A warm heartfelt greeting to all of you! The COVID-19 pandemic drastically changed how we all live and required many of us to work from home and restrict our movements for a prolonged period. We first needed to ensure the safety of our employees and their families. Given the circumstances and with the help of technology, I believe our organization adjusted quickly, almost seamlessly. As for me, working from home has actually been quite productive. It gave me indispensable quiet time. It gave me the opportunity to reflect on disruptive events like the COVID-19 and what many believe is the larger, more consequential concern that is climate change. This period also allowed our leadership at First Gen to further examine our impact on people and society as well as fine tune and, if necessary, recast our Mission, our Purpose, and our Chosen Path and their impact on our business platforms and plans for the future.
My report should have been an easy one. I would have simply reported how 2019 was a stellar year with First Gen posting “all-time high” profits and how we continue to gain momentum on our growth plans. I would have also reported that 2019 marked a year where the volume and depth of the discussion on the necessity to shift our energy use towards less polluting, low carbon electricity sources like renewable energy, and even natural gas, became much more acceptable, understandable, and mainstream. We were no longer an outlier in the conversation and that certainly felt good. This increased awareness and positive change in the tide favored First Gen’s clean and renewable portfolio and affirmed our decision to not invest in coal.
I am sure that not one of us ever thought we would go through our lives experiencing a scary life-threatening global health pandemic. Our very own well-being is affected by feeling of anxiety and uncertainty about our future. More so, I realized that this feeling of uneasiness is similar to the feeling I have on how slowly the world seemed to be moving in addressing the existential threat of human-made climate change. For some time now, we at First Gen have been passionate and vocal about the necessity for the Philippine energy sector to shift towards a decarbonized energy system and that it is important for our leaders and stakeholders to work together and create an environment that will promote and incentivize proper behavior to take a more drastic pivot towards clean and renewable energy or suffer the consequences of climate-related disasters.
Renowned climate scientist turned political activist James Hansen, who I follow and admire, phrases the connection between the pandemic and climate change quite clearly in that they are “both characterized by a delayed response which makes the problem and its solution more difficult.” Hmm, a delayed response by whom?
Hansen further adds, “with the virus the lags for an individual are between infection, appearance of symptoms, and ultimate response, which can potentially include death… with climate change the lags are between emissions, appearance of warming, and ultimate effects such as large sea level rise and species extinctions, which can potentially lead to social disorder and a more desolate world.”
Hansen then concludes, “We are in a race to find remedies in both cases, but the near-term focus on the virus provides a moment to assess the actions needed for climate. It is a solvable problem. It is inappropriate to pile stress on young people, by implying that it is too late for realistic actions to be effective.” There are keywords we can take away from Hansen’s statements: first, is that of the “delayed response” by whom? Clearly, it refers to our leaders and stakeholders, including politicians, businessmen, regulators, lenders, and even consumers. We need to move more decisively today! The second key takeaway is equally important and that this is a “solvable problem”. It is not going to be easy but it is solvable and we have to accept the fact that we are going to have to live and cope with this environment today and tomorrow. Again, we need to move more decisively today!
First Gen made significant progress in its key projects for 2019. Despite the calamities and natural disasters, the plants continued to function reliably to ensure power supply to all our customers.
We continued to focus on pioneering LNG to the country. Last May 2019, together with our partner Tokyo Gas, a traditional Kagami Biraki ground-breaking was held, marking the next phase of the development. In August 2019, the Energy Investment Coordinating Council declared the project an “Energy Project of National Significance” signifying the project’s importance to grid security and how it is aligned with the Department of Energy’s (DOE) policy and energy plan.
We see how the LNG project can serve the natural gas requirements of existing and future gas-fired power plants for both First Gen and third parties. This addresses the long-term fuel supply risk of our country’s gas plants. This also allows us to continue providing clean and competitively priced energy to the grid, supplementing the growth of renewable energy projects, and encouraging new large and small-scale gas plants throughout the many islands of our country.
First Gen has also completed a detailed study on modifying its existing jetty at the First Gen Clean Energy Complex in Batangas City. We can proceed with construction once the DOE approves our Permit to Construct, Expand, Rehabilitate, and Modify (PCERM) application. The LNG project’s modified jetty will have the ability to receive large- and small-scale LNG vessels including Floating Storage Regasification Units (FSRUs). FSRUs can store LNG molecules and will be capable of returning LNG back to its gaseous state.
Our plants continued to operate reliably when other power plants were experiencing outages. Three of our baseload natural gas plants – Santa Rita, San Lorenzo, and San Gabriel – continuously operated throughout the Luzon grid outages in 2019. The peaking plant Avion and the Pantabangan-Masiway Hydroelectric power plants were also able to quickly ramp up and down to meet the requirements of the grid. These plants augmented the supply shortage in the first half of 2019, which was driven by the combination of high summer demand and depressed electric supply.
EDC is among the first in the Philippine geothermal sector to employ real-time Pressure-while-Drilling technology, enabling us to analyze real-time information underground. This information will allow us to optimize operations and reduce drilling costs while completing projects faster.
EDC’s Unified Leyte and Tongonan plants contributed significantly higher revenues in 2019 following their recovery from damages caused by Typhoon Urduja in 2017. We continue to invest in resilience programs to mitigate possible key risks due to calamities.
