Report of the President and COO

Richard B. Tantoco
President and Chief Operating Officer
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“Our commitment is to make our assets more resilient and our operations more efficient and thereby more competitive, so that we serve our customers and produce clean, reliable, renewable energy—particularly geothermal energy.”

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Dear Stakeholders,

 

It is perhaps unique to EDC, and to our group, that we choose provocative and visceral images to tackle the urgent and challenging issues for our reports. We believe it is our role and responsibility to communicate in ways that will not only capture people’s attention and imagination, but also motivate us all to act and make the right choices. We live in a time of climate crisis and we are mortgaging the future we give our children if we do not take resolute action to alter the course we are on.

 

We are running out of time.

 

Climate change comes at a price. All over the world, new weather extremes are causing climate-related disasters.

According to Germanwatch’s Global Climate Risk Index 2018, in the period between 1997 and 2016, there were over 11,000 extreme weather events, resulting in more than 524,000 casualties and losses of USD3.16 trillion.

 

The National Oceanic and Atmospheric Administration cited that in 2017 alone, the United States experienced 16 weather or climate-related disasters with economic losses totaling USD306 billion, a new record, exceeding a previous record of USD215 billion set in 2005. Closer to home, Typhoon Urduja in December dropped a staggering 1,400 mm of rainfall on Leyte in four days, with peak amount of about 900 mm in one day, just as we were recovering from an earthquake in July. Although not a climate-related event, the magnitude 6.5 earthquake that struck Leyte was also a major natural calamity that likewise took its toll on us. All in all, these events led to over PHP1.4 billion in unplanned expenses, and over PHP3 billion in foregone revenue in 2017.

 

The message to EDC is clear: we must step up our efforts to build resilience into our business.

 

We are keenly aware of the risks that we face due to natural hazards, and have taken quick and deliberate steps to address these. Prior to Typhoon Urduja, our Leyte Geothermal Business Unit (LGBU) had mitigated 17 landslide areas in 2017 alone at a total spend of PHP144 million by constructing landslide mitigating measures such as slope benching, soil nailing, pipe shelters, retaining walls and drainage improvement. Prior to that, in the twelve-year period from 2006 to end of 2017, we mitigated a total of 154 areas in LGBU at a total cost of PHP954 million.

 

The combination of an earthquake and Typhoon Urduja in 2017 triggered new landslide-prone areas. Interestingly, 100% of the actual landslides that occurred were within the identified susceptible areas in our geohazard map indicating that the map is accurate in predicting rainfall-induced landslides. Moreover, majority of the existing mitigating measures we implemented were not affected by the landslides—meaning our efforts over the past several years to protect our assets against landslides have been effective.

 

At present a Geohazard Map has been updated using latest, finer-resolution LiDAR data (Light Detection and anging) to further identify areas that are susceptible to rainfall-induced landslides that pose a threat to our assets. From this map, 26 potential landslide areas have been selected and are now programmed for risk mitigation works in 2018-2019. In 2018 alone, we are investing close to PHP400 million for geohazard risk mitigation in 17 areas.

 

We have likewise upgraded 100% of our cooling towers in unit 2 of Mahanagdong power plant from wood to Fiber Reinforced Plastic to make them more resistant to wind, earthquakes and fire, and to protect them against decay and degradation. Twenty percent of the new model circuit breakers compliant with 0.5g seismic specification, stronger than previous materials at 0.3g, have been installed with the balance to be installed during planned maintenance outages. Twelve units of seismic monitoring stations will also be installed across our fleet in May 2018. These initiatives, borne out of lessons learned from the earthquake as well as Typhoon Urduja will increase the resiliency of our geothermal assets.

 

Showing the way forward

 

Lighthouses are built to show the way, even in the darkest and most turbulent conditions. EDC is in a position to be a lighthouse as we make the energy transition—to show that the way to a clean energy future is possible. As the most sustainable energy company in the country, EDC chose to lead by example and show that it is possible to operate a business that is both profitable and sustainable.

 

Our inclusion in the latest global Carbon Clean 200 list also proves that we are not alone in moving in the right direction. EDC is the only Philippine company—with a ranking of 118th in 2017—on this list of the world’s largest publicly-traded firms that are taking the lead towards a clean energy economy. This achievement inspires us to do even better and to stay the course.

 

Making the energy transition

 

The outlook for clean energy is bright, despite those who say it isn’t possible. Solar panels have achieved 20 percent efficiency in turning solar energy to power, and experimental ones are now at over 40 percent efficiency. It was mentioned in a Business Insider article that at about 20 percent efficiency level, we would only need solar panels over a land area about the size of Spain in order to power the world with renewable energy in 2030. There are those who maintain that it is impossible, because of space constraints, space that can be devoted to agricultural activities to meet humanity’s food needs instead. Others will argue that solar energy cannot run at night—and this is where EDC’s diverse energy portfolio can come in to ensure a balanced and efficient grid. Our grid needs baseload power that can be provided by geothermal and other sources cleaner than coal. In the past, coal has been the baseload power source of choice mostly because of the misconception that it is cheaper. Coal prices, however, have proven to be cyclical and quite often the more expensive choice.

