OUR ECONOMIC PERFORMANCE

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1 OUR ECONOMIC PERFORMANCE Strengthening business resilience in the face of our changing climate

2 We navigate our path to sustainability with careful consideration for our profit, people, and our planet. In 2017, we managed a stable level of operations, with controlled operating costs and a healthy profit, despite the challenges brought about by a competitive energy market and the onslaught of natural disasters. Moving forward, we will continue to build resilience into the business to better protect our assets and operations from the ravages of natural and climate-related hazards. End poverty in all its forms everywhere Ensure access to affordable, reliable, sustainable, and modern energy for all Promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation SDG 1 Target: SDG 7 Targets: SDG 8 Target: SDG 9 Target: Ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership and control over land and other forms of property, inheritance, natural resources, appropriate new technology and financial services, including microfinance Increase, substantially, the share of renewable energy in the global energy mix Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, through access to financial services Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries 35

3 Energy Development Corporation Performance Report 2017 In 2017, we saw how the forces of nature can greatly affect our assets and our operations. Our strategic business units (SBUs) were on track to achieve another record year until two natural disasters slowed down the operations of our Leyte Geothermal Business Unit (LGBU), our largest business unit. While we manage our plant reliability and operating costs, it is increasingly evident that we need to strengthen our business resilience. We recognize that our key facilities and business units are in areas susceptible to natural and climate-related hazards, thus more emphasis should be placed on resiliency to better protect our assets and our operations. Despite the setbacks brought about by natural disasters, and the enduring challenges of a competitive energy market, we were still able to make gains, especially in our BacMan and wind operations. Steady gains amid lower generated volume In 2017, company revenue amounted to PHP33.3 billion, a 2.9 percent decrease from the PHP34.2 billion revenue posted in This decrease is primarily attributed to lower generated volume. As such, the company generated total energy sales of 7,951.4 gigawatt hours (GWh), a 6.8 percent decrease from the 8,531.5 GWh generated in Natural calamities, namely a 6.5-magnitude earthquake in July and Typhoon Urduja in December, slowed down the company s operations, particularly in Leyte, which eventually led to lower generated volume overall. However, this volume decline was partially offset by a 4.2 percent increase in average market price. At the time of the earthquake, our Leyte Geothermal Business Unit (LGBU) was generating around 540 MW as two of its units were undergoing retrofitting and preventive maintenance. Ten days after the earthquake struck, LGBU was able to bring back almost 40 percent of its power back to the grid. Bulk of the restoration activities were already completed when a typhoon struck the island towards the end of the year. When Typhoon Urduja made landfall in Eastern Samar, the storm unloaded 15 days worth of rainfall within a 24-hour period. While LGBU s power plants avoided major damages, in part due to previous typhoon-proofing initiatives, several flood surges and landslides damaged some of its pipelines. By January 2018, the business unit has since restored half of its net capacity. Our 150 MW Burgos wind farm generated GWh in 2017, the highest volume generated since its commissioning in , 103-2, 201-2

4 Our Economic Performance Given these setbacks, LGBU experienced a decline in net sales volume from 4,159.0 GWh in 2016 to 3,701.3 GWh in However, Unified Leyte still contributed 36.2 percent to the company s total sales volume and posted PHP10.1 billion in revenue. Our BacMan Geothermal Business Unit (BGBU), on the other hand, contributed 15 percent to the company s total sales volume as it increased its net sales volume from 1,046.5 GWh in 2016 to 1,188.8 GWh in 2017, and posted PHP4.4 billion in revenue. BGBU s share of contracted energy sales jumped from 21 percent to 80 percent end The increase came after the business unit signed about 50MW of its capacity with contestable customers and electric cooperatives. This, in turn, helped offset the lower generation volume of the Negros Island Geothermal Business Unit (NIGBU). BGBU ended 2017 with 100 percent contracted capacity. Net Generation Output GEOTHERMAL Location 2017 Net Generation Output (in GWh) (based on EDC s 0.1 ton CO 2 /MWh intensity) Availability Factor (%) BacMan 1, Unified Leyte 3, Tongonan & Palinpinon I and II 1, Mindanao I and II Nasulo HYDRO FG Hydro WIND Burgos Wind Solar Burgos and Rooftop Solar Generated Total Energy Sales: 7,951.4 GWh Avoided CO 2 e 6,721,791 tons Favorable wind conditions helped our Burgos wind farm, currently the largest wind farm in the country, generate GWh this year. This is 16.2 percent higher than its generated volume in 2016, and the highest volume generated by WINBU since it was commissioned in Our Burgos solar and rooftop solar business units also had higher generated sales volume due to the rooftop solar project in Gaisano Capital Mall in La Paz, Iloilo City, which began operating in March A total of five solar rooftop systems, with a combined capacity of 3.6 MW, were commissioned in This includes solar rooftop projects in Oton (614kW) and Balasan (614 kw), and for Gaisano Capital malls in Kalibo (761 kw) and Passi (614 kw). Owing to the PHP980.4 million decrease in revenue, the company s recurring net income also decreased by 5.5 percent, from PHP9.5 billion in 2016 to PHP9.0 billion in However, this was offset by a PHP366.0 million decrease in interest expense and a PHP250.6 million provision for income tax. Increase in operating expenses and decline in revenues, due primarily to the return-to-service (RTS) activities in Leyte, affected the company s net income, which decreased by 18.3 percent in EU2, EU11, EU30 37

