Last Thursday El Salvador’s legislature approved an extension to tax incentives for renewable energy projects which were set to expire at the end of 2015. Thanks to a reform of the bill, it is now possible for projects larger than 20 MW to access incentives.
The newly approved amendments to the Law of Tax Incentives for the Development of Renewable Energy and the Generation of Electricity maintains the principle in the previous law that smaller projects will receive a higher level of benefits.
Projects up to 10 MW will continue to be fully exempt from taxes on income for 10 years, while projects larger than 5 MW wil be exempt for five years. The new law also states that additional phases of a project can benefit from incentives, which until now was not part of the law.
GTM Research Senior Analyst Adam James notes that like most Central American nations, tax incentives are a key driver for renewable energy in El Salvador. The tax incentives were one of the most attractive things about El Salvador’s solar market, notes James. Having them expire would have been a negative development for renewable energy deployment.
In El Salvador various auctions for renewable energy projects have been held, for both distributed generation and utility-scale projects. In the last two years more than 100 MW of solar projects have been approved, and it is estimated that the nation of only 6.3 million inhabitants will have 204 MW of solar PV online by 2018.
In August El Salvador announced that a new auction for 150 MW of solar and wind projects would be launched, with the assistance of USAID.
Translation and additional reporting by Christian Roselund.