 

The transition to clean energy must be done over a period of time, with the efforts taken by EDC in recent years hastening the transition to a decarbonized future.

 

Today, many companies are now mandating the purchase of green energy into their corporate procurement practices. Bloomberg New Energy Finance (BNEF) reported that the 2015 record for power purchase agreements (PPAs) for green energy of 4,400 megawatts was broken in 2017 when a total of 43 corporations in 10 countries agreed to purchase 5,400 megawatts (MW) of clean energy. For these clean energy customers, acting sustainably is given equal consideration with cost. However modest, these changes signal the beginning of a strong customer-driven preference for energy made from RE.

 

Building resilience and managing risks

 

For 2017, we posted consolidated revenues of PHP33.3 billion and recurring net income attributable (RNIA) to equity holders of PHP8.8 billion. The dips in revenue and RNIA, three percent and four percent respectively, were primarily due to the natural calamities that struck Leyte— the earthquake in July and Typhoon Urduja in December.

 

These losses were offset by strong performances from our other business units. BacMan’s higher contracted volume delivered an additional PHP0.9 billion in revenues, and both BacMan and Nasulo power plants were fully contracted, which reduced our exposure to the spot market. The Burgos wind farm also delivered for us, as it posted its highest sales volume of 372.5GWh, equivalent to a revenue of PHP3.2 billion, since its commissioning in 2014.

 

We continued to invest in the reliability and performance of our power plants. In Leyte, the completion of the rehabilitation of our Tongonan power plant in October boosted the plant’s generation capability by 10 percent, raising production capacity to 123MW from 112MW prior. The full suite of plant control systems at Tongonan were likewise updated to the latest modern and digital specifications.

 

In Mount Apo, a generator stator of the Mindanao 1 power plant was replaced with a brand new unit, and a new power transformer was ordered for the Mindanao 2 power plant for installation in 2018. Across our fleet, scheduled maintenance work on twelve units were completed successfully, including work on four units in Leyte that were advanced from 2018 and performed in 2017. Excluding the impacts of the Leyte earthquake and typhoons, the reliability of the fleet stood at 96 percent for the year, the highest in recent years.

 

We also addressed our top commercial risks. In addition to securing contracts for nearly all of BacMan’s energy

output – a top priority entering 2017 given the continued soft outlook on spot prices – we secured over 40MW worth of ancillary services contracts for our Negros power plants. Under these contracts, the Negros plants will provide vital support services to the grid. As a result, the plants were able to run at close to maximum capacity for longer periods of time, significantly reducing the levels of curtailment experienced in 2016 brought about by the oversupply of solar power in Negros Island. These contracts helped to deliver an additional PHP0.2 billion in revenue in 2017.

 

Our priority actions

We have three clear priorities:

  1. to increase the efficiency and reliability of our assets,
  2. to develop agility in our people and processes, and
  3. to build resilience in our assets.

 

We made progress in managing costs and making targeted investments that generate the highest returns. These efforts will continue as we seek to optimize targeted investments in our power plants and improve performance. We have also introduced new ways of work that have increased our metabolism, the pace at which decisions are made and projects are advanced, and, in the process, have improved our collaboration. We will likewise continue to invest in engineering solutions to make our assets more robust and equal to the measure of the threats we face.

 

We are also committed to keep our sustainability agenda front and center. As a renewable energy provider, sustainability is in our DNA. But, we also seek to improve our reporting practice through the use of the GRI Standards framework, not only as a tool to monitor and manage our performance but also to communicate effectively with our stakeholders who value sustainability.

 

Moving forward

 

We firmly believe that Filipinos should have more clean energy options. We are encouraged that clean and sustainable energy is gaining traction in the Philippines, and that the number of renewable energy producers is growing. We now have industrial customers that specify that their supply be provided from RE. With over 40 years of geothermal leadership under our belts, we know that this is still only the beginning, and we understand the work that lies ahead of us.

 

Our commitment is to make our assets more resilient and our operations more efficient and thereby more competitive, so that we serve our customers and produce clean, reliable, renewable energy—particularly geothermal energy. We want to give more Filipinos the power of choice and to stand ready to provide them with clean and sustainable energy options.

 

Our work for a sustainable world by generating pure renewable energy continues. We look forward to working with you, our stakeholders, to turn this vision into a reality.