El Salvador introduces tax benefits for renewable projects

Berlin geothermal power plant of La Geo in El Salvador (source: Enex)
Alexander Richter 30 Sep 2015

El Salvador is introducing new tax benefits to foster investment into renewable energy projects in the country.

El Salvador is introducing new legislation that would make amendments to the Tax Act in order to promote the development of renewable energy projects.

The bill was presented by the President of the National Energy Board, the Minister of Economy, Tharsis Solomon Lopez and has three key objectives:

  1. Expand the list of natural resources and technologies that can enjoy the benefits of the law, in order to include new technological developments that are taking place in the industry of power generation.
  2. Delete the current ceiling of 10 MW to stimulate the development of investment into larger projects. A differentiated scheme in which greater benefits are given to small projects through longer periods of exemption from granted tax stays, but which will also provide benefits to larger projects.
  3. Include the benefit for the “capacity expansion” of existing plants (currently the benefits apply only to new projects). This in order to stimulate additional investments in existing plants, taking advantage of the experience and capacity.

For example investments currently being developed, such as solar energy project of 60 MW in the municipality of El Rosario for close to $ 130 million, as well as a gas-based energy project in the municipality of Acajutla representing a 350 MW project with investment of more than $ 800 million.

Similarly, this reform will benefit the companies participating in the upcoming auction for 150 MW of renewable energy that is being prepared by the National Energy Council (CNE), with investments of $300 million expected.

Reforms are expected to encourage investments in renewable energy projects, leveraging, geothermal, wind, solar, marine, biomass biogas and water resources, and identify any other futures source, in order for El Salvador to move towards a more diversified and more environmentally friendly energy mix.