CHAIRMAN’S MESSAGE

Dear Stakeholders,

The year 2017 was yet another year of weird weather. Last year was ranked the third hottest on historical record, with all 17 years of the 21st century ranked among the 18 hottest in history. Historical weather patterns all over the world are being altered, with our world being changed faster than anyone ever imagined before.

In California alone, we saw nearly 9,000 wildfires raging out of control, causing historic levels of death and destruction; similarly, Portugal experienced its worst natural disaster in living memory as 280,000 hectares of forests were burned in a wildfire in June; Chile also experienced its “greatest forest disaster”, destroying over 40,000 hectares of their leading timber and pulp producing areas. Unprecedented droughts in Cape Town, Morocco, Spain, India, and Iraq have caused reservoirs to dry up, affecting food production and harvest, and resulting to water rationing and even the threat of completely turning off all water supply. Devastating flooding events in South Asia brought about by extreme monsoon rains caused by high ocean temperatures have left 1,200 people dead across India, Bangladesh, and Nepal.

Recent studies published in Nature Geoscience are showing that Category 4 and 5 storms in the Asia-Pacific region have doubled or even tripled over the last 37 years. The destructive power of these typhoons has also increased by more than 50 percent over this same period. Atmospheric science experts at the Massachusetts Institute of Technology (MIT) are saying that Atlantic hurricanes are also 60 percent more powerful than they were in the 1970s. Scientists from the National Oceanic and Atmospheric Administration (NOAA) looking at 120 years of data also found that the number of extreme snowstorms between 1961 and 2010 has more than doubled relative to the previous six-decade period from 1900 to 1960. Experts at the National Aeronautics and Space Administration (NASA) are also concluding that rainfall totals from tropical cyclones have risen at a rate of 24 percent per decade since 1988. Ground-based records of 76 percent of weather stations in the US are reporting a substantial increase in extreme precipitation since 1948, with one analysis showing extreme downpours happening 30 percent more often today. When Typhoon Haiyan hit us in 2013, all that destruction was accompanied by 615 mm of rain. In December 13 to 16 of last year when Typhoon Urduja (international name: Typhoon Kai-tak) hit our sites in Leyte, she lingered for four days and dumped a total of 1,400 mm of rain during that period.

It’s undeniable that our planet has been altered immensely. The world is now 1.1 degrees Celsius warmer than it was in pre-industrial times, which means we only have 0.9 degrees Celsius to go before we exceed the Paris COP 21 commitment of less than 2 degrees Celsius. In fact, the United Nations Environment Programme (UNEP) believes we only have two years left before the door closes to the ideal 1.5-degree Celsius limit desired by the Climate Vulnerable Forum which includes the Philippines.

The world needs to decarbonize its energy chain fast. The term used is “deep decarbonization” and one of the fastest ways to accomplish this is to decarbonize the electricity sector. As more electric vehicles begin to permeate our roads and our lives in the decades to come, it would be supremely ironic if they merely switched from using oil to being powered by a dirty coal-powered electricity grid. Thus, decarbonizing the power grid hits two birds with one stone: electricity users as well and a growing chunk of the transport sector which today accounts for half of global oil consumption.

We all know that over the last nine years, the cost of wind, solar PV, and battery storage are decreasing very fast—30 percent for wind and 80 percent each for solar PV and lithium ion batteries. It’s clear that renewable energy will penetrate the electricity grid and our daily lives, whether we like it or not, and the intermittent nature of renewables will become a primary concern for the power industry. But these are not insurmountable concerns and progressive utilities are recognizing and planning for these eventualities. As this happens, the needs of the electricity industry will change very rapidly too. There will be no silver bullet and there will be a pressing demand to incorporate a diverse arsenal of solutions to meet the needs of a decarbonizing and decentralizing power sector.

The power generation sector needs to play a key role as the world transitions and decarbonizes. Here we see a critical role for generation sources that are flexible, low carbon or renewable. Coal-fired power is none of these. Our largest platforms, natural gas and geothermal power, are all of these. Our geothermal company EDC, however, must also rise to the challenge of building stronger, more resilient facilities to withstand the harsher weather events to come yet stay competitive amidst falling energy costs. This is why I firmly believe that EDC will remain laser-focused in its use of technology to achieve efficiencies, asset resilience, and old-fashioned cost control to solidify geothermal power’s desirability in a climate-changed world.

Our natural gas-fired platform on the other hand represents the country’s best bet to keep our lights on in the transition to the all-renewable future so needed by the planet. Gas-fired plants have only one-third to one-fifth the carbon emissions of coal plants per kilowatt-hour produced; they’re more flexible and ramp up much faster too; and today they’re even more cost competitive than coal at all modes of operation: be it base load, mid-merit and peaking. Our 2,017 MW of gas plants already form an economically-sized anchor load for a Liquefied Natural Gas (LNG) import terminal that can enable our country’s use of this vital fuel way after the Camago-Malampaya field has run out.

In conclusion, let me say that as we build the legs to a 21st century platform using natural gas, geothermal, wind, solar, and hydro, it’s encouraging to likewise see more and more companies greening their footprints and supply chains. Globally, there’s the RE 100—131 of the world’s largest companies pledging individual glide paths toward using 100 percent renewable energy. In the Philippines, we see an emergent but growing number of electricity consumers specifically requesting low carbon and renewable power to green their supply chains. I expect this will only accelerate as millennial consumers come of age, their purchasing power increases, and climate change concerns mount globally. As we see these shoots emerging, I must say that despite the challenges and obstacles we’ve encountered along the way, it continues to be a rewarding journey. And we will forge ahead, confident of bringing competitively-priced renewable and low-carbon electricity to meet the needs of millions of Filipinos as we move with the demands of the next century.

Thank you for your unwavering and continued support.

FEDERICO R. LOPEZ
Chairman and Chief Executive Officer