the non-consumable renewable of the right to use or exploit or from the energies as primary energy shall not be transfer of certain intangible assets as Tax credits for technological innovation subject to a premium-based economic defined in article 23 of CIT Law, shall be activities applied or refunded will have regulation. This affects solar-thermal included in the CIT taxable base with a a limit of 1 million Euros per year. In installations in particular. 60 percent reduction, provided certain addition to that, R&D and technological requirements are met. activities tax credits applied or refunded Operating subsidies will have a joint limit of 3 million Euros R&D Corporate Income Tax credits per year. Remuneration of energy production R&D tax credits: The tax credit base shall facilities under the special regime has consist of the amount of research and Capital duty exemption been revised through Royal Decree- development expenses and, if applicable, As a result of the modifications Law 9/2013, which entered into force investments in tangible fixed assets introduced by RD 13/2010, Spanish on Sunday 14 July 2013. Such Royal and intangible assets, excluding real Transfer Tax Law foresees an exemption Decree-Law comprises the following estate and land. Tax credit rates are set of the Capital Duty regarding: main provisions: at 25 percent of the expenses incurred • incorporation of companies 1. The amendment of Article 30.4 of the in the tax period for this purpose. In Electricity Sector Law, which basically the event that the expenses incurred • share capital increase provides that: in pursuing the R&D activities in the • contributions of shareholders that do tax period exceed the average of those • The new remuneration framework not constitute a share capital increase incurred in the 2 preceding years, of special regime facilities (including the rate established in the preceding • transfer to Spain of the office of facilities in operation) will be paragraph shall apply up to that average, effective management of a company established by Royal Decree issued and 42 percent to the amount by which not previously located in the EU. by the Council of Ministers. that average is exceeded. Tax allowances on local taxes • In addition to the compensation for Additional tax credits can be applied for For certain local taxes such as the sale of energy valued at market expenses corresponding to expenses construction and urban canon, tax price, facilities may receive a “specific of qualified personnel (wages) allowances could be agreed with the remuneration consisting of a term engaged exclusively in R&D activities corresponding local authority. The tax per unit of installed capacity, to cover, (17 percent), and for investments in allowances to be agreed would depend where appropriate, the investment tangible fixed assets and intangible on each local authority, and should be costs of a typical installation that assets, excluding real estate and land, negotiated on a case-by-case basis. cannot be recovered from the sale used exclusively for R&D activities. of energy and a term per operation, Taxes on Energy if applicable, to cover the difference Tax credits for technological innovation between operating costs and activities: The tax credit base shall Taxes on electricity generation revenues for the market share of such consist of the amount of the expenses These taxes are not strictly typical installation”. The regulated incurred in the technological innovation environmental taxes. Revenues that will tariff regime, for a given period and activities. The tax credit rate is arise from them will finance the Spanish updatable according to a prefixed 12 percent. deficit of the cost of generation and formula, is consequently abolished. distribution of electricity. Tax credits for R&D and technological innovation activities that have not been

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. • In order to calculate the specific • Royal Decree 1578/2008 of 26 remunerated with: i) revenues from remuneration of a typical installation, September the sale of the energy valued at market it is necessary to consider, “over its price and ii) specific remuneration • Article 4 and paragraph 2 of the fifth regulatory life” and referring to the items which, if necessary, cover those transitional provision of Royal Decree- activity of an “efficient and well- investment and operating costs that an Law 6/2009, of 30 April. managed company”: efficient and well-managed enterprise 5. To maintain compensation flows to does not recover on the market. – standard revenues from the sale facilities, such repealed rules shall apply of energy generated, valued at the The specific remuneration is calculated temporarily, except for certain aspects, market price of production. on the basis of standard facilities, along pending the approval of the Royal its whole regulatory useful life, so that it – standard operating costs. Decree with the new regulation. Thus, guarantees the “fair return” to standard the facilities will continue receiving – standard value of the initial facilities. the current compensations under the investment. transitional provisions commented The activity is assumed to be carried Therefore, the determination of above subject to regularization with the out by an efficient and well-managed these parameters or assumptions new methodology as of 14 July 2013. enterprise. For calculating the will be critical in order to assess the remuneration parameters, the new 6. Two immediate measures to reduce remuneration for each installation. It will remuneration framework takes into the costs of the electricity system are be necessary to wait for the approval of account: i) revenues from selling energy approved. The efficiency complement Royal Decree. valued at the market price, ii) necessary to facilities that were receiving it under operating costs for developing the • The costs or investments that are Article 28 of Royal Decree 661/2007 activity and iii) the initial investment made in connection with rules or acts is abolished, as well as the reactive costs of the standard facility. that are not applicable throughout all power bonus of article 29 of the same of Spain (i.e. regional authorizations regulation. The new remuneration system for these and registrations) will not be taken facilities generally consists of: Following the approval of RDL 9/2013, into account. Also, the costs and the procedural steps began for all other • revenue from market sales (EUR/ investments that do not respond regulatory texts. Specifically, a new MWh) solely to the activity of electricity Electricity Sector Law was passed (Law production. • unitary remuneration for investment 24/2013, of 26 December). This new law (EUR/MWh) 2. The introduction of an additional first confirmed the general principles already provision, called “reasonable return applied by Royal Decree-Law 9/2013. • unitary remuneration for the on production facilities entitled to operation (EUR/MWh). Royal Decree 413/2014 of 6 economic premium regime” means June introduces the regulatory The calculation of the unitary that as of 14 July 2013, special regime implementation of the principles set out remuneration for investment and the facilities shall receive a “supplement in Royal Decree-Law 9/2013, regulating operation is carried out on the basis of for their investment costs based on the current legal and economic standard facilities considering standard standards by technologies”, according system of facilities for renewables, investment and operation costs, as well to a cost formula of 10-year Treasury + co-generation and waste. This Royal as the future estimate of the market 300 basis points, representing a return Decree establishes a new remuneration revenue for such standard facilities. of 7.5 percent. system which is based on the principle Order IET/1045/2014 of 16 June 3. The above-mentioned return is ‘before of “fair return” and in standard facilities defines the aluesv of the above new taxes’ and may be revised every 6 years. with standard costs and efficient remuneration parameters. management. 4. The repeal of the following provisions: Under this new scheme, renewable • Royal Decree 661/2007, of 25 May electricity production facilities are

