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Intellectual Capital

Purposeful Innovations that Power Business Continuity

EDC’s intellectual capital encompasses the intangible properties associated with our brand and reputation that are critical to our success as an organization. This includes diverse resources that we own and manage, such as patents, copyrights, intellectual property, as well as our overall organizational systems, procedures, and protocols, all of which provide significant competitive advantages.

The synergy of our combined intellectual capital helps us manage our existing assets effectively and efficiently, as well as streamline the operations of our various energy facilities. As an organization, we must constantly embrace and adopt innovations that help us improve our performance amid a challenging business environment.

At EDC, we strive to promote a regenerative society by increasing access to reliable renewable energy through purposeful innovation and proactive partnerships. As part of our way to play, purposeful Innovation compels us to systematically identify and deploy groundbreaking ideas that improve our performance and overall customer satisfaction. This culture of purposeful innovation only serves to bolster our intellectual capital.

Our intellectual capital represents the confluence of organizational knowledge, systems, procedures, intellectual property and patent registrations, and research and development that help the company advance new projects, manage existing assets, and streamline operations. Specific aspects of our intellectual capital support the continued productivity and reliability of our manufactured capital, thereby ensuring robust operations and financial returns for the company.

Our intellectual capital also represents our knowledge-based assets that are inextricably linked to both our human and social capitals. It is shaped by three primary sources, namely:

People: The knowledge, skills, competencies, and values, as well as the depth and breadth of professional experience and industry expertise, of our employees, management, and senior leadership.
Partners: The industry knowledge, networks, and reputation forged by working with our business partners, suppliers, and customers
Processes: The company policies and processes, information systems and databases, intellectual property and patent registrations, as well as the culture and norms that inform our ways of working

As we pave the way for the energy transition, we will leverage the strength of our intellectual capital, fueled by the different technology solutions and innovations that we continue to introduce in our operations. Faced with the numerous challenges of 2020, especially those brought about by the COVID-19 pandemic, EDC implemented various innovations that helped our employees adapt to the new normal. These were specifically developed to enhance business operations, data security, remote work and communications, and health and safety.

 

Currently, EDC has two patent registrations and one utility model registration with the Intellectual Property Office (IPO) of the Philippines. These inventions are currently used in our geothermal field and plant operations, particularly in the fluid collection and reinjection system and geothermal wells.

The various software and applications used in our energy facilities also provide the scientific backbone for how these operate. In energy marketing, specific software and applications also informed and enabled the demand forecasting techniques and trading strategies we developed in-house. This is premised on the notion that our decision-making must be data-driven and evidence-based. This also helps us think ahead and anticipate local and global trends that may directly or indirectly impact our operations. In 2019, we learned that we must uphold existing protocols and gather more data before doing geothermal well interventions.

Our integrated systems and processes, as well as our shared services, promote collaboration among groups to expedite and upscale our value delivery. In 2020, we also actively sought ways of working that would promote greater flexibility and ease, and ensure that our workforce would not be bogged down by internal processes.

Bolstering the digital intelligence of our geothermal operations 

 

With limited mobility and face-to-face interactions at the height of the lockdown period last year, EDC’s Sub-Surface Geothermal Resource (SSGR) Group was put to the test. The group, which is primarily responsible for generating data and honing innovations crucial to the continued success of our geothermal steam fields, had to find ways to perform their tasks all while working remotely.

Indeed, this was an unprecedented undertaking. However, the challenges posed by the COVID-19 pandemic only served to hasten the group’s digital transformation. Inspired by the Data Science Hierarchy of Needs, the SSGR group already has a digital roadmap that lays out key initiatives to bolster the digital intelligence of our geothermal operations.

 

 

This digital roadmap serves as the foundation for data-driven insights, from data capture to advanced applications of modeling and analytics. All of these initiatives will help pave the way for digitally powered geothermal resource exploration and steam delivery.  

Meaningful collaborations among SSGR’s team leads, project managers, and other key stakeholders help bring this digital roadmap to life. Through a digital community, the SSGR group can set regular meetings and provide members the opportunity to interact, collaborate, connect, share ideas, and raise issues concerning the overall development and implementation of the digital roadmap.