5 Energy Development Corporation Performance Report 2017 Distributing Value Across our Business How we strengthen the local economies in our areas of operation As a renewable energy company, EDC seeks to contribute to the health of the environment and of broader society. We understand the unique role we play, and how critical it is given the realities of climate change. We also understand that we have a responsibility to ensure that our business runs smoothly as it generates healthy financial returns and that it not only creates value, but also shares it Economic Value (in PHP billions) As a partner to our host communities, and as a stakeholder in national development, we consider it part of our extended responsibility to share the value of our business and contribute to the local economy and the broader goals of nation building. This includes the proper payment of taxes, the dividends we share, salaries we pay to our people, and the money we invest in our operations. Business partnerships, such as that with Gaisano Capital, support local businesses that are looking for ways to manage their energy costs, and help build the business case for clean energy in the country. Given our nationwide reach, EDC makes it a point to work with local suppliers, in a bid to support the economies in our areas of operation. We source our goods and services from local contractors, suppliers, and businesses. We prioritize identified local suppliers in our strategic sourcing contracts and master service agreements. In much the same way, we seek to develop the capacities of our host communities and create new opportunities for them. We encourage and capacitate local contractors, including the cooperatives based in our primary partner barangays (PPBs), to participate in contract bidding and implementation to expand their capital and technical expertise. This exercise broadens their skill set and enables them to take on bigger projects outside the province, which includes contracts for civil, structural, mechanical, and piping works for various installations. This way, our business enables not only greater participation, but stronger partnership. Our efforts are not isolated to sharing only the economic benefits of our business. We also seek to improve the environment within our areas of operation. Keeping things local helps us reduce our carbon footprint in some areas of our supply chain. We are also taking greater steps to make sure that our suppliers and contractors also share the responsibility for the environment. We integrate environmental, health and safety, and labor requirements for our local suppliers and contractors so that they can mirror EDC s sustainability practices in the supply chain. This way, they become our partners, not just in business, but in environmental protection as well. Generated Distributed Retained Economic Value Distributed (in PHP billions) *Procurement awards Amount % Operating costs Interests and dividends Wages and benefits Taxes Community investments TOTAL Total Spend* Type Number of Local Vendors Awarded Contracts (in PHP billions) Local 1, Foreign TOTAL 1, PHP78.2 million contracts awarded to cooperatives and community associations % , 103-2, 201-1, 204-1

6 Our Economic Performance New Contracts, New Customers for 2017 On January 11, 2017, EDC and Gaisano Capital inaugurated a 1.03-megawatt (MW) solar rooftoop system in Gaisano Capital s mall in La Paz, Iloilo City, currently the largest in the province. The system can supply up to 50 percent of the mall s daytime load, resulting in significant savings in electricity cost for Gaisano Capital. On February 14, 2017, the Energy Regulatory Commission (ERC) approved the application of BacMan Geothermal, Inc. (BGI) for a Retail Electricity Suppliers (RES) license. The RES license gives BGI authority to supply electricity to 36 new customers consisting of electric cooperatives, industrial and commercial customers, and contestable customers with demand below 1 MW. On September 7, 2017, EDC and Gaisano Capital inaugurated two solar rooftop systems for Gaisano Capital malls located in Kalibo (761 kw) and Passi (614 kw). The Energy Regulatory Commission (ERC) approved EDC s Ancillary Service Procurement Agreements (ASPA) on August 31, 2017 for 20MW of EDC s Nasulo Geothermal Power Plant and on September 18, 2017 for 30MW of GCGI s Palinpinon-II Geothermal Power Plants. EDC Nasulo and GCGI began offering ASPA to National Grid Corporation of the Philippines (NGCP) and was dispatched accordingly on September 26, On November 9 and 10, 2017, additional solar rooftop systems in Oton (614 kw) and Balasan (614 kw) were commissioned, respectively. EDC s Nasulo power plant in Negros Oriental began offering ASPA for 20MW of its installed capacity to NGCP on September 26,