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Support schemes Operating subsidies For each MWh produced by renewable Depreciation of windmills sources (solar, geothermal, wind, wave, Swedish tax law allows taxpayers to bio fuels or hydro) the producer receives depreciate windmills for corporate one certificate. (Some limitations income tax purposes at a rate that exist for hydro power generation). A is much faster than the actual rate distributor is obliged to buy certificates of economic loss. The maximum up to a certain percentage of the depreciation allowance is 30 percent power distributed. In this way a market of the aggregate book value at the is established for selling and buying beginning of the tax year, plus the certificates. building or acquisition costs that have been made during the year. To support the transition to more sustainable energy sources for heating If a straight-line depreciation of and transportation, no taxes are levied 20 percent per annum results in a lower on renewable fuels while energy taxes, aggregate book value in any year, the CO2 taxes and sulfur taxes are levied on annual depreciation allowance may fossil fuels. be increased correspondingly. The depreciation allowance is calculated on There is also a fee-based system for the a pool basis, with the book value of all reduction of greenhouse gas emissions. the taxpayer’s assets taken into account in order to calculate the maximum depreciation allowance.

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Support schemes – Documents and transactions discount is applied to the lease, related to the power plants easement and utilization right of energy Investment and other subsidies and concluded throughout the transfer lines for 10 years in both The General Investment Incentive investment period are exempted investment and operating periods to the Regime changed in June 2012. The new from stamp tax and duties. power plants that are in operation or to incentive regime is applicable to ENR be in operation until 31 December 2020. investments, mainly by providing the Operating subsidies Additional information following: Feed-in tariff • VAT exemption on purchase (or The tariff and the government purchase • If the mechanical and import) of investment equipment guarantee are applied for 10 years electromechanical equipment following the start of operations of used in renewable energy facilities • customs duty exemption on import of a generation power plant until 31 that have started operation before investment equipment December 2015. 31 December 2015 are manufactured • exemption from other funds and in Turkey, an additional incentive Resources: surcharges. of between ct0.4 and ct3.5/kWh • Hydro: USD cent (ct)7.3kWh for 5 years will be provided to such Other subsidies facilities, under certain conditions. • Wind: ct7.3/kWh • The new Electricity Market Law 6446 • Renewable energy-based electricity became effective as of 30 March • Geothermal: ct10.5/kWh power plants with an installed 2013. The incentives provided under • Solar: ct13.3/kWh capacity of maximum 1 MWe and this law apply to investors holding other similar investments are allowed a generation license and who start • Biomass (including landfill): ct13.3/ to operate without a generation operating before 31 December 2015: kWh license. – A 50 percent discount is applied to Discount on fees the transmission system utilization The new Electricity Market Law 6446 fee for 5 years following the start of has become effective as of 30 March operations. 2013. Under this law, an 85 percent

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Support schemes Feed-in tariff (small scale generation) UK electricity market. The key market mechanisms relevant to this publication Tariff support payments for small-scale Investments and other subsidies are Feed-in Tariffs with Contracts for electricity generation from a variety of Exemptions are in effect from the Difference (CfDs) to give revenue technologies. Climate Change Levy and EU Emissions certainty to investors in low-carbon Trading Scheme. Renewable Heat Incentive generation and the Carbon Price Floor which imposes a fossil fuel tax. Operating subsidies Long term tariff support payments for renewable heat generation. The CfD for each low carbon generation Renewables Obligation Scheme Additional information technology is available from 2014/15, Long term banded quota mechanism lasting 15 years for most technologies and designed to support renewable Summer Budget 2015: In the Summer is scheduled to replace the Renewable electricity generation. Budget 2015 it was announced that Obligation Scheme which is to be phased Feed-in Tariff with Contract for there would be a consultation on reform out for new projects by 31 March 2017. of the environmental tax regime, and in Difference The table below sets out the CfD strike particular the administrative complexity prices for renewable technologies for Tariff support payments for large-scale and burden facing businesses. Any 2014/15 to 2018/19 (with each year electricity generation from a variety of changes to legislation are expected to beginning on 1 April). Support will be technologies. take effect no earlier than 2016 onwards. paid based on net renewable electricity Electricity Market Reform: The Energy Act generated. 2013 brought in major reforms to the