In a culture set on purposeful innovation, it is truly inspiring to see team members become comfortable in being agile. Individual members of the SSGR group converged into self-organizing teams and took initiative in assuming their respective roles in this digital transformation. While the task of implementing this digital roadmap is indeed daunting, we have confidence in the SSGR group’s unwavering dedication to see this transformation through the end.

 

 

The inventions and innovations that power our operations

 

When one visits our energy projects, one could not help but marvel at the sheer size and complexity of our facilities. But these marvels are made up of smaller components, a wealth of ingenious inventions and innovations that enable us to harness renewable energy in a regenerative and decarbonized manner.  

For one, EDC has two patent registrations and one utility model registration with the Intellectual Property Office (IPO) of the Philippines for the following inventions, namely: (1) clock-actuated fluid sampling apparatus, (2) continuous on-line steam purity, and (3) monitoring system declogging tool. These inventions are used in our geothermal fields and plant operations, specifically for fluid collection, reinjection system, and geothermal wells. 

Our Sub-Surface Geothermal Resource (SSGR) Group also continues to develop innovations that are crucial to the continued productivity and reliability of our geothermal steam fields. These innovations are briefly described in the table below. 

 

 

The group also generates a substantial amount of data, which are then processed and analyzed to make informed decisions regarding the management of our geothermal steam fields. As part of its digital roadmap, the SSGR Group is currently developing a centralized database called Integra, short for Integrated Geothermal Resource Archive. This will help ensure that large amounts of data will be safe and secure, yet remain accessible to team leaders, project managers, and other key decision-makers.

Enterprise asset management built for the future 

 

An organization as big as EDC relies on numerous assets to stay operational—and these assets get smarter every year. As such, enterprise asset management remains a crucial aspect of our operations as it allows us to gain visibility, obtain insights, and exercise control over our intelligent assets and equipment. 

In 2020, EDC installed Maximo, an enterprise asset management solution from IBM. It went live on November 11, 2020, and is now being used to help facilities manage activities identified in the Critical Asset Risk Register, Long-Term Asset Plan, and Asset Investment Plan. Activities have been identified based on their impact with regards to cost, time, and other resources.  

Maximo also includes modules on work planning and scheduling, purchasing, inventory, and the monitoring and tracking of asset locations. As part of the asset management strategy for all of EDC’s assets and facilities, we also implemented an Asset Strategy Optimization System to perform basic risk-based processes, as well as an Asset Investment Plan which considers the different asset risks in relation to exposure to natural catastrophe, reliability, and technology obsolescence.

Maximo is also interfaced with  external systems, such as SAP for financials and COUPA for purchase orders, to provide a fully integrated process. Worker safety is a priority in EDC, and we have implemented a more streamlined and robust safety permitting process using the Nisoft system, which will also be integrated with Maximo.

 

 

As an integrated suite of applications, Maximo provides a comprehensive view of our assets and empowers asset management, remote monitoring, and predictive maintenance in one platform. Combined, these features also help strengthen our manufactured capital as they help optimize performance, extend asset life cycles, reduce operational downtime and costs, and improve asset reliability.  

In 2020, EDC shifted to work-from-home arrangements before the lockdown periods began to curb the spread of COVID-19 and ensure business continuity while keeping employees safe and healthy. Only a handful of employees were asked to work in our power plants to keep the lights on, especially for our customers from critical industries like hospitals and food manufacturing. They reported for duty in batches to comply with regulations and ensure that necessary physical distancing was maintained. The shift to working remotely inevitably transformed our ways of working as an organization.

On a personal and professional level, this change required our employees to transform their knowledge, skills, competencies as they learned to adapt to this new work setup. On an organizational level, this shift also required us to transform our processes, procedures, protocols, and tools to continue to support our employees, whether they are working from home or on-site.

We invested in digital tools and solutions to enable our employees to work from home effectively. For employees who still needed to report to the project sites and facilities, we also developed stringent return-to-work protocols to ensure their health and safety. 

As a subsidiary of First Gen, we also benefited from their significant investments in technological solutions. To promote social distancing in project sites and offices, we implemented an advanced social system that utilizes card tags that have audio-visual and vibration alerts upon close contact. We also implemented an integrated safety management system to better align with First Gen’s new Safety Rules System in its Head Office.  

