To our dear Stakeholders,
We started the year 2022, by acknowledging the shortfalls of 2021, and taking accountability for our role in allowing those execution missteps to happen. Our numbers and our morale suffered.
We then committed to learning from our mistakes and to improving how we do things. I am proud to say that we have made great strides toward achieving that goal and incidentally, that painful letter to you our shareholders, in combination with the letter of our chairman, won a gold award in the Asia Sustainability Reporting Awards this 2023.
In 2022, we focused on narrowing the interpretation of our vision into just four focus areas, and we concentrated on clearing the path for everyone to deliver.
As a result, we significantly outperformed our generation and attributable recurring net income targets in 2022 for the first time in four years. Our PHP 11.2 billion RNIA was up by 28.7%, or PHP 2.5 billion, from PHP 8.7 billion in 2021.
Priority 1: Improve HSE Performance
HSE must come first. Good HSE practices affect how other things are done in the company and when done properly, demands consistency from everyone to do their job right.
With HSE in place, we are then able to focus on generation, growth, and financial targets. HSE costs more in the short term, but less in the long term. Initially, we need to bring our own people and our communities along the journey and invest in the right training and equipment.
Over time though, many things improved, including basic housekeeping, warehousing and storage of over PHP 4 billion worth of materials in inventory.
We make it clear that we care equally about our people and the residents of communities where we operate. Our laborers and contractors are usually from the local areas.
The same goes for the environment. It is our commitment that everyone goes home to their loved ones safely, every single day.
Small changes made have resulted in dramatic reduction of risks, such as driving accidents. This has been the case with driver training and coaching, policies on maximum hours worked, mandatory rest and dash cams & GPS, reduced over speeding incidents by 20% and accidents by 5%.
In the end, two things have contributed to our performance in HSE: first, the focus we put into HSE, particularly our Safety practices, and second, the spirit of humility, to learn and to listen all the time. We recognize that accidents are waiting to happen every day, with thousands of workers coming in and out of our sites and thousands of kilometers driven by hundreds of EDC, contractor, and supplier vehicles. It takes a sense of humility and urgent accountability to highlight high-potential incidents across the company and proactively learn from them.
Priority 2: Stabilize the Base Generation
Two major contributors worked hand in hand to exceed our generation target by a small margin. First is our Sweet Spot studies, which helped guide our steam management practices and lowered the natural decline rate of the fields. The second is the success of our well activities, from drilling to workover of wells. With these, we hit our generation targets despite the low production from our wind assets.
Our steamfield operations set realistic targets based on Sweet Spot studies conducted from 2020 to 2021. We managed our resources carefully and reversed our decline rates by conducting experiments like trickle injection, which is being done globally. Our focus on realistic targets, better reinjection management, and stronger field monitoring have clearly paid off.
Looking ahead, the answer to increasing generation will lie in how we manage and execute the drilling program, the reinjection of fluids at the right spots, and controlling the impact of highly acidic fluids on our assets. Our drilling program has consistently hit its depth and output targets, and we need to maintain this level of consistency.
Priority 3: Achieve Financial Targets
We exceeded our financial targets largely due to two factors. First, we benefited from tailwinds provided by higher market prices, given recent geopolitical events. Second, we have exceeded our production targets by focusing on the strategies under the second priority, such as drilling programs.
We also paid close attention to costs and efficiently managed them, which is essential to ensure effective operations. Despite the annual inflation, our costs have remained controlled over the last 11 years. This demonstrates our commitment to improving productivity and efficiency in our operations.
Priority 4: Achieve Growth Targets
It is essential to understand that geothermal operation is a fully vertically integrated system. We own and manage the energy resource, we transport it, we process it, use some of it, and re-process the unused fluids and heat to ensure the long-term sustainability of our operations.
As a deployer of capital, a 100MW geothermal plant will generate as much revenues as a 500-550MW of solar plant. We are fortunate to be in this position of deploying capital towards a resource that also hedges us against fluctuations in hydrocarbon prices, something that our customers have benefitted from since the Ukraine invasion.
In 2023, we will begin constructing seven projects. Our management team developed all these projects. We began construction of three of the projects in 2022, which together represent an investment of PHP 17.35 billion.
All our growth will be for naught if we are not ready for the hyper localized impact of climate change. We have invested in resiliency since 2014, and have dramatically improved our risk mitigation when it comes to natural catastrophes, — typhoons and earthquakes.
Regarding being climate-ready, I’m proud to say that 2022 was a milestone year for us. We finally passed the five-year mark of having no Nat-Cat insurance claims for the first time in two decades. Achieving this feat has required significant thought, engineering, and investments, so systematically addressing our climate risks has paid off. Our insurance advisors affirmed that lowering our premium per amount of risk insured in 2023 is unprecedented.