All Prices in GBP/MWh 2015/16 2016/17 2017/18 2018/19 Advanced Conversion Technologies (with or without CHP) 155 155 140 140 Anaerobic Digestion (with or without CHP) 150 150 140 140 Dedicated Biomass (with CHP) 125 125 125 125 Energy from Waste (with CHP) 80 80 80 80 Geothermal (with or without CHP) 145 145 140 140 Hydro 100 100 100 100 Landfill Gas 55 55 55 55 Sewage Gas 75 75 75 75 Onshore Wind 95 95 90 90 Offshore Wind 155 150 140 140 Biomass Conversion 105 105 105 105 Wave 305 305 305 305 Tidal Stream 305 305 305 305 Large Solar Photo-Voltaic 120 115 110 100 Scottish Islands Onshore N/A N/A 115 115

The first allocation of CfDs was conducted electricity from renewable sources. number of ROCs to meet an obligation, by way of an auction under which projects Renewable generators receive it must pay an equivalent amount of submitted a proposed price. Generally, Renewables Obligation Certificates British Pound (GBP)44.33 per MWh the final strike prices agreed for the (ROCs) for each MWh of electricity (2015/2016 rate, GBP43.30 per MWh for successful projects were below the generated, and these ROCs can be 2014/15) into a buy-out fund. This fund is headline strike prices set out above. sold independently of the electricity used to cover the administration cost of generated, allowing renewable the scheme and the rest is distributed Renewables Obligation (RO) scheme: generators to receive a premium to the back to suppliers in proportion to the This requires electricity suppliers wholesale electricity price. Where an number of ROCs they produced. There to source a specific percentage of electricity supplier has an insufficient is a banded ROC mechanism whereby

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. different renewable electricity technologies receive different levels of support The government had previously according to their technological maturity and levelized costs (see table below). confirmed that applications for the RO regime can be made for new generating Band 15/16 support 16/17 support capacity until 31 March 2017, thereby (ROC/MWh) (ROC/MWh) extending the scheme until 2037. From Advanced gasification/pyrolysis 1. 9 1. 8 2027 the Department of Energy & Climate Change (DECC) will fix the price Anaerobic Digestion 1. 9 1. 8 of the ROC for the remaining 10 years Co-firing (low-range) 0.5 0.5 of the RO at its long-term value, and buy Co-firing (mid-range) * 0.6 0.6 the ROCs directly from the generators Co-firing (high-range) * 0.9 0.9 to reduce volatility in the final years of the scheme. Renewable generators may Co-firing (low-range) with CHP* 1** 1** not receive a CfD and also participate in Co-firing (mid-range) with CHP* 1.1** 1.1** the RO regime. Co-firing (high-range) with CHP* 1.4** 1.4** However, in July 2015, the Government Co-firing of regular bioliquid 0.5 0.5 announced that following consultation Co-firing of regular bioliquid with CHP 1** 1** the “grandfathering” of the ROC Co-firing of relevant energy crops (low range) 1 1 payments will not apply for new generating capacity from biomass Co-firing of relevant energy crops with CHP 1. 5 1. 5 conversion and biomass mid-range (low range) and high-range co-firing projects from Conversion (station or unit) 1 1 December 2014. It also announced that Conversion (station or unit) with CHP 1. 5 1. 5 it was consulting on ending the ability Dedicated biomass 1. 5 1. 4 of new solar projects of under 5 MW total installed capacity to claim support Dedicated biomass with CHP 1. 9 1. 8 under the RO scheme from 1 April Dedicated energy crops 1. 9 1. 8 2016, effectively ending the RO scheme Energy from waste with CHP 1 1 for such projects a year earlier than Geothermal 1. 9 1. 8 previously announced. Geopressure 1 1 Carbon Reduction Commitment (CRC) Energy Hydro 0.7 0.7 Efficiency Scheme: CRC is a mandatory Landfill gas – closed sites 0.2 0.2 carbon emissions reporting and charging mechanism for large public and private Landfill gas heat recovery 0.1 0.1 sector organizations in the UK. Microgeneration 1. 9 1. 8 Participants in the CRC need to measure Onshore wind 0.9 0.9 and report their electricity and gas Offshore wind 1. 9 1. 8 supplies annually, from which the Sewage gas 0.5 0.5 carbon dioxide content is calculated. Building mounted solar PV 1. 5 1. 4 The organizations are then required to buy an amount of carbon allowances Ground mounted solar PV 1. 3 1. 2 to cover their carbon emissions, Standard gasification/pyroly sis 1. 9 1. 8 either from the Government or on the Tidal barrage 1. 9 1. 8 secondary market. For 2015/16 an

Tidal lagoon 1. 9 1. 8 allowance for one tonne of CO2 varies between GBP16.10 and GBP16.90. Tidal stream*** 5 5 Allowances bought earlier in the year Wave*** 5 5 (based on forecast emissions) are Source: Department of Energy and Climate Change website cheaper than those bought towards the *Includes solid and gaseous biomass and energy crops end of the period under the “comply or **These support levels are only available in circumstances where support under the RHI is not available buy” sale mechanism. *** Five ROCs subject to 30 MW cap at each generating station. Two ROCs for any additional capacity added above 30 MW cap