Cognizant of the vulnerability of work-from-home setups to data compromise, we strengthened our data security and remote information processing procedures. We set up a digital system that isolates potential web and email security risks, as well as used a set of endpoint management tools to provide remote IT support to our employees.  

To automate certain business processes, we also adopted and strengthened the security of our electronic signatures and cloud-based forms. These solutions sped up the processing of necessary documents, all while making it easy for employees to find the information and files they needed to perform their functions.  

One of the principal challenges of working from home is promoting collaboration and engagement among teams. As such, to promote seamless communication and collaboration among our workforce across the country, we took advantage of various messaging platforms and video conferencing applications, such as Zoom and Google Meet. 

All of these vital organizational changes, borne out of necessity due to the challenges of the COVID-19 pandemic, are a testament not only to our agility and sense of purposeful innovation but also to the strength of our combined intellectual capital.

Our 2020 Integrated Report

 

Our Integrated Report tells the story of our efforts to achieve our business objectives, hand-in-hand with our sustainability aspirations.

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One of the most powerful cartoons I’ve come across in a while is one by To New Yorker
Magazine which shows a man in a tattered business suit and around a campfire amidst a
future wasteland telling three children, “Yes they destroyed but for a beautiful moment in
time we created a lot of value for. Funny, but tragically so true of how the world works today.

We urgently need to overhaul how we relate with the Earth
if we want to keep it habitable for humans in the decades
to come. We don't have a choice.

The way we measure progress and success in our world is severely broken. Countries are
judged by how fast gross domestic product (GDP) grows, and corporate stocks are deemed
good investments also by how fast they can advance their net incomes regardless of how
it’s achieved. Most successful business models are racing to spur consumption of their
products beyond what consumers really need. As a result, carbon emission trajectories are
leading us toward a catastrophic world that’s 3-6 degrees warmer. Human activity is warming
the Earth 5,000 times faster than the most rapid natural warming occurrence in our planet’s
past, and species are going extinct faster than at any period in geologic history. Microplastics
are already being found in dwelling in the deepest reaches of the Marianas trench as well as
the pristine Pyrenees mountains of France and Spain. These are but a few examples of the
widescale destruction humans are wreaking on our only home. The international no
organization (NGO) Global Footprint Network estimates that we already use up 1.5 Earths
each year just feeding our current level of wants and needs; that’s 50% more than our planet’s
ability to replenish 3the resources used up!

Dear Stakeholders,

Message from the EDC
Chairman and CEO

With every passing year, it becomes increasingly tougher to deny that our climate
is changing faster than previously imagined due to human activity. A large and growing
number of the world’s largest corporations participating in the Carbon Disclosure Project,
more than 75% as opposed to only 10% in 2010, now incorporate climate change into
their business strategies. I believe that today, we are living through one of history's great
paradigm shifts. An age wherein we’re only just beginning to realize the immense impact
we’ve had on the planet and that we urgently need to overhaul how we relate with the
Earth if we want to keep it habitable for humans in the decades to come. We don't have
a choice. There is no Plan B or planet B, as some would say.

Real and lasting shareholder value can only be had when we place the
interests of all our stakeholders, our customers, the planet, and humanity
at the center of everything we do.

Of course paradigm shifts are never easy. They never have been throughout history. But
as the environmentalist and author Bill McKibben rightly puts it: “the math is hard to
argue with; business as usual and growth as usual spell an end to the world as usual.
This is the one overwhelming fact of our lifetimes.” PricewaterhouseCoopers or PWC
quantifies what the world needs to do to keep global temperature rise to less than 2
degrees Celsius. They emphasize that we must reduce the carbon intensity of the
economy—the amount of carbon emitted per dollar of GDP—by 6% each year until 2100.
Although this number looks modest, it is nine times the current rate of important
being experienced in the world today; this only underscores the magnitude of the
transformation needed. At Energy Development Corporation and parent company,
First Gen Corportion, we believe our platform of businesses and our way-to-play are all
geared toward this goal.

