Taxes and Incentives for Renewable Energy

Taxes and incentives for renewable energy

KPMG INTERNATIONAL

September 2013

kpmg.com/energytax This report describes the 2013 taxes and incentives provided by 28 countries around the world to promote renewable energy from wind, solar, biomass, geothermal and hydropower. These policies also support other areas such as increased energy efficiency, smart-grid management, biofuels, carbon capture systems and storage technologies. Content includes an introduction about global trends in renewables, a summary of investments in renewable energy, and a brief outline of renewable energy promotion policies in all 28 countries.

André Boekhoudt Lars Behrendt Head of Global Energy Tax Partner, KPMG in and Natural Resources Germany Tax Practice

© 2013 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 1 2013 Industry trends 2 Global investment in renewable energy production 3 Renewable energy promotion policies by country 5 Argentina 7 Australia 8 Austria 10 Brazil 11 Canada 13 China 16 Denmark 18 France 20 Germany 22 India 24 Ireland 26 Italy 28 Japan 31 Mexico 32 The Netherlands 34 New Zealand 36 Norway 37 Peru 39 Poland 40 Romania 41 South Africa 43 South Korea 45 Spain 46 Sweden 49 Turkey 50 United Kingdom 51 United States 53 Uruguay 55 Top five countries 2012 57 Appendix A: REN21 2012 Renewables Global Status Report 58

Renewable energy continues to be Governments also play a role in 2007.6 Some 120 countries have various one of the world’s strongest growth discouraging carbon emissions by types of policy targets for long-term industries. Consider these facts: enforcing taxes and penalties such as: shares of renewable energy. The EU is maintaining its target of 20 percent by • Approximately 20 percent of global • carbon tax and pricing 2020.7 Several European countries in electricity generation now comes from • cap and trade schemes particular have even stronger national renewable energy sources.1 long-term targets that will place them in • indirect taxes, such as energy • Renewables accounted for over the high renewables range by 2030 or taxes, excise taxes or value half of total net additions to electric 2050, including Denmark (100 percent) added taxes (VATs). generating capacity worldwide and Germany (60 percent).8 in 2012.2 The 12 most common policies can be Outside of Europe, at least 20 other divided into three categories: • Almost 70 percent of new electric countries have targets in the 2020– generating capacity in the European • Regulatory policies: 2030 time frame ranging from 10 to Union (EU) for 2012 came from 50 percent. These include Algeria, – renewable energy targets renewables.3 China, Indonesia, Jamaica, Jordan, – feed-in tariff/premium payment Madagascar, Mali, Mauritius, Samoa, • Solar photovoltaic (PV) electricity Senegal, South Africa, Thailand, Turkey, generation soared from 10 gigawatts – electric utility quota obligation/ Ukraine, and Vietnam.9 (GW) in 2007 to over 100 GW in 2012.4 renewable portfolio standard (RPS) (For additional information about these This rapid increase in renewables is – net metering policies, see appendix A/page 57). driven by a number of factors, including – biofuels obligation/mandate falling technology costs, rising fossil-fuel prices and carbon pricing. However, – heat obligation/mandate the main support for growth is through – tradable renewable energy government incentives, which totaled credit (REC). United States dollar (USD)88 billion globally in 2011.5 • Fiscal incentives: This report describes current incentives – capital subsidy, grant and rebate provided by 28 countries around the – investment and production tax world to promote renewable energy credits from wind, solar, biomass, geothermal and hydropower. These incentives – reductions in sales taxes, energy also support related areas such as taxes, CO2 taxes, VAT and other increased energy efficiency, smart-grid taxes management, biofuels, carbon capture – energy production payment. systems and storage technologies. • Public financing: Governments now offer a wide variety of tax incentives and related – public investment, loans and programs to support renewable energy grants investment, including: – public competitive bidding/ • credits tendering. • grants These policies and incentives have proven their effectiveness over the past • tax holidays decade. By the end of 2012, at least • accelerated depreciation 138 countries had renewable energy targets, an increase of 66 percent from • non-tax incentives.

1 World Energy Outlook 2012 – Executive Summary 6 Op. cit., REN 21 Renewables 2013 Global Status Report 2 Ibid. 7 REN 21 Renewables 2013 Global Futures Report 3 REN 21 Renewables 2013 Global Status Report 8 Ibid. 4 Ibid. 9 Ibid. 5 Op. cit., World Energy Outlook 2012

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The global energy system based 75 percent of final energy consumption events at Fukushima, the government on hydrocarbons is undergoing a by 2050, compared to less than announced the Innovative Strategy foundational shift. No one disputes the 10 percent in 2010.12 for Energy and the Environment in need for increased energy supplies. September 2012, which includes the The United States is expected to see a Global demand for electricity is goal of reducing the role of nuclear significant growth in domestic natural expected to rise by more than power. This will be supported in part by gas production, which might impact 80 percent from 2010 to 2040, driven increasing the deployment of renewable policies that support renewables. by an increase in total population and energy. By 2030, the strategy calls for Continued low gas prices, for example, gross domestic product (GDP) output. power generation from renewables to would likely reduce the value of triple compared to 2010, reaching about To address world energy demand, the purchase price agreements available to 30 percent of total generation. In July energy industry has seen a recent generators, including wind developers. 2012, Japan launched a new feed-in resurgence in oil and gas production, However, the federal Production Tax tariffs system for wind and solar power led by the “shale gale” of natural gas Credit for wind was extended for a and other renewables, providing a made available with hydraulic fracturing further year by Congress at the start of generous amount of incentives. (fracking) and horizontal drilling in 2013. The Clean Energy Standard Act of the US In addition, global fossil fuel 2012 is currently under consideration Overall, the global adoption rate of subsidies rose almost 30 percent to by the US Congress, and this law would renewables policies has slowed USD523 billion in 2011, primarily for oil set the first nationwide targets for clean considerably, especially as compared development in the Middle East and electricity, defined as energy produced to the early-to-mid 2000s. Revisions North Africa.10 from renewables, nuclear power and to existing policies are becoming gas-fired generation. The Renewable increasingly more common, as well Nevertheless, the feasibility of a Fuel Standard, adopted in 2005 and as new types of policies that combine carbon-based energy system is being extended in 2007, mandates 36 billion energy-efficiency measures with the questioned. Economic development gallons of biofuels to be blended into implementation of renewable energy across Europe is hampered by transportation fuel by 2022. technologies.14 continued high oil prices, and signs of an unsustainable energy system persist, In China, electric energy demand is Looking ahead, recent analysis has with CO2 emissions at a record high. expected to more than double by suggested that the following global Accordingly, economies around the 2040.13 Despite the continued use of milestones will be reached by 2035:15 world are increasing their dependence large amounts of coal and gas, China is • Demand for electricity will grow by on sustainable energy sources to also adopting the European and the US over 70 percent. help reduce greenhouse gas (GHG) approach to shift electricity generation emissions and pollutants. Renewables away from coal. China’s renewables • Overall energy demand will rise by have also been recognized as a way to policy is based on the 2005 Renewable over 30 percent. stimulate economies, enhance energy Energy Law. In 2009, China set a target • Generation from renewables will security and diversify energy supply. to increase the share of non-fossil increase to almost three times its energy (nuclear and renewables) in the In terms of renewables policy, the EU 2010 level. power sector to 15 percent by 2020. continues to lead the world in its support The 12th Five- Year Plan (2011-2015) calls • The share of renewables in the for less carbon-intensive electricity for 70 GW of additional wind capacity, generation mix will increase to generation, with 65 percent of electricity 120 GW of additional hydropower and 5 31 percent. now being generated from nuclear and GW of additional solar capacity by 2015. renewable fuels. Europe increased its Greater energy efficiency in building, Targets have also been set for the first wind energy capacity by 12.3 percent heating, transportation and time for geothermal and marine power. in 2012,11 and 20 percent of Europe’s manufacturing will help offset the rise in power is targeted to come from wind Japan’s renewables energy policy energy demand. However, renewables generation by 2040. A European was reviewed and extended through will play a vital role in addressing Commission report indicated that legislation passed in 2009 and a revised this demand in an environmentally renewable energy could meet 55 to Basic Energy Plan in 2010. After the supportive and sustainable manner.

10 Op. cit., World Energy Outlook 2012 14 Op. cit., REN 21 Renewables 2013 Global Status Report 11 EurObserv’ER, Wind Power Barometer 15 OECD, International Energy Association (IEA), World Energy Outlook 2012, REN 12 Rethinking 2050, European Renewable Energy Council, 2010 21 Renewables 2013 Global Futures Report 13 Op. cit., World Energy Outlook 2012

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In 2012, global investments in In addition, dramatically lower prices Significantly, incentives have been renewables reached USD244 billion. for renewable energy have discouraged maintained or increased in many Asian This figure represents a decrease of investors. Solar prices dropped 30 to countries even as they were being 12 percent.16 Investment levels in 2013 40 percent between 2011 and 2012, reduced in many developed countries. have followed this trend. As of Q1 driven mainly by low-cost manufacturing According to the REN21 Renewables 2013, global investment in renewables in China.18 Wind turbine prices dropped 2013 Global Status Report, the top five reached only USD40 billion, the lowest by 20 to 25 percent in western markets countries for new capacity investments in any quarter since Q1 2009 and a and by 40 percent in China.19 in renewable energy in 2012 were China, decrease of 36 percent from the final Another key trend in renewables the United States, Germany, Japan and quarter of last year and 24 percent investment for 2012 was the continued Italy. In KPMG’s Green Tax Index focusing below the first quarter of 2012.17 north to south shift toward emerging on fiscal incentives, China ranked This decline can be explained by several markets. In 2007, developed economies sixth, the United States ranked first, factors, starting with uncertainty invested 2.5 times more in renewables Germany fifteenth and Japan second. about renewables policy in developed than the south. Now the gap has shrunk Italy was not included in this report. economies. Investments declined to 18 percent, and emerging markets (For additional information, 34 percent in the US because of policy are on track to surpass the north in see appendix A/page 57) uncertainty, and former champions the next few years. Total renewables for renewables in Europe such as Italy investment in developing economies and Spain saw significant contractions rose 19 percent in 2012 to USD112 based on policy changes and cuts in tariff billion, while investment in developed supports. The decline in investments countries dropped 29 percent to was also driven by overcapacity USD132 billion.20 China, South Africa, in the manufacturing supply chain Morocco, Mexico, Chile and Kenya all in North America and Europe. showed sharp increases in investment.21

16 Global Trends in Renewable Energy Investments 2013, 19 Bloomberg New Energy Finance, IHS Research Bloomberg New Energy Finance 20 Ibid. 17 Ibid. 21 Op. cit., Global Trends in Renewable Energy Investment 2013 18 Ibid.

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© 2013 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. China: a greater alignment of state, federal Not surprisingly, 2012 investments and private efforts. At the state-level, in renewables increased 73 percent China was the dominant country in 2012 renewable energy portfolio standards over 2011 to USD16 billion.28 Most for investments in renewable energy, (RPS) and policies like electricity market investments were for small-scale solar with commitments rising 22 percent to design have been proven successful. PV facilities that promise a faster return USD67 billion, representing 27 percent These can complement federal on investment. Goldman Sachs Group 22 of global renewables investment. This production and investment tax credits. Inc. (GS) has announced plans to invest surge was due mainly to a spike in solar From the private sector, policies such as as much as USD487 million in renewable 23 investment. Since 2005, China has Master Limited Partnerships (MLPs) and energy projects in Japan in the next five increased its renewables investment by Real Estate Investment Trusts (REITs) years.29 Japanese banks and financial over 300 percent. can help provide lower-cost capital. institutions such as Softbank Corp. and Orix Corp. have also shown considerable The government’s support for More on page 53 renewables in China includes reduced interest in renewables investment.30 corporate income taxes, significant Germany: More on page 31 reductions in value added taxes, feed- Although Germany led the world in in tariffs, R&D incentives, subsidies renewable power per capita for 2012,26 for energy conservation technologies investments fell 35 percent from Italy: improvement, and other tax incentives. previous year to USD20 billion.27 Feed- The renewable energy sector in Italy is In a related note, Chinese companies in tariffs are available in Germany for considered by some to have the highest have provided nearly USD40 billion wind, solar, geothermal, methane gas potential in the EU.31 The country has to solar and wind industries in other and hydro generation. The government- a well-developed system of incentives countries over the past decade.24 Most owned bank KfW also provides various (mainly feed-in tariffs) for renewable investments have gone to the US, subsidies and support programs for energy generated from solar, wind and followed by Germany, Italy and Australia. renewables. However, a major shift biomass. In particular, the government’s China’s wind industry supports the away from nuclear plants and the Renewable Energy Decree, which domestic market, but the solar industry upcoming elections in September entered into force on 29 March 2011, relies on the international market for 2013 have introduced a high level of revises the system of incentives for the 95 percent of its sales.25 uncertainty for investors. Feed-in tariffs production of electricity from renewable are expected to be cut, and other More on page 16 sources and simplifies the authorization reductions in incentives are expected. process for building new plants. United States: More on page 22 Nevertheless, the prolonged European The US ranked second in 2012 for Japan: financial crisis, lower PV costs and other renewables investments, with a total factors have made their impact on the of USD36 billion. This represents a After the Fukushima earthquake, Japan sector. In 2011, Italy attracted USD29 drop of 34 percent over the previous introduced several significant incentives billion in renewable energy investment, year. Most investment dollars went to support the move from nuclear to but asset financing of renewable energy to asset finance, while the remaining renewable energy sources. These in 2012 dropped 31 percent as compared portion went to public markets, venture include a special depreciation of to 2010.32 Investment from asset finance, capital/private equity, corporate and 30 percent or 100 percent for the public markets and private equity was government R&D and small distributed purchase and installation of qualified down 26 percent.33 capacity. renewable energy equipment. In addition, the government introduced an More on page 28 Suggested strategies to increase the incentive for fixed assets tax on certain US investments in renewables involve renewable energy generation facilities.

22 Ibid. 29 Goldman Sachs Eyes Japan Renewable Energy Investments, Bloomberg, 23 Ibid. 20 May 2013 24 China invests billions in international renewable energy projects, 30 Ibid. WRI Insights, wri.org 31 Italy’s Renewable Energy Sector Continues to Attract Investors, According 25 Ibid. to Mergermarket, Mergermarket, 9 May 2013 26 not including hydro 32 Can Italy Keep Its Renewables Investors?, RenewableEnergyWorld.com, 27 Op. cit., Global Trends in Renewable Energy Investment 2013 23 July 2013 28 Renewable energy investments shift to developing nations, Bloomberg, 33 Ibid. 12 June 2013 Taxes and incentives for renewable energy | 4

The following chart is a summary of the support schemes available in the 28 countries that are highlighted in this publication. Additional details regarding the investment and operating support schemes for each country can be found in the following pages.

PUBLIC REGULATORY POLICIES AND TARGETS FISCAL INCENTIVES FINANCING , 2 Some states/ provinces within these countries have state/provincial-level policies but there is no national-level policy. VAT or other taxes VAT Energy production payment investment, Public loans, or grants competitive Public bidding/tendering Renewable energy Renewable targets tariff/ Feed-in premium payment Electric utility quota obligation/ RPS Net metering Biofuels obligation/ mandate Heat obligation/ mandate REC Tradable Capital subsidy, grant, or rebate or Investment production tax credits in Reductions CO sales, energy,

Argentina Australia Austria Brazil Canada China Denmark France Germany India Ireland Italy Japan Mexico Netherlands New Zealand Norway Peru Poland Romania South Africa South Korea Spain34 Sweden Turkey United Kingdom United States Uruguay Source: This section is intended only to be indicative of the overall landscape of policy activity and is not a definitive reference. Policies listed are generally those that have been enacted by legislative bodies. Some of the policies listed may not yet be implemented, or are awaiting detailed implementing regulations. It is obviously difficult to capture every policy, so some policies may be unintentionally omitted or incorrectly listed. Some policies may also be discontinued or very recently enacted. This report does not cover policies and activities related to technology transfer, capacity building, carbon finance, and Clean Development Mechanism projects, nor does it highlight broader framework and strategic policies – all of which are still important to renewable energy progress. For the most part, this report also does not cover policies that are still under discussion or formulation, except to highlight overall trends. Information on policies comes from a wide variety of sources, including the International Energy Agency (IEA) Renewable Energy Policies and Measures Database, the U.S. DSIRE database, RenewableEnergy- World.com, press reports, submissions from country-specific contributors to this report, and a wide range of unpublished data. Much of the information presented here and further details on specific countries appear on the “Renewables Interactive Map” at www.ren21.net. It is unrealistic to be able to provide detailed references to all sources here. REN 21 Renewables 2013 Global Status Report.

34 In Spain, the feed-in tariff (FIT) and net metering programmes have been temporarily suspended by Royal Decree for new renewable energy projects; this does not affect projects that have already secured FIT funding. The Value Added Tax (VAT) reduction is for the period 2010–12 as part of a stimulus package.

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© 2013 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 We can also help you navigate the on the KPMG global network of Energy • Global Transfer Pricing Services & Natural Resources practitioners to wide array of available global and provide clients with immediate access local government and municipal grant • International Corporate Tax programs or tax incentives related to to the latest industry knowledge, skills, • Mergers & Acquisitions. resources and technical developments. the production and sale and purchase of alternative energy and green Investing in the sector With regular calls and effective products. These include feed-in tariffs, communications tools, we can share tax holidays, accelerated depreciation, KPMG member firms invest significant observations and insights, debate new carbon tax/pricing, trading schemes, time and resources in deepening our emerging issues and discuss issues energy taxes, excise taxes or VAT understanding and knowledge of the that are critical to clients’ management in relation to wind, solar, biomass, sector. This enables us to provide clients agendas. This global network also biofuels, geothermal and hydropower with strategic and insightful services produces publications and commentary sources, as well as increased energy that are tailored to their specific needs on key issues affecting the sector, efficiencies, smart-grid technologies, and based on an understanding of their business trends, changes in regulations and carbon capture and storage challenges. and the commercial, risk and financial technologies. challenges of doing business.

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Support schemes The type of benefit depends on the Additional information geographic area in which the renewable Investments and other subsidies energy plant operates, so the plant’s The following authorizations are Support is available for renewable specific location must be supplied for a required for the construction of energy sources including biofuels, solar, proper tax classification. renewable energy plants: wind, hydro and geothermal, among others. Operating subsidies • authorization to use the land • environmental impact study At the local tax level: Subsidies at the national level: • approval by the Energy Secretariat • Anticipated value added tax (VAT) • Wind: 0.015 Argentine peso refunds for the new depreciable (ARS)/ kWh • bidding offer submitted through property (except for automobiles) the Program of Electric Generation • Solar: 0.9 ARS/kWh included in the project. through Renewable Energies • Hydro for less than 30 MW installed (Programa Generación Renovable or • Accelerated income tax depreciation. capacity: 0.015 ARS/kWh GENREN). (filing two claims for the same project are not allowed). • Other: 0.015 ARS/kWh. Several provinces have different incentive The property used for the project will feed-in tariffs according to the kind of not be part of the minimum presumed energy they want to promote. income tax taxable base. In addition, biofuel producers will not be subject to Quota obligation the hydric infrastructure tax, the tax on liquid fuels and the gas oil tax for the The aim is to reach a contribution of amount of fuel that is marketed in the sources of renewable energy equal national territory. to eight percent of the total national consumption of electric energy within At the provincial level: a term of 10 years, starting in 2006, the • real estate tax exemption effective date of the regime. • stamp tax exemption Quota obligations also include the use of fossil fuel mixed with at least • turnover tax exemption/deferral five percent of biofuels, including • tax stability. biodiesel and bioethanol.