Claiming 2023 as our Banner Year
As we look ahead to 2023, we anticipate a record year for EDC, with projected outcomes that should exceed our previous achievements. The year will be characterized by growth as we embark on seven different projects simultaneously. We recognize that these would pose significant challenges, and we are fully focused on field executions to ensure that each project is completed to the highest possible standard. However, we also understand that our top priority must be the health and safety of our workers, laborers, suppliers, and co- creators. We are committed to taking all necessary precautions to ensure that each project is completed safely and that we deliver on our promises without compromising on the well-being of those involved.
As I reflect on EDC’s recent successes, I am aware that none of it would have been possible without the unwavering dedication of our workforce. Despite the numerous challenges we faced over the past year, our team remained committed to our goals and worked tirelessly to ensure we stayed on track.
EDC was recognized as one of the best companies to work in Asia by HR Asia. This is a testament to our commitment to providing a safe and inclusive workplace for our employees where they can grow, develop, and thrive.
Finally, I would like to take a moment to acknowledge the tragic loss of four of our EDC colleagues and consultants in the CESSNA tragedy in February 2023. Their contributions to our company and their impact on our community will never be forgotten. Our hearts go out to their families and loved ones during this difficult time, and we offer our deepest condolences to those who have been impacted by this terrible loss.
Today it’s undeniable that the climate emergency being faced by humanity is real and in urgent need of action. In the last few years, we’ve employed various platforms, venues, and forums, including our integrated report covers, to highlight the existential threat posed by the climate crisis. Now it feels so much more encouraging as we see a myriad of sectors of society weaving threads from their respective fields into a tapestry of solutions that aims to bring carbon emissions down to zero by 2050. While the challenge is still daunting, we know that, with the right focus, countless solutions will come to light.
The journey to Net Zero will involve three phases that need to be executed within a limited timeframe. More importantly, we must keep in mind that the overriding goal is to “solve the climate emergency”, by mitigating and reversing emissions as well as adapting to its impacts that are already here and intensifying. Because if we don’t get it right, the exponential deterioration of global climate systems and the environment will make it impossible to solve other problems like poverty, inequality, disease, food production, freshwater scarcity, mass migration, social displacement, mass extinction of species, and biodiversity loss, among others. All of this we will feel during our lifetimes and they’re undeniably accelerating as we can see in news reports every single day now.
Recall that Paris COP 21 applauded the agreements that signaled we could limit global warming to 2.0 degrees Celsius if all commitments were met. Since then, the UN IPCC issued a Special Report on Global Warming, followed by its Sixth Assessment Reports from Working Groups I, II and III, all with dire warnings and consequences for a 2-degree Celsius warmer world. Taken together, they underscored the scientific consensus that our targets must not exceed 1.5 degrees by end century. This target is slipping away from us fast but the 1.5 degrees Celsius must still remain our base case.
Consequently, “solving the climate emergency” means deliberately embarking on a journey through these phases.
In PHASE ONE, we REDUCE Greenhouse Gas (GHG) emissions of carbon dioxide, methane, nitrous oxides and fluorinated gases from the current 50 gigatons (Gt) of GHG’s per year, and we see emissions peak by 2025. This is where most efforts are centered today. But we cannot stop there.
Next, in PHASE TWO, we aim further to ELIMINATE all emissions of GHG’s. We must get to Net Zero emissions by 2050.
However in PHASE THREE by 2050, we must begin the arduous task of reducing the concentration of greenhouse gases in the atmosphere. We must get to what is called NET NEGATIVE EMISSIONS. This is best described in the words of NASA climate scientist James Hansen: “If humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted…CO2 will need to be reduced…to at most 350ppm.”
For reference, pre-industrialization carbon dioxide levels were at 280ppm and we sailed past 350ppm in 1986. We continued to blow through 400ppm in 2013, the same year Super Typhoon Yolanda, the most powerful typhoon on earth to ever make landfall, announced to the world, through the suffering of millions of Filipinos, that climate change is here and that we better get our acts together now. While the COVID-19 pandemic has given the world a short respite, today emissions are on the rise again and Paris COP 21 targets still aren’t being met.
We now need to realize Phases One, Two and Three within the rapidly diminishing timeframe of the next 27 years. Failing to do this over the limited period will trigger irreversible tipping points, the effects of which we are already seeing in news reports from all over the world every day. The clock ticks as we speak. Winning this war and solving climate change will mean staying laser-focused on strategies, tactics and accelerating technologies that are likely to scale within this very critical timeframe of the next 27 years.