Message from the EDC
Chairman and CEO

Our Geothermal plants are today the only large scale 24/7 sources of renewable energy
The relatively fixed pricing we are able to offer our electricity customers is a massive
advantage and gives them certainty at a time when our coal-based competitors cannot. In
addition, the massive transformation taking place in the company is exciting and promises
to transform us into a leaner but more robust and resilient player and competitor.
Our Natural Gas plants at First Gen are key to bringing down the carbon intensity
of the economy as they emit less than half of the carbon and only a fraction of the other
pollutants per kilowatt-hour relative to an equivalent-sized coal plant. This is key to
keeping the economy humming and our lights on, even as we transition to a decarbonized
world. Today, these plants run on the country’s only indigenous gas field
Camago-Malampaya, but we are currently preparing for the day these fields no longer
have indigenous gas through the development of what could be the country's first
Liquefied Natural Gas (LNG) import terminal. In December 2018, First Gen signed a joint
Development Agreement (JDA) with Tokyo Gas Co., Ltd. to push this forward. It's an
exciting time to be doing this as LNG suppliers worldwide are only just beginning to
innovate and show flexibility on gas contracts never before seen in the world of LNG
contracting. Just this April 2019, Shell and Tokyo Gas signed the world’s first coal-indexed
LNG contract. This signals that gas producers are now willing to fight head against
coal plants in competitive power markets, if they aren’t cheaper already. Our decision
several years ago to slam the door on developing any coal-fired power for ourselves
was prescient. Even as more coal- fired capacity comes on line globally, their utilization
and capacity factors are falling. International Energy Agency (IEA) figures for 2017 show
the average capacity factor of coal plants globally has fallen even more to 52.8%, down
from 59.3% in 2013. This is alarming for a technology whose economics only makes sense
when run at baseload rates of 70-80%. The implication is that many coal plants today are
being run sub-optimally and expensively. The fact that they are required to ramp up and
down frequently causes thermal fatigue of components, of materials, and corrosion that
negatively impact efficiency and emissions even more. Aside from the fact that coal-fired
power no longer has a place in a world that needs to decarbonize rapidly, its economics
are being rendered uncompetitive in grids increasingly being penetrated by more
intermittent renewable energy sources. Its days are numbered.

Message from the EDC
Chairman and CEO

Our world today teems with change and disruption. At EDC, we’re all incessantly
and purposefully “sensing the wind” and “reading the tea leaves”. And in such a
world marked by so much complexity, we must also keep our organizations alert,
as well as agile. But let me just say that real and lasting shareholder value can only
be had when we place the interests of all our stakeholders, our customers, the
planet, and humanity at the center of everything we do. The world’s paradigms are
shifting yet again and, as a company, we intend to help that shift in the best way
we can. It is amongst these great challenges where we intend to build the many
great opportunities that will foster true shareholder value.

Thank you for your continued trust and unwavering support.

Federico R. Lopez
Chairman and CEO

Message from the EDC
Chairman and CEO

Due to climate change, only hell is hotter than summer.

We now live in a world that has increased its temperature by 1.5°C from pre-industrial times
and at these levels 14% of the world’s population will experience intense heat waves at least
once in five years. Should things deteriorate further by half a degree, at a 2°C increase from
pre-industrial times, the effect will be 2.7 times worse: 37% of the world’s population will
experience severe heat waves at least once in five years. In 2018, Australia revised their
temperature charts and increased the upper limit to 55 degrees Celsius, or over 135 degrees
Fahrenheit, given what was experienced for a sustained period in the south-central part of
the country in 2018.

Hotter temperatures mean hotter oceans, because water absorbs an estimated 90% of the
heat in the atmosphere and radiant heat from the sun. The “hydrogen bond" between water
molecules is what allows water to absorb a significant amount of energy in the form of heat
before turning to vapor. However, once in vapor form, water rises into the atmosphere, and
the very same life-sustaining water becomes fuel for deadly typhoons and hurricanes that
bring with them torrential rains.

If the earth did not have water and was dry like Mars, our average temperature would be
negative 16°C. Because of the presence of water, the year-round average temparature of
the Earth is now 14°C. Averages have a way of lulling us into complacency until we are shaken
or impacted by terrible horrors, like Typhoon Yolanda in the Philippines, Hurricane Sandy in
New York, Hurricane Maria in Puerto Rico, Harvey in Houston (the costliest hurricane on
earth at USD125B in damage). The common thread among these events? They are all the
worst in either the history of those areas or the worst in centuries. And they all occurred in the
last 6 years.