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Support schemes Australian Renewable Energy • Projects – Offers funding for Agency (ARENA) renewable energy and enabling Investments and other subsidies technologies and products as they ARENA is tasked with managing move through the technology Australia’s clean energy sector is AUD3.2 billion of financial assistance innovation chain. The application currently experiencing significant for renewable energy projects and process is undertaken in two phases, change in the wake of the Australian initiatives promoting the R&D, with funding allocations expected to government’s introduction of the demonstration, commercialization fall within the range of AUD2 million Securing a Clean Energy Future Climate and deployment of renewable energy to 30 million. Change Plan (the Plan). The Plan has projects. The availability of this initiatives in four key areas – carbon funding is expected to improve the • Measures – Offers funding for pricing, renewable energy, energy sector’s long-term competitiveness initiatives that involve a renewable efficiency and land management. The and drive down its costs in an energy industry capacity building government has released numerous Australian context. Approximately activity, skills development activity federal funding initiatives within the AUD2.2 billion of ARENA’s funding or a preparatory activity for an ACRE Plan, many of which are applicable is currently uncommitted and will be Project. The application process to renewable energy. There are also available to support future projects is undertaken in one phase and is a number of policies, programs and in the renewable energy sector. expected to fund up to AUD2 million, incentives outside of the Plan, with with a maximum funding pool of key initiatives specifically related to ARENA incorporates and has AUD10 million. renewable energy that are described responsibility for overseeing below. renewable energy initiatives previously Of the total funding pool of AUD126 million: administered separately through a • At least AUD40 million will be Carbon Price Mechanism (CPM) range of bodies including the Australian allocated to assist the development Central to the Plan is the introduction Centre for Renewable Energy (ACRE), of renewable energy and enabling of a CPM. Revenue generated from Solar Flagships Program, Australian technologies with the potential the CPM will be invested to alleviate Solar Institute (ASI), Low Emissions to contribute to the generation of the impact of price increases, support Technology Demonstration Fund, large-scale base load power such more jobs and encourage innovations Renewable Energy Demonstration as wave, geothermal and enabling addressing climate change. Enhanced Program, Renewable Energy Venture technologies. support for renewable energy is Capital Fund, Australian Biofuels expected to drive innovation and Research Institute, Geothermal Drilling • A further AUD26.6 million will be investment into clean technologies Program and the Second Generation allocated specifically to assist the and clean energy R&D, demonstration, Biofuels Research and Development geothermal energy sector. deployment and uptake. Program. ARENA also has accountability Regional Australia’s Renewables for administering unallocated funding. The carbon price is being introduced in (RAR) a two-step process, starting with a fixed Listed below are initiatives which are ARENA has also launched a new price period that runs from 1 July 2012 currently open or in planning phases strategic initiative, the RAR program, to 30 June 2015 before transitioning to where additional funding is expected to which aims to demonstrate the viability an emissions trading scheme. In the be announced. of renewable energy in regional and fixed price stage the carbon price will Emerging Renewables Program remote locations. It will support start at Australian dollar (AUD) 23 per (ERP) the deployment of commercially tonne and rise by 2.5 percent a year in prospective renewable energy real terms. From 1 July 2015 onwards, The ERP is focused on supporting technologies, both generation and the price will be set by the market, with renewable energy technology at the enabling, in off-grid and edge-of-grid the number of permits issued by the development, demonstration and situations. The RAR program has government each year to be capped. The supported commercial stages of the sought community consultation and is carbon price was passed by parliament innovation chain. Ultimately the aim is expected to be formally launched in the on 8 November 2011 and commenced to lower the cost of energy produced first half of 2013, with funding running on 1 July 2012. by renewable energy technologies to for two to three years. a point where they are better able to compete with traditional fossil-fuel technologies. Funding totalling AUD126 million is available under two categories:

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© 2013 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 financing alongside private sector offers two tiers of incentive based on Capital Fund financing for renewable energy and the turnover of the company in question: clean energy enabling technologies. The Southern Cross Renewable • A 45 percent refundable tax Funding will be allocated over a period Energy Fund is a 13-year, AUD200 offset (equivalent to a 150 percent of five years, with AUD5 billion for million venture capital fund, operated deduction) for eligible entities with a renewable energy and technology by Southern Cross Venture Partners. grouped turnover of less than AUD20 including geothermal, wave energy and The fund was established under the million per annum. large scale solar power generation. The Australian government’s AUD100 million remaining AUD5 billion will be allocated • A non-refundable 40 percent tax offset Renewable Energy Venture Capital Fund to the general clean energy stream (equivalent to 133 percent deduction) (REVC). The government’s contribution which may also include renewable for all other eligible entities. Unused has been matched by an additional energy. non-refundable offset amounts may AUD100 million contributed by Softbank be able to be carried forward to future China Venture Capital. The CEFC is intended to be income years. commercially oriented and make a With offices and staff located in positive return on its investment. In its The R&D Tax Incentive is an entitlement- Sydney, Palo Alto and Shanghai, the early stages the CEFC will be offer loans based, self-assessment program. fund makes selected investments on concessional commercial terms, Registration of activities, via the R&D in Australian renewable energy with each agreement being considered application, is required within 10 months companies, providing capital and individually. As the fund matures, the of the relevant financial year end. assisting with the management skills CEFC may choose to offer alternate they need to commercialize their funding arrangements, including Operating subsidies technologies and succeed in mezzanine finance and other equity- domestic and overseas markets. Feed-in tariff based funding arrangements. Opportunities previously funded There are no national based feed-in Ethanol Production Grants (EPG) by the ASI tariffs. However, a number of state- The EPG program will support the based initiatives exist for small-scale ARENA has committed support for production and deployment of ethanol generation. The Australian Capital programs previously administered by as a sustainable alternative transport Territory (ACT) has a Large Scale Feed- the ASI, including the United States- fuel in Australia. The program provides in Tariff Scheme (the Scheme) which Australia Solar Energy Collaboration support via a full excise reimbursement, provides the ACT government with Strategic Research Initiative as well as at a rate of 38.143 cents per litre, power to grant feed-in tariff entitlements solar Ph.D. scholars and postdoctoral to ethanol producers for ethanol up to 210 MW of generation capacity. fellows following the success of ASI’s produced and supplied for transport The first tranche of capacity released Skills Development Program. use in Australia from locally derived under the ACT provided industry with Clean Energy Finance Corporation feedstocks. The program and grants an opportunity to compete for the (CEFC) are administered by the Department of establishment of up to 40 MW of solar Resources, Energy and Tourism. generation (minimum 2 MW generating The government has established the system capacity). Applications for the CEFC through a financial commitment R&D Tax Incentive 40 MW tranche are closed, but further of AUD10 billion to overcome capital The major mechanism and program tranches are expected. market barriers that hinder the for fostering innovation is a tax-based financing, commercialization and Quota obligation scheme rewarding expenditure on deployment of renewable energy, R&D activities. The R&D Tax Incentive 20 percent by 2020. energy efficiency and low emissions scheme is a broad-based program technologies. The CEFC will be Additional information accessible to all industry sectors. The responsible for investing in firms and R&D scheme has recently undergone In addition to the funding initiatives projects that utilize these technologies a significant change, transitioning from described above, the government as well as manufacturing businesses the R&D Tax concession to the R&D Tax also has a number of policy levers and that focus on producing the inputs Incentive. In many instances, activities numerous other programs. required. conducted as a part of renewable The CEFC began operations on 1 July energy development may be eligible 2013 and offers complementary for the R&D tax incentive. The program

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Support schemes Geothermal: Investments and other subsidies • ct7.43/kWh Small solar plants Sewage gas Less than 5 kWp investment subsidies • ct5.94/kWh are granted for the plants, sufficient for Landfill gas them to achieve a six percent capital yield. • ct4.95/kWh Waste liquor plants Compact biomass (such as forest woodchips or straw) Maximum 30 percent of the investment (not including real estate costs) • ct8.9/kWh to ct14.00/kWh, depending on the production • up to 100 MW: EUR300/kW capacity (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 Small hydro plants 25 percent • maximum 30 percent of the Liquid biomass investment for 500 kW capacity: • ct5.74/kWh; surplus of ct2/kWh for up to EUR1500/kW production in an efficient power-heat • maximum 20 percent of the cogeneration investment for 2 MW capacity: Biogas from agrarian production up to EUR1000/kW • ct 12.93/kWh to ct19.5/kWh, • maximum 10 percent of the depending on the production capacity investment for 10 MW capacity: (declining tariff) up to EUR400/kW Additional information • in between these set percentages, the maximum is calculated via linear Legal interpolation. The feed-in tariffs are regulated by the Medium hydro plants (<10 MW) law for the promotion of electricity production from renewable energy • maximum 10 percent of the resources (“Ökostromgesetz 2012”). investment The concrete feed-in tariffs have to be • maximum EUR400/kW and maximum determined each year by a decree from EUR6 million per plant the Ministry of Economics. Operating subsidies Duration of the feed-in-tariffs Feed-in tariff 35 15 years for liquid and concrete biomass or biogas; 13 years for all other Wind energy: renewable technologies. • cents (ct)9.45/kWh Administrative procedures Solar: Applications have to be filed with the In buildings: Renewable Energy handling Center (“Ökostromabwickklungstelle,” http:// • 5 kWp to 500 kWp: ct18.12/kWh www.oem-ag.at/). In open space: • 5 kWp to 500 kWp: ct16.59/kWh

35 For applications filed in 2012

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Support schemes • The sugarcane sales for ethanol Federal and state VAT (IPI and ICMS) production are exempt from PIS and Investments and other subsidies • Biodiesel and ethanol sales are COFINS, provided that the tax payer not subject to the Industrialized Taxes over revenue and imports is under the non-cumulative regime. Products tax (Imposto Sobre (PIS and COFINS) • There is a special tax regime Produtos Industrializados or IPI). for producers, importers and • a special tax regime is applicable in • Equipment used in the renewable distributors of ethanol. The producers Brazil for producers and importers energy generation process is 36 and importers may opt for: of biodiesel, which includes two generally exempted from the IPI. programs: the Social Integration – a 1.5 percent PIS rate and a • The State Value-Added Tax on Program (Programa de Integração 6.9 percent COFINS rate levied Sales and Services (Imposto Sobre Social or PIS) and the Contribution to on gross revenue of ethanol sales; the Social Security Fund (Contribuição a Circulação de Mercadorias e para o Financiamento da Seguridade – a fixed value of PIS and COFINS Serviços or ICMS) can possibly Social or COFINS). The PIS and by cubic meter of commercialized be exempted for some products COFINS taxes due are definitive, ethanol – BRL8.57 and BRL39.43, used for biodiesel or ethanol meaning that the resale of biodiesel respectively, up to 31 August 2013. production. In addition, the ICMS calculation basis may be reduced by wholesalers, distributors and Recently, the Brazilian government for interstate operations related to retailers is not subject to PIS and edited Decree 7.997/13, which sets ethanol and biodiesel production COFINS. Under this tax regime, the forth that, from 1 September 2013, and distribution. This reduction producers and importers can opt for: the fixed value of PIS and COFINS depends on individual state law. – a 6.15 percent PIS rate and a by cubic meter of commercialized 28.32 percent COFINS rate ethanol shall be increased to BRL21.43 • In the same way, operations levied on gross revenues derived and BRL98.57, respectively. involving equipment used in the generation of wind and solar from biodiesel sales; or Despite this, the Brazilian government energy can possibly be ICMS tax- enacted Provisional Measure 613 – a fixed value of PIS and COFINS exempt until 31 December 2015. by cubic meter of commercialized that grants to the producers and biodiesel Brazilian real (BRL) 26.41 importers a presumed credit in the Contribution for Intervention in and BRL121.59, respectively. same values, which leads to a practical the Economic Domain (CIDE) effect of zero rate of PIS and COFINS. • Ethanol sales are not subject Producers opting for the fixed Also, the taxpayers may opt for this to Contribution for Intervention value can obtain certain reductions new fixed value and the presumed in the Economic Domain and exemptions of the amounts credit in advance (from 8 May 2013). due, depending on the supplier of (Contribuição de Intervenção no raw material or input applicable When it comes to distributors of Domínio Econômico or CIDE). ethanol, the options are (depending on to the production (for example, Operating subsidies acquisition from castor bean the option of the producer or importer). producers or from family farmers). – a 3.75 percent PIS rate and a Feed-in tariff Moreover, producers of biodiesel 17.25 percent COFINS rate levied Wind: N/A under a non-cumulative regime on gross revenue of ethanol sales; Biomass: N/A of PIS and COFINS are able to – a zero rate for the fixed offset 4.625 percent of presumed PIS and COFINS. Hydro: N/A credit on acquisition of inputs Brazil currently has no feed-in tariff policy. from individuals or legal entities • Ethanol sales carried out by retailers that supply agribusinesses or and sales negotiated through the agribusiness cooperatives. Future & Commodities Exchange (Bolsa de Mercadorias e Futuros or BM&F) are not subject to PIS and COFINS.

36 Producers and importers are legal entities that are beneficiaries of concessions or authorizations from the National Petroleum Agency (ANP). They are registered as producers or importers of biodiesel in the Special Register held by the Brazilian Internal Revenue Service.

11 | Taxes and incentives for renewable energy

© 2013 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 energy.41 The first wind energy auction • Creation of a line of credit of BRL6 was held at the end of 2009, in which billion for the production and storage Brazil is considered the world’s sixth the government bought 1805 MW of of sugarcane and ethanol with largest investor in renewable energy.37 wind energy at a price of BRL148.39/ reduced interests. Nationwide, 44.1 percent of the Internal MWh. Encouraged by the success of • Increasing of the percentage of Energy Supply (Oferta Interna de this auction, the government continues 38 ethanol to be mixed with gasoline Energia or OIE) is renewable, whereas to hold auctions on an annual basis. the world’s average is 20.3 percent.39 from 20 percent to 25 percent. Additional benefits not yet in force Furthermore, the National Bank for • Reduction of chemical input costs, Economic and Social Development Several other incentives being by diminishing the chemical industry (Banco Nacional do Desenvolvimento discussed in the Brazilian scenario are costs with the increasing of its PIS Econômico Social or BNDES) provides also worth mentioning: and COFINS credits. a variety of financial programs The Brazilian Commission of Finally, other general benefits that to stimulate the production of Infrastructure Services (CI) approved are not specific to renewables may renewable energy. The development PLS 311/09, a federal project law that apply, such as the Special Incentives of the renewable energies in Brazil establishes the Special Regime of Program for Infrastructure Development is increasing, and almost half of the Taxation to encourage the development (Regime Especial de Incentivos para energy consumed in Brazil is now and generation of electric power from o Desenvolvimento da Infra-Estrutura generated by renewable sources. alternative sources (Regime Especial or REIDI), SUDAM/SUDENE incentives, The actual scenario is very de Tributação para o Incentivo ao and technology innovation. Each one advantageous for renewable energy. Desenvolvimento e à Produção de has its requirements for application and, The government expectations are that Fontes Alternativas de Energia or in some cases, depends on government renewable energy may be responsible REINFA). This project foresees several approval. for 18 GW out of a total increase of tax benefits such as exemptions of 63 GW in the total installed capacity of PIS and COFINS, import taxes and IPI the segment over the next 10 years.40 for companies operating under the regime. It is important to emphasize According to the Ministry of Mines that this is not a law in force, yet. At the and Energy, Brazil is especially well present time, it is still awaiting internal situated for becoming a major producer procedures in the Federal Senate. of biodiesel. The country contains a vast amount of arable land, much of which After COP-15, Brazil formalized has the right soil and climate for growing its commitment to reduce carbon a variety of oilseeds. emissions and increased its goal by 2.8 percent. Under the National Policy The growth of biodiesel as an alternative on Climate Change (law 12.187/09), energy source in Brazil is supported Brazil has pledged to reduce carbon by Federal Law 11.097/05, which emissions 38.9 percent by 2020. mandates a minimum of five percent of According to this law, Brazil could grant biodiesel to be mixed with diesel and several tax benefits to encourage the the monitoring of this mixture in the use of renewable energy. At this point in marketplace. This law also supports the time, these benefits have not yet been funding of R&D for biodiesel and other implemented. energy sources, as well as all phases of production, including the acquisition of Recently, the government announced equipment and technology. the creation of a program of incentives to the ethanol sector. This program In a related matter, Brazil is one of the involves several benefits to this market most promising countries for wind that will be implemented soon:

37 Global Trends in Renewable Energy Investment 2012 – UNEP 40 Brazilian government website, 2013 38 Energetic National Balance (Balanço Energético Nacional) 2012 41 GLOBAL Wind Energy Outlook of 2012 39 United Nations Environment Programme – 2012

Taxes and incentives for renewable energy | 12

Support schemes – equipment generating electricity energy, many start-up expenditures on from geothermal energy renewable projects can be grouped in a Federal investments and other CRCE pool. CRCE can include intangible subsidies – equipment generating electricity expenses such as feasibility studies, from eligible waste fuel. The Government of Canada has negotiation, regulatory, site approval committed that Canada’s total – thermal energy costs, site prep and testing, etc. CRCE can also include test wind turbines that greenhouse gas (GHG) emissions be – active solar equipment reduced by 17 percent from 2005 levels are part of a wind farm, on projects by 2020 and that 90 percent of Canada’s – district energy equipment that where 50 percent or more tangible electricity be generated from sources distributes thermal energy from costs are reasonably expected to be that do not produce GHG pollution by cogeneration included in Class 43.1 or 43.2 ACCA. CRCE is fully deductible in any year, can 2020. Here is a summary of incentives – heat recovery equipment used be carried-forward indefinitely or can and grants that the federal government in electricity generation and be transferred to investors through the has invested in support of these goals. industrial processes flow-through share rules. Income tax incentives – ground source heat pump Scientific Research & Experimental equipment Accelerated Capital Cost Allowance Development (SR&ED) Program (ACCA) – equipment generating heat The SR&ED Program is a federal tax for industrial processes or Advantageous ACCA rates are available incentive program administered by greenhouses, using an eligible for certain types of assets used for the Canada Revenue Agency that waste fuel. clean energy generation and energy encourages Canadian businesses of all conservation: – fuels from waste sizes, and in all sectors, to conduct R&D in Canada. Companies, including those • Class 43.1 (30 percent declining – equipment that recovers landfill carrying on business in clean energy balance basis) for certain clean energy gas or digester gas generation and energy conservation generation, may be entitled to claim an equipment. – equipment used to produce Investment Tax Credit (ITC) if they incur biogas through anaerobic eligible R&D expenditure. The tax credit • Class 43.2 (50 percent declining digestion is based on money already committed balance basis) for certain equipment and spent by the company. The program – equipment used to convert described in Class 43.1 that is is the single largest source of federal biomass into bio-oil. acquired on or after 23 February government support for industrial R&D, 2005 and before 2020 that is used for • The 2013 budget proposes to broaden returning as much as a 35 percent clean energy generation and energy the eligible equipment in Class 43.2 federal cash refund. conservation and meeting higher to include efficiency standards. Sustainable Development – Equipment used to produce biogas Technology Canada (SDTC) • Recent federal budgets continue to using pulp and paper waste and SDTC plays a significant role in expand the list of equipment that waste water, beverage industry bridging the gap between research qualifies for an ACCA. The current waste and wastewater, and and commercialization of clean eligible equipment includes: separated organics from municipal technologies. It does this by fast- waste. – electricity tracking clean technologies through – high-efficiency cogeneration – A broader range of cleaning and their development and demonstration equipment upgrading equipment used to phases, in preparation for convert eligible gases (biogas, commercialization. SDTC is an arm’s- – small hydroelectric facilities landfill, digester) into biomethane. length foundation that was created by the Federal government to invest – wind turbines Canadian Renewable and Conservation Canadian dollar (CAD)1.09 billion in Expense (CRCE) – fuel cells innovative technologies and projects – wave and tidal power equipment To promote development and that deliver economic, environmental, conservation of sources of renewable and health benefits to Canadians. – photovoltaic (PV) equipment

