Our Risk Management Process

To accomplish the Company’s strategic goals, First Gen identifies and analyzes risks and opportunities in value creation and develops and implements action plans to address these risks. We involve important stakeholders from business divisions, project teams, and support groups to ensure that these risks are included in their risk registers. Along with the Enterprise Risk Management (ERM) group, these various groups conduct risk analyses based on the likelihood, impact, and determination of risk ownership, as risk owners are involved in creating mitigating measures. In addition, the Company monitors these risks through frequent updates, conversations with Senior Management, and presentations to the Board Risk Oversight Committee (BROC) to ensure the effectiveness of the risk management process and attendant mitigating measures.

We Manage Risks in Four Levels


The ratings indicated correspond to the risks discussed below.

Our Risks Mitigating Measures

First Gen carries out a thorough risk management procedure which includes all active projects, operating facilities, and support units. Based on the ratings, this procedure identifies the important risks and develops the suitable mitigation solutions. Regular presentations on the top risks are presented to Senior Management and the BROC:

Legend:
Stakeholders
Capitals
External Risks & their Direct Effects Mitigating Measures

1 - Market Risk

  • The expiration of our key contracts in 2024, 2025, and 2027, is putting about 2,000 MW of our capacity at risk of being uncontracted.

The Company has:

  • Discussed with customers about contracting these capacities; and
  • Explored strategies to contract some of these capacities in other market segments.

Risk time horizon*:

Short to Long term

Stakeholders directly affected:

Capitals affected by the risk:

Likelihood: Possible
Impact: Very Significant

2 - Political and Regulatory Risks

  • The invasion of Ukraine by Russia caused supply disruption and price shocks leading to overall higher operational cost for the company.
  • The local regulatory landscape in the energy industry is challenging due to the delays or changes of various regulatory issuances and amendments, affecting the timeliness and the financial viability of our growth projects.

The Company has:

  • Identified procurement options to minimize the impact of supply disruptions and high fuel prices;
  • Engaged various regulators and local government officials in the energy sector;
  • Participated in Technical Working Groups (TWG) with various regulations in the development;
  • Closely coordinated with regulatory groups and institutions to aid the progress of key issues; and
  • Collaborated with like-minded organizations, customer groups, and individuals to collectively push regulations that promote clean and renewable energy advocacy.

Risk time horizon*:

Short to Long term

Stakeholders directly affected:

Capitals affected by the risk:

Likelihood: Likely
Impact: Major Impact

3 - Climate Risk and Exposure to Natural Catastrophes

  • Climate change effects, such as drought, super typhoon, and flooding, increase the probability of operational disruption, customer service, and property damage for First Gen.

The Company has:

  • Conducted various natural calamity studies (e.g., typhoon, flood, tsunami, earthquake, etc.) and explored additional data providers to ensure that climate risk related information is sufficient and updated;
  • Continuously modified plant design and implemented various weather-proofing and resilience initiatives to safeguard against the effects of natural disasters;
  • Regularly inspected earthquake risk-mitigating measures, such as installing seismic monitors at strategic locations on-site;
  • Continuously improved the emergency response and business continuity management plans and conducted drills; and
  • Obtained and maintained natural catastrophe insurance covers for various sites.

Risk time horizon*:

Short to Long term

Stakeholders directly affected:

Capitals affected by the risk:

Likelihood: Almost Certain
Impact: Significant Impact

4 - Fuel Supply Risk

The depletion of the Malampaya gas field and our steam supply challenges may affect our production and cash flow. Operations are highly dependent on:

  • The consistent availability of the plants’ required fuels, particularly natural gas;
  • The expertise of the natural gas field operator;
  • The existence of a valid Gas Supply Purchase Agreement (GSPA) before the depletion of resources; and
  • The availability of steam as a geothermal resource in commercial quantities.

The invasion of Ukraine by Russia in early 2022 also increased our exposure to the supply disruption and price shocks of key commodities, including oil and natural gas.