The diametric opposite of typhoons, drought, is the other side of the same coin. From
California to Cape Town in South Africa, to Greece and Australia, drought has affected millions
of people. Closer to home, Manila is experiencing drought in this summer of 2019.

Dear Stakeholders,

Message from the EDC
President and COO

Our 2018 cover follows the expressive and visceral nature of the images we have chosen in
the past two years. It shows a striking image of what the future holds for us, if we do not
heed the call of the planet to pivot. The harsh reality of climate change is already felt, and
sadly, it is the most vulnerable members of society who bear the brunt of it.

We know the pivot will not be easy, especially in the face of significant vested interests.

The Intergovernmental Panel on Climate Change’s findings say that we may only have
until 2030 to avert “catastrophic climate change.” Despite the warnings however, action
has been slow. And in 2018, carbon emissions increased by another 2% from the previous
year. Scientists remain optimistic and cite the growth of renewable energy as a reason to
believe that the world can achieve the necessary reductions.

This continues to motivate us to do things better, to make a difference toward turning the
tide. Over the past five years, the Energy Development Corporation (EDC) and the rest of
the Lopez group of companies have decided to be the leaders in the business sector of
the Philippines in sounding the warning about the worsening effects of climate change
and the need for decisive action and enlightened choices. We know the pivot will not be
easy, especially in the face of significant vested interests.

Our Performance Report tells the story of EDC’s work-in-progress this year: our efforts to
achieve our business objectives, hand-in-hand with our sustainability aspirations. As
always, we keep track of the metrics that matter most to our stakeholders in alignment
with the framework of the Global Reporting Initiative (GRI) Standards.

Message from the EDC
President and COO

Bouncing back from a tough year

We tempered our expectations for 2018, given that we began the year with damage to
our facilities as a result of Typhoon Urduja, in December of 2017. Despite this setback, the
concerted efforts of our operational units, and inspired action from our employees,
helped us return our assets to service ahead of schedule. As a result of this, we ended
the year with a recurring income attributable (RNIA) of PhP9 billion, slightly ahead of our
2017 numbers.

We continued to execute our strategy with excellent results. We ended the year above our
target for generation. Our Nasulo and Palinpinon II power plants were also re-certified
for the 40 megawatt (MW) (+10MW) Ancillary Services Procurement Agreement (ASPA),
while our BacMan geothermal facility was fully contracted.

We adopted new ways of working and better practices in our operations with promising
results. For instance, majority of our planned maintenance activities were completed in
60% of the time, versus the previous 5-year averages. Fundamental changes have taken
place, such as the safety and medical clearances of contractors prepared a full month
ahead of the start of the activities, versus the old practice of doing this just prior to day
zero. We have also enhanced our reinjection management strategies to support our
efforts to reduce wasted heat and to ensure the recharge of our geothermal reservoirs.

Message from the EDC
President and COO

Taking the long view on sustainability and profitability

We are aware that challenges to the business will arise from time to time, such as natural
calamities or extreme weather. In response to these threats, we made smart investments
in resilience projects. Rather than implement risk reduction and resilience in potentially
hazardous areas, such as the steepest slopes most prone to landslides, we looked instead
at this through the necessary lens of high hazard against the potential value at risk from
the infrastructure in the area. From there, we have now prioritized those works which
mitigate the value at risk (VAR) of our assets relative to the hazard present. This way, we
are sure that we are investing in the right places where we can have the greatest risk
reduction. Using this VAR strategy, we completed 31 landslide mitigation projects in
BacMan, Negros, and Leyte in 2018. This crucial investment in resiliency is being
accelerated in 2019.

We are also investing in the growth and development of our people. People seek
opportunities to work for us because they appreciate EDC’s strategy. We have found that
EDC’s renewable energy focus has made us an employer of choice. Improvements in our
ways of working have given our employees greater flexibility to participate in and
contribute to over 100 simultaneous special projects, resulting in disperse decision-making
and improved accountability.