13 | Taxes and incentives for renewable energy

© 2013 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. Backed by CAD590 million in funds, Provincial investments and other Energy Strategy (PES), which identifies SDTC supports projects that address subsidies the need for innovation, research and climate change, air quality, clean water technology development. Announced Bioenergy Producer Credit Program and clean soil. The CAD500 million in 2004, the IETP supports innovative – Alberta NextGen Biofuels Fund supports the technology development in the establishment of first-of-kind, large To expand Alberta’s bioenergy sector, production of Alberta’s oil, oil sands, and demonstration-scale facilities for the Bioenergy Producer Credit Program gas resources. It also supports finding the production of next-generation was established to provide production commercial technical solutions to the renewable fuels. subsidies for a variety of bioenergy gas-over-bitumen issue to allow the products, including renewable fuels, efficient and orderly production of both SDTC acts as the primary catalyst in electricity, and heat using waste resources. Over time, program costs building a sustainable development such as manure and wood chips. In will be recovered through additional technology infrastructure in Canada. The the 2013 budget, the Government of recoverable reserves and increased SDTC portfolio is currently comprised Alberta cancelled future rounds of the royalties. Successful applicants in the of 245 clean technology projects, for a Bioenergy Producer Credit Program. program are provided with royalty total value of CAD2.1 billion, of which However, the government will still be adjustments up to a maximum of over CAD1.5 billion is leveraged primarily honouring payments to existing grant 30 percent of approved project costs. from the private-sector. In February agreements. The program is valid for The industry must provide the remaining 2013, SDTC announced its 22nd call bioenergy production from 1 April 2011 70 percent or more of total project for applications, which was open until to 31 March 2016. costs. The total industry/government 17 April 2013 commitment to important new Carbon Capture and Storage (CCS) ecoENERGY technologies, assuming full subscription fund – Alberta of the program, will be more than The ecoENERGY program targets The Alberta government has CAD800 million. several areas including biofuels, energy committed CAD2 billion to advance efficiency and renewable energy. Innovative Clean Energy Fund (ICE) – CCS technology. Approved projects can British Columbia • ecoENERGY for biofuels: The receive a maximum of 75 percent of ecoENERGY for Biofuels initiative the total incremental cost to capture, The Innovative Clean Energy Fund

has a budget of CAD1.5 billion transport and store CO2. A maximum encourages the development of over nine years to boost Canada’s of up to 40 percent of the approved new sources of clean energy and production of biofuels. The program funding will be distributed during technologies and supports pre- runs from 1 April 2008 to 31 March the design and construction stage commercial energy technology or 2017, and recipients will be entitled based on achieved milestones and commercial technologies not currently to receive incentives for up to seven up to an additional 20 percent of the used in British Columbia. Since 2008, consecutive years. approved funding will be granted upon there are 62 projects with a total commercial operation. The remaining amount of CAD77 million that have been • ecoENERGY for Renewable Power: 40 percent of the funding will be approved throughout British Columbia. The ecoENERGY for Renewable provided as CO is captured and stored Power initiative has a budget of 2 SR&ED tax credit – All provinces over a maximum period of 10 years. approximately CAD1.4 billion over Various provinces provide refundable 14 years to encourage using The government of Alberta has awarded and/or non-refundable investment renewable energy sources to create funding for two projects from its CAD2 tax credits (ITC) worth between electricity. The program runs from billion CCS fund. 10 percent and 15 percent of annual 1 April 2007 to 31 March 2021. There • Alberta Carbon Trunk Line (CAD495 eligible expenditures (depending on the are no new agreements signed million) particular province) for all corporations after 31 March 2011; however, many that do business through a permanent projects with existing contribution • Shell Quest (CAD745 million) establishment situated in that province. agreements will still receive Innovative Energy Technologies Eligible expenditures are generally those payments up until 31 March 2021. Programs (IETP) – Alberta that qualify for federal ITC purposes and are generally capped at a maximum The Innovative Energy Technologies annual credit. Program (IETP) supports the Provincial

Taxes and incentives for renewable energy | 14

© 2013 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 • pay CAD15 a tonne into the Climate standardized program rules, prices Change and Emissions Management and contracts for anyone interested There are no feed-in tariffs and quota Fund, an arm’s length organization in developing a qualifying renewable obligations at the federal level but they independent from the government energy project. Prices are designed are implemented in some provinces. that invests the funds into initiatives to cover project costs and allow for Quota obligation – Alberta and projects that support emission a reasonable return on investment reduction technologies over the contract term, and they are The province of Alberta requires subject to review periodically. Qualifying • purchase Emissions Performance facilities that emit more than 100,000 renewable technologies include biogas, Credits from facilities that have tonnes of GHG emissions a year to renewable biomass, landfill gas, solar reduced their emissions intensity reduce their emissions intensity by photovoltaic (PV), waterpower and below the mandatory 12 percent 12 percent as of 1 July 2007. Emitters wind power. As of 31 January 2013, threshold. have four choices for compliance with there were 1,728 contracts executed to this emissions reduction target: Feed-in tariff (FIT) – Ontario generate 4,546 MW of electricity. • make improvements to their The Ontario FIT program is North With the help of the FIT program, operations America’s first comprehensive Ontario is on the track to be the first • purchase offset credits from other guaranteed pricing structure for jurisdiction in North America to replace sectors that have voluntarily reduced renewable electricity production, and it coal-fired generation with cleaner their emissions provides a way to contract for renewable sources of power by the end of 2014. energy generation. It includes

15 | Taxes and incentives for renewable energy

Support schemes The New Measure also changes the • VAT is exempt on the sale of self- sharing percentage in the proceeds produced goods including recycled water, Investments and other subsidies from the transfer of emission reductions qualified powdered rubber made out of Corporate Income Tax (CIT) units between the government and obsolete tires, retrodden tires and certain companies involved in N2O and PFC construction materials made from 30 • A reduced CIT rate of 15 percent is projects. percent or more of waste residuals. granted to qualified advanced and new technology enterprises. Applicable • Three years CIT exemption is followed by • VAT is exempt for sewage treatment, fields include solar energy, wind energy, a 50 percent reduction for another three garbage disposal and sludge treatment biomaterial energy, and geothermal years of the standard CIT rate for income services. derived from qualified environmental energy. In November 2011, the government protection and energy or water authority expanded the scope of sales of • The Clean Development Mechanism conservation projects. This reduction self-produced goods/products by using (CDM) Fund is exempted from CIT on the starts from the year in which the first the prescribed recycled materials, waste following income: revenue is generated. Applicable fields residuals and agricultural residuals that are include biomaterial energy, synergistic – the portion of Carbon Emissions eligible for VAT refund at rates ranging from development and utilization of methane, Reductions (CERs) proceeds that are 50 to 100 percent of the VAT payable. The and technological innovation in energy shared by the government rates may vary depending on the nature of conservation and emission. – donations from international recycled materials or residuals utilized. • Ten percent of the amount invested in the financial organizations As of 1 April 2013, the taxpayer is further qualified equipment is credited against required to meet the local/national pollutant – interest income derived from CIT payable for the current year, with emission requirements in order to receive capital deposit or national bonds any unutilized investment credit eligible the VAT incentive for self-produced goods/ to be carried forward for five tax years. – donations from domestic and foreign products from recycled materials. entities or individuals. This applies only if such equipment is qualified as special equipment related Vehicle and Vessel Tax • Enterprises operating CDM projects to environmental protection, energy, As of 1 January 2012, qualified energy are allowed to deduct before CIT the or water conservation and production efficient vehicles and vessels enjoy a 50 CER proceeds that are shared by the safety. government. percent Vehicle and Vessel Tax deduction. • Only 90 percent of the revenue derived Qualified new energy (mainly electric) • Three years CIT exemption is followed from the transaction is taken into account vehicles and vessels may be exempted by a 50 percent reduction for another for CIT computation purposes. This from Vehicle and Vessel Taxes. three years of the standard CIT rate applies only if such revenue is derived Financial subsidies and tax incentives for income derived from specified from the use of specific resources available to energy performance CDM projects. These projects associated with the synergistic utilization contracting (EPC) projects include hydrofluorocarbons (HFC), of resources as raw materials in the perfluorocarbons (PFC), and nitrous production of goods. • Financial subsidies are granted by the oxide (N2O) projects, starting from central and provincial government • A 150 percent deduction is given for the year in which the revenue from agencies respectively. The standard rate qualified R&D expenses incurred for CIT the transfer of greenhouse gas (GHG) of subsidies at the central level is Chinese computation purposes. emission reductions is first received. yuan (CNY) 240 per ton of standard coal According to the new Administrative Value Added Tax (VAT) saved. The standard rate at the provincial Measures Governing the Operation level is no less than CNY60 per ton of • 50 percent refund of VAT is paid on the of CDM Projects in 2011, any project standard coal saved. The NDRC and sale of wind power. companies, except for the 41 state- Ministry of Finance jointly announce owned enterprises listed, shall apply for • 100 percent refund of VAT is paid on the the qualified energy service companies approval with the National Development sale of biodiesel oil generated by the (ESCO). These companies can apply for and Reform Commission (NDRC) at the utilization of abandoned-animal fat and financial subsidies on energy preservation provincial level first. Then the commission vegetable oil. management contracts. The list of would submit preliminary review qualified ESCOs is updated on a regular • VAT paid on the sale of goods produced opinions to the central NDRC for further basis. These financial subsidies are rolled from recycled materials or waste review. (According to the Old Measures, out under the jurisdiction of Energy residuals is refundable. all CDM project companies applied Performance Contracting (EPC), and they directly to the central NDRC for approval.) should be taxable for CIT purposes.

Taxes and incentives for renewable energy | 16

© 2013 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 qualified ESCO taking part in an EPC Operating subsidies In order to achieve optimum energy project will be eligible for a tax exemption conservation goals, the financial subsidies Feed-in tariff in the first three years and a tax reduction are closely linked to the quantity of energy by half (an effective rate of 12.5 percent) With the revised Renewable Energy Law conserved on a project basis. The project over the following three years, starting that came into effect in April 2010, the State companies shall be granted financial from the tax year in which the revenue Bureau of Energy and other departments of subsidies if they fully complete the from the project first arises. the State Council will promulgate guidelines expected goals of energy conservation. • An enterprise that invests in special on the full purchase of electricity generated For projects in the eastern regions of equipment for energy conservation will by new energies. According to the revised China, companies may be granted a obtain a credit against its tax payable law, the price of on-grid electricity generated one-time reward subsidy of CNY240 per that equals 10 percent of the investment by renewable energies shall be determined ton of standard coal based on the annual amount in the year in which the by the competent price department of the energy consumption after the completion investment is made. Where there is not State Council. The council will consider of the projects. For projects in the central sufficient tax payable to absorb the credit the difference in areas and the electricity and western regions of China, a one-time in the year, the excess credit may be generated by different types of renewable reward subsidy of CNY300 per ton of carried forward up to five tax years. energy companies. standard coal may be granted. • A qualified ESCO taking part in an EPC Financial funds/allowance Financial subsidies for the development project will be provisionally exempt Special funds are made available to facilitate of “Model County for Green Energy “ from the Business Tax/ VAT on revenues the development of renewable energy program received from the project. relating to the following activities: To promote the “Model County for Green • A qualified ESCO taking part in an EPC • scientific and technical research, Energy” program, financial subsidies are project will be provisionally exempt from standardization processes and model granted to the following qualified projects in the VAT on the transfer to the energy user engineering projects rural areas: of goods related to the project. • renewable energy projects in rural and • concentrated provision of methane gas • When, at the end of the term of the pastoral areas projects energy management contract (EMC), • biomass gasification projects the ESCO transfers to the energy user • construction of stand-alone electricity the assets that have materialized in the generation system in remote areas and • biomass briquette projects course of executing the EPC project, the islands • other projects that develop and utilize ESCO can do so as if these assets had • renewable energy resource surveys, renewable energies been fully depreciated or amortized for evaluation and construction of CIT purposes. In the same way, when information systems • rural energy service system. the energy user receives the project The amount of subsidies granted is subject assets from the ESCO, the energy user • localization of manufacturing facilities to a comprehensive evaluation with can do so as if these assets had been so used in the renewable energy sector. reference to the completed investment depreciated or amortized. The special funds may also be deployed as by the applicant, the level of green energy • When the ESCO transfers the project compensation for the higher costs charged productivity and the number of users. assets to the energy user at the end of by renewable energy plants and indirectly the term of the EMC, the ESCO will not borne by the grid for the purchase of Additional information electricity from these plants. Applicants may have to recognize any revenue to take Quota obligation into account the contributions the energy apply for such funds with the local finance user has made to the price of the assets. bureaus and the government agencies in The guidelines for quotas in the renewable charge of renewable energy projects. energy sector have been included in the • An energy user in an EPC project can Financial subsidies for energy work plan of the State Bureau of Energy and deduct reasonable expenses actually are expected to be issued by 2013. incurred in accordance with the EMC conservation technologies improvement as, and when, they are incurred for During the State’s 12th Five-Year Plan CIT purposes. There is no need to period, the central government will continue differentiate between service fees and to arrange special subsidies to support the asset prices in claiming such a deduction. projects to improve the energy conservation technologies.

17 | Taxes and incentives for renewable energy

Focus on renewable energy in Therefore, it has been decided that period. After this period, the electricity Denmark energy optimization projects supporting generated can be sold to the public the energy targets set should be power grid at market price. The long-term target for Danish energy subsidized. The decision includes the policy is that the entire energy supply, The following support schemes are establishment of a pool of Danish krone including transport, is to be covered expected: (DKK)500 million per year until 2020, by renewable energy by 2050. This is effective as of 1 July 2013. The pool for • Shared solar panels installed on an ambitious target, and to pursue the 2013 is DKK250 million. Depending on rooftops in, for example, housing target, a number of sub-targets must be company size, the possible subsidy is associations achieved initially by 2020. 45–65 percent of investment costs. – DKK1.45/kWh for 10 years if the The targets for 2020 are the following: Projects that aim to replace fossil fuels solar panel system is connected to with renewable energy for production • By 2020, the CO emissions must be the public power grid in 2013 2 processes are eligible for investment 34 percent lower than in 1990. support from this pool. In addition, – the subsidy decreases by DKK0.17/ • The energy supply must have projects that aim to replace fossil fuels kWh per year between 2014 and decreased by 12 percent compared to with district heating for production 2018, depending on the date of 2006. processes are also eligible for grid connection. This means that investment support from the pool. if the solar panel system is not • Approximately 35 percent of the connected until 2014, the subsidy energy supply must come from The support received per project will amount to DKK1.28/kWh for renewable energy. may not exceed EUR7.5 million as 10 years. the support is comprised by the EU's • 50 percent of the electricity General Block Exemption Regulation. • Shared solar panels, such as those consumption must be supplied by in housing associations, which are wind power. However, the above support is received not installed on rooftops but in other on the condition that no other operating In addition, the general target is that, areas such as the ground support is received for the project. as a whole, the terms and conditions of – DKK0.90/kWh for 10 years. the Danish business community – and We believe that many Danish the energy sector in particular – must enterprises will use this opportunity • Roof systems remain stable. to receive support for projects – DKK1.30/kWh for 10 years if the aimed at replacing fossil fuels with The high ambitions mean that, in solar panel system is connected to renewable energy — in particular, those Denmark, a strong focus is on energy the public power grid in 2013 enterprises that already have or wish optimization and renewable energy. to have a green profile. We also believe – the subsidy decreases by Below, we describe some of the political that the support scheme will make it DKK0.14/kWh per year between measures taken to achieve the above possible to complete projects where the 2014 and 2018 depending on targets. profitability is uncertain. the date of grid connection. This means that if the solar panel Support schemes Solar cells system is not connected until Investments and other subsidies With easy access to the sea, Denmark’s 2014, the subsidy will amount to Shift from fossil energy to renewable renewables focus is still on wind energy DKK1.16/kWh for 10 years, etc. and offshore wind farms. However, energy • Solar panel systems not installed on other types of renewable energy such rooftops, such as those on the ground In Denmark, the primary fuels for as solar energy are becoming more production processes include fossil popular. – DKK0.60/kWh for 10 years and, fuels such as natural gas and oil. Danish subsequently, DKK0.40/kWh for In order to support the use of solar cells politicians are committed to shifting the next 10 years from fossil energy to renewable energy in private homes as well as in business by phasing out the use of fossil fuels enterprises, support schemes have The phasing out of the subsidy means and replacing them with renewable been introduced that are now being that solar panel systems that are energy. However, this will not happen discussed by the Danish parliament. connected to the public power grid overnight, and different incentives are Basically, these support schemes offer after 2018 will be eligible for a subsidy often needed to speed up the process a guaranteed price for the electricity of DKK0.60/kWh for 10 years and, of change. generated that is sold to the public subsequently, DKK 0.40/kWh for the power grid, typically over a 10 year next 10 years.

Taxes and incentives for renewable energy | 18

© 2013 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 subsidy or the guaranteed price not become available until they are Additional information only applies to the electricity generated approved by the EU. that is sold to the public power grid. If The above support and subsidy According to Act to Amend the Danish the electricity generated is used for the schemes aim at increasing the incentive Promotion of Renewable Energy Act, generating entity’s own consumption — for using renewable energy for the certain rates have been changed. This in the business enterprise, for example production of energy for resale. These means that when power is produced — this energy supply will not be schemes can support our national based on biogas, a fixed subsidy of eligible for subsidies. However, it will energy consumption and help Denmark either DKK0.793/kWh or a variable be possible to save money because achieve its ambitious climate and energy additional charge of DKK0.431/kWh is no electricity charges and no power targets, first by 2020 and later by 2050. granted. grid tariffs will be payable. In addition, savings can be achieved on Public Moreover, the above energy agreement Service Obligation (PSO) contributions introduces an additional subsidy of and the price for power. DKK0.26/kWh (converted from DKK26/ GJ) and DKK0.10/kWh (converted from The increased subsidies only apply DKK10/GJ). The fixed subsidy and the to solar panel systems installed on variable additional charge are adjusted rooftops that have been established for on the basis of 60 percent of the the purpose of covering the user’s own increase of the net price index. consumption of power. Following the introduction of differentiating subsidies The additional charges of DKK0.26/kWh and the above condition regarding the and DKK0.10/kWh are reduced annually entity’s own consumption, the previous by an amount corresponding to the limit of 400 kWh has been abolished. amount by which the price of natural gas for the previous year exceeds any given The purpose of differentiating subsidies basic price of DKK53.2/GJ. is to equate the comparatively inexpensive installation of solar cell The additional total support of DKK0.36/ panels on the ground with solar cell kWh is almost a doubling of the variable panels installed on rooftops, which is a support of DKK0.431/kWh. In our more expensive investment. Abolishing opinion, this will definitely increase the the maximum limit of 400 kWh also incentive for producing power based on means that it will no longer be profitable biogas. to divide solar cell systems in order to It has not previously been possible receive subsidies. to receive subsidies for using biogas Biogas for process purposes in business enterprises. However, in order to Denmark is an agricultural country, increase the incentive, a general which allows us to produce biogas subsidy of DKK0.39/GJ will now be based on animal fertilizers (liquid introduced, which may be received manure). As a consequence, it would be together with the subsidies of DKK0.26/ natural to launch incentives to produce GJ and DKK0.10/GJ granted for any use energy based on biogas. of biogas. This also applies to biogas In the spring of 2012, a new political used for transport, which was previously agreement on energy was reached. also not eligible for subsidies. In this Under this agreement, users of area, the same support applies to the biogas receive a subsidy of DKK26/ use of biogas for process purposes in gigajoule (GJ) and a subsidy of DKK10/ enterprises. GJ. However, these subsidies will