Natural Gas Plants

The Company has:

  • Maintained its proposed LNG project to develop an Interim Off-shore Terminal which can service the requirements of a Floating Storage and Regasification Unit (FSRU) in anticipation of the expiry of the service contract of the Malampaya Gas Field in the next three years. This is will be on-stream by the fourth quarter of 2022, and the Company has signed agreements with premier EPC and OE contractors, FSRU and Tugboat providers, and an O&M adviser;
  • Used dual-fired plants (except for San Gabriel) in the absence of natural gas;
  • Ensured the availability and adequacy of liquid fuel; and
  • Identified procurement options to minimize the impact of supply disruptions and high fuel prices.

Geothermal Plants

The Company has:

  • Maximized modern technology to optimize steam extraction from the wells;
  • Undertook continuous drilling and non-drilling workovers to ensure steam supply;
  • Addressed steam decline through lower impact distribution of reinjection, scaling prevention initiatives, and targeted infill injection for pressure support; and
  • Employed a more comprehensive well development planning, improved well design and predictive modeling tools, intensive monitoring of production lines, debottlenecking activities, and fortifying vulnerable wells and surface facilities.

Risk time horizon*:

Short to Medium term

Stakeholders directly affected:

Capitals affected by the risk:

Likelihood: Likely
Impact: Significant Impact

5 - Competition & Technology Risk

  • Industry competitors are aggressively pursuing the same set of customers (new and expiring contracts for renewal), which may impact our revenue generation and cash flow.
  • Technology advancements in traditional, and renewable energy, and increased interest from foreign players to enter the Philippine market, also contributes to competition.

The Company has:

  • Instituted a systematic and targeted customer acquisition strategy while improving customer stickiness through data-driven analytics;
  • Expanded the client coverage to ensure contracts are closed with various customer segments (electric cooperatives, distribution utilities, contestable customers, GEOP customers, and ancillary service markets) and minimize exposure to low WESM prices;
  • Improved plant flexibility to cater to different contracts or energy demands;
  • Launched communication campaigns, such as the First Gen Energy Solutions, to increase awareness and differentiate the brand and its services from its competitors;
  • Increased efforts to establish and strengthen the Group’s brand as a pioneer in clean and renewable energy;
  • Ensured competitiveness through portfolio optimization, attractive pricing, plant flexibility, premier client servicing, and constant participation in Competitive Selection Process activities to ensure client retention; and
  • Continuously monitoring the technological advancements in the global energy industry while improving internal technical capability.

Risk time horizon*:

Short to Medium term

Stakeholders directly affected:

Capitals affected by the risk:

Likelihood: LIkely
Impact: Significant Impact

6 - Cybersecurity Risk

The modernization and interconnection of our assets and Information Technology (IT) infrastructure increased our operation efficiency, but also exposed us to cyber security risks.

The Company has:

  • Continuously conducted IT and Operational Technology (OT) vulnerability assessment studies and prioritized implementing recommended mitigation plans;
  • A high-level committee that oversees information security activities for both IT and OT initiatives;
  • Acquired IT Security Governance and IT Security Operations services;
  • Launched information security, technology risk, and data privacy programs to manage and reduce information security risks and ensure compliance with the Data Privacy Act; and
  • Developed related frameworks and policies for cascading and implementation to the whole organization.

Risk time horizon*:

Short to Long term

Stakeholders directly affected:

Capitals affected by the risk:

Likelihood: Possible
Impact: Significant Impact

7 - Financial Risks

  • The COVID-19 pandemic may affect our access to funding, disrupt our financing plans, and delay our growth projects. In 2022, the Ukraine invasion by Russia caused high inflation and interest rates. The Philippine currency also experienced its worst depreciation since 2008 against the US dollar, as the peso weakened by 9.3% in 2022.

The Company has:

  • A predictable cash flow due to the majority of its capacity being contracted;
  • Continued and timely paid debt through the Company’s deleveraging program;
  • Explored and formed partnerships for new projects;
  • Interest Rate Risk - a mix of fixed and floating-rate loans;
  • Liquidity Risk - prepayment of loans; refinancing bulky maturities to smoothen or extend the repayment profile; and
  • Foreign Exchange (FX) Risk - the Finance and Treasury Group closely monitors FX rates to determine hedging opportunities; Senior Management is regularly informed/updated on FX risk exposure and mitigation plans.