7 Energy Development Corporation Performance Report 2017 FEATURES In Good Company Macquarie, GIC acquisition seen to boost EDC s long-term growth EDC is poised for further expansion as its mother company, First Gen Corporation (First Gen), partners with the Philippines Renewable Energy Holdings Corporation (PREHC), a consortium of investors comprised of funds managed by Macquarie Infrastructure and Real Assets (MIRA) and Arran Investment Pte Ltd (Arran), an affiliate of Singapore s GIC Pte Ltd. The PREHC became a key shareholder of EDC after it acquired 31.7 percent of the listed company s total outstanding voting shares from existing shareholders through a USD1.3-billion voluntary tender offer, which was launched in August To date, the deal represents the largest voluntary tender offer in the country s financial history. We believe MIRA and GIC are the right partners for this juncture in our corporate history: they are longterm and astute capital, they have complementary perspectives, and they are willing to help us push the frontiers of innovation as we build EDC into a platform that is well-positioned for a dynamically changing energy landscape, said Federico R. Lopez, Chairman of First Gen and EDC. MIRA, together with GIC-affiliated Arran, are long-term investors in global infrastructure and renewable energy, and currently own and operate a combined installed capacity of over 11,000 megawatts (MW) globally. Thus, this strategic partnership brings together First Gen s significant experience in the renewable energy sector and the PREHC s extensive expertise in global infrastructure to support the long-term growth of EDC. First Gen will continue to maintain majority control at EDC, and will continue to handle the day-to-day management of the company. This investment in EDC marks our first infrastructure commitment to the Philippines, and we look forward to growing the company with our partners in this vibrant energy market, said Ang Eng Seng, Chief Investment Officer for Infrastructure of GIC. We believe that EDC s unique portfolio of renewable energy assets will continue to generate stable and sustainable returns. We are delighted to have acquired a significant interest in such an outstanding company on behalf of our investors. As a world-leader in the geothermal energy industry, EDC is an important supplier of clean and sustainable power to the Philippines, added David Luboff, Senior Managing Director of MIRA. We are also pleased to be forming a long-term partnership with First Gen and GIC to bring our combined expertise to EDC. First Gen and PREHC held a partnership ceremony on October 3, 2017 to mark the start of their strategic collaboration as key shareholders of EDC. 40

8 Our Economic Performance Harnessing Power from the Sun EDC and Gaisano Capital launch largest solar rooftop system in Iloilo EDC further expanded its clean energy portfolio when it successfully inaugurated a 1.03-megawatt (MW) solar rooftop system in the Gaisano Capital Mall in La Paz, Iloilo City on January 11, The project is EDC s initial venture in the solar rooftop industry and the latest addition in the company s clean energy portfolio, which currently includes geothermal, wind, hydro, and utility solar. The solar rooftop system, which covers 5,800 square meters (sqm) of roof space and contains 3,680 photovoltaic (PV) modules, is currently the largest in the province. The system, in turn, can supply up to 50 percent of the mall s daytime load, resulting in significant savings in electricity cost for Gaisano Capital. We are happy to see the completion of our largest solar rooftop project and provide added value to our La Paz customers, said Edmund Gaisano, Jr., Vice President for Operations of Gaisano Capital. We are one with EDC in promoting the use of and enhancing our operations with cleaner energy technologies. This is our own contribution to reduce the negative impacts of climate change. The energy generated by the solar rooftop system is estimated to offset close to 770 to 840 metric tons of carbon dioxide (CO 2 ) per year. Solar rooftop systems have come down in price, and they will continue to do so, said Richard Tantoco, President and COO of EDC. We will harness solar, so we can provide cleaner and more affordable energy options to our customers. Both the customers and environment win so it s a business we are committed to. The solar rooftop project started its operations in March 2017, and EDC has since been engaged to install similar solar rooftop systems in other malls. In 2018, the solar rooftop system portfolio of EDC will reach 5MW in total capacity. Energy generated by EDC s solar rooftop system can offset about MT of CO 2 /yr. 41