19 | Taxes and incentives for renewable energy

Support schemes Operating subsidies Geothermal Investments and other subsidies Feed-in tariff • France: EUR0.20/kWh, in addition to an energy efficiency bonus of up to The accelerated tax depreciation has Remuneration is available for electricity EUR0.08/kWh not been renewed as of 1 January 2011. produced from the following sources. However, companies can still apply a • French overseas departments: Wind declining-balance method to certain EUR0.13/kWh, in addition to an equipment used to produce renewable Onshore wind power plants: EUR0.082/ energy efficiency bonus of up to energy. This method, which is optional, kWh for 10 years and between EUR0.03/kWh. consists of multiplying the depreciation EUR0.028/kWh and EUR0.082/kWh Biomaterial (Biogaz) rate for the straight-line method by a for the next five years depending on coefficient determined by law, based the location of the wind farms and the • Between EUR0.0.8121 and on the asset’s expected useful life. In hours of electricity production. The EUR0.1337 /kWh, depending on the practice, when a company applies the Court of Justice European Union (CJEU) power of the plant, in addition to declining depreciation method at the is currently reviewing this tariff under an energy efficiency bonus of up to beginning of the depreciation period, it the EU State aid rules (a decision is EUR0.04/kWh. can obtain tax depreciation higher than expected in July 2013). Hydro the accounting depreciation. • Offshore wind power plants: • EUR0.0607/kWh in addition to a Biofuels EUR0.13/kWh for 10 years and bonus between EUR0.005/kWh Biofuels benefit from a partial between EUR0.03 and EUR0.13/kWh and EUR0.025/kWh for small power exemption of the internal tax on for the next 10 years, depending on plants, as well as a bonus of up petroleum products and of the the location of the wind farms and the to EUR0.0168/kWh for electricity general tax on polluting activities to hours of electricity production. produced during the winter compensate for the additional costs Solar • EUR0.015/kWh for ocean hydraulic arising from biofuel production. Biofuels energy (wave energy, tidal energy and in gasoline include bioethanol and ethyl Due to several recent changes in the other hydrokinetic energy sources). tertiary butyl ether (ETBE). This partial law, different tariffs apply to photovoltaic exemption is applicable for the period (PV) power plants, depending on the Biomass between 2013 and 2015. stage of development of the projects (tariffs for the first quarter 2013): • EUR0.043/kWh in addition to a bonus Research tax credit between EUR0.0771/kWh and • ground-based PV power plants: EUR EUR0.1253/kWh depending on the Companies may be granted a research 0.8.18/kWh energy efficiency, the nature of the tax credit on their environmental resources used and the power of the investments if the expenses they • simplified building-integrated plant. incur while carrying on such projects generating facilities: EUR 0.1817/kWh correspond to research activities eligible or EUR0.1727/kWh Électricité de France (EDF) and other for this tax credit. The tax credit will • building-integrated generating electricity distributors must purchase be equal to 30 percent of the eligible facilities: EUR0.3159/kWh, the electricity produced by a renewable research expenses that do not exceed EUR0.2764/kWh, EUR0.31.59/kWh energies producer at fixed tariffs and for EUR100 million and to 5 percent for depending on the use and the power a minimum duration. For example, there the eligible R&D expenses exceeding of the plant is a purchase obligation for EDF during a EUR100 million. 15 year period for onshore wind power, As of 1 July 2011, the above-mentioned geothermal power, and biomaterial The research tax credit will be offset tariffs have been adjusted quarterly power and a 20 year period for offshore against the corporate income tax by the Ministry in charge of energy, wind power, solar power (subject to the due during the year the expenses are depending on the number of grid date of the operational start up of the incurred. Any surplus tax credit will connection applications received by the facilities) and for hydro power. The tariffs constitute a receivable for the company distribution system operators over the mentioned above correspond to the that can be used to pay the corporate previous quarter. tariff applied to the power plants located income tax for the three following years in metropolitan France. Increased and may be reimbursed afterwards. A bonus of five percent or 10 percent applicable on the above-mentioned tariffs apply with respect to Corsica and tariffs can be granted for the overseas departments. components of the PV system made in Europe. Taxes and incentives for renewable energy | 20

© 2013 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 by a GDF-Suez subsidiary, the Société • price of the electricity produced Hydroélectrique du Midi. Building and Construction • overall characteristics of the projects in Authorization and Permission (BCAP): According to a statement issued by the terms of industrial and social aspects French Ministry in charge of energy, the • respect for the environment The construction of a power plant is selection will be made pursuant to the subject to the issuance of a building following three criteria: • consideration for existing fishing permit. However, solar power plants activities. (subject to certain conditions) and wind • The energetic efficiency of the bidders turbines smaller than 12 meters are not to modernize the existing structures or The maximum price of the electricity to subject to the issuance of a building to create additional equipment. be generated by the by new farms was permit. Specific authorizations exist for set at EUR220/MWh to avoid producing • The financial remuneration to be paid hydro and biomaterial power stations. “sticker shock” for consumers. to the State by the concessionaire, In addition to the building permit, an since a capped royalty proportional Grid access: exploitation authorization issued by the to the turnover made with the Minister of Energy is required for power The producer/owner of a new power hydropower stations will be paid plants with an installed load/installed plant has to apply for a grid connection to the French State and to the local power higher than 4.5 MW. For power to the public distribution system such as authorities. plants with an installed power lower or Réseau de Transport d’Electricité (RTE), equal to 4.5 MW, only a declaration is • The protection of the ecosystems. Electricité Réseau Distribution France required. (The bidders shall especially respect (ERDF) or a local distributing company. the commitments convention for Some agreements have to be made The French government launched the development of a sustainable by the owner of the power plant for “invitations to tender” for PV projects hydroelectricity, signed on 23 June the distribution of the electricity that it with a capacity exceeding 400 kW in 2010). produces: 2013. Bids can be submitted until 16 September 2013. The 400 MW Offshore wind energy: • public grid contract (Contrat d’accès au should be divided equally between réseau public) France has set a target plan for installing “innovative” ground-mounted solar 6,000 MW of offshore wind energy by • grid connection contract (Contrat de plants and traditional roof-mounted PV 2020 through a tender process. raccordement) systems. The purpose of this tender is to encourage development at degraded In April 2012, the French government • contract regarding the use of the sites rather than farmland, to take into announced an award of four offshore equipment necessary for the grid account the carbon footprint of the wind farm development zones (2 GW connection (Contract d’exploitation project, and to encourage innovation and of offshore wind energy capacity). des ouvrages de raccordement). research and development (R&D). On 16 March 2013, the French Energy Regulatory Commission issued a second For the installation of PV, the invitations tender for offshore wind farms with 1 to tender launched beginning in 2011 are GW of new capacity. The new tender is maintained. split into two wind farms: one built off Renewal of hydroelectric concessions: the city of Le Treport in Normandy and the other near the Noirmoutier islands Pursuant to the liberalization of the and the Ile d’Yeu islands of the Vendee electricity sector decided by the department of the Pays de Loire along European Union (EU), the French France’s Atlantic coast. government launched bidding rounds to renew before the end of 2015 the The deadline for submission of bids is concessions for 10 lots that represent on 29 November 2013. The result of the 49 power structures/stations and two new tender should be announced in power-increase systems with a total January 2014 with the construction and power capacity of 5,300 MW. commissioning phase of the project is scheduled for 2021 to 2023. The concessions due for renewal are located in the Alps, the Pyrenees and in The selection of the bidders will be based the center of France. The hydropower on the following criteria: stations are currently run by EDF and

21 | Taxes and incentives for renewable energy

Support schemes – heat storages with more than – direct loans limited to 70 percent 10 cubic meters of the total debt capital required KfW Programs per project and EUR700 million per – biogas pipes with a minimum project KfW Renewable energies program length of 300 meters (for biogas • Investments are available in two used for CHP purposes or as – direct loans to finance unforeseen programs: biofuel) additional costs (a maximum of EUR100 million per project). – Standard: in plants for electricity – heat pumps with a rated heat generation from renewable capacity of more than 100 kW • Eligible to apply: all project companies investing in the German EEZ or in the energies photovoltaic (PV), biogas, – facilities for the development and 12 nautical mile zone of the North Sea hydro, onshore wind or geothermal use of deep geothermal energy and the Baltic Sea. energy) and heat generation in with a drilling depth of more combined heat and power (CHP) than 400 meters and a minimum • Maximum funding: EUR5 billion. systems. thermal fluid temperature of 20°C. • Loan-term: up to 20 years with a – Premium: in large plants for • The funding shall be granted as a repayment-free start-up period of up heat generation from renewable long-term, interest-reduced loan up to three years. energies (solar panels, biomass, to 100 percent of the investment Incentives for energy efficiency and biogas, deep geothermal energy) costs (excluding VAT), maximum total corporate environmental protection, as well as CHP installations lending of EUR25 million per project housing, home modernization and and heat networks/pumps not (Standard) and EUR10 million per the reduction of carbon emissions promoted under the Standard project (Premium). program. • Low interest rates on loans and grants • Additional reduced interest rates are used for the efficient production of • Premium funding was initiated to available for small to medium-sized energy, usually accessed by SMEs. strengthen the establishment of the enterprises (Premium). renewable technologies in the heat • Subsidies for new privately owned • Eligibly for funding depends on the market (in the context of the Market buildings or buildings which are program part. Incentive Program by the Federal brought to a new standard in Ministry for the Environment). These • In 2012, KfW provided a total credit renewable energy or energy savings. technologies include: volume of around EUR365 million • Reduced interest rates, abatement of for Premium. Since initiating the – solar panel systems with more instalment payments on loans, direct program, over 10 years ago, credit than 40 square meters gross subsidies for modernizing buildings volume over EUR2 billion for both collector area for the purpose and reducing carbon emissions. of water heating and/or space programs has been granted. • Budget: around EUR900 million for heating of properties with three • Loan-term: 5, 10 or 20 years with a energy-efficient house modernization or more residential units or repayment-free, start-up period of up in 2011. non-residential properties with to three years. minimum 500 square meters Sources: KfW Bankengruppe, Berliner KfW offshore wind energy program of usable area Morgenpost (9 April 2011), BMWi – biomass plants for the combustion • Special promotion of offshore Förderdatenbank wind energy projects within the of solid biomass with a rated heat Operating subsidies capacity of more than 100 kW 12 nautical mile zone or the German Exclusive Economic Zone (EEZ) of the Feed-in tariff – beat-controlled biomass CHP with German North and Baltic Sea. Project a maximum of 2 MW financing for up to 10 offshore wind Remuneration is available for electricity produced. All tariffs and ranges apply – heat networks with a minimum parks is available in the form of: to plants commissioned in 2012. Plants of 50 percent of heat generated – direct loans granted by bank commissioned prior to 1 January by renewable energies or with a syndicates (a maximum of 2012 are subject to the feed-in tariffs minimum of 20 percent of heat EUR400 million/project) that were in force in the year of first generated by solar energy and with commissioning. heat sales of a minimum of 500 – finance packages comprising loans kWh per year and meter of route from KfW on-lent through a bank

Taxes and incentives for renewable energy | 22

© 2013 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 Wind Solar • Depending on nominal generation Onshore In and on buildings capacity of the individual plant: • Basic feed-in tariff for a wind turbine • Depending on the amount of nominal – up to 5 MW: cent (ct)6.3/kWh to (WT) commissioned in 2012: ct4.87/ generation capacity: ct11.02/kWh to ct12.7/ kWh kWh. ct15.92/kWh as of April 2013. – more than 5 MW: ct3.4/kWh to • e First fiv years: basic increased feed- • Degression: 1 percent per month ct5.5/kWh. in tariff of ct8.93/kWh. plus a maximum of 1.8 percent points per month if a pre-defined • Increased feed-in tariff for a WT • Degression: 1 percent per annum threshold of nominal generation fulfilling technical requirements (p.a.). capacity added based on the annual for system intervention of the TSO extension corridor (“Zubaukorridor”) Biomethane (“Systemdienstleistungsbonus”): is exceeded, according to Sec 20a • Basic premiums depending on – ct0.48/kWh for the time the basic EEG. The annual extension corridor nominal generation capacity of the increased feed-in tariff is received amounts to 2.5GW to 3.5GW. The individual plant: ct6.0/kWh to ct14.3/ and, if the newly installed WT is degression is adjusted on a quarterly kWh. commissioned before 31 January basis based on extrapolated annual • Additional premiums depending on 2015. amounts of nominal generation capacity added. the feed-stock boiled up to ct8/kWh. • Degression: 1.5 percent p.a., when • Using the fermentation of organic commissioned after 1 April 2012. In open spaces waste, depending on nominal • Repowering bonus of ct0.5/kWh for According to the Renewable Energy generation capacity of the individual the time the basic increased feed-in Act, plants in open spaces are only plant: ct14.0/kWh to ct16.0/kWh. tariff is received and granted for sites subsidized if they were erected in areas • Additional gas preconditioning bonus where a WT with higher nominal being subject to an approved land-use (up to ct3/kWh) for all above available capacities are commissioned (pre- plan that has been: degression). It is required that the if nominal generation capacity of plant • approved prior to 1 September 2003 replaced WT was commissioned does not exceed 5 MW. or before 1 January 2002. • Using fermentation of manure: • approved after 1 September 2003 • Direct distribution is possible at ct25.0/kWh. where plants were erected either on higher market rates, pursuant to Sec land to be devoted to different usage • Degression: two percent p.a. 33a-33f EEG. (Konversionsfläche) or alongside Other methane gas (mine, landfill, Offshore freeways (Autobahnen) or railroad sewage sludge gas, etc.) lines. • Basic: ct3.50/kWh. • Depending on nominal generation Up to a nominal generation capacity of • 2 First 1 years: ct15/kWh (extended capacity of the individual plant: ct3.98/ 10 MW: ct11.02/kWh as of April 2013, depending on water depth and kWh to ct8.60/kWh. degression is equivalent to plants distance from shore). • Degression 1.5 percent p.a. erected on buildings. • Degression: zero percent p.a. • Additional gas preconditioning bonus until 2017; 7 percent p.a. from Additional information for all the above (up to ct3/kWh). 2018 onward. Legal: The feed-in tariffs are regulated in Geothermal • Grid connection from the offshore the Renewable Energy Act (Gesetz für den Vorrang Erneuerbarer Energien or • ct25.0/kWh. switch station to the shore borne by the TSO (Sec 17 par 2a EnWG). Erneuerbare-Energien-Gesetz). • Degression: five percent p.a. from Duration of feed-in tariffs: Usually 15 2018 onward. If a WT has been commissioned before 1 January 2018, the plant operator can to 20 years. • Additional premium for using claim a feed-in tariff of ct19/kWh for the Administrative procedures: petrothermal technologies: ct5/kWh. first eight years. This is not in contrast to Applications must be filed with the regular feed-in tariff of ct15/kWh for the Ministry of Environment or the the first 12 years. governmental-owned bank KfW.

23 | Taxes and incentives for renewable energy

Support schemes promote projects under Independent primary focus is to establish an enabling Power Producers (IPP) mode for wind and environment for solar technology, both Investment and other subsidies solar power. at a centralized and decentralized level, with 20,000 MW of grid-connected solar Foreign Direct Investment (‘FDI’) Accelerated depreciation power capacity by 2022. The growth of the clean energy sector in Under the domestic income-tax law, Related to this initiative, the government India has been impressive. India permits companies involved in renewable energy has launched the Payment Security FDI up to 100 percent in the sector under such as solar and wind was provided with Mechanism for Grid Connected Solar the automatic route in Renewable Energy accelerated depreciation at 80 percent. Power Projects and a Renewable Energy Generation and Distribution projects However, the government has restricted Certificate Mechanism. The government that are subject to the provisions of the the accelerated depreciation of 80 percent has also created the Amendment in Electricity Act of 2003. Under the Act, no to windmills installed on or before 31 National Tariff Policy for enabling a solar- prior approval of regulatory authorities is March 2012. Windmills installed after 31 specific Renewable Portfolio Obligation. required. March 2012 will be eligible for depreciation Tax holiday under the domestic of 15 percent instead of 80 percent on the The JNNSM program has been designed income tax law written-down value method. as a three-stage process with targets set under each phase. Phase 1 (up to 2013) Undertakings engaged in the generation It may be noted that 80 percent will focus on capturing available options in and/or distribution of power has been depreciation is still available for solar solar thermal; promoting off-grid systems offered a 10-year tax holiday for renewable power projects. to serve populations without access energy plants if power generation begins Further, power companies have been to commercial energy, and making a before 31 March 2014. However, the provided with an option to claim modest increase in capacity to grid-based plants have to pay a minimum alternative depreciation under straight line method. systems. Under Phase 2 (2013-2017), tax at the rate of approximately 20 to However, a company can claim either 10,000 MW grid-connected solar plants 21 percent (based on the income), which accelerated depreciation or GBI (but not will be implemented, including rooftop can be offset in future years (10 years). both). and other small-scale applications. For It is likely that a new Direct Taxes Code Quota obligations off-grid solar applications, the cumulative will be made effective as of 1 April target for Phase 2 is 1,000 MW. Besides 2014. The draft provisions of the Direct Renewable Purchase Obligation (RPO) the national program, solar programs at Taxes Code provide for alternative The current contribution of renewable the state level also exist. mechanisms for providing tax incentives energy is 12.5 percent of India’s total The policy framework has generated to power companies. As regards this generation installed capacity. The Ministry tremendous interest in this space, and the incentive, almost all revenue and capital of New and Renewable Energy estimates response JNNSM program has received expenditures will be allowed as a tax that this contribution will increase to from the market is overwhelming. deduction upfront instead of claiming around 16 percent or 17 percent by the Carbon Credits and Clean amortization/depreciation on the capital end of the 12th Five Year Plan in 2017. expenditure. In addition, there would be Development Mechanisms (CDMs) no tax holiday. RPO is one of the tools for implementing The Clean Development Mechanism this ambitious goal. Under RPO rules, (CDM) is an arrangement under the Financing distribution companies, open access Kyoto Protocol. The mechanism allows The Indian Renewable Energy consumers and captive consumers are developed (Annex 1) countries with Development Agency has been obligated to buy a certain percentage of a green house gas (GHG) reduction established under the Ministry for their power from renewable sources of commitment to invest in projects Non-Conventional Energy Sources as a energy. We believe that going forward; that reduce emissions in developing specialized financing agency to promote the enforcement of RPO will create the countries as an alternative to more and finance renewable energy projects. volumes needed for the Renewable expensive emission reductions in their Energy Certificate market. Operating subsidies own countries. The developed country Additional information gets carbon credits, while the developing Feed-in tariff Jawaharlal Nehru National Solar country gets capital and clean technology. Generation Based Incentives (GBI) Mission (JNNSM) India is the second largest seller of carbon To attract foreign investors, the The JNNSM is a transformational initiative credits. The country is also a leading government has taken several initiatives for solar energy development in India. Its destination among non-Annex 1 countries such as introducing GBI schemes to

Taxes and incentives for renewable energy | 24

© 2013 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. with regards to CDM implementation. It and bidding as a consortium, contract been the subject of disputes in various has the highest rating of any CDM host structuring is critical to avoid the risk of the decisions. country, with 32 percent of the world consortium being taxed as an Association The exemption provided under the total of 1,081 projects registered with of Persons. Customs and Excise Act is subject to CDM EB. 42 In India, based on the nature of various conditions and compliances. Tax and fiscal incentives operation, different forms of entity can Hence, it is very important to ensure the be established. Operating through a compliance of the respective conditions Tax cost forms a substantial part limited liability company by forming a joint as otherwise the benefits envisaged may of Engineering Procurement and venture/wholly owned subsidiary could not be available. Construction (EPC) project costs, be one of the possible options where the which can range from 10 percent to The proposed introduction of the Goods foreign company is looking at a long-term 20 percent of the total renewable energy and Services Tax will also play a major presence in India. However, one needs project cost. Considering the special role in the costing of a renewable energy to rule out other relationships and entities focus on renewable energy, the Central power project. before proceeding with these options. Government has given various incentives Given the vast variety of tax and fiscal on setting up the renewable energy In addition, the renewable energy incentives available, one needs to quantify power project which includes exemption sector is capital intensive, so investing the tax cost and explore the structuring from customs and excise duties on companies need to carefully explore the options, before planning the capex, at the specific goods required for setting up the options available for funding their projects tender/bid stage and also at the time of renewable energy projects. and repatriating profits in a tax-efficient awarding contracts, so that tax costs are manner. However, these exemptions are subject optimized. to the fulfilment of prescribed conditions EPC contracts and compliances to be undertaken by the The taxation of EPC contracts offers EPC contractor or IPP. various challenges and opportunities. Furthermore, some of the state The EPC contract can be structured as a governments have provided the single contract or as divisible contracts. incentives in the form of a VAT at a The selection of either option can cause a reduced rate (5 percent) whereas the huge impact on the tax costs and working other states levy a VAT of 15 percent. capital of the project. Given the vast variety of tax and fiscal The selection of schemes for the payment incentives available, one needs to quantify of indirect tax liabilities on renewable the tax cost and explore the structuring energy power plant construction options before investing in the solar offers various tax planning avenues sector. for renewable energy power projects. Tax planning Furthermore, any scheme can involve difficulties in compliance, such as a For investors based overseas, an entry restriction on procurement of goods strategy for India is highly important. outside the state. To achieve tax efficiency with regard to taxability of gains on sale of shares, many The procurement of goods and supply companies opt to route the investments chain structuring play a vital role in the through an intermediate entity in a tax- solar power project costs, since the tax friendly jurisdiction. rates are different for procurement of goods from outside India, from other Typically, renewable energy companies states or from the same state. in India procure equipment and services from overseas. In this scenario, contract Generally, the EPC contractor structuring from a tax perspective helps also undertakes the operation and renewable energy companies to achieve maintenance of the power plant. major tax efficiency upfront. In the case The taxability of an Operation and of multiple parties coming together Management (O&M) contract has