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Supplies of commodity liable to: 2015-16 2016-17 public grants previously received, including the Renewable Heat Carbon Price Support Rates of CCL Premium Payment (RHPP), will be Natural gas (GBP per kilowatt hour) 0.00334 0.00331 deducted to avoid a double subsidy. LPG (GBP per kilogram) 0.05307 0.05280 • Non-domestic RHI, which provides Coal and other taxable solid fossil fuels 1.56860 1.54790 a subsidy, payable for 20 years, to (GBP per gross gigajoule) eligible, non-domestic renewable CPS Rates of Fuel Duty heat generators and producers of Gas oil; rebated bioblend; kerosene 0.04990 0.04916 biomethane. The tariff payments (GBP per litre) are dependent on the technology of the heat generation source and Fuel oil; other heavy oil; rebated light oil 0.05730 0.05711 the size of the plant, with payments (GBP per litre) ranging from between GBP0.0156 Source: HMRC per kWh and GBP0.1016 per kWh for installations with an accreditation date on or after 1 July 2015. Various rules on exemptions exist of electricity generated on or after depending on overlaps with EU ETS and 1 August 2015. It is possible to continue EU Emissions Trading Scheme exemption: Climate Change Agreements (CCAs) to redeem LECs in respect of electricity Renewable generators are exempted which provide a partial exemption generated prior to 1 August 2015 under from the requirement to purchase for some organizations from paying transitional arrangements that are carbon allowances in order to generate CRC providing sufficient reductions in currently subject to consultation. electricity, as stipulated by the EU carbon footprint are achieved through Emissions Trading Scheme. Carbon Price Floor: The Carbon Price interventions made by the business and Floor (CPF) applies a levy on fossil the relevant industry sector. Corporation tax fuels used to generate electricity and Capital allowances Climate Change Levy (CCL), Renewable so represents a cost advantage to Source Energy Exemption: CCL is a renewable generators, who will not be Tax relief is available on qualifying capital specific energy tax on the supply of gas subject to the CPF. Published rates from expenditure incurred through the capital and electricity to non-domestic users 1 April 2015 are: allowances regime under one of the in the United Kingdom. CCL applies following categories: Feed-in tariffs (small scale generation): at a rate of GBP0.00554 per kWh from Feed-in tariffs are available for small- • Research and Development 1 April 2015, increasing to GBP0.00559 scale, low-carbon electricity generated Allowances (RDAs) – 100 percent per kWh from 1 April 2015. by private/business users (maximum first year allowances on qualifying Most electricity generated from a capacity 5 MWh) providing payment of research and development (R&D) renewable source has been exempt from up to GBP0.1366 per kWh generated expenditure that is capital in nature. the CCL. Levy Exemption Certificates (depending on the type and size of the • Enhanced Capital Allowances (LECs) are issued to generators of system used to generate renewable (ECAs) – 100 percent first year renewable source energy for each MWh energy); plus a guaranteed GBP0.0485 allowances on assets that are of electricity produced. LECs transfer per kWh sold on to the UK electricity energy saving and water efficient along with the electricity and can be used grid. Typically the tariffs last for 20 years. technologies. If a company is loss by electricity suppliers to support the Renewable Heat Incentive (RHI): Two making, the entity can benefit from CCL exemption and so, like ROCs, they schemes operate to provide long a 19 percent cash tax credit of its have a value that a renewable generator term tariff support for renewable heat surrenderable loss, subject to specific can realize. This value is the CCL rate in generation: restrictions. However, ECAs are place for electricity when the electricity explicitly not available in respect of is generated. HMRC require a number of • Domestic RHI, which is available expenditure on plant or machinery conditions to be met for the exemption for domestic properties where that generates electricity or heat to apply and a LEC alone is not sufficient households receive payments of or produces biogas or biofuel, that evidence to support exemption from CCL. between GBP0.0714 and GBP0.1951 attracts a feed-in tariff (small scale per kWh for applications submitted However, in July 2015, the Government generation) or RHI payment. between 1 July 2015 and 30 August announced that the exemption from 2015, depending on the technology CCL for renewable electricity generation generating the renewable heat. Any would cease to be available in respect

