EDC 2017 Annual Stockholders Meeting May 8, 2017 PSE Auditorium, PSE Centre, Pasig City

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1 Dear Stakeholders, 1

2 We chose a provocative cover and theme because we believe that we need to communicate and lead to make people think and act in this time of crisis that faces us Filipinos and the rest of humanity. 2

3 That our world is warming particularly, at an unprecedented rate is already borne out by data and scientific discourse. Compared to the 1880 s, the world is now 1.1 degrees Celsius warmer. However, this number can be misleading because it is a global average, and averages tend to lull us and give us a false sense that since it is just 1.1 degrees, we do not need to act. 3

4 The arctic (Norway, Svalbard, Russia s Kara sea and Northern Canada) was a full 14 degrees Celsius warmer than normal last fall, attributed to a phenomenon called the Arctic Amplification where conditions become much less Arctic, much more quickly. 4

5 In March 2017, there were 23,000 square miles less ice than normal compared to 2015, which was already a low base number versus historical trends. There is nothing average about extreme temperatures in the Arctic. 5

6 Speaking of extremes, the Philippines ranks 5th in the list of most at-risk nations to the ravages of climate change, which include sea level rise (the kind of issue caused by Arctic Meltdown) and typhoons, having been visited by 283 typhoons between 1996 and 2015 based on the latest report by Germanwatch. 6

7 Eight of our most damaging, deadliest typhoons have happened in the last decade. We have no time to waste, to turn a blind eye in the hope that others will do their part without having to show the way. 7

8 Businesses can no longer greenwash and trumpet Corporate Social Responsibility (CSR) projects at the same time making fundamentally wrong choices that will have the most severe impact on those with the least resources and resiliency. 8

9 Our strength in EDC has always been in making the right choices, starting with that of providing 100% clean and renewable energy (RE). What sustains us is knowing that we are doing what is right for our industry, for our country, and for future generations. In so doing, it is imperative that we maintain a balance between our environmental stewardship and our responsibility to all our stakeholders. Our business sits at the intersection of doing what is right, pursuing what is needed and going where the world is headed. Globally, there is an ongoing shift toward cleaner, renewable sources of energy. 9

10 According to the report made by the United Nations Environment Programme (UNEP), investment in RE capacity reached USD 286 billion in

11 This was more than double the estimated USD 130 billion allocated to new coal and gas generation. For the first time, the majority of investments, excluding large hydro, went to renewables. Also for the first time, developing countries led the way with RE investments increasing by 19% to a total of USD 156 billion. 11

12 China is particularly keen on RE, boosting its investment by 17% to USD billion 12

13 as they cut coal production and ramped-down numerous coal plants to below 50% capacity factor due to environmental and health reasons. 13

14 Higher net income, lower OPEX 14

15 In 2016, we posted consolidated revenues of PHP billion, which is slightly lower compared to

16 While sales volume increased to 8,531.5 gigawatt-hour (GWh), these gains were offset by lower average spot electricity prices of PHP 2.78 per kilowatt-hour in 2016, compared to PHP 3.37/kWh in The fact that the Wholesale Electricity Spot Market (WESM) was at a five-year low meant we took a hit on the uncontracted capacity of our Bacman and Nasulo power plants, approximately 61% of the plants net saleable capacity as of December It is for this reason that going forward, we will contract more aggressively. 16

17 Bacman is now 85% contracted. 17

18 Nasulo is currently at 57% contracted and will be fully contracted by end

19 Despite the flat revenues, EDC posted a 4% gain on recurring net income attributable to equity holders amounting to PHP 9.2 billion. This year s performance was better than 2015 primarily because of the PHP 1.7 billion reduction in operating expenses (OPEX). This was mainly driven by lower steamfield maintenance activities, lower controllable expenses, and lower insurance costs. 19

20 Our 1st quarter 2017 financial results are showing encouraging signs in terms of achieving our targets for the year. First quarter revenues at P 9.6 billion is 5% higher than same period last year. Correspondingly, our recurring net income attributable to EDC at P 3.2 billion is 19% higher than same period last year on account of better revenues as mentioned earlier and lower cash opex. 20

21 Investments To Boost Reliability 21

22 We have been investing in our assets to boost reliability and efficiency. Addressing the natural challenges of the reservoirs is a continuing endeavor and in 2016, we were able to improve the steam generation from our steamfields through measures that include applying and utilizing some technologies outside the geothermal industry. 22

23 Two years ago, we completed the rehabilitation works on our 130 megawatt (MW) Bacman power plants, increasing capacity in the process by 10 MW and net capacity factor from 62% to 98%. 23

24 Three Leyte power plants were next in line: the MW Malitbog Power Plant which had its control systems replaced in 2016, thereby eliminating obsolescence risk; the MW Tongonan Power Plant which began upgrades in major equipment in 2016 will be completely upgraded in 2017; and the 125 MW Upper Mahiao Power Plant with ongoing upgrades of turbine rotors using new metallurgy. With these programs, we expect higher levels of generation in the years to come. 24