42 Point Carbon and UNFCCC

25 | Taxes and incentives for renewable energy

Support schemes three-year investment term has passed expenditures incurred on the purchase (subject to certain conditions being met). of certain energy-efficient equipment or Investments and other subsidies A number of conditions must be satisfied vehicles. Corporate tax relief for an investment to qualify under the Operating subsidies scheme. However, the legislation includes Irish tax law provides tax relief for some helpful provisions designed to Quota obligation corporate equity investments in certain ensure that renewable energy projects renewable energy projects. Commonly Under an EU Directive, the Irish meet the qualifying criteria. known as Section 486B relief, the law government has an obligation to allows a deduction from a company’s R&D tax credit ensure that, by 2020, 16 percent of all profits for its direct investment in new energy consumed in Ireland across the A company can claim an additional tax ordinary shares in a qualifying renewable electricity, heat and transport sectors credit of 25 percent on incremental energy project. There are a number of is from renewable sources. The Irish qualifying expenditure incurred on R&D conditions that must be satisfied for the government has planned that the 16 activities. Qualifying expenditure includes investment to qualify for the relief, and the percent overall target will be achieved by expenses such as salaries, overhead, relief is capped at certain levels. Examples 40 percent of electricity consumed being materials consumed, etc. A tax deduction of renewable energy projects that from renewable sources, 12 percent of is also available against the company’s would qualify for the relief include those consumption in the heat sector being profits at 12.5 percent. This can result in in the solar, wind, hydro and biomass from renewable sources, and 10 percent a 37.5 percent net subsidy for a trading categories. of consumption in the transport sector entity (12.5 percent corporation tax being from renewable sources. EII scheme deduction and a 25 percent R&D tax credit). The tax credit can be used to Feed-in Tariff In 2011, the Irish government introduced shelter a group’s corporation tax liability the Employment and Incentive Ireland currently has two Renewable or carried forward indefinitely to reduce Investment (EII) scheme, designed Energy Feed in Tariff (REFIT) schemes a company’s future tax liability. Where to promote the creation of jobs and open for applications. The REFIT 2 scheme there is limited or no current or preceding encouraging R&D activities. The EII applies to onshore wind, small hydro and corporation tax liabilities, a company may scheme provides tax relief for eligible landfill gas. The REFIT 3 scheme applies claim to have any remaining credit offset individuals who investment in certain to biomass technologies. The schemes against current year payroll taxes. qualifying small and medium sized trading operate by guaranteeing a minimum floor companies. The relief takes the form of Accelerated capital allowances price for supplies of energy generated a deduction from an individual’s taxable from renewable sources. The 2013 Companies are entitled to claim income in the year of investment (subject reference prices for the REFIT 2 and accelerated capital allowances (tax to certain restrictions), taken after a REFIT 3 schemes are as follows: depreciation) of 100 percent for capital

REFIT 2 REFIT 3 Category Price Category Price Onshore wind EUR69.235/MWh AD CHP (units less than or ct15.7/kWh (above 5 MW) equal to 500 kWe) Onshore wind EUR71.664/MWh AD CHP (units of greater ct13.6/kWh (equal to or less than 5 MW) than 500 kWe) Hydro EUR87.455/MWh AD (non CHP) (units less ct11.5/kWh (equal to or less than 5 MW) than or equal to 500 kWe) Biomass Landfill Gas EUR85.026/MWh AD (non CHP) (units of ct10.4/kWh greater than 500 kWe) Biomass CHP (units less ct14.6/kWh than or equal to 1500 kWe) Biomass CHP (units of ct12.5/kWh greater than 1500 kWe) Biomass combustion ct9.9/kWh for using energy crops (non-CHP) ct8.9/kWh for all other biomass

Taxes and incentives for renewable energy | 26

© 2013 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 energy supplier is also entitled to combination of the reference price Additional information a balancing payment for every kWh plus balancing payment, the balancing Ireland as a hub for green asset purchased from the generator. The payment shall be EUR9.90 less the management balancing payment under REFIT 2 and amount by which the market payment REFIT 3 is fixed at EUR9.90/MWh. The exceeds the reference price. However, Global investment is booming in green full EUR9.90/MWh is payable to the where the market payment is equal to and clean-tech industries that produce supplier where the market payment or greater than the combination of the renewable energy, increase energy is equal to or less than the reference reference price plus balancing payment, efficiency or provide sustainability price. If the market price exceeds the no balancing payment is payable. solutions. Major investors include reference price but is less than the pension funds, life funds, large corporations and high net worth individuals. These investors are attracted to a variety of fund structures to diversify the risk between different green investments and different geographies. With almost 25 years expertise and experience, Ireland has one of the most sophisticated investment management industries globally. This includes expertise in fund servicing, administration and asset management. Fund promoters are attracted to Ireland due to its open, transparent and well- regulated investment environment, its strong emphasis on investor protection, its efficient tax structure (with a 12.5 percent corporate tax rate) and its dynamic, innovative business culture. In addition to Ireland’s credentials as a leading investment funds location, the case for Ireland as a global center for green asset management is even more compelling. For many years a large number of Irish companies have successfully developed renewable and sustainable projects and related technologies on a global scale. As a result, Ireland has been able to create an unparalleled talent pool with the requisite expertise to support green investments. The combination of these two factors sets Ireland apart. A number of green investment funds have established operations in Ireland and all indications would suggest that the scale of this activity will increase considerably in the short to medium term. A public private partnership body known as the Green IFSC (GIFSC) has been established to promote Ireland as a center of excellence for green asset management. 27 | Taxes and incentives for renewable energy

Support schemes Certificates scheme of incentives to 2016. For thermodynamic plants, the new support schemes as defined in the premium will be paid for 25 years. Investment and other subsidies Decree. Solar plants that began operations after Italy has a well-developed system Operating subsidies 27 August 2012 of incentives for renewable energy generated from solar, wind and biomass. Feed-in tariff premiums • The Ministerial Decree of 5 July In particular, the Ministerial Decree 2012 became effective on 27 August Solar of 5 July 2012 – which introduced the 2012 and introduced the Fifth Energy so-called Fifth Energy Incentives Plan Solar plants that began operations Incentive Plan, thus redefining the – revises the system of incentives before 31 May 2011 Italian incentive system for the for the production of electricity from production of PV energy. photovoltaic (PV) plants. At the same • According to the Ministerial Decree • Based on the new scheme, some time, the Ministerial Decree of 6 July of 6 August 2010 (the Third Energy plants can still have access to 2012 establishes new procedures Incentive) there is a fixed premium (a incentives granted under the Fourth aimed at supporting the production bonus on top of the market price of Energy Incentive Plan. In particular, of electricity from Renewable Energy electricity). the Fourth Energy Incentive Plan shall Source-Electricity (RES-E) plants (other • The size of the premium depends on: continue to apply to: than the PV ones) with a capacity of at least 1 kW. Under this Decree, such – type of plant – Plants installed in public buildings plants must be “new, totally rebuilt, – nominal output and areas owned by the Public reactivated, repowered/upgraded Administrations, commissioned or renovated plants which will be – when the plant started to operate. before 31 December 2012. commissioned on or after 1 January • The premium ranges from EUR0.251/ – Small PV plants integrated into 2013” (More information at the Gestore kWh to EUR0.402/kWh. buildings with innovative features dei Servizi Elettrici website: gse.it). • The premium will be paid for 20 years (BIPV) and concentrating PV plants To safeguard investments on projects after the plant starts operating. For commissioned before 27 August under completion, the Ministerial thermodynamic plants, the premium 2012. Decree of 6 July 2012 provides that the will be paid for 25 years. – Large PV plants that are positioned following plants may apply for support in the relevant Public Registers on the terms and conditions specified in Solar plants that began operations as plants that do not exceed a the Ministerial Decree of 18 December between 31 May 2011 and 31 given applicable cost limit and 2008: December 2012 whose certificates of completion • According to the Ministerial Decree • Plants authorized before 11 July 2012 are submitted for the registration of 5 May 2011 (the Fourth Energy (the Decree’s enforcement date) and within seven months – or nine Incentive) a fixed premium computed commissioned by 30 April 2013 months in the case of plants with a on the basis of the type and the capacity of above 1 MW – after the • Plants authorized before 11 July nominal power of the plant is available publication of the related ranking 2012, fuelled by waste (as per article up to 31 December 2012. list. 8, paragraph 4C of the Decree) and • In the first six months of 2012 the commissioned by 30 June 2013. • In accordance to the Ministerial premium ranges from EUR0.148/kWh The feed-in tariffs granted or the Decree of 5 July 2012, the incentives to EUR0.274/kWh and in the second multiplicative factors for the green for new PV plants will cease and six months of 2012 the premium certificates issued to these plants will therefore no longer apply once the will range from EUR0.133/kWh to be decreased as indicated in article 30, relevant total expenditure reaches EUR0.252/kWh. paragraph 1 of the Decree. EUR6.7 billion. • This type of subsidy will expire on The Decree of 6 July 2012 also covers • In accordance with the new tariff 31 December 2012. the procedures under which plants system, the most important change already in service and supported under • The premium will be paid for 20 years is that plants with a capacity not the Ministerial Decree of 18 December after the plant starts operating, as exceeding 12 kW (including upgraded, 2008 must pass in 2016 from the Green long as it does so by 31 December renovated, repowered plants with an

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© 2013 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. increase in capacity not exceeding an defined for each source, type of ranking position in the relevant overall capacity of 12 kW) now have plant and capacity class) and of any Registries does not exceed the direct access to the feed-in tariff in premiums, such as high-efficiency, applicable cost limit, the GSE will compliance with the procedures set emission reductions, etc. grant the base feed-in tariff applicable by the Manager of Electricity Services upon the date of closing of the same – An incentive for plants with a (Gestore dei Servizi Energetici or period. capacity of above 1 MW and for GSE). In the case of plants with a those with a capacity of up to 1 • The Decree also provides for a capacity up to 20 kW, they may have MW not opting for the all-inclusive number of premiums on top of access to the same incentives upon feed-in tariff. This incentive is the base tariff for plants that meet condition that a 20 percent tariff the difference between the specific operating requirements. reduction is accepted. base feed-in tariff – increased by • In the case of the Fifth Incentive Plan, the premiums, if any, for which Additional information the tariff scheme applies as follows: the plant is eligible – and the Limit on public expenditure to hourly zonal electricity price. The support renewable energy: – For plants with capacity up to 1 electricity generated by plants MW, a feed-in tariff applies based benefiting from the incentive The overall public expenditure should on the electricity sold to the GSE. remains the property of the not exceed EUR5.8 billion per year. – For plants with capacity exceeding producer. Authorization procedures: 1 MW, a premium tariff is paid • Access to the incentives according based on the electricity generated To accelerate the overall authorization to the Ministerial Decree of 6 which is not sold to the GSE. process the Renewable Energy Decree July 2012 is an alternative to net simplified the procedures for building – For self-consumption, a special metering (“scambio sul posto”) and operating renewable energy plants. tariff applies. and to simplified purchase/resale arrangements (“ritiro dedicato”). The new Single Authorization Ministerial Decree of 6 July 2012 - procedure (Autorizzazione Unica or AU) Incentives awarded to RES-E plants Feed-in tariffs now takes only 90 days rather than other than PV plants • The Ministerial Decree of 6 July 2012 180 days. However, this period does Types of incentives identifies the value of the base feed-in not include the time required for the tariffs for each source, type of plant environmental impact assessment • The Ministerial Decree of 6 July 2012 and capacity class in the case of (Valutazione di Impatto Ambientale). establishes that the support shall plants commissioned starting from The regulations that implemented the be granted for the net electricity 2013. The tariffs will decrease by Renewable Energy Decree identified generated by the plant and injected 2 percent in each of the subsequent which “substantial modifications” to into the grid. Therefore, self- years until 2015, except in case of a project require a new AU and which consumed electricity is not eligible for failure to reach 80 percent of the modifications can be authorized by incentives. yearly capacity quota required for the following a simplified procedure. • The net electricity generated and registries and the auctions. The new provisions of the AU apply injected into the grid is the lower • The value of the base feed-in tariff is to all authorization procedures that value between the net electricity the one applicable upon the date of started after the Renewable Energy generated and the electricity actually the plant’s commissioning. The GSE Decree came into force. Authorization injected into the grid by the plant. will award the all-inclusive feed-in procedures that started before then will • The Decree provides for two separate tariff or the incentive, calculated from continue to be subject to the previous support schemes, based on plant the value of the base feed-in tariff, as authorization procedure. The Renewable capacity, renewable source used and of the date of entry into commercial Energy Decree also introduces a new type of plant: operation of the plant. simplified authorization procedure for small plants (the “PAS”). However, – An inclusive feed-in tariff for plants • For plants commissioned prior to the where specific environmental or with a capacity of up to 1 MW. closing of the period of submission landscape authorizations are required, This capacity is the sum of a of applications for participating in the the AU procedure remains mandatory. base feed-in tariff (whose value is Registries or Auctions and whose

29 | Taxes and incentives for renewable energy

© 2013 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. Taxation: • production of renewable energy A company is considered dormant if (biomass, photovoltaic, wind). following applies: Corporations are subject to IRES (a corporate income tax) which is levied The rate of the surcharge has been • It is subject to a minimum tax at 27.5 percent and to IRAP (a regional increased by 4 percent (i.e. from 6.5 charge as far as IRES and IRAP are business income tax) with a rate that percent to 10.5 percent) for fiscal years concerned. varies from 3.9 percent to 4.82 percent. 2011, 2012 and 2013. As a result, the • Limits are in effect to the off-setting aggregate Corporate Income Tax rate Robin Hood Tax or a refund request for any VAT credit which was applicable to companies accrued. Law Decree no. 138/2011 (the Mid- involved in the energy business and was August measure) sets out certain originally at 34 percent (27.5 percent The minimum income level is calculated significant changes to the corporate plus 6.5 percent) starting from fiscal by applying specific percentages income tax surcharge for the energy year 2009, is now fixed at 38 percent to certain balance sheet items. In industry (the so-called “Robin Hood (27.5 percent plus 10.5 percent) for years addition, a specific test is conducted Tax”). 2011, 2012 and 2013. to determine whether a company is dormant, comparing the actual values The Robin Hood Tax applies to the solar Non-operating or dormant reported in the statement of income and wind farm business if the following companies with presumed values. If the actual thresholds are both exceeded in the The Mid-August Measure also values are below the presumed ones, previous fiscal year: introduced the following changes to the the company is deemed to be dormant. • EUR10 million of gross revenues rules governing “dormant” companies, Depreciation to take effect as of 2012: • EUR1 million of corporate income tax Wind and solar plants are subject to base. • an increase of IRES to 38 percent for ordinary amortization/depreciation tax companies that are considered as Such surcharge applies to companies rules. dormant involved in the following business activities: • an extension of this rule to companies that have incurred in fiscal losses • transmission and distribution of (included in their tax returns) for three electricity consecutive years. • transportation and distribution of gas

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Feed-in tariffs (FIT) for renewable energy the approved development plan with interconnection discussions with the became available in Japan in July 2012. the feed-in tariff of JPY42/1kW was electric power companies. A plan with The feed-in tariff rate for solar energy accumulated to be 11,010 KW in the a concrete investment schedule is a for the period up to March 2013 was period from July 2012 to February sound one, whereas the plans which are Japanese yen (JPY)42/1kW for the 2013, only 420 KW, i.e. less than four merely for securing JPY42 FIT is not. As operation period of 20 years. In order percent of the approved plan, became the interconnection is physically limited, to get the feed-in tariff, the applicant operational in the same period. The such a crowding-out may have taken is required to have the following feed-in tariff for the period from April place. As a result, the government may conditions: 2013 was reduced by 10%, i.e. from want to review the approved plans for JPY42 to JPY37.8. their concrete development schedules. 1. The power plant development plan is approved by the government. It is reported that some plans might have been delayed due to the limited 2. The development plan applied for supply of equipment. In addition, it also interconnection to transmission line is reported that some plans might have with the electric power company. received approval to secure JPY42 feed- Applicants who fulfilled these two in tariff without a concrete investment conditions by February 2013 were schedule. A plan with a concrete awarded JPY42 feed-in tariff, which is investment schedule might have been applicable without time limit. While crowded out by the latter plans from the

31 | Taxes and incentives for renewable energy

Support schemes Fund for hydrocarbon projects To finance sustainability projects, the Fund for Energy Transition In 2012, the Ministry of Energy (SE) and Mexico’s Income Tax Law (ITL) provides and Sustainable Exploit of Energy the National Council of Science and a 100 percent deduction incentive for was created in 2009. The Federal Technology (CONACYT) released a fund taxpayers who carry out investments Expenditure Budget for this fiscal oriented to R&D and the adoption of in renewable energy equipment. year assigned Mexican peso (MXN)3 new technology related to hydrocarbon Qualifying sources like sun, wind, water billion (USD250 million) to the fund. For sources of energy. The fund aims and geothermal energies, as well as fiscal year 2011, this amount has been to increase efficiency in the use of biomass fuel equipment, are eligible for increased to USD260, based on the hydrocarbon sources of energy, prevent this incentive. Consumer Price Index (INPC). pollution, and repair environmental Additional information damages derived from the oil industry Companies or individuals compete FIDE (Trust for energy saving) energy activities. The official bid for 2012 called for cash incentives from the fund by efficiency for universities, research centers and submitting proposals for projects that private entities to propose projects involve renewable energies and energy Projects are funded for the installation related to exploration, production, transition. The announcement for 2010, of new high efficiency technologies by refinery and oil chemistry studies. No “Bioeconomy,” called for projects that micro, small and medium enterprises, bid has yet been published for 2013. promote the production and use of municipalities, industries and service alternative fuels in primary sectors. Fund for hydrocarbon projects sector companies. These technologies No bid was published for years 2011 are also tax deductible as investments. The Renewable Energies Exploit and 2012, nor has a bid for 2013 been The following equipment is included and Energy Transition Financing Law published yet. in this program: air conditioners, (LAERFTE in Spanish) allows industrial, Fund for energy sustainability water pumps, air compressors, high- commercial and residential installation pressure sodium vapour (HPSV) lamps, of renewable technologies for the Every fiscal year, the Ministry of Energy light-emitting diode (LED) lighting, generation of electricity for private (SE) and the CONACYT establish a fluorescent compact lamps, electric consumption only. According to Mexican special fund for energy sustainability motors, renewable energy systems for legislation, only the Electricity Federal projects in which universities and refrigeration, ventilation, speed control, Commission (CFE) is allowed to sell research centers are the potential and other energy efficiency equipment. electricity. If the energy production participants and beneficiaries. The Applicants must file a request for the exceeds the amount used by an entity resources for the fund are provided by fund and be approved. during a given month, the excess can the Mexican Oil Company (PEMEX) and FIDE business eco-credit be fed into the CFE’s grid and becomes are calculated every three months as a credit that can be applied against the a percentage of their total income. The Projects up to USD30,000 are funded entity’s electricity bills in the future. projected balance for fiscal year 2011 for replacing obsolete equipment The CFE will not reimburse the money is approximately MXN1 billion (USD84 with high efficiency equipment. The equivalent to the energy fed into the grid. million). After the official announcement, program applies to companies of any participants will compete for cash Fund for energy transition and size in the private sector. Besides the incentives by submitting their proposals sustainable exploit of energy funding, the companies are awarded a to the Committee, which will then 10 percent scrapping bond. Technologies In 2008, LAERFTE was released. evaluate the proposals and decide on financed under this program include air It establishes Mexico’s strategy to the cash distributions. No official bid conditioning, commercial refrigeration support policies, programs, actions and was published during 2012, nor has a systems, electric motors, LED lighting, projects oriented to increase the usage public bid been published during 2013. high efficiency lighting and electrical of renewable energy sources and clean The fund for energy sustainability substations. Applicants must file a technologies, promote energy efficiency supports four kinds of projects: request for the fund and be approved. and sustainability, and decrease oil dependency as the main source of energy.