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. • Main rate – 18 percent reducing on remediating contaminates from 130 percent super-deduction regime is balance for qualifying expenditure on sites or undertakes work on a derelict also available to large companies until plant and machinery. site, then an enhanced tax relief (Land 31 March 2016.) Remediation Relief) of 150 percent can • Special rate – 8 percent reducing Patent Box: The Patent Box regime be claimed. If a company is loss making, balance. Assets typically found within enables companies to apply a lower the entity can benefit from a 16 percent this category of assets include certain rate of corporation tax of 10 percent to cash tax credit of its surrenderable loss, integral features to buildings and long- profits derived from patented inventions subject to specific restrictions. life assets (useful economic life of and certain other innovations, phased 25 years or more). R&D incentives: These incentives enable in over 5 years from 1 April 2013. The companies to obtain additional benefits company must own or exclusively Capital allowances are also available from their investments in R&D. An license-in the patents, and must where a person makes a payment to enhanced tax deduction of 230 percent undertake qualifying development on a third party (i.e. network provider, is available for small and medium- them to be eligible for the lower tax National Grid), but does not necessarily sized enterprises (225 percent prior to rate. (Other forms of IP protection own or operate the asset. This is dealt 1 April 2015) for revenue expenditure on may also qualify.) A new regime is with under a separate part of the capital qualifying projects designed to achieve being introduced from 1 July 2016 with allowances regime, that is, Contribution an advance through the resolution of the benefits available based on the Allowances. scientific or technological uncertainty. proportion of the innovation undertaken As a way to incentivize investment in Where expenditure is capital in nature, by the claimant company. The exact plant and machinery, HMRC introduced RDAs may be claimed (see above). details of the new regime have not the Annual Investment Allowance (AIA) yet been finalized but are expected For loss making SMEs a tax credit which provides a 100 percent first to be announced in the 2015 Autumn of 14.5 percent can be claimed by year allowance for a certain amount of Statement. It is expected that there will surrendering “R&D losses.” Large qualifying capital expenditure. The AIA be a limited window in which to access companies may instead claim an R&D was set at GBP500,000 per annum benefits under the existing regime, and Expenditure Credit (RDEC) that gives a for the period from 1 April 2014 to once in the existing regime, benefits will taxable payment of 11 percent capable 31 December 2015. It will be reduced to be grandfathered until 30 June 2021. of being accounted for in operating GBP200,000 as of 1 January 2016. profit (10 percent prior to 1 April 2015). Other direct tax allowances/ The RDEC translates into an effective incentives potentially relevant to benefit of 8.8 percent after tax on renewables generators: qualifying revenue expenditure with Land remediation relief: Where a company the benefit available for profit and loss incurs expenditure (capital or revenue) making companies. (Note: The old

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Support schemes – Whether a taxpayer has begun • The definition of ‘begin construction’ construction of a facility before is the same for the ITC in lieu of the Investment and other subsidies 1 January 2015 will depend on the PTC as for the PTC. Production Tax Credit (PTC) relevant facts and circumstances. Investment Tax Credit (ITC) Applicable for wind, geothermal, – The IRS will closely scrutinize landfill gas, trash combustion, open- Applicable for solar, geothermal, qualified a facility. It may determine that loop biomass, closed-loop biomass, fuel cell or micro turbine property, construction has not begun on hydropower and wave tide. combined heat and power systems, a facility before 1 January 2015 small wind and geothermal heat pumps. • The PTC provides a tax credit for if a taxpayer does not maintain the production of electricity from a continuous program of • The ITC provides a credit for qualifying renewable sources and the sale of construction. energy property. that electricity to an unrelated party. – If a facility is placed in service prior • The ITC for any taxable year is the • Credit amount is: to 1 January 2017, a taxpayer will energy percentage of the basis be deemed to have maintained a of each energy property placed in – USD cent (ct)2.3/kWh for continuous program of construction service during the taxable year. wind, closed-loop biomass and (Notice 2015-25). geothermal • Credit amount is: • The safe harbor rule provides that – Ct1.2/kWh for other renewable – 30 percent of eligible costs for fuel construction of a facility will be cell, solar, and small wind property energy resources. considered as having begun before • Available for facilities that begin 1 January 2015, if: – 10 percent of eligible costs for construction prior to 1 January 2015. combined heat and power, micro – the taxpayer pays or incurs – within turbine property and geothermal • Available for a 10-year period the meaning of Reg. section heat pumps. beginning the year the facility is 1.461-1(a)(1) and (2) – 5 percent or placed in service. more of the total cost of the facility • The ITC is generally available for before 1 January 2015; and eligible property placed in service on • There are two methods that a or before 13 December 2016. taxpayer may use to establish that – subsequently, the taxpayer makes construction has begun: continuous efforts to advance Grant in lieu of PTC and ITC towards completion of the facility Applicable for tangible personal property – A taxpayer may establish the (as determined under Notice 2013- or other property that is an integral part beginning of construction when 29). of a qualified facility (as defined by the “physical work of a significant PTC and ITC rules). nature” is started, or – If a facility is placed in service prior to 1 January 2017, a taxpayer will be • The American Recovery and – A taxpayer may establish the deemed to have made continuous Reinvestment Act of 2009 (ARRA) beginning of construction by efforts to advance towards enacted a grant program which meeting a safe harbor rule (as completion of the facility (Notice provides a cash grant in lieu of the determined under Notices 2013-29, 2015-25). PTC or ITC. 2013-60, 2014-46 and 2015-25). Investment Tax Credit (ITC) in lieu of • ARRA permits PTC or ITC projects to • In general: the PTC elect a grant of up to 30 percent of – Work performed by the taxpayer Applicable for facilities that are eligible costs of construction of PTC or ITC and work performed for the for the PTC and that begin construction energy property in lieu of tax credits. taxpayer by other persons before 2014. • Projects must begin construction under a binding written contract before 2012 and submit a that is entered into prior to the • The ITC is available in lieu of the PTC. grant application no later than manufacture, construction, or • The ITC provides a credit for qualifying 30 September 2012. production of the property for use energy property. by the taxpayer in the taxpayer’s • Projects must be placed in service: trade or business (or for the • The credit amount is 30 percent of – before 2014 for PTC-eligible taxpayer’s production of income) is the eligible cost basis of the property. facilities (before 2013 for wind) taken into account in determining • Eligible property is tangible personal whether physical work of a property or other property that is – before 2017 for other ITC eligible significant nature has begun. integral to a PTC-eligible facility. projects.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Operating subsidies RPS legislation has been enacted. A total of 29 states and the District of Quota obligation Columbia have an RPS. The states Renewable Portfolio Standards (RPS) include Arizona, California, Colorado, This standard generally places an Connecticut, Delaware, Hawaii, Illinois, obligation on electric supply companies Indiana, Kansas, Maine, Maryland, to produce a specified fraction of their Massachusetts, Michigan, Minnesota, electricity from renewable energy Missouri, Montana, Nevada, New sources and enumerates mechanisms Hampshire, New Jersey, New Mexico, that are permitted to achieve New York, North Carolina, Ohio, Oregon, compliance, such as renewable energy Pennsylvania, Rhode Island, Texas, credits (RECs). Currently no federal Washington and Wisconsin.