Resilience programs we implemented in 2019 include a) the construction of geohazard and landslide mitigating measures fleet-wide, b) the setup of earthquake monitoring systems, which include installing accelerographs and seismic stations in the plants, and c) the replacement of Malitbog Cooling Tower Unit 3 to a more resilient one. These projects are expected to mitigate key risks related to one-off events such as typhoons, landslides, and earthquakes.
First Gen reaped the full-year benefits of last year’s deleveraging activities while EDC continued to pay down debt. In 2019, EDC further pre-paid approximately PHP5.2 billion of its outstanding debt. As of end-2019, First Gen’s outstanding consolidated debt balance (gross of debt issue costs) was at USD1,947.3 million (PHP98.6 billion), coming from USD3,012.6 million (PHP141.8 billion) in 2015.
2019 is the year First Gen’s attributable and recurring net income (RNI) reached an all-time high. Our attributable net income reached USD296.2 million, a 34 percent or USD75.0 million increase from our USD221.2 million in 2018. Our RNI reached USD284.4 million, a 17 percent increase, or USD42.0 million from our USD242.4 million in 2018. The increase can be attributed to the following:
For the energy industry, a decarbonized energy system is the path toward a regenerative future. With the Paris Agreement as its groundwork, the Climate Action Summit gathered leaders to craft realistic plans to achieve carbon neutrality, targeting to reduce greenhouse gas emissions by 45 percent over the next decade, and to net zero emissions by 2050. In 2019, a more aware global market clamors for cleaner renewable energy sources. Investors have become much more choosey with the companies they invest in, favoring clean and renewable energy companies. Banks are now being pressured to stop lending to coal projects. Even owners and developers are either selling their stakes or shutting down their coal plants due to regulatory or economic reasons. Customers have also begun to realize that they have a responsibility and a choice in determining where their electricity comes from.
The Philippines, however, is sadly lagging in this movement. The country still has a large coal energy portfolio, which is expected to increase in the coming decade. This is despite the fact that most of our coal supply is imported from other nations. This does not make sense to me. Additionally, the regulatory environment is still not ideal for renewable energy. Yet, we remain hopeful. We believe that it is only a matter of time before this improves. Several government policies and legislations have already been enacted, and it is every stakeholder’s role to respond firmly and be consistent in shifting to low carbon energy. Church representatives are speaking up against dirty coal and encouraging cleaner alternatives. Provinces, too, are now more aware of coal’s environmental and health hazards and have begun banning coal plants. We still have a long journey ahead.
A full switch to 100 percent renewable energy cannot be done immediately. Consistent with our chosen path forward, we will deploy our extensive experience in geothermal, gained over four decades in the Philippines, to expand the use of geothermal resources globally as it provides uninterrupted power 24/7.
Most other renewable sources suffer from variability and intermittency. While we are optimistic that these will eventually be addressed given the speed of innovation of battery storage technology, we cannot wait until then. Part of the hydro platform’s expansion involves the development of the 100-MW Aya Pumped-Storage facility capable of providing energy during peak periods and storing energy during off-peak periods. We need to start the transition now.
First Gen’s clean and flexible gas portfolio is a pioneer in the country and is well-positioned to help with the transition. Our natural gas platform is the ideal transition fuel as it is flexible, reliable, efficient, and emits far less emissions compared to coal plants. Introducing LNG to the country, allows us to support and boost the growth of variable renewable energy sources like wind, solar, and hydro.
First Gen’s efforts show that a decarbonized and regenerative future is possible. As with any great feat, it is challenging, but it is achievable. With around 65 percent of emissions coming from electricity generation and industry-use, the energy industry needs to develop a systemic and radical plan toward decarbonization. We need to change our mindset to create change in the market.
Pulitzer Prize-Winning author and New York Times columnist Thomas Friedman was asked about the pandemic and the environment in a Harvard Business Publishing interview during the quarantine. His response was also quite clear and compelling. He mentioned that “this [pandemic] is of course the warm up act for the big one. And the big one is climate change. And there are two differences between a pandemic and climate change. The first is climate change doesn’t peak. If the Greenland and Antarctic ice shelf melts, they’re gone. They will no longer reflect the sun’s rays. The oceans will rise. They will be permanently boiled by the sun. And the second difference between pandemics and climate change is there is no herd immunity to climate change. There is just a relentless pounding on the herd. So if this isn’t a wake-up call to what is now a decade where we have to do everything we can to stay under 1.5-degree rise in average temperature by 2100. If we have any hope of managing what is now unavoidable and avoiding what will be unmanageable, if this is not a wake up for that, I really don’t know what is.” I don’t know about you, but the concept of a continuous and relentless pounding of the herd is not something we should look forward to. We have to try our best to avoid it and prepare for a difficult journey ahead.
As the leading clean and renewable energy provider in the country, we encourage everyone to respond to this important call for action. We need to shift to sustainable regenerative practices and utilize renewable energy. This shift is how we can ensure that the next generation has the resources not only to cope, but more so to thrive and prosper. This is First Gen’s mission, and we hope everyone can take part in forging pathways towards a decarbonized and regenerative future.