Chairman’s Message

 

 

Dear Stakeholders,

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

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 3.0 to 6.0 degree Celsius 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 organisms 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 non-governmental 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 50.0 percent more than our planet’s ability to replenish the resources used up!

With every passing year, it’s becoming 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 75.0 percent as opposed to only 10.0 percent 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.

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 2.0 degrees Celsius. They emphasize that we must reduce the carbon intensity of the economy—the amount of carbon emitted per dollar of GDP—by 6.0 percent each year until 2100. Although this number looks modest, it is nine times the current rate of improvement being experienced in the world today; this only underscores the magnitude of the transformation needed.

At First Gen, we believe our platform of businesses and our way- to-play are all geared toward this goal.

Our natural gas plants 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 (kWh) 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, we signed a Joint Development Agreement (JDA) with Tokyo Gas Co., Ltd. (Tokyo Gas) 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 our partner Tokyo Gas signed the world’s first coal-indexed LNG contract. This signals that gas producers are now willing to fight head to head against coal plants in competitive power markets, if they aren’t cheaper already.

Our geothermal plants are the only large scale 24/7 sources of renewable energy today. 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 at EDC is exciting and promises to transform them into a leaner but more robust and resilient player and competitor.

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 online 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 percent, down from 59.3 percent in 2013. This is alarming for a technology whose economics only makes sense when run at baseload rates of 70.0 to 80.0 percent. 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.

Our world today teems with change and disruption. At First Gen and its parent company, FPH, 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.