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© 2013 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. • Applied research: research Government projects funded for 2011 regarding energetic sustainability include the following: technology. • Municipal Street Lighting National • Technology development: Program: For 2011, the Fund has universities and/or research centers authorized MXN120 million (USD10 working together with enterprises million) for the execution of projects in technology development projects for energy-efficient street lighting. such as pilot tests or prototyping. • Sustainable Light Program: This In such cases, the enterprises program aims to decrease the must provide at least 30 percent energy consumption in homes by of the resources for the project substituting 45.8 million lights during development. 2011 and 2012. The first stage of the • Technology packages: program is to be concluded within documentation, business planning, the first months of 2012. The second feasibility studies and other activities stage aims to double the number of designed to link universities lights by the end of this year. and/or research center projects • Integral Energy Services Program: with an enterprise partner. This program is designed to provide • Technology assimilation: a greater percentage of rural universities and/or research centers populations in Mexico with electricity working together with enterprises through renewable energy and small- in order to introduce a current scale energy generation. The program developed technology into Mexico. will be supported by the Global Fund In such cases, the enterprises for the Environment (GFE), the Bank must provide at least 30 percent of Reconstruction and Promotion of the resources for the project (BIRF) and the National Committee for development. Indigenous Towns Development (CDI). Fund for R&D in energy • National Sustainable Energy Exploit Program: A review carried The CFE and the CONACYT created out by the National Sustainable a fund to provide resources for R&D Energy Exploit Program (PRONASE) projects in the electric sector. The identified several areas in which distribution of resources was carried out energy efficiency might be increased by a competition among participants, over a medium to long-term period. and the CONACYT released one These areas include transportation, program in 2010, which ended in lighting, industrial motors and February 2011. This program involved home equipment. PRONASE will seven types of projects related to continue to define new strategies specific categories such as ocean to encourage the use of renewable waves, ocean currents, hydraulic energy in these areas for Mexico. equipment, nuclear energy and the measurement of gas emissions. No official bids were published during 2012, nor has a public bid been released for 2013.

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Support schemes • An additional deduction is granted – Investments must be included on of up to 36 percent of the amount the Environmental List (Milieulijst) Investment and other subsidies invested in qualifying environmentally to be qualifying assets. friendly assets under the The following schemes are applicable – Free depreciation of up to 75 Environmental Investment Allowance for solar, wind, geothermal, hydro, percent of the investment costs of (Milieu-investeringsaftrek or MIA): biomaterial and offshore technologies. the qualifying asset is granted. The • An additional deduction of 41.5 – Depending on the asset, the maximum qualifying investment percent of the amount invested in amount that can be deducted costs that are taken into account qualifying assets is available under from the fiscal profit is 13.5, 27, amount to EUR25 million per the Energy Investment Allowance or 36 percent of the investment taxpayer per calendar year. costs. The maximum qualifying (Energie-investeringsaftrek or EIA): – The total amount of qualifying investment costs that are taken investments must be more than – Investments must be included on into account are EUR25 million per EUR450 per calendar year. the Energy List (Energielijst) to be taxpayer per calendar year. qualifying assets. – No prior use of asset that is the – Investments must be included on object of investment is permitted. – The maximum amount of the Environmental List (Milieulijst) investment for which EIA can be to be qualifying assets. – Certain formal conditions apply claimed per calendar year per to requests for the accelerated – The total amount of qualifying taxpayer is EUR118 million. Pro depreciation. rata calculation applies in the case investments must be more than of transparent entities. EUR2,300 per calendar year. – Free depreciation/depreciation at will is subject to a maximum – A granted MIA will be revoked – The total amount of qualifying annual budget, to be determined partially or in full (added back to the investments must be more than annually (EUR24 million in 2013). EUR2,300 per calendar year. fiscal profit) on alienation of the assets within a five-year period. Applicability: Not directly applicable to – A granted EIA will be revoked renewable energy, although assets for – No prior use of asset that is the partially or in full (added back to the which this tax incentive is applicable object of investment is permitted. fiscal profit) on alienation of the can be used as part of the production of assets within a five-year period. – The EIA and the MIA cannot be energy from renewables. applied simultaneously. – No prior use of the asset that is the • Capital invested in green funds object of investment is permitted. – Certain formal conditions apply to (appropriated funds invested in – The EIA and the Environmental requests for the MIA. environmentally friendly projects or groene fondsen) is exempt from Investment Allowance (see below) – The MIA is subject to a maximum personal income tax: cannot be applied simultaneously. annual budget, to be determined – Certain formal conditions apply to annually (EUR101 million in 2013). – A private investor will not be taxed for capital invested in green funds. requests for the EIA. Applicability: Not directly applicable to – The EIA is subject to a maximum renewable energy, although assets for – The maximum amount of invested annual budget, to be determined which this tax incentive is applicable capital exempted on an individual annually (EUR151 million in 2013). can be used as part of the production of basis is EUR56,420. energy from renewables. Applicability: Not directly applicable to – A tax credit will be granted of 0.7 renewable energy, although assets for • Free depreciation/depreciation percent of the invested capital, which this tax incentive is applicable at will is granted on qualifying with a maximum amount of can be used as part of the production of environmentally friendly assets invested capital of EUR 56,420 on energy from renewables. (Willekeurige afschrijving milieu- an individual basis. investeringen or VAMIL): Applicability: Investments in green funds.

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© 2013 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 Feed-in tariff As of 4 April 2013, the regulation for the feed-in tariff (Stimulering Duurzame Energieproductie or SDE+) for 2013 has opened. This regulation includes the following features: • a maximum amount of EUR0.15/ kWh (or EUR1.035/Nm3 or EUR41.67/ GJ) for all types of renewable energy such as wind, geothermal, solar photovoltaic, biomass and hydro • phased opening • a “free category” to enhance investments in certain technologies • feed-in tariff granted for a certain period (5, 12 or 15 years) • a maximum subsidy amount for the Netherlands, to be determined annually (EUR3 billion in 2013).

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

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Support schemes Operating subsidies market. Power suppliers and certain power users are required to purchase Investment and other subsidies Feed-in tariff green certificates for a share of the Energy Fund There are no national-based feed-in electricity they sell or use. tariffs in Norway. However, there is a The state-owned corporation Enova is The following power producers may green certificate scheme. the driving force for an environmentally apply, subject to certain requirements, friendly energy conversion by private Premium for green certificate approval for whole and public enterprises. Enova’s main or parts of its production based on its Green certificates commission is through the Energy Fund total production: that supports environmental change in The issuance of green certificates is • power plants based on renewable the use and production of energy. The an economic subsidy scheme that will energy sources and built after 7 management of the Energy Fund is make it more remunerative to invest in September 2009 governed by an agreement between the power production based on renewable Ministry of Oil and Energy and Enova. energy sources such as hydro, wind, • hydro plants generating 1 MW and In addition, Enova manages the EU solar and bio energy. The scheme is built after 1 January 2004 program (Intelligent Energy Europe) and regulated by the Green Certificates Act. • existing renewable power plants that the International Energy Association The Norwegian government has permanently increase their electricity (IEA) program known as Energy entered into an agreement with the production with new construction Technology Data Exchange (ETDE) in Swedish government establishing beginning on or after 7 September Norway. a common green certificate market 2009. Enova offers financial support based on for electricity that will contribute to Any entity that delivers power to end defined programs for various renewable increased production of renewable consumers is obliged to purchase green energy and environmentally friendly energy. Moving toward 2020, Sweden certificates, and it is the end consumer projects based on an application and Norway will increase their power who finances the scheme through principle. In 2012 the Energy Fund production from renewable energy increased costs when invoiced for supported 750 different projects within sources with 26.4 TWh. Power plants usage. The green certificate scheme energy effectiveness, conversion and that are included in the scheme receive is managed by the Norwegian Water increased utilization of renewable green certificates that can be sold in the Resources and Energy Directorate. energy amounting to approximately Norwegian-Swedish green certificates Norwegian krone (NOK)1.7 billion. Other allowances Certificate The General Tax Act includes regulations government regarding tax allowances known as SkatteFUNN to support R&D project costs. Under the SkatteFUNN scheme, any type of business enterprise Total energy engaged in R&D activities may apply to Producers of market of Electricity the research council for tax allowances. renewable energy renewable energy consumer R&D projects under the SkatteFUNN 26,4TWh scheme are aimed at obtaining new Payment knowledge or technical skills that can benefit the company in connection with Power suppliers the development of new or improved Certificate Payment goods, services or means of production. The total tax allowance may not exceed NOK11 million per company per year.

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© 2013 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. Quota obligation on the allocation, issue, holding, Nitrous Oxide (NOx) tax: The NOx tax transfer, surrender and cancellation is calculated per kg for NOx emissions Starting in 2008, the Norwegian of allowances. An operator will by generated during the production of emissions trading system for 30 April each year transfer a number energy from the following energy greenhouse gas (GHG) emissions of allowances corresponding to the sources: expanded to include nearly 40 percent volume of emissions for which reporting of the emissions related to Norway. It is • propulsion machinery with a total is mandatory, generated by the also affiliated with the European system installed capacity of over 750 kW installation in the previous calendar year for quotas. The Norwegian system to a specified settlement account in the • motors, boilers and turbines with a for quota obligation applies to GHG registry. total installed capacity of more than emissions in Norway and to emissions 10 MW from activities on the Norwegian part of Additional information the continental shelf. • flares on offshore installations and on Indirect taxes: Indirect taxes are facilities on land. The quota system applies to emissions used as a policy instrument to reduce in connection with: the consumption of products that are Enterprises that join the Environmental Agreement on NOx are entitled to a • energy production detrimental to the environment. tax exemption from the date when CO tax: Gasoline, mineral oil, gas for • refining of mineral oil 2 they joined. From the same date, inland usage and petroleum activities the enterprise will have a payment • coke production are subject to a CO tax. A CO tax 2 2 obligation vis-a-vis the business sector’s • production and processing of iron and related to petroleum activities shall NOx Fund. According to the Participant steel including roasting and sintering be paid per liter of oil and natural gas Agreement, affiliated enterprises will of iron ore liquids and per standard cubic meter of develop a measure plan identifying gas burnt off or emitted directly to air possible NOx reducing measures within • production of cement, lime, glass, on platforms, installations or facilities two years after affiliation. glass fiber and ceramic products, as used in connection with the extraction well as the production of paper, board or transportation of petroleum on the The purpose of the plan is to identify and pulp from timber or other fibrous Norwegian continental shelf. The tax is profitable measures the enterprise can materials classified as a deductible operating cost implement on its own accord, and to identify cost-effective NOx reducing • aviation activities. associated with petroleum activities, which contributes to reducing the measures whose implementation are Any person engaged in any of the ordinary tax and special tax actually paid dependent on support from the NOx activities mentioned above is required by the oil companies. Fund. As of 13 March 2012, a total of 995 to surrender allowances corresponding enterprises, ships and rigs had joined The CO tax was reduced according to to any emissions to which the duty 2 the Environmental Agreement on NOx to surrender allowances applies. the estimated emissions trading price 2011- 2017. The Norwegian Emissions Trading when the Norwegian emissions trading Registry shall contain information system was introduced.

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

39 | Taxes and incentives for renewable energy

Support schemes – Priority will be given to projects Administrative procedures: Business implemented in areas with a activity in the area of production of Investment and other subsidies low 110 kV network density and renewable energy is a licensed activity • Support schemes are applicable with documented readiness for and requires a permit granted by the for solar, wind, geothermal, hydro, implementation of the undertaking. president of Energy Regulatory Office. Such a permit can be sought by an entity biomaterial and offshore technologies. – Grants include PLN200 for each that meets requirements specified in kW of connected power from • Renewable energy is exempt from the Energy Law, especially the ability renewable wind energy sources excise tax. to provide the financial, organizational but not more than 40 percent of and technical resources required to • In some cases solar photovoltaic eligible investment costs. modules cannot be subject to real perform the licensed activity. As a rule, estate tax as other constructions. As of 2013, companies in certain permission is given for the fixed term but (The planned act on renewable energy provinces will have the opportunity to not longer than 50 years. apply for co-financing to support the sources might provide otherwise.) Grid access: Priority access is granted construction of installations designed over nonrenewable electricity producers. • Agriculture tax payers may claim a to produce energy from renewable The costs of connecting to the electricity refund of investment costs if the sources. The above incentives will be grid are determined by the actual costs investment relates to renewable applicable to smaller renewable energy incurred to construct the line. Those energy (up to 25 percent). projects under the Regional Operational costs may be partially refunded to the Programs. • Subsidies and grants from the EU investor, depending on the year and Structural Fund in Poland or other Operating subsidies production capacity. domestic institutions (for example, the National Fund of Environmental Green certificate system Green certificates scheme: Electricity Protection and Water Management). producers may apply to the president Remuneration for renewable energy of Energy Regulatory Office for green Currently the following sources of produced: the average market price of certificates (also known as certificates of financing for renewable energy projects PLN201.36/MWh for the last year (2012) origin), if they have produced renewable are available: plus the market value of green certificate energy or if they are required to pay (certificate of origin) granted by the • The National Fund of Environmental substitute fees calculated in line with the Energy Regulatory Office. Protection and Water Management energy law. The green certificates are (NFEPWM) has announced a schedule Quota obligation similar to securities; they are transferable of application rounds for investments and tradable on the regulated market (for related to environmental protection. Rates (2013): 12 percent of all energy example, the Polish Power Exchange) or produced (floors relate to all types within the over-the-counter market. • Green Investment Scheme (GIS) Part of renewable energy). The quota is 4 – Construction and reconstruction increasing in stages and will reach 13 Sale: Electricity distributors have a legal of electricity networks for connecting percent in 2014 to 20 percent in 2021. obligation to acquire a certain amount renewable wind energy sources): of renewable energy generated in Additional information Poland. For the year of 2013, the above – An application round under GIS percentage limit of renewable energy Legal basis: The Act of Energy Law Part 4 is planned for November. will amount to 12 percent. Otherwise, enacted on 10 April 1997 and the The total budget of the program the electricity distributor is obliged to buy respective decrees from the Ministry of amounts to Polish Zloty (PLN) 400 the missing amount of renewable energy Economy. million. (by means of green certificates) on the – Eligible projects are those with The Ministry of Economy announced market. The prices of renewable energy investment expenditures above recently an act regarding renewable have been determined based on average PLN8 million, involving the energy sources which establishes under prices of energy in the previous year. construction or reconstruction of Polish law the provisions of Directive (The amount for 2012 was PLN201.36 electricity networks in order to 2009/28/WE. According to this act, the /MWh). The renewable electricity enable the connection of entities level of support for renewable energy producers have priority over other producing renewable wind energy will differ depending on the source producers with regards to the distribution to the National Electric Power of renewable energy. The highest of produced energy. System (NEPS). support will be provided for photovoltaic installations with the power productivity exceeding 100 kW.

Taxes and incentives for renewable energy | 40

Support schemes Quota obligation of green certificates depending on the fuel used. For example: Investment and other subsidies In December 2012, the Romanian Regulatory Authority in the Field of • between 0.5 and 3GC/Mw for Tax incentives Energy (ANRE) calculated the estimated hydroelectric power, varying on the In Romania, the following tax incentives quota of GCs acquisition for 2013 for the capacity of the plant may be applicable to energy produced electricity suppliers as 0.21 GC/MWh • 2 GC/MWh for wind power, until 31 from the following renewable sources: supplied to final consumers. December 2017 wind, solar, geothermal, hydro, biomass Additional information and residues fermentation gas. • 1 GC/MWh for wind power, starting Legal basis: Electricity Law 13/2007 • Electricity from renewable sources is with 1 January 2018 and Law 220/2008 for approval of the excise duties exempt. support scheme for electricity from • 6 GC/MWh for solar power. • Accelerated depreciation for renewable sources (Law 220/2008) and According to a report issued by tax purposes can be used for the secondary relating legislation issued ANRE, the green certificates scheme technological equipment, computers by ANRE. should be reduced in order to avoid overcompensation. Therefore, the and related peripheral equipment. Administrative procedures: The authorities intend to grant 1.5 GC/MWh activity of production of electricity from • Buildings and land used within for new wind plants, 1.3 GC/MWh for re- renewable sources requires a license hydroelectric, thermoelectric and used wind plants, 2.3 GC/MWh for new granted by ANRE. Such a license can nuclear power plants, as well hydroelectric power and 3 GC/MWh for be obtained by an entity that meets as buildings and land relating to solar power. certain requirements (relating to its transformation and connection posts, financial position, technical resources, The support scheme is granted for a are not subject to local taxes. etc.) and provides a specific set of period of 3 to 15 years, depending on • Reinvested dividends can be dividend documentation. the age of the plants and the installed capacity. Eligible electricity producers tax exempt, provided the dividends The license is granted for a fixed term, will be able to enter the scheme only if are used for the purpose of creating but no longer than 25 years. In case of the commissioning/refurbishment of new work places or developing the production of electricity from renewable the power plant are performed before activities of Romanian entities. sources, the maximum period during 31 December 2016. which ANRE should issue the relating • Incentives (for example, exemption license is reduced to 30 days (from 60 Sale: The annual mandatory GCs from payments to unemployment days). acquisition quota is established funds or monthly grants) can also be based on the quantity of renewable Green certificate scheme: In order available to companies which provide electricity produced and on the to promote investments in renewable places of work for students, recent final electricity consumption of the electricity production capacities, a graduates or disabled persons. previous year, without exceeding the Tradable Green Certificates (TGC or GC) level corresponding to the mandatory system has been in place in Romania Operating subsidies quota for the electricity produced from since 2004, coupled with a supplier renewable sources. Green certificate system quota obligation system. Under this The price of a green certificate has framework, energy producers are The quantity of electricity for which the been set between the Romanian entitled to receive a set amount of GCs annual mandatory GCs acquisition quota new leu (RON) equivalent of EUR29/ according to the amount of electricity is established includes the electricity General Collateral (GC) and EUR59/GC. generated by them from renewable purchased by electricity suppliers for Currently, the price of a green certificate sources. The revenue from GC sales their own consumption or for the sale to is equivalent with the maximum value of represents additional revenue for final consumer, the electricity used by EUR59/GC, since the demand of GC is eligible renewable producers on top of the electricity producers for their own higher than the offer. electricity sales on the market. consumption (other than CPT), and for the supply of end consumers directly According to Law 220/2008, the connected to the power plant. producers of electricity from renewable sources benefit from a different number

41 | Taxes and incentives for renewable energy

© 2013 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. Electricity suppliers and electricity The GCs are issued by the transmission producers previously mentioned have system operator and are valid for the obligation to acquire annually a 16 months. The trading value of a GC number of GCs which is equivalent has been established by ANRE as to the product between the annual between the RON equivalent of EUR mandatory GCs acquisition quota and 29/GC and EUR59/GC. Currently, the the quantity of electricity detailed in the price of a green certificate is equivalent paragraph above, supplied annually to with the maximum value of EUR59/GC, final consumers. because the demand of GC is higher than the offer. For 2013, the estimated quota of acquisition of GCs for the electricity suppliers is 0.21 GC/MWh delivered to final consumers. Any supplier that fails to fulfil this obligation must pay the equivalent value of the GC at a premium of EUR117.6 per each non-purchased certificate.