Risk time horizon*:

Short to Long term

Stakeholders directly affected:

Capitals affected by the risk:

Likelihood: Possible
Impact: Significant Impact

8 - Pandemic Risk

The ongoing COVID-19 pandemic affects the Company’s operations, workforce, customers, market, and earnings. It may impact our revenue generation, cash flow, and delay our growth projects.

The Company has:

  • Developed and continuously improved extensive health and safety strategies and modified work-from-home and shelter-in-place set-ups, rigorous health screening protocols, physical and mental wellness programs, and information campaigns;
  • Developed a return-to-work program (RTW) through hybrid work environments;
  • Developed and promoted vaccination and booster programs for all employees;
  • Actively supported local and national health programs through donations of testing equipment and accommodations for frontline workers and returning OFWs; and
  • Engaged industry players and business partners on pandemic preparedness and response through information sharing and supporting competency development programs.

The comprehensive responses on pandemic risk are discussed under Human Capital Performance and Social and Relationship Capital Performance.

Risk time horizon*:

Short to Medium term

Stakeholders directly affected:

Capitals affected by the risk:

Likelihood: Unlikely
Impact: Minor Impact

Our Opportunities

To respond to the changing energy market and external trends, First Gen continuously evaluates the conceivable opportunities that support value generation and seized the opportunities consistent with our mission, purpose, strategy, and capabilities.

First Gen used a number of procedures, such as the Strategies and Synergies Planning (SSP), Business Unit (BU) Planning Sessions, and various research initiatives, such as those of the Engineering Services Department (ESD) and Business Units, to identify key opportunities and direct strategy and planning.

The proceeding table outlines the opportunities and significant trends, surrounding context, strategies, relevant capitals, stakeholder impacts, and benefits to the organization in the short, medium, and long terms. These were identified and analyzed by the Execom, Senior Management, and secretariat staff by facilitating the numerous presentations and creating research and materials through the SSP process.

External:

The Philippine ambition to pursue the clean energy transition is led by Renewable Energy and Natural Gas

Opportunity Context:

The DOE’s Philippine Energy Plan (PEP 2040) highlights the country’s ambition to significantly increase Renewable Energy (RE) and Gas, while decreasing dependence on coal. Pursuing this ambition emphasizes the need for further development of RE options and natural gas plants.

Aside from highlighting the opportunity to build new power plants, this recognizes the role of natural gas as a crucial complement to enabling renewable energy. As such, there is a larger directive towards a more complementary fuel mix led by gas and renewables.

This ambition is supported by government programs that aim to increase the opportunities for developing RE and clean energy systems.

 Contributing Capitals:
Supports the construction of new assets and maintenance of current assets
Funds the development and commercialization of clean energy assets		 Impact to Stakeholders:
Supports potential developments in RE
Lowers the dependence on coal and supports the transition to a decarbonized future
Creates access to cleaner, reliable, and cost- competitive energy sources
Organizational Benefits:
This will create long-term benefits as it encourages financial support and public demand for our clean energy and natural gas projects.
Working Strategy:

First Gen continues to operate among the biggest RE capacity in the Philippines and has the largest natural gas capacity–all while staying true to the zero coal stance it has taken since 2016.

As such, the Company aims to be a leader in the clean energy transition–a viewpoint consistent with the country’s ambition towards a cleaner and more resilient fuel mix.

By leveraging our diverse and complementary portfolio, First Gen will take a portfolio approach in marketing and developing its assets.

Our investment in the LNG Terminal, for instance, helps actualize this ambition by enabling us to expand our gas capacity and increase our ability to support RE investment.
External & Internal:

Increasing interest in decarbonized and regenerative business models

Opportunity Context:

Global and local financing and commercial institutions have increasingly focused on sustainability. An example is the BSP’s launch of the Sustainable Investment Framework, as well as other sustainability frameworks from various financial and commercial institutions.