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Support schemes The main benefit consists of CIT solar thermal energy for residential exemptions equivalent to: users. The new program provides Investment and other subsidies loans, financial discounts and payment • 90 percent of net fiscal income General Investment Regime facilities for those who install solar generated by the promoted activity for Investment Law 16.906 declares the thermal technology in their houses. all fiscal years up to 31 December 2017 national interest of the promotion and Quota obligation protection of domestic and foreign • 60 percent of net fiscal income investment and, through Decree 2/012, generated by the promoted activity Law 18.585 also introduced the establishes the following benefits for the for all fiscal years from 1 January 2018 obligation of incorporating solar thermal investments carried out in the country: to 31 December 2020 technology in sport clubs, hospitals, hotels and heated swimming-pools, • Corporate Income Tax (CIT) exemption • 40 percent of net fiscal income under certain circumstances. According equivalent to a percentage of the generated by the promoted activity to this law, at least 50 percent of the investment in fixed assets (machinery, for all fiscal years from 1 January energy required to heat the water should equipment and civil works). The 2021 to 31 December 2023. come from solar thermal energy. If this referred percentage varies between Other benefits: requirement is not fulfilled, the permit for 20 percent and 100 percent of eligible the construction works is denied. investment and it is determined by • The law declares of national interest New public buildings (that is, state the score the project receives for its the national production of machines owned) are also obliged to incorporate impact in terms of: and equipment necessary for the production of these renewable this source of energy. – employment energies and also applies to this As from June 2012, the Ministry of – decentralization activity the CIT exemption described Industry is entitled to request for all in the Particular Investment Regime new industrial and agro-industrial – exports for renewable energy. As a condition developments to perform a technical – clean production for the application of this exemption, study on the feasibility of incorporating at least 35 percent of their cost must solar thermal technology into the project. – industrial indicators. correspond to Uruguayan inputs. Additional information • Capital Tax exemption for the fixed • Purchase of the wind turbine and its assets included in the investment: accessories are exempt from VAT. Uruguay is recognized as a country with excellent conditions for the – civil works: 8 years for civil works in Promotion of solar thermal energy Montevideo and 10 years in the rest development of renewable energy, In 2009, Law 18.585 declared of national of the national territory attracting the attention of national interest the investigation, fabrication, and international investors. The – machinery and equipment for the implementation and development of government with the support of the useful life. solar thermal energy. The law, along opposition parties has set forth the goal with Decree 451/011, established • Fiscal credit for VATs included in civil of becoming a model country in this the exemption of VAT, Internal Excise works. area. The authorities intend that, by this Tax (IMESI), duties and custom taxes year, at least 50 percent of the primary • Exemption from all taxes and duties applicable to: energy matrix of the country will come levied on the import of machinery and from renewable sources. equipment that is not competitive • National and imported (non with national industry. competitive with the national Wind industry) goods and services Although the focus is placed on all Particular Investment Regime for necessary to fabricate solar collectors types of renewable energy, the most renewable energy in Uruguay. popular continues to be wind power. The Within the frame of Law 16.906, Decree • Sale of solar collectors fabricated in initial goal of reaching 300 MW of wind 354/009 establishes particular benefits Uruguay. generation by 2015 has been passed for the generation of electricity from with flying colors, since the country is non-traditional renewable sources • Import of solar collectors non- already generating more than 500 MW. (defined as the native renewable sources competitive with the national A new goal of 1,400 MW has been set such as wind, solar thermal, solar PV, industry. for 2017, assuming all the awarded wind geothermal, tidal and wave energy, as In 2012, the Government launched a farm projects will be implemented. By well as the energy produced from the Solar Program focused on developing that year, the Investment in this area will use of different types of biomass). probably reach USD2.6 billion.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Biomass projects offered are currently coming to • industrial forestry residues (saw mill In 2010 the government set the goal of life and, in virtue of this, a new tender residues, black liquor, etc) call for biomass projects is expected to incorporating 200 MW from biomass • rice husks sources to the primary energy matrix be launched during 2015. • residues from sugar cane, sweet by 2015. Accordingly, the Uruguayan Uruguay has several natural resources sorghum and other cereals energy utility (Usinas y Trasmisiones that can be used as primary elements Eléctricas or UTE) promoted one tender for the generation of biomass energy: • excellent conditions for elephant grass during 2011, in which the total amount offered by the private companies • extensive forests providing wood for • a guaranteed supply of biomass from exceeded 350 MW. However, not all the energy generation livestock and agriculture.