Progress through Phases One to Three in the battle to “solve climate change” has many facets beyond just energy. It spans agricultural practices, food production, waste management practices, industrial processes, deforestation, f-gases used in refrigeration and many others. The key elements of the energy transition involves the following: reducing the carbon intensity of electricity, scaling up energy efficiency efforts, electrifying as much of transport and the industrial sectors, using carbon-neutral fuels for other hard-to-reach sectors, and deploying nature-based and man-made carbon capture, use and storage. All these will have immense implications for the central role of the electricity grid. The most important point is that by 2050, we will need 5 times the electricity we use today; and we will need 10-12 times the clean energy in use today.
For now at the FPH Group, our efforts remain focused largely on helping to reduce the carbon intensity of the electricity grid and then ultimately to decarbonize it. We’re making it our mission to shepherd the energy transition to Net Zero.
From a global perspective, we need to clean up the electricity grid’s generation sources with the intent of progressively lowering carbon intensity per kwh. This is done through a combination of renewable energy sources, storage (e.g., batteries or pump hydro), and other complementing low-carbon energy sources. This alone is a complex balancing act. For our country, adding more 24/7 renewable energy sources like hydro and geothermal power to the grid should be encouraged as no-regret options. However, what needs to be done thoughtfully is the addition of more renewable energy sources like solar and wind. Their variable and intermittent nature though necessitates that we match them with more grid capacity and storage to account for the fact that they’re not there when night falls or on cloudy or windless days. However, batteries are only capable of running 3-4 hours and thus fall short of fully providing power for the 10-12 hours before the sun rises or the stretches of cloudy or windless days or even weeks. As such, there is need for a low carbon emission fuel like natural gas to act as the bridge fuel that’s technically more suited for complementing the variable nature of renewable energy.
We view FPH’s (First Gen’s) diverse portfolio of clean and renewable energy sources as a key enabler to a greener electricity grid. Our target is to grow our low carbon energy portfolio to 13,000 MW by 2030, of which 9,000 MW will be renewables. The construction of our LNG terminal has reached practical completion, and soon after we expect the commissioning of our floating storage and regasification unit vessel. Of course, over time, we must look toward repowering our natural gas facilities with green fuels like hydrogen as these become more feasible, or they can be decommissioned outright before 2050.
As we clean up our energy grid, we must also move towards scaling up energy efficiency as the “first fuel” and encourage its use everywhere. Today these efforts are still sparse and fragmented but they have great potential. They are the lowest hanging fruit to reduce carbon emissions and are no-brainers because they also bring real cost savings and enhance the bottom lines of our customers.
Yet, as we navigate this energy transition, we must bear in mind the need to keep the lights on and keep power prices affordable for all. At the same time, we must continue to improve access to 24/7 electricity for millions of households in the country who currently do not have it reliably in their lives if we are to even begin uplifting them from poverty.
Decarbonizing and scaling up a green electricity grid over the next three decades is probably the greatest energy transition in the history of mankind. It’s not just changing the electricity system but building a new global energy system with components we have never built before and at a massive scale. This will need nothing short of collaborative action among various players that today consider themselves competitors. And these also need well-coordinated and timely action on the part of regulators who must ensure energy security and be well-versed on the elements that make for a successful and just energy transition.
In addition to creating a future-ready energy system, our being 4th on the world’s climate vulnerability list necessitates that we prepare Philippine cities, communities, and infrastructure for resilience in a climate-changed world. The impacts of the climate crisis as well as climate action that will be demanded of everyone are among the forces in history that will transpire “gradually and then suddenly”. If we’re not prepared and conveniently ignore it, we’ll be overwhelmed and not recognize the world around us in the coming thirty years. The science tells us we no longer have a choice. We need to act in a systematic and collaborative way if we want to succeed and make serious headway in tackling other issues like hunger, poverty, and the other pressing Sustainable Development Goals of our time. Trying to solve those will be futile if we don’t build for the resilience we need and if we don’t ultimately “solve climate change”.
The forces unleashed by the climate emergency are already creating a future that, by necessity, must look very different from the past. The times call for new paradigms and even social constructs. We will need to measure progress using new metrics and reshape our way of life to thrive in a changed and rapidly changing world. It’s all about reimagining our relationship to the planet and to one another. If humans have such immense power to degenerate the Earth, if we so choose, humanity can also wield the same power to change course and regenerate it not just for the sake of currently living humans but for the millions of other species that co-inhabit our world, today and tomorrow.