Taxes and incentives for renewable energy | 42

Support schemes Section 12I provides for an additional savings. The energy efficiency savings allowance on assets (new or used), have to be measured and confirmed Investment and other subsidies applied to a project that qualifies by an institution, board or body as as an Industrial Policy Project (IPP) prescribed by regulation. No deduction Carbon emissions incentives defined in relation to assets used in the is allowed if the taxpayer receives Certified emissions reduction manufacturing sector. The project must a concurrent government benefit in exemption be approved by the Minister of Trade respect of energy efficiency savings. and Industry. Only projects larger than This section, although promulgated in Section 12K of the Income Tax Act South African rand (ZAR)200 million the Income Tax Act, has not yet come provides for a tax exemption on any qualify for this allowance. amount accrued in respect of the into effect. It will be effective on a disposal of any certified emission The incentive in relation to a qualifying date as prescribed by the Minister of reduction (CER) credit derived in project comprises: Finance in the Government Gazette, potentially during 2015 because the the furtherance of a qualifying clean • 75 percent of the cost of a new development mechanism. National Treasury has indicated that and unused manufacturing asset “some of the revenues generated To stimulate the uptake of Clean used in an IPP within an Industrial through the carbon tax will be recycled Development Mechanism (CDM) Development Zone (IDZ); or to fund the energy efficiency savings tax projects in South Africa, income from incentive.” primary certified emission reductions, • 35 percent of the cost of a new and which was exempted from income tax unused manufacturing asset that is Production of renewable energy and from 2009 to 2012, will be extended used in an IPP fuels allowance to 31 December 2020, in line with the • If the qualifying project constitutes Section 12B provides for an accelerated adoption of the second commitment a Preferred Project (as defined), the capital allowance for machinery, plant period of the Kyoto Protocol. incentive comprises: implements, utensil or articles, owned The VAT Act does not provide for by the taxpayer which was brought into – 100 percent of the cost of a new exemption from VAT on the disposal use for the first time by the taxpayer for of a CER credit. It is arguable that the and unused manufacturing asset purpose of its trade. disposal of CER credits should be used in an IPP within an IDZ; or This section applies where the assets viewed as a supply of services for VAT – 55 percent of the cost of a new are used for purposes such as the purposes and that, on exportation of and unused manufacturing asset generation of electricity from wind, CER credits, this service is zero-rated used in an IPP. sunlight, gravitational water forces or for VAT purposes. biomass. The incentive (i.e. tax deduction) is Energy efficiency incentives limited to: The allowance is calculated as 50 percent of the cost and construction Industrial policy projects additional • ZAR900 million for greenfield of the assets for the taxpayer in the allowance projects with preferred status first year, 30 percent in the second This is an incentive in relation • ZAR550 million for greenfield year, and 20 percent in the third year. to industrial policy projects, projects with qualifying status The allowance also applies to all including greenfield and brownfield improvements (other than repairs) and manufacturing projects. One of the • ZAR550 million for brownfield supporting structures that would form qualifications for eligible projects is projects with preferred status part of the machinery, plant, implement, the use of improved energy efficiency utensil or article. • ZAR350 million for brownfield and cleaner production technology. Measurement and verification (M&V) projects with qualifying status. Research and development allowance of savings will be required to verify that Energy efficiency savings allowance savings are sustained over the incentive (legislation not yet in force) Aside from the general 100 percent benefit period of four years. deduction, this allowance (Section 11D) Section 12L proposes as a deduction, provides for an additional 50 percent for Under Section 12I of the Income Tax in determining the taxable income all expenditures incurred in respect of Act (Industrial Policy Projects), projects of a taxpayer, an amount in respect eligible R&D activities. that have already received incentives or of energy efficiency savings by the grants under other types of schemes taxpayer with regard to that year of The additional 50 percent uplift will will be excluded. Such projects need assessment. The deduction will be only apply to R&D approved by the to be ring-fenced and taken out of the calculated at 45 cents per kilowatt hour Department of Science and Technology. equation when calculating and reporting (or equivalent) of energy efficiency R&D in respect to green and energy- savings for the tax claim.

43 | Taxes and incentives for renewable energy

© 2013 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. saving industries has been identified as asset or environmental waste a new area of focus. disposal asset used in the context of manufacturing. Environmental incentives The allowance in respect of an Environmental treatment and environmental treatment and recycling recycling or waste disposal asset asset is 40 percent of the cost of the allowance asset in the first year and 20 percent per annum for the next three years. The Section 37B provides for an allowance cost of waste disposal assets can be with regard to the cost incurred written off on a straight line basis over in acquiring a new and unused 20 years (five percent per year). environmental treatment and recycling

Government grants/subsidies

Grants Potential Grant Description Rates/Basis Source Manufacturing The MCEP is a cost-sharing incentive available to existing The maximum grant Department Competitive manufacturers for expanding or upgrading facilities. available is limited to 7-10 of Trade and Enhancement percent of MVA. Industry (DTI) Programme The grant is based on Unilever’s Manufacturing Value Added (MVA) which is calculated on sales less costs of production. Within this limit a benefit of 30 to 40 percent of The MCEP is further broken into several components, including the expenditure may be the Capital Investment and Green Technology and Resource granted, capped at ZAR50 Improvement components. million. MCEP The Capital Investment component is utilized to support upgrading and expansion of equipment that will lead to the creation of new jobs or the retention of existing jobs. The main qualifying criteria is that jobs should be maintained for two years and the company must be a level four B-BEEE contributor or must have plans in place to achieve this score in two years. Applications need to be submitted at least 60 days prior to the commencement of the commercial use of the assets.

Incentives Potential Grant Description Rates/Basis Source Manufacturing The MIP is a tax-free grant available to manufacturing entities The grant is 15 percent Department Investment which is calculated based on the size of the project. of qualifying costs of the of Trade and Programme project. Industry (DTI) MIP The MIP is available to existing manufacturers who plan to increase their production facilities. The grant is payable over a two year period. A scoring system is in place to establish if the project will qualify for this grant. Points are allocated based on the sector, the B-BEEE score and the number of additional jobs created. Applications need to be submitted at least three months prior to planned commencement date of production.

Taxes and incentives for renewable energy | 44

Support schemes Plant Support Plan was announced • The total RPS target for 2013 was in May 2013. The plan supports confirmed as being 9,210,381 MWh; Investment and other subsidies operations from the installation of increasing 41 percent from last year’s In 2004, the South Korean government solar power plants to sales for small target (6,420,279 MWh), while the RPS passed the Act on the Promotion of the entities under 50kW capacity in Seoul. target for solar power rose 270 percent Development, Use And Diffusion of New According to the plan, the small from 276,000 MWh to 723,000 MWh And Renewable Energy (the Act). With the entities can receive KRW50/kWh in the same period. goal of becoming one of the five largest (approximately 10 percent of installation producers of new and renewable energy, cost) for five years from 2013. Additional information the government has announced that a One Million Green Homes Project: As a total of South Korean won (KRW)40 trillion Premium part of the 2009 budget, the government (EUR25.8 billion, USD34.2 billion) will be The R&D tax credit program is applied for appropriated KRW94.3 billion (USD72 invested in renewable energy by 2015. renewable energy technologies. Import million) for the One Million Green Homes This investment includes KRW22.4 duties are reduced by 50 percent for all Project. The intent is to build one million trillion invested by the nation’s 30 largest components and/or equipment used in homes by 2020 that use one of the industrial groups by 2013, KRW7 trillion of renewable energy power plants. following renewable energy technologies: government contribution, and KRW10.6 The Financial Support Program for solar thermal, solar photovoltaic, trillion from other private sectors. South Renewable Energy in South Korea is geothermal, biomass and wind energy. Korea has already seen substantial comprised of two main categories: the Each year, the government will set a new financial investment in renewable energy Electricity Fund and the Special Account budget for the coming year. in recent years, including KRW2 trillion for Energy and Resource Projects. The green homes being built are (EUR1.3 billion, USD1.7 billion) from the environment-friendly and use new and government in the last two years. The total budget in 2013 is KRW79.2 million, KRW64.2 million from the Special renewable energy resources. In addition, The revision of the Act on the Promotion Account, and KRW15 million from the green homes create no carbon emissions of the Development, Use And Diffusion Electricity Fund. The government provides and use less energy, water and natural of New And Renewable Energy (the 4th) subsidies up to 90 percent (in the case resources. will be issued by the first half year of 2013 of conglomerate, 50 percent) to the Other support programs: The and the target is expected to be revised approved applicants. Subsidies were set at government will support 10 major green upward from existing target ‘renewable a variable interest rate (from 1.75 percent projects that have impressive promotional energy supply rate 11 percent in 2030. to 2.25 percent in 2012), including a five- and installation effects. To reach this goal, the government is year grace period followed by a 10-year implementing initiatives in four major payment period. areas: Quota obligation • strategic R&D and commercialization • In 2012, the existing feed-in tariff was • promotion of industrialization and replaced by an RPS that was approved market creation by the government assembly in March 2010. • promotion of exports of new and renewable energy products • The RPS requires 13 state-run and private power utilities with a capacity • infrastructure development. in excess of 500 MW to generate Operating subsidies two percent of the energy production from renewable sources by 2015. This Feed-in tariff percentage will be increased in stages • The feed-in tariff was abrogated at the to 10 percent by 2022. end of 2011 due to introduction of a • In terms of the standard price per renewable portfolio standard (RPS) in certificate, REC for solar power was 2012. (The government maintains a KRW184,200 averagely in 2012, feed-in tariff only for existing recipients). while REC for non-solar power was • To accommodate small renewable determined to be KRW 32,331 energy facilities that could not receive regardless of its implementing method. support by RPS, the Seoul Solar Power

45 | Taxes and incentives for renewable energy

Support schemes Tax credit rates are set at 30 percent of the • use of continental waters to generate expenses incurred in the tax period for this electricity (hydroelectricity generation). Tax incentives purpose. In the event that the expenses Law 15/2012 has also established that the incurred in pursuing the R&D activities in The following includes a brief description electrical energy attributable to the use of the tax period exceed the average of those of certain tax incentives that have not been fuels in facilities that use any of the non- incurred in the two preceding years, the rate specifically created for the renewable consumable renewable energies as primary established in the preceding paragraph shall energies sector. Careful tax planning is energy shall not be subject to a premium- apply up to that average, and 50 percent therefore required to take advantage of based economic regulation. This affects to the amount by which that average is these tax incentives. solar-thermal installations in particular. exceeded. Reduction of income from certain Operating subsidies intangible assets Technological innovation activities tax credits: The tax credit base shall consist of Applicable for solar, wind, geothermal, The income derived from the license of the amount of the expenses incurred in the hydro, combined heat and power (CHP) the right to use or exploit certain intangible technological innovation activities. The tax systems and biomaterials under 50 MW of assets as defined in article 23 of CIT Law, credit rate is 15 or 10 percent, depending on installed capacity. shall be included in the CIT taxable base the nature of the activities. with a 50 percent reduction, and provided Feed-in tariff certain requirements are met. This 50 Capital duty exemption Fixed remuneration is available for electricity percent reduction shall not be applicable As a result of the modifications introduced produced by power plants. for the tax period following that when the by RD 13/2010, Spanish Transfer Tax Law total income derived of the license of each foresees an exemption of the Capital Duty Premium intangible asset that has benefited from regarding: Spot price with a fixed premium (fixed the reduction, calculated from the date on with an overall cap and floor, depending on which the license is issued exceeds six • incorporation of companies technology). The option of spot price plus times the cost of the intangible created. • share capital increase premium has been eliminated by Royal Corporate Income Tax (CIT) credit for • contributions of shareholders that do not Decree-Law 2/2013. investments in assets to protect the constitute a share capital increase Other subsidies environment • transfer to Spain of the office of effective General regulation of the legal regime of Article 39 of the Spanish CIT supports management of a company not electricity production from renewable investments in fixed assets aimed to previously located in the EU. sources is contained in RD 661/2007. As protect the environment, including facilities per operating subsidies for renewable designed to avoid atmospheric or acoustic Tax allowances on local taxes energy (except photovoltaic or PV), pollution from industrial installations, or For certain local taxes such as construction they are determined by RD 661/2007 water pollution. An eight percent tax credit and urban canon, tax allowances could be governing renewable technologies. Solar is granted for any investment included in determined at the local level. These tax PV technology incentives for the plants programs, arrangements or agreements allowances would depend on each local entering in the system after September entered with the environmental public authority, and should be negotiated on a 2008 are specifically governed by RD authorities of regional governments. case-by-case basis. 1578/2008 and refer only to feed-in tariffs. Tax credits may be carried forward to the New taxes on energy Until January 2012, incentives for new following tax year if they have not been renewable plants were granted, provided applied in a given fiscal year and have not New taxes on electricity generation that projects were filed with the “registry been used in that fiscal year because the tax Law 15/2012 entered into force on 1 for pre-allocation,” subject to limitations on due was insufficient. January 2013. These taxes are not strictly the total capacity defined. R&D Corporate Income Tax credits environmental taxes. Revenues created However, all incentives granted to new by them will finance the Spanish deficit for R&D tax credits: The tax credit base shall renewable plants that are not yet included the cost of generation and distribution of consist of the amount of research and in the registry of pre-allocation (for instance, electricity. Taxes apply to: development expenses and, if applicable, those wind power plants envisaged to investments in tangible fixed assets and • electricity generation enter after 1 January 2013) are currently intangible assets, excluding real estate and suspended by the RD-L 1/2012. The registry • nuclear raw and radioactive waste land. of pre-allocation has been cancelled as • nuclear raw and radioactive waste well, leaving open the establishment of storage new special economic regimes for certain

Taxes and incentives for renewable energy | 46

© 2013 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. installations and the right to receive a – For wind technology, in terms of Solar thermal Hour specific economic system under certain technology limitation the feed-in tariff, the amount to be assumptions. per year applied will be the ones set under regulation Order ITC/3519/2009. Prior to this RD-L 1/2012, relevant Parabolic cylinder 2,855 regulatory changes have been recently without storage capacity Furthermore, RD 1614/2010 clarified that introduced by RD 1614/2010, RD Parabolic cylinder with 4,000 the revisions of premiums, caps and floors 1565/2010 and RD-Law 14/2010. Mainly storage capacity of mentioned at article 44.3 of RD 661/2007 focused on wind, solar PV and solar 9 hours (h) shall not affect those wind and SCP Plants thermal energy production, these changes Parabolic cylinder with 3,950 included in the pre-register. concern existing power plants or those storage capacity of 7 h As with solar thermal, during the 12 month under construction. Some of the legal Parabolic cylinder with 3,450 period after the start up of these plants, the changes substantially modify the legal storage capacity of 4 h energy produced will have to be sold to the regime (both economic and operational) of Saturated steam tower 2,750 market mandatorily under feed-in tariffs. these plants. Salt tower with 15 h 6,450 Furthermore, a time extension is granted The following sections provide an outline storage capacity for the start up of solar thermal plants filed of some of these changes. Fresnel 2,450 in the Incentives’ Registry under phase 4 (until 31 December 2013). Wind and solar thermal technologies Stirling 2,350 (RD 1614/2010) Solar PV technology (RD 1565/2010 and RD-Law 14/2010) • Operational hourly limits that are entitled – For solar, the hourly limits are for feed-in tariffs and premiums: considered individually and depend • Operational hourly limitation with on technology, as follows: the right to be granted feed-in tariffs, – For wind, a number of hours for all depending on tracking technology and the plants under this technology are Once exceeding such limitations, pool individual considerations. In this regard, established (2,589 hours per year),; prices should apply. a two-stage limitation is expected. provided that an overall average of • A review of incentives granted by RD production hours for total installed • A general hourly limitation for all PV 661/2007 includes the following: wind power is reached (2,350 hours plants is approved with the following per year). conditions, with Spain divided into five irradiation areas:

Hourly limitation per year Area Area Area Area Area I II III IV V Technology Fixed 1.232 1.362 1.492 1.632 1.753 support Single axis 1.602 1.770 1.940 2.122 2.279 tracker Dual axis 1.664 1.838 2.015 2.204 2.367 tracker

Source: KPMG International, Taxes and Incentives for Renewable Energy, 2011

47 | Taxes and incentives for renewable energy

© 2013 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 those PV plants under RD 661/2007 for PV technologies. This change was Additional information economic regime, a special and made with the intention of avoiding extraordinary limitation has been the retroactive character of the Considerations regarding operating approved until 31 December 2013: measure. subsidies for renewables: Duration: Subsidies are granted from Technology Hourly limitation • Feed-in tariffs, premiums and limits per year laid down are cancelled for new 15 to 25 years. Depending on the technology, subsidies are substantially Fixed support 1.250 plants, as well as the supplement for efficiency and reactive energy. reduced after this period. Single axis tracker 1.644 Update: Subsidies are updated annually Dual axis tracker 1.707 • Additionally, Royal Decree-Law 29/2012 of 28 December 2012 according to the CPI at constant tax rates established that the economic excluding unprocessed food and energy • As compensation for the hourly regime of incentives applicable products. limitation set out above, feed-in tariffs to renewable producers of the are extended from 25 to 30 years. Payment: Part of the total subsidies special regime will be cancelled New relevant technical obligations are amount is liquidated by the Spanish if an installation registered in the established for PV plants to permit a National Energy Commission (Comisión pre-allocation registry has not global technical management of the Nacional de Energía or CNE) and paid by been completed by the deadline grid. the energy distributors. The remainder for definitive registration in the is liquidated and paid by the market and Decrease of the feed-in tariffs established registry of special regime production system operator. under RD 1578/2008 with the Incentives installations and has started to sell Registry (RD 1565/2010): energy. Administrative procedures: Main permits and authorizations include • 5 percent decrease for type I1 Measures introduced by Royal electric sector authorizations, municipal installation Decree-Law 2/2013 of 1 February 2013 permits and licenses, and environmental • 25 percent decrease for type I2 This regulation, which seeks to reduce the procedures. At an environmental level, it installations costs of the Spanish electrical system, has should be emphasized that public tenders established the following measures: are carried out for onshore wind and PV • 45 percent decrease for type II projects to determine locations that are installations. • Replacement of the Consumer Price environmentally friendly. As per offshore Index (CPI) with the CPI at constant Cancellation of the registry of pre- wind, a national map has been approved tax rates (excluding unprocessed allocation of new special regime with possible project locations. food and energy products). This installations (RD-Law 1/2012) measure is designed to update the Grid access: Access priority is given over • Due to the deficit problem generated remuneration of those technologies other non renewable electricity producers. by the Spanish electrical system, referenced in this index. Full access is not guaranteed but depends and based on a possible excess of on the technical management of the • Cancellation of the premium renewable capacity considering the grid and demand. The costs concerning established for renewable objectives of 2020, the government the access to the grid will be paid by the installations that sell their energy has decided to temporarily suspend energy producers. Access to the grid will to the market. In this sense, RD the registration of new special- only be denied by grid operators in the case 661/2007 has been modified and regime plants along with the special of a lack of capacity according to security, now establishes that the value of the regime of incentives for these plants. quality supply and regularity criteria. premium applicable to all groups and As a result, developers who wish to sub-groups shall be EUR0.0/kWh. construct new plants in this situation will not receive incentives but only • Renewable generators do not have the market price. the choice to opt between market price plus premium and feed-in • This new policy change will apply only tariffs. By contrast, all renewable for those special-regime facilities that generators have to be subject to would not have been entered in the feed-in tariffs unless they choose to registry of pre-allocation according to sell at market price without premium. RD-Law 6/2009 and RD 1578/2008

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Support schemes Operating subsidies Depreciation of windmills For each MWh produced by renewable sources (solar, geothermal, wind, wave, Swedish tax law allows tax payers 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 CO taxes and sulphur taxes are levied annual depreciation allowance may 2 on fossil fuels. be increased correspondingly. The depreciation allowance is calculated on There is also a fee-based system for a pool basis, with the book value of all the reduction of greenhouse gas (GHG) the taxpayer’s assets taken into account emissions. in order to calculate the maximum depreciation allowance.

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Support schemes • Documents and transactions related discount is applied to the lease, to the power plants and concluded easement and utilization right of energy Investments and other subsidies throughout the investment period are transfer lines for 10 years in both General Investment Incentive Regime exempted from stamp tax and duties. investment and operating periods. has changed in June 2012. This new Operating subsidies Additional information incentive regime is applicable to ENR investments, mainly by providing the Feed-in tariff • If the mechanical and following: electromechanical equipment used The tariff and the government purchase in renewable energy facilities that • VAT exemption on purchase (or guarantee are applied for 10 years have started operation before 31 import) of investment equipment following the start of operations December 2015 are manufactured of a generation power plant until • customs duty exemption on import of in Turkey, an additional incentive 31 December 2015. investment equipment of between ct0.4 and 2.4/kWh for Resources: five years will be provided to such • exemption from other funds and facilities, under certain conditions. surcharges. • Hydro: USD cent (ct)7.3kWh • Renewable energy sources based Other subsidies • Wind: ct7.3/kWh electricity generation power The new Electricity Market Law 6446 • Geothermal: ct10.5/kWh plants with an installed capacity of became effective as of 30 March 2013. maximum 1 MW and other similar • Solar: ct13.3/kWh The incentives provided under this law investments are allowed to operate apply to investors holding a generation • Biomass (including landfill): without a generation license. license and beginning operations before ct13.3/kWh 31 December 2015: Discount on fees • A 50 percent discount is applied to The new Electricity Market Law 6446 the transmission system utilization has become effective as of 30 March fee for five years following the start of 2013. Under this law, an 85 percent operations.