Solar Photovoltaic In May 2013 the Government launched a tender call for the purchase of solar PV energy. The tender considers projects of three different ranges: i) 500 kW to 1 MW, ii) 1 MW to 5 MW, and iii) 5 MW to 50 MW. For ranges i) and ii), the bidders had to offer a price and the total amount to be awarded could not exceed 6 MW. On the other hand, for range iii), bidders had to adhere to a pre-established price of USD91.5/MWh, and the total amount to be awarded could not exceed 200 MW. The companies that participated in the referred tender call proposed projects for a total amount of 166 MW. Some of these projects are already generating 50 MW and others are still under construction. New tender calls are expected to be launched within the next few years.

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TOP FIVE COUNTRIES 1 2 3 4 5 Annual investment/net capacity additions/production in 2014 Investment in renewable power and China United States Japan United Kingdom Germany fuels (not including hydro > 50 MW) Investment in renewable power Burundi Kenya Honduras Jordan Uruguay and fuels per unit GDP1 Geothermal power capacity Kenya Turkey Indonesia Philippines Italy Hydropower capacity China Brazil Canada Turkey India Solar PV capacity China Japan United States United Kingdom Germany CSP capacity United States India – – – Wind power capacity China Germany United States Brazil India Solar water heating capacity2 China Turkey Brazil India Germany Biodiesel production United States Brazil Germany Indonesia Argentina Fuel ethanol production United States Brazil China Canada Thailand Total capacity or generation as of end-2014 POWER Renewable power (including hydro) China United States Brazil Germany Canada Renewable power (not including hydro) China Unites States Germany Spain/Italy Japan/India Renewable power capacity per capita Denmark Germany Sweden Spain Portugal (among top 20, not including hydro3) Biopower generation United States Germany China Brazil Japan Geothermal power capacity United States Philippines Indonesia Mexico New Zealand Hydropower capacity4 China Brazil United States Canada Russia Hydropower generation4 China Brazil Canada United States Russia Concentrating solar thermal Spain United States India United Arab Algeria power (CSP) Emirates Solar PV capacity Germany China Japan Italy United States Solar PV capacity per capita Germany Italy Belgium Greece Czech Republic Wind power capacity China United States Germany Spain India Wind power capacity per capita Denmark Sweden Germany Spain Ireland HEAT Solar water collector capacity2 China United States Germany Turkey Brazil Solar water heating collector Cyprus Austria Israel Barbados Greece capacity per capita2 Geothermal heat capacity5 China Turkey Japan Iceland India Geothermal heat capacity Iceland New Zealand Hungary Turkey Japan per capita 5

1 Countries considered include only those covered by Bloomberg New Energy Finance (BNEF); GDP (at purchasers’ prices) and population data for 2013 and all from World Bank. BNEF data include the following: all biomass, geothermal, and wind generation projects of more than 1 MW; all hydropower projects of between 1 and 50 MW; all solar power projects, with those less than 1 MW estimated separately and referred to as small-scale projects or small distributed capacity; all ocean energy projects; and all biofuel projects with an annual production capacity of 1 million litres or more. 2 Solar water collector (heating) rankings are for 2013 and are based on capacity of water (glazed and unglazed) collectors only; including air collectors would affect the order of capacity added, placing the United States slightly ahead of Germany rather than in sixth place, and would not affect the order of top countries for total capacity or per capita. 3 Per capita renewable power capacity ranking considers only those countries that place among the top 20 worldwide for total installed renewable power capacity, not including hydropower. Several other countries, including Austria, Finland, Ireland, and New Zealand, also have high per capita levels of non-hydro renewable power capacity, with Iceland likely the leader among all countries. 4 Country rankings for hydropower capacity and generation differ because some countries rely on hydropower for baseload supply whereas others use it more to follow the electric load and to match peaks in demand. 5 Not including heat pumps.

Note: Most rankings are based on absolute amounts of investment, power generation capacity or output, or biofuels production; if done on a per capita, national GDP, or other basis, the rankings would be quite different for many categories (as seen with per capita rankings for renewable power, solar PV, wind, and solar water collector capacity).