This support is only rising as the public awareness about sustainability grows. Based on Pulse Asia’s latest survey on renewable energy, 89% of the 1800 nationwide respondents are in favor of increased RE use. In line with this, industries worldwide are increasingly targeting to decarbonize their supply chains.

Interest in decarbonization has influenced the development of decarbonized technologies, such as electrification (i.e. EV’s), energy efficiency, carbon capture, and hydrogen.

 Contributing Capitals:
Executes the responsibilities of a retail salesforce
Increases our reach to customers
Investigates use cases and commercial opportunities of these technologies
Funds the development and utilization of these technologies		 Impact to Stakeholders:
Provides clean energy options for clean energy demand
Increases the diversity of their investments and support investor clean energy advocacies
Organizational Benefits:
In the long-term, the Company will benefit through increased access to the burgeoning retail market. Emerging regenerative business can also contribute to decarbonizing our assets and business models.
Working Strategy:

First Gen can leverage this interest by working with regenerative partners who will support the clean energy transition. This will help us secure markets and pathways towards our shared regenerative future.

In line with this, First Gen continues to monitor the development of key technologies that support our decarbonization journey, as well as those of our partners.
External & Internal:

Development & preparation for new/emerging electricity markets

Opportunity Context:

With the Retail Customer and Open Access (RCOA) and Green Energy Option Program (GEOP), new markets have emerged. These markets provide end-users with energy source options.

RCOA also continues to progress with dropping thresholds, ultimately driving towards household eligibility.

 Contributing Capitals:
Supports the expansion into the retail market; should be further scaled up to address additional markets and growth
Bolsters interest in clean energy and other future projects		 Impact to Stakeholders:
Creates additional options for power investment off- take and more investment incentives in clean and renewable energy
Develops emerging markets provide customers with additional options on power sources
Organizational Benefits:
RCOA and GEOP will create short to long term benefits because of increased markets for our RE Portfolio. RCOA will revolutionize the industry towards increased customer centricity and more democratized power markets.
Working Strategy:

First Gen is developing retail capabilities and holistic service capabilities to cater to the needs of the retail market.
External:

National need for additional clean energy supply to support growth

Opportunity Context:

As economic activity grows, the Philippines will increasingly require new power capacity. This need must be filled by clean energy capacity, given the decreased interest in coal and regulations such as the coal moratorium. As such, the growing economic demand creates the need for new clean energy supply–a key opportunity for power plant developers.

The aforementioned PEP 2040 highlights the need for growth, while adding that the additional capacity is expected to come primarily from renewable energy and natural gas. This need for additional clean and renewable energy capacity must be served–which creates an opportunity for power generators.

 Contributing Capitals:
Supports the construction of new assets and maintenance of current assets
Provides monetary resources for the development and commercialization of clean energy assets		 Impact to Stakeholders:
Increases opportunity to earn returns from new power plant capacity
Increases availability of clean energy sources
Increases options to source power from clean energy supply
Additional economic activity can be securely powered by clean energy
Organizational Benefits:
The need for more energy is only increasing. This increases the value of both our existing and potential growth power plant assets, by ensuring that there is enough demand for our continued growth in the industry. As such, this opportunity creates a significant pathway for growth– especially for a clean and renewable energy company such as First Gen.
Working Strategy:

In line with this opportunity, First Gen is pursuing significant growth.

As the company grows, First Gen will also aim to continue to diversify its portfolio by increasing the proportion of natural gas–while also continuing to grow natural gas. growing only via natural gas and renewables, without investing in coal.

As we grow, we will continue pursuing initiatives that improve the resilience of our asset operations and ensure the reliability of our power generation.

These opportunities will assist in further decarbonizing First Gen’s portfolio and streamlining processes, and potentially create new revenue streams consistent with our vision and goals, generate new projects, develop new markets for asset expansion, and ultimately support national energy security. First Gen continues to advance in our strategies and operations as we endeavor to preserve our current portfolio and develop new opportunities.