Our business also faces systemic and market-driven challenges. For example, the energy
sector will have to confront regulatory shifts and changes in tax regimes. This is par for
the course. We will also experience market shifts, which can be disruptive, both from
operational and pricing standpoints. An example would be the influx of non-
conventional, non-base load (intermittent) energy, like solor and wind. These energy
sources have significant impact on the grid, but do not have to shoulder the cost of
ancillary services.

EDC is prepared to face these changes by maximazing the cash generation of our assets.
We upgraded the capability of our plants in order to provide services that support grid
stability. These plans have been implemented, with investments in ancillary services
capability completed. Expanding our services offering has generated economic returns:
revenue from the sale of electricity as contingency and dispatchable reserves increased
143.5% from 2017, to P970 million in 2018.

Message from the EDC
President and COO

Making the shift to low carbon energy

While renewable energy is often seen as an alternative, EDC believes it is necessary and
timely to mainstream clean energy. Renewable energy is not only the environmentally-
responsible choice, but a wise business decision as well. EDC’s experience demonstrates
this, and we hope to convince even the doubters that the future of energy is in renewable
This commitment to clean energy is growing. In the United States, the mood on low-
carbon energy is changing. So much so, that one of the major US energy utilities has
pledged to go carbon free by 2050, and 80% carbon-free by 2030. This is only one utility,
in a wave of energy providers that have announced carbon-reduction goals.

A common theme across those committing to renewable energy is that their customers
are demanding low-carbon energy. And the energy providers, even mining companies are
listening. Renewable energy is not only the environmentally-responsible choice, but a
wise business decision as well. EDC’s experience demonstrates this, and we
hope to convince even the doubters that the future of energy is in
renewable.

In the capital markets, many large financial institutions have announced they will no
longer finance coal fired power plants. It is their belief that the assets will neither have the
capability to compete nor “the right to operate” based on the preferences of their
customers and other stakeholders such as local communities. For this reason, providing
financing for such assets are seen to be a poor medium- to long-term risk.

Increasingly, our customers are looking for cleaner energy choices, and we are happy to
oblige. Our role is not only to advocate for, but to convert consumers to, renewable
energy. More customers are signing up with EDC, with some choosing us because they
want to be powered by a pure RE company. Companies that have chosen to make the
switch believe it is a critical advantage: in fact, one customer that makes industrial
building materials told us that they want to be known as the first company in their
industry to be 100% powered by RE. We are encouraged by the small, but growing,
population of enlightened consumers that are demanding that the businesses and brands
they support show greater climate responsibility.

Message from the EDC
President and COO

EDC is proud and happy to partner with businesses that want to make positive
environmental change. Together, we will be part of a virtuous cycle that will contribute to
positive climate action.

Staying committed to our sustainability journey

In the last quarter of 2018, EDC completed the process of its voluntary delisting from the
Philippine Stock Exchange. Our delisting was a considered decision and part of an overall
strategy to support EDC’s long-term growth. The move to delist allows us greater flexibilty
over factors like leverage and dividend policies, without the need to excessively focus on
short-term results.
Our shareholders share this long-term focus with us. There is less attention given to
quarterly earnings, in favor of deliberate growth. This gives us the latitude and support to
explore investments in new Capital Expenditure, to test new technologies that alter our future
prospects, without the expectation of immediate results or instant returns.

While the Philippine Stock Exchange and the SEC have established guidelines for
mandatory sustainability reporting beginning in 2020, EDC voluntarily reported on
sustainability for the past nine years. We will continue this practice because we believe
that this is how we can best create and share value with society, and care for the
environment upon which we depend, and the we all share.

Message from the EDC
President and COO

Our clear path ahead

The strong beam from a beacon serves to shine a light on the way ahead, and while we
made some gains in 2018, our journey is far from over. One the business side, we are
confident in the path we are taking to grow and develop our portfolio, invest in our
facilities and our PEOPLE, and continue to support our host communities.

Strategy is fundamentally a choice that is executed well. EDC is committed to our choice
for renewable enrgy and we intend to deliver on our plans to optimuze our assets,
mitigate our risks and grow the business and our talent pool. It is our hope that we can
serve as a role model for the energy sector, our host communities, the local government,
energy are bright, and by all indications, are getting better with each passing day.

Richard B. Tantoco
President and COO

Message from the EDC
President and COO

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