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Table 1. Renewable energy support policies FISCAL INCENTIVES AND PUBLIC COUNTRY REGULATORY POLICIES FINANCING , VAT, or other taxes , VAT, 2 Renewable energy targets Feed-in tariff/premium payment Electric utility quota obligation / RPS Net metering Biofuels obligation/ mandate Heat obligation/mandate REC Tradable Tendering grant, or Capital subsidy, rebate Investment or production tax credits Reductions in sales, energy, CO Energy production payment Public investment, loans, or grants

HIGH INCOME COUNTRIES Andorra Australia * Austria Bahrain Barbados1 Belgium Canada R* Chile Croatia Cyprus Czech Republic R Denmark R R Estonia Finland France R R Germany R Greece R Ireland Israel Italy R R Japan R R Kuwait Latvia Liechtenstein Lithuania Luxembourg Malta R Netherlands New Zealand Norway Poland R R Portugal Russia R San Marino Singapore Slovakia Slovenia R South Korea Spain2 R Sweden Switzerland R Trinidad and Tobago United Arab Emirates R* United Kingdom United States3 R* R* R* R* R Uruguay

– existing national (could also include state/provincial), – existing state/provincial (but no national), – new (* indicates state/provincial), R – revised (* indicates state/provincial), x – removed/expired 1 Certain Caribbean countries have adopted hybrid net metering and feed-in policies whereby residential consumers can offset power, while commercial consumers are obligated to feed 100% of the power generated into the grid. These policies are defined as net metering for the purposes of the Global Status Report. 2 Spain removed FIT support for new projects in 2012. Incentives for projects that previously had qualified for FIT support continue to be revised. 3 State-level targets in the United States include RPS policies.

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FISCAL INCENTIVES AND PUBLIC COUNTRY REGULATORY POLICIES FINANCING , VAT, or other taxes , VAT, 2 Renewable energy targets Feed-in tariff/premium payment Electric utility quota obligation / RPS Net metering Biofuels obligation/ mandate Heat obligation/mandate REC Tradable Tendering grant, or Capital subsidy, rebate Investment or production tax credits Reductions in sales, energy, CO Energy production payment Public investment, loans, or grants

UPPER-MIDDLE INCOME COUNTRIES Albania Algeria R R Angola Argentina R Azerbaijan Belarus Belize Bosnia and Herzegovina Botswana Brazil R Bulgaria R China R R Colombia R Costa Rica R Dominican Republic Ecuador Fiji Grenada Hungary Iran Jamaica Jordan Kazakhstan Lebanon Libya Macedonia, Republic of Malaysia Maldives Marshall Islands Mauritius Mexico Montenegro Namibia Palau Panama Peru Romania R Serbia Seychelles South Africa R R R St. Lucia R St. Vincent and the Grenadines1 Thailand R Tunisia R Turkey R

Note: Countries are organised according to annual gross national income (GNI) per capita levels as follows: “high” is USD 12,746 or more, “upper-middle” is USD 4,125 to USD 12,745, “lower-middle” is USD 1,046 to USD 4,125, and “low” is USD 1,045 or less. Per capita income levels and group classifications from World Bank, “Country and Lending Groups,” accessed March 2015. Only enacted policies are included in the table; however, for some policies shown, implementing regulations may not yet be developed or effective, leading to lack of implementation or impacts. Policies known to be discontinued have been omitted. Many feed-in policies are limited in scope of technology. Source: See Endnote 1 for this section.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Table 3. Renewable energy support policies FISCAL INCENTIVES AND PUBLIC COUNTRY REGULATORY POLICIES FINANCING S tion payment y quota n/mandate production ation/ sales, , energy sales, , premium ment, loans, , or ot, VAT her taxes , or ot, 2 Renewable energy targets Energy produc Public invest or grants Feed-in tariff/ payment Electric utility obligation / RP Net metering Biofuels oblig mandate Heat obligatio REC Tradable Tendering Capital subsidgrant, or , rebate Investment or tax credits Reductions in CO LOWER-MIDDLE INCOME COUNTRIES Armenia Cabo Verde Cameroon Côte d’Ivoire Egypt El Salvador Ghana Guatemala Guyana Honduras India Indonesia Kyrgyz Republic Lesotho Micronesia, Federated States of Moldova Mongolia Morocco Nicaragua Nigeria Pakistan Palestinian Territories4 Paraguay Philippines Senegal Sri Lanka Sudan Syria Ukraine X Uzbekistan Vanuatu Vietnam Zambia LOWER INCOME COUNTRIES Bangladesh Burkina Faso Ethiopia Gambia Guinea Haiti Kenya R Liberia Madagascar Malawi Mali Mozambique Myanmar Nepal Niger Rwanda Tajikistan Tanzania R Togo Uganda Zimbabwe – existing national (could also include state/provincial), – existing state/provincial (but no national), – new (* indicates state/provincial), R – revised (* indicates state/provincial), x – removed/expired 4 The area of the Palestinian Territories is included in the World Bank country classification as “West Bank and Gaza.” They have been placed in the table using the 2009 “Occupied Palestinian Territory” GNI per capita provided by the United Nations (USD 1,483) 80 | Taxes and incentives for renewable energy

André Boekhoudt Partner, Tax, Energy and Natural Resources KPMG in the Netherlands T: +31 20 6 561358 E: [email protected]

Lars Behrendt Tax Partner, KPMG in Germany T: +49 40 32015 5855 E: [email protected]

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Designed by Evalueserve. Publication name: Taxes and incentives for renewable energy Publication number: 132663-G Publication date: September 2015