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Support schemes Additional information (ROCs) for each MWh of electricity generated, and these ROCs can be Investments and other subsidies Electricity market reform: In traded independently of the electricity November 2012, the UK government Exemptions are in effect from the generated. introduced the Energy Bill, expected to Climate Change Levy and Emissions become law in summer 2013, outlining There is a banded ROC mechanism Trading Scheme. major reforms to the UK market. Key whereby different renewable electricity Operating subsidies features include the introduction of a technologies receive different levels of two way, feed-in tariff with Contract for support according to their technological Renewable obligation scheme Difference (“CfD”) for each low-carbon maturity and levelized costs (see table Long-term banded quota mechanism generation technology. This provision below). A supplier who does not obtain designed to support renewable is scheduled to replace the Renewable sufficient ROCs over a year has to make electricity generation. Obligation Scheme by 2017. The CfD is buy out payments at British pound expected to last for at least 15 years and (GBP) 42.02/MWh (2013 to 2014 rate). Feed-in tariff (small scale generation) take effect from 2014/15 onwards. The government has confirmed that Tariff support payments for small-scale Renewable Obligation (RO) scheme: applications for the RO regime can be electricity generation from a variety of This requires electricity suppliers made until 2017, thereby extending technologies. to source a specific percentage of the scheme until 2037. Renewable Renewable heat incentive electricity from renewable sources. generators may not receive a CfD and Renewable generators receive also participate in the RO regime. Long term tariff support payments for Renewable Obligation Certificates renewable heat generation.

ROC banding regime

Band Technologies Current Banding (2013-2017) Established 1 Landfill gas 0.25 0.00 - 0.20 Established 2 Sewage gas 0.50 0.50 Co-firing of regular biomass (std) 0.30 (2013-15)/0.50 (2015-16) Co-firing of regular biomass (enhanced) Mid-range (50-85%): 0.60 High-range (85-100%): 0.70 (2013-14)/0.90 (2014-17) Reference Onshore wind 1. 0 0 0.90 Hydro-electric 0.70 Co-firing of energy crops 1.50 - closed to new accreditation from 1 April 2015 EfW with CHP 1. 0 0 Geopressure 1. 0 0 Co-firing of biomass with CHP 1.50 (2013-15) closed to new accreditation from 1 April 2015 Standard gasification and Pyrolysis 2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17) Post- Offshore wind (2014-15) 1.50 2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17) demonstration Biomass conversion 1. 0 0 Biomass conversion with CHP 1.50 (2013-15) closed to new accreditation from 1 April 2015 Dedicated regular biomass 1.50 (2013-16)/1.40 (2016-17) Co-firing of energy crops (with CHP) 2.00 (2013-15) closed to new accreditation from 1 April 2015 Engineering Offshore wind (2013-14) 2.00 2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17) technologies Wave and tidal stream 2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17) Tidal barrage (<1GW) and lagoon (<1GW) 2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17) Advanced conversion technologies 2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17) Dedicated energy crops 2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17) Dedicated biomass with CHP 2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17) Solar photovoltaic Subject to further consultation Geothermal 2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17) Micro-generation 2.00 (2013-15)/1.90 (2015-16)/1.80 (2016-17) Source: Renewables Obligation for the period 2013-17-DECC response to public consultation, July 2012

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© 2013 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. Climate Change Levy (CCL), of up to p8.9/kWh may be made deduction (or a 16 percent cash tax renewables exemption: depending on the technology used. credit for loss-making businesses). Phase 1 also introduced the RHI The CCL is a specific energy tax on • R&D tax relief of an enhanced tax Premium payment, which is a GBP15 non-domestic users of electricity in deduction of 130 percent for large million fund for households that the United Kingdom. Most electricity companies and 225 percent for install renewable heating. In return generated from renewables is exempt SMEs from 1 April 2012 for revenue for the payments, participants will from the CCL. Renewable Levy expenditure on qualifying projects have to provide feedback on how the Exemption Certificates (LECs) are seeking to achieve an advance equipment performs in practice. issued to renewables generators for through the resolution of scientific each MWh of electricity supplied. LECs • Phase 2, extending the scheme to or technological uncertainty. From transfer along with the electricity and tariffs for domestic properties as 1 April 2013, large companies may can be used by electricity suppliers to part of the “Green Deal,” whereby instead claim an above-the-line tax claim the CCL exemption. householders may make energy- credit which gives a taxable payment efficiency improvements to their of 10 percent (7.7 percent after tax) on The Carbon Price Floor, introduced from houses and pay back the cost qualifying revenue expenditure. 1 April 2013, applies a levy on certain of these over time through their types of fossil fuels used to generate • 100 percent allowance on capital electricity bill. This incentive is electricity and so provides a disincentive expenditure on R&D in the year of expected to be introduced in spring for fossil fuel generators which expenditure. 2014. renewable electricity generators will not be subject to: EU Emissions Trading Scheme exemption • gas at GBP0.00091/kWh (GBP0.00175 from 1 April 2014) Renewable generators are exempted from the requirement to purchase • LPG at GBP0.01460/kg (GBP0.02822 carbon allowances in order to generate from 1 April 2014) electricity, as stipulated by the EU • Coal at GBP0.44264/GJ (GBP0.85489 Emissions Trading Scheme. from 1 April 2014) Other direct tax allowances/ Feed-in tariffs (small scale incentives potentially relevant to generation) renewables generators Feed-in tariffs are available for small- • From 1 April 2012 capital allowances scale, low-carbon electricity generated of 18 percent reducing balance for by private/business users (maximum capital expenditures on plant and capacity 5 MW) providing payment machinery (reduced to eight percent of up to British pence (p) 21.65/kWh if the asset’s useful expected generated (depending on the type and economic life exceeds 25 years). size of the system used to generate • Enhanced capital allowances renewable energy) plus a guaranteed (a 100 percent First Year Allowance p4.64/kWh sold to the UK electricity for expenditure incurred on or before grid. Typically the tariffs last for 20 years. 31 March 2013 on specified energy- Renewable Heat Incentive (RHI) saving plant and machinery). A 19 percent cash tax credit is available A two phase long-term tariff support for for loss-making companies up to renewable heat generation: GBP250,000 or the company’s PAYE • Phase 1, which began in December and NIC liabilities, whichever is less. 2011, provides tariff support to help • Contaminated land remediation meet the cost of installing renewable tax relief on qualifying expenditure, heat technologies for organizations in attracting an additional 50 percent tax the non domestic sector. Payments

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Support schemes taken into account in determining Investment Tax Credit (ITC) whether physical work of a Applicable for solar, geothermal, Investments and other subsidies significant nature has begun. qualified fuel cell or micro turbine Production Tax Credit (PTC) – Whether a taxpayer has begun property, combined heat and power Applicable for wind, geothermal, construction of a facility before systems, small wind and geothermal landfill gas, trash combustion, open- 1 January 2014, will depend on the heat pumps. relevant facts and circumstances. loop biomass, closed-loop biomass, • The ITC provides a credit for hydropower and wave tide. – The IRS will closely scrutinize qualifying energy property. a facility, and may determine • The PTC provides a tax credit for • The ITC for any taxable year is the that construction has not begun the production of electricity from energy percentage of the basis on a facility before 1 January renewable sources and the sale of of each energy property placed in 2014, if a taxpayer does not that electricity to an unrelated party. service during the taxable year. maintain a continuous program of • Credit amount is: construction. • Credit amount is: – USD cents (ct) 2.3/kWh for • The safe harbor rule provides that – 30 percent of eligible costs for fuel wind, closed-loop biomass and construction of a facility will be cell, solar, and small wind property geothermal considered as having begun before 1 – 10 percent of eligible costs January 2014, if: – ct1.1/kWh for other renewable for combined heat and power, energy resources. – the taxpayer pays or incurs – microturbine property and • Available for facilities that begin within the meaning of Reg. section geothermal heat pumps. 1.461-1(a)(1) and (2) – 5 percent or construction prior to 1 January 2014. • The ITC is generally available for more of the total cost of the facility eligible property placed in service on • Available for a 10-year period before 1January 2014; and beginning the year the facility is or before 13 December 2016. – subsequently, the taxpayer makes placed in service. Grant in lieu of PTC and ITC continuous efforts to advance • There are two methods that a towards completion of the facility Applicable for tangible personal property taxpayer may use to establish that (as determined under Notice 2013- or other property that is an integral part construction has begun: 29). of a qualified facility (as defined by the PTC and ITC rules). – A taxpayer may establish the Investment Tax Credit (ITC) in lieu of beginning of construction when the PTC • The American Recovery and “physical work of a significant Reinvestment Act of 2009 (ARRA) Applicable for facilities that are eligible nature” is started. enacted a grant program which for the PTC and that begin construction provides a cash grant in lieu of the – A taxpayer may establish the before 2014. beginning of construction by PTC or ITC. • The ITC is available in lieu of the PTC. meeting a safe harbor rule. • ARRA permits PTC or ITC projects to • In general: • The ITC provides a credit for elect a grant of up to 30 percent of qualifying energy property. costs of construction of PTC or ITC – Work performed by the taxpayer energy property in lieu of tax credits. and work performed for the • The credit amount is 30 percent of taxpayer by other persons the eligible cost basis of the property. • Projects must begin construction before 2012 and submit a grant under a binding written contract • Eligible property is tangible personal application no later than that is entered into prior to the property or other property that is 30 September 2012. manufacture, construction, or integral to a PTC-eligible facility. production of the property for use • Projects must be placed in service: by the taxpayer in the taxpayer’s • The definition of “begin construction” trade or business (or for the is the same for the ITC in lieu of the – before 2014 for PTC-eligible taxpayer’s production of income) is PTC as for the PTC. facilities (before 2013 for wind) – before 2017 for other ITC eligible projects.

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© 2013 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 electricity from renewable energy sources Colorado, Connecticut, Delaware, Hawaii, and enumerates mechanisms that are Illinois, Indiana, Kansas, Maine, Maryland, Quota obligation permitted to achieve compliance, such Massachusetts, Michigan, Minnesota, Renewable Portfolio Standards (RPS) as renewable energy credits (RECs). Missouri, Montana, Nevada, New Currently no federal RPS legislation has Hampshire, New Jersey, New Mexico, This standard generally places an been enacted. A total of 29 states and New York, North Carolina, Ohio, Oregon, obligation on electric supply companies the District of Columbia have an RPS. Pennsylvania, Rhode Island, Texas, to produce a specified fraction of their The states include Arizona, California, Washington and Wisconsin.

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Support schemes Particular Investment Regime Promotion of solar thermal energy for renewable energy Investments and other subsidies In 2009, Law 18.585 declared of national Within the frame of Law 16.906, Decree interest the investigation, fabrication, General Investment Regime 354/009 establishes particular benefits implementation and development of Investment Law 16.906 declares the for the generation of electricity from solar thermal energy. The law, along national interest of the promotion and non-traditional renewable sources with Decree 451/011, established protection of domestic and foreign (defined as the native renewable the exemption of VAT, Internal Excise investment and, through Decree 2/012, sources such as wind, solar thermal, Tax (IMESI), duties and custom taxes establishes the following benefits photovoltaic (PV), geothermal, tidal applicable to: and wave energy, as well as the energy for the investments carried out in the • National and imported (non produced from the use of different country: competitive with the national types of biomass). • Corporate Income Tax (CIT) industry) goods and services exemption equivalent to a percentage The main benefit consists of CIT necessary to fabricate solar collectors of the investment in fixed assets exemptions equivalent to: in Uruguay. (machinery, equipment and civil • 90 percent of net fiscal income • Sale of solar collectors fabricated in 43 works). The referred percentage generated by the promoted activity Uruguay. varies between 20 percent and for all fiscal years up to 31 December • Import of solar collectors non 100 percent of eligible investment 2 0 1 7. and it is determined by the score the competitive with the national project receives for its impact • 60 percent of net fiscal income industry. generated by the promoted activity in terms of: In 2012, the Government launched a for all fiscal years from 1 January Solar Program focused on developing – employment 2018 to 31 December 2020. solar thermal energy for residential – decentralization • 40 percent of net fiscal income users. The new program provides – exports generated by the promoted activity loans, financial discounts and payment for all fiscal years from 1 January facilities for those who install solar – clean production 2021 to 31 December 2023. thermal technology in their houses. – industrial indicator. Other benefits: Quota obligation • Capital Tax exemption for the fixed • The law declares of national interest Law 18.585 also introduced the assets included in the investment: the national production of machines obligation of incorporating solar thermal – civil works: Eight years for civil and equipment necessary for the technology in sport clubs, hospitals, works in Montevideo and 10 years production of these renewable hotels and heated swimming-pool, in the rest of the national territory energies and also applies to this under certain circumstances. According activity the CIT exemption described to this law, at least 50 percent of the – machinery and equipment for the in the Particular Investment Regime energy required to heat the water useful life for renewable energy. As a condition should come from solar thermal energy. • Fiscal credit for VATs included in civil for the application of this exemption, If this requirement is not fulfilled, the works. at least 35 percent of their cost must permit for the construction works is correspond to Uruguayan inputs. denied. • Exemption from all taxes and duties levied on the import of machinery and • Purchase of the wind turbine and its New public buildings (that is, state equipment that is not competitive accessories are exempt from VAT. owned) are also obliged to incorporate with national industry. this source of energy.

43 Corporate Income Tax regular rate is 25 percent of the net Uruguay-sourced income of the company.

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© 2013 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 from June 2012, the Ministry of Uruguay has several natural resources Industry is entitled to request to all that can be used as primary elements new industrial and agro-industrial for the generation of biomass energy: developments to perform a technical • extensive forests providing wood for study on the feasibility of incorporating energy generation solar thermal technology to the project. • industrial forestry residues (saw mill Additional information residues, black liquor, etc) Uruguay is recognized as a country • rice husks with excellent conditions for the development of renewable energy, • residues from sugar cane, sweet attracting the attention of national and sorghum and other cereals international investors. The government • excellent conditions for elephant – with the support of the opposition grass parties – has set forth the goal of becoming a model country in this area. • a guaranteed supply of biomass from The authorities intend that, by the year livestock and agriculture. 2015, at least 50 percent of the primary Solar Photovoltaic (PV) energy matrix of the country will come from renewable sources. At the moment, the only ongoing project is a solar PV farm of 480 Wind kilowatts-peak (kWp) and 10.000 m2 Although the focus is placed on all types of PV modules, located in the north of of renewable energy, the most popular the country. The farm is owned by UTE these days is wind power. The initial goal and was financed by the International of reaching 300 MW of wind generation Cooperation Agency of Japan under the by 2015 is expected to be fully achieved, scope of the “Cool Earth Program” of as well as the 2016 goal of 1200 MW, the Japanese government. assuming all the awarded wind farm In May 2013 the Government launched projects are implemented. Investment a tender call for the purchase of solar in this area has reached USD2 billion. PV energy. The tender contemplates Biomass projects of three different ranges: i) 500 kW to 1 MW, ii) 1 MW to 5 MW and iii) 5 In 2010 the government set the goal of MW to 50 MW. incorporating 200 MW from biomass sources to the primary energy matrix For ranges i) and ii), the bidders have to by 2015. Accordingly, the Uruguayan offer a price and the total amount to be energy utility (Usinas y Trasmisiones awarded cannot exceed 6 MW. On the Eléctricas or UTE) promoted one tender other hand, for range iii), bidders will during 2011, in which the total amount have to adhere to a pre-established price offered by the private companies has of USD91.5/MWh, and the total amount already exceeded the 350 MW. to be awarded cannot exceed 200 MW.

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TOP FIVE COUNTRIES 1 2 3 4 5 Annual investment/additions/production in 2012 New capacity investment China United States Germany Japan Italy Hydropower capacity China Turkey Brazil/Vietnam Russia Canada Solar PV capacity Germany Italy China United States Japan Wind power capacity United States China Germany India United Kingdom Solar water collector (heating) capacity44 China Turkey Germany India Brazil Biodiesel production United States Argentina Germany/Brazil France Indonesia Ethanol production United States Brazil China Canada France Total capacity as of end-2012 Renewable power (including hydro) China United States Brazil Canada Germany Renewable power (not including hydro) China Unites States Germany Spain Italy Renewable power per capita Germany Sweden Spain Italy Canada (not including hydro)45 Bio-power United States Brazil China Germany Sweden Geothermal power United States Phillippines Indonesia Mexico Italy Hydropower China Brazil United states Canada Russia Concentrating solar thermal power Spain United States Algeria Egypt/Morocco Australia (CSP) Solar PV Germany Italy United States China Japan Solar PV per capita Germany Italy Belgium Czech Republic Greece Wind power China United States Germany Spain India Solar water collector (heating)44 China Germany Turkey Brazil India Solar water collector (heating) per Cyprus Israel Austria Barbados Greece capita44 Geothermal heat capacity United States China Sweden Germany Japan Geothermal direct heat use46 China United States Sweden Turkey Japan/Iceland

44 Solar water collector (heating) rankings are for 2011, and are based on capacity of glazed water collectors only (excluding unglazed systems for swimming pool heating and air collectors). Including all water and air collectors, the 2011 ranking for total capacity is China, United States, Germany, Turkey, and Brazil.

45 Per capita renewable power capacity ranking considers only those countries that place among the top 12 for total renewable power capacity, not including hydro.

46 In some countries, ground-source heat pumps make up a significant share of geothermal direct-use capacity; the share of heat use is lower than the share of capacity for heat pumps because they have a relatively low capacity factor. Rankings are based on a mix of 2010 data and more recent statistics for some countries. Notes: Most rankings are based on absolute amounts of investment, power generation capacity, or biofuels production; if done on a per capita basis, the rankings would be quite different for many categories (as seen with per capita rankings for renewable power, solar PV, and solar water collector capacity). Country rankings for hydropower would be different if power generation (TWh) were considered rather than power capacity (GW) because some countries rely on hydropower for baseload supply whereas others use it more to follow the electric load and match peaks in demand.

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Table 1. Renewable energy support policies

HIGH-INCOME COUNTRIES

Australia Austria Barbados Belgium Canada Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Israel Italy Japan Luxembourg Malta Netherlands New Zealand Norway Oman Poland Portugal Singapore Slovakia Slovenia South Korea Spain47 Sweden Switzerland Trinidad and Tobago United Arab Emirates United Kingdom United States

47 In Spain, the feed-in tariff (FIT) and net metering programmes have been temporarily suspended by Royal Decree for new renewable energy projects; this does not affect projects that have already secured FIT funding. The Value Added Tax (VAT) reduction is for the period 2010–12 as part of a stimulus package.

Note: Countries are organised according to GNI per capita levels as follows: “high” is USD 12,476 or more, “upper-middle” is USD 4,036 to USD 12,475, “lower-middle” is USD 1,026 to USD 4,035, and “low” is USD 1,025 or less. Per capita income levels and group classiﬁcations from World Bank, 2012. 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.

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UPPER-MIDDLE INCOME COUNTRIES

Algeria Argentina Belarus Bosnia and Herzegovina Botswana Brazil Bulgaria Chile China Colombia Costa Rica Dominican Republic Ecuador Grenada Iran Jamaica Jordan Kazakhstan Latvia Lebanon Libya Lithuania Macedonia Malaysia Mauritius Mexico Montenegro Palau Panama Peru Romania Russia Serbia South Africa St. Lucia Thailand Tunisia Turkey Uruguay

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LOWER-MIDDLE INCOME COUNTRIES

Armenia Cameroon Cape Verde Côte d’Ivorie Egypt El Salvador Fiji Ghana Guatemala Guyana Honduras India Indonesia Lesotho Marshall Islands Micronesia, The Federated States of Moldova Mongolia Morocco Nicaragua Nigeria Pakistan Palestinian Territories48 Paraguay Philippines Senegal Sri Lanka Sudan Syria Ukraine Vietnam

48 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).

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LOW INCOME COUNTRIES

Bangladesh Burkina Faso Ethiopia Gambia Guinea Haiti Kenya Kyrgyzstan Madagascar Malawi Mali Mozambique Nepal Rwanda Tajikistan Tanzania Togo Uganda Zambia

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André Boekhoudt Head of Global Energy and Natural Resources Tax Practice T: +31 20 6 561358 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. © 2013 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: 130491 Publication date: September 2013