ACEN CORPORATION | 2023 ANNUAL STOCKHOLDERS’ MEETING
April 24, 2023
Fellow shareholders and my colleagues on the Board and management, good morning to all of you.
We welcomed 2022 with renewed optimism as the world was reopening. We saw the opportunity to prime ourselves for a post-pandemic economic recovery. We ramped up our investments in renewable energy as we anticipated heightened electricity demand.
However, this positive momentum was quickly challenged by geopolitical events at the beginning of the year. The war in Ukraine caused shock waves to the global energy market, triggering high fossil fuel prices and energy security issues. This also exacerbated existing global supply chain challenges that led to the delay in the completion of some of our projects.
Nonetheless, we continued to execute on our renewables expansion across our key markets in the Philippines, Australia, Vietnam, India, and Indonesia. We concluded the year with over 4,000 MW of net attributable capacity, with 98 percent coming from renewable technologies.
The Philippines continues to be our core market, accounting for 40 percent of our generation portfolio. We promptly responded to invest in new capacity amidst the tightening power supply situation brought about by resurgent electricity demand and the declining Malampaya gas output.
Overseas, Australia is our largest market, comprising 25% of our generation portfolio. This was cemented by our acquisition of the Australia development platform, resulting in our first full ownership of a development and operating platform outside the Philippines.
The revaluation gains booked from this transaction drove a significant jump in ACEN’s reported net income of ₱13.1 billion. However, EBITDA, which includes ACEN’s share from non-consolidated associates and joint ventures, declined by 5% to ₱14.3 billion in 2022. This was due to challenges in Philippine operations on high cost of power owing to net merchant buying at high spot prices. This was, however, offset by the strong growth of our international operations driven by new operating capacity in Vietnam and India.
The global energy crisis has accelerated the demand for governments and businesses to adopt a sustainable development strategy, pushing renewable energy to an unprecedented level of importance. ACEN is excited to play a leading role in this historic shift towards a low-carbon future.
At the end of 2022, ACEN has around 2,400 MW of capacity under construction, majority of which will be operational within 2023.
Of this amount, we are currently building ~1000MW of renewables in the Philippines, This will add much needed capacity in the system and allow ACEN to have surplus energy and expand its customer base.
We are moving forward with our commitment to achieve Net Zero greenhouse gas emissions by 2050, which fully supports our ongoing growth and decarbonization strategy. In December, we completed our Net Zero roadmap, which includes near-term scope 1, 2 and 3 greenhouse gas emissions reduction targets, aligned with the GHG Protocol and the latest climate-science and long-term targets that are consistent with the deep decarbonisation of the power sector. We are proud to say that ACEN is the first energy company in Southeast Asia to take this critical step towards achieving Net Zero, with a transparent framework for monitoring progress.
ACEN recognises that to reach the Net Zero outcome for the power sector, it will need to rely on both emissions reduction and neutralisation of residual emissions. As part of its transition plan, ACEN aims to deliver reduction-led decarbonisation by 2040, with an interim target for 2030, and a Net Zero status by 2050. This 2050 goal is in line with the broader Ayala group net zero target, while ACEN will continue to explore opportunities to further accelerate these targets in future.
While we are strongly committed to transitioning out of coal-fired generation, we believe that this must be done in a responsible way. In an emerging market such as the Philippines where coal plants are still inevitable until the next few decades, we must take into account the tightness in power supply and the economic relevance of thermal plants in the near to medium term. With this in mind, we implemented a Just Energy Transition by adopting the principles of the Energy Transition Mechanism, a framework promoted by the Asian Development Bank, as a responsible divestment of our thermal assets and transition to cleaner technology.
We completed the full divestment of the South Luzon Thermal Energy Corporation coal plant using the ETM framework, the first of its kind in the world. This landmark transaction will enable the early retirement and transition to a clean technology of the 246 MW coal plant in Batangas by 2040. This reduces its operating life of up to 50 years by half and avoids up to 50 million metric tons of carbon emissions. This transaction, which ensures an effective workforce evolution, community resilience, and collaboration with stakeholders, generated ₱7.2 billion in proceeds, which will be reinvested into renewable energy projects.
Being at the forefront of energy transition renders ACEN a natural participant of sustainable finance. We issued our maiden peso-denominated Green Bonds amounting to ₱10 billion. This will finance over 500 MW of solar projects in the Philippines.
Despite stepping up our funding initiatives, we are able to maintain healthy leverage ratios. We ended the year with a net DE ratio of 0.2, which provides ample capacity to fund new investments.
The global energy crisis triggered an urgent need for secure, reliable, and affordable electricity supply. We saw this as an opportune time for ACEN to turbocharge its growth and help address the capacity challenges we are facing today. In August 2022, we announced “ACEN 2030”, our bold aspiration to reach 20 GW of attributable renewables capacity by 2030, representing a 25% compounded annual growth rate up to the end of the decade.
The Philippines will remain as ACEN’s core market, with Australia remaining as the second largest market. In addition, we will continue to grow our presence in Vietnam, Indonesia, and India. Solar and wind will remain our core energy technologies, complemented by investments in new technologies such as battery energy storage, floating solar, and offshore wind. As what we have done over the past decade, this ambitious goal will be implemented by leveraging strategic partnerships with global and regional developers, multinational energy firms as well as local business groups, developers, and landowners.
ACEN 2030 is an aggressive goal, but with the strong commitment and support of a highly energized organization, strong balance sheet, robust pipeline of projects, and solid partnerships, we believe that we have the fundamentals in place to succeed.
Going forward, while we continue to see a challenging market domestically amid the tight power supply situation and elevated fossil fuel prices, the significant addition to our renewables operating capacity by the middle of 2023 will help augment the country’s energy supply as well as bolster ACEN’s financial performance.
Before I end my report, I would like to make a special mention to our former Chairman Mr. Fernando Zobel de Ayala and Vice Chairman Jaime Augusto Zobel de Ayala who stepped down from the Board last year. Fernando and Jaime’s stewardship inspired the management team to constantly aim high, taking prudent risks with a long-term view for success. They guided us with a constancy of purpose, balancing the economics with tangible and lasting impact on society and the environment. On behalf of all my colleagues, we thank Fernando and Jaime for having consistently championed ACEN throughout the years. Their remarkable stewardship has laid the foundation as we steer ACEN into its next phase of growth and transformation. We also welcome the opportunity to work with our new board leadership led by our Chairman Delfin Lazaro and Vice Chairman Cezar Consing.
In closing, I thank our Board of Directors for its guidance, our management team and all our employees for their engagement and rigor, our business partners, shareholders, and our many stakeholders for their continued trust and support.