25 Low OPEX, high volume 25

26 OPEX decreased in all sites, except in Burgos Wind, where operating and maintenance costs increased due to higher levels of generation. In Burgos Wind, OPEX increased by 17% as sales volume increased 27%. 26

27 The sales volume of the 6.82 MW Burgos Solar Projects I & II nearly doubled on their first full year of operations, improving on their combined revenue contribution to PHP92 million. 27

28 Our Mt. Apo Geothermal Business Unit also saw an increase of 6% in revenues, mainly due to increased generation. At year-end, MAGBU s sales volume of 827 GWh was its highest in five years. 28

29 Despite the significant excess supply in the 291 MW peak demand of Negros grid due to the presence of 391 MW of solar and the corresponding low WESM prices, Negros Island Geothermal Business Unit posted record revenues at PHP 8.2 billion due to increase in contracted volume versus

30 Growth 30

31 Over the past two years, with the prices of coal, the main baseload competitor of geothermal, plummeting from USD 94/MT to as low as USD 44/MT (Kalimantan Coal), it has been challenging to grow greenfield geothermal assets. There has been a shift in the pricing of coal, driven by changes in Natural Gas supply dynamics and economics. 31

32 Natural gas from shale gas reserves in the United States can now be produced at breakeven price of around USD 29 to USD 39 per barrel Down to 40-60% from that 4 years ago. In effect, shale gas has created a viable substitute to oil, 32

33 and has set a competitive price cap for both oil and coal. These market dynamics, in combination with rapidly reducing solar panel prices, are providing downward pressure on power prices. For this reason, geothermal has to change its economics in order to compete in this new market. 33

34 Geothermal in the Philippines has only grown during two energy crises -- the OPEC embargo of 1973 and the power crisis of the early 1990's. 34

35 Going forward though, geothermal needs to be able to develop absent crisis conditions and this will only happen if drilling costs drop, success rates of drilling improve, costs of new plants decrease and operating expenses go down. 35

36 We have fields that can be developed both in Bacman and Mt. Apo and these require lower cost structures in order to compete. We have made some modest gains in reducing OPEX and improving our drilling success rates with the help of new technology, but much more needs to be done. It is against these imperatives that we will put all our efforts going forward. 36

37 We have also grown our solar business in a rational manner. In areas where we see a good match between what we bring to the table and our customers needs, we have decided to proceed with project development. 37

38 We had a good debut in the solar rooftop industry with the signing of a 1 MW Power Purchase Agreement (PPA) with Gaisano Capital for their La Paz Mall in Iloilo, so far the largest PPA for a solar rooftop in the country. Completed in December 2016, it is expected to offset 770 tons of CO2 annually, while providing up to 50% of the mall s daytime load. As of this writing, an additional seven solar rooftop plants are being built on malls, with a total capacity of 3.7MW. 38

39 Not too long ago, we had one technology, one product and one customer. Today, we have made investments in 4 technologies: geothermal, which continues to be our core strength, hydro, wind and solar. 39

40 We now have a total of 57 customers, something we expect to increase with time, particularly when retail competition and open access finally takes off. 40

41 We ve also been working with First Gen Energy Solutions to sell RE to enlightened corporations, members of the Global Organisation such as the RE 100, as well as some local companies that have decided to be powered by clean energy. 41

42 Geothermal 24/7 42

43 Over time and with further advancements in technology driving down costs, we see the share of renewable energy increasing. The International Energy Agency (IEA) reports that global energy-related CO2 emissions were flat at just over 32.1 billion tonnes for a third straight year even though the global economy grew by 3.1%. IEA credits this to the entry of renewables. What s important to note is that growth in the economy is possible without an increase in emissions. And if we deliberately make the right choices and increase the share of RE generation, then it s logical that the global economy can grow while reducing its emissions. 43

44 We are keenly aware of our responsibility to grow geothermal energy, given we are the global leader. We need to communicate its benefits as the cleanest baseload energy available. (Let me pause to show you our ads that came out in ANC and CNN Philippines last year). Video on Why Do You Want Geothermal Energy 44

45 Video on Geo 24/7 45

46 We at the Lopez Group, and especially at EDC, have resisted the modern gold rush towards coal as we look towards securing a sustainable future. 46

47 For us, the acceptable energy choice is one that does not harm our environment and our people. 47

48 We do not believe in making the wrong energy choices, then attempting to offset these with CSR and tree planting. 48

49 Every single ton of carbon we dump into the atmosphere will affect us all, and especially the most vulnerable and least resilient, those who do not have the resources to build back after a storm. Carbon emissions are threatening our world, but together we can tap our earth s clean energy. 49

50 We thank you, our shareholders, as you continue to put your trust and confidence in us. Together, we can move forward and craft a cleaner 24/7 future for us all. 50