RE play comes to the stock mar­ket

While the coro­n­avirus pan­demic dragged down the do­mes­tic econ­omy to its worst re­ces­sion in his­tory last year, hurt­ing prof­itabil­ity of many com­pa­nies, there was one com­pany that de­fied grav­ity in the stock mar­ket. The main-share Philip­pine Stock Ex­change in­dex (PSEi) shed 8.64 per­cent last year, but the stock price of this com­pany soared by 304 per­cent in the same pe­riod.

We’re talk­ing about AC En­ergy Corp. (ACEN), the re­new­able en­ergy (RE) plat­form of the Ayala group. Be­cause of its stel­lar per­for­mance in the stock mar­ket, ACEN was re­cently added to the main-share PSEi.

“We be­lieve that the green en­ergy nar­ra­tive and the sup­port from govern­ment poli­cies have drawn the at­ten­tion of the mar­ket to­ward ACEN, which led to the stock’s up­surge,” said a re­search note is­sued early this year by lo­cal stock bro­ker­age Aba­cus Se­cu­ri­ties.

Track­ing fund flows

By the time ACEN was hand­picked (along with fiber op­tic provider Con­verge) to join the PSEi ef­fec­tive April 20, its mar­ket cap­i­tal­iza­tion had surged to P324.15 bil­lion. Its en­try to the PSEi didn’t come as a sur­prise to the mar­ket, given the mas­sive in­ter­est gen­er­ated by the stock since last year.

April Lee-Tan, head of re­search at lead­ing on­line stock bro­ker­age COL Fi­nan­cial, said that as the lo­cal mar­ket was still heav­ily in­flu­enced by for­eign in­vestors, even for those lo­cal re­tail in­vestors who didn’t care about en­vi­ron­ment, so­cial and gov­er­nance met­rics, they would be forced to con­sider these when they track fund flows.

ACEN’s at­trib­ut­able en­ergy out­put rose by 16 per­cent in the first half of 2021 to 2,224 gi­gawatt-hours, driven by in­creased op­er­a­tional ca­pac­ity from ac­qui­si­tions and new power plants, as well as re­cov­ery in Lu­zon power de­mand in May and June. This out­put ex­ceeded its prepan­demic lev­els.

Re­new­able re­sources ac­counted for 52 per­cent of ACEN’s to­tal en­ergy out­put in the first half. ACEN’s re­new­ables port­fo­lio dou­bled to 2,070 MW as of endJune, from 1,041 MW at the same time last year. With the in­fu­sion of in­ter­na­tional as­sets, re­new­ables now ac­count for 80 per­cent of its ca­pac­ity. Fur­ther­more, it has more than 1,000 MW in at­trib­ut­able ca­pac­ity un­der con­struc­tion, with about half of the projects ex­pected to be op­er­a­tional within the next six to 12 months.

Shun­ning coal

ACEN’s at­trib­ut­able ca­pac­ity at end-June ex­panded by 56 per­cent to 2,589 megawatt from 1,659 MW in the first half of 2020, with the start of con­struc­tion of new projects in the Philip­pines and in Viet­nam, and the com­pany’s first projects in In­dia and in Aus­tralia.

With the in­clu­sion of ACEN, there are now two RE plays in the main stock barom­e­ter. The other is Lopez-led First Gen Corp. (FGEN), which has been part of the PSEi for a long time. FGEN is into both clean (low-car­bon) and RE, with the first seen as a tran­sition en­ergy while it is work­ing to­ward an all-RE port­fo­lio in the fu­ture.

As early as 2016, par­ent firm First Philip­pine Hold­ings chair and chief ex­ec­u­tive of­fi­cer Fed­erico Lopez has made a bold dec­la­ra­tion that the group would not in­vest, de­velop or man­age any coal-fired power plants. This raised a lot of eye­brows then as coal, af­ter all, was gen­er­ally con­sid­ered the least ex­pen­sive and most con­ve­nient way to meet the needs of a grow­ing econ­omy.

Clean en­ergy man­date

First Gen pi­o­neered the use of low-car­bon nat­u­ral gas as a fuel for power plants. It also pur­chased the govern­ment’s port­fo­lio of geo­ther­mal power plants in 2007, making it one of the world’s largest pro­duc­ers of re­new­able geo­ther­mal power. It is also the owner and op­er­a­tor of the largest wind farm in the coun­try.

First Gen owns and op­er­ates 30 power plants and projects across Lu­zon, Visayas and Min­danao with 3,495.2 MW of in­stalled ca­pac­ity. It has the largest port­fo­lio of power plants that use clean, re­new­able and in­dige­nous fu­els such as steam, water, wind, so­lar and nat­u­ral gas. Its 65 per­cent-con­trolled En­ergy De­vel­op­ment Corp. is the largest ver­ti­cally-in­te­grated geo­ther­mal com­pany in the world.

The Lopez group sees its com­mit­ment to de­vel­op­ing clean sources of en­ergy isn’t only about car­ing for the en­vi­ron­ment; it was also an as­tute read­ing of trends in the en­ergy sec­tor. As the cost of re­new­able en­ergy sources like so­lar and wind be­came cheaper and more re­li­able, and as the neg­a­tive im­pacts of cli­mate change be­came more se­vere, com­mu­ni­ties, gov­ern­ments and con­sumers be­gan to de­mand more clean en­ergy and less dirty en­ergy.

Over the long haul, the group is also plan­ning for the even­tual phase­out of its liq­ue­fied nat­u­ral gas busi­nesses to com­ple­ment a path­way to carbon neu­tral­ity by 2050.

Over the years, as ris­ing green­house gases be­came more of a con­cern glob­ally, public opin­ion has turned sharply against coal and fos­sil fu­els as a source of en­ergy. More com­mu­ni­ties around the world have re­fused to host coal plants, gov­ern­ments have be­gun to ac­tively en­cour­age clean en­ergy and dis­cour­age coal, and con­sumers have pushed busi­ness to di­vest from coal.

Global move­ment

In its re­search note, Aba­cus Se­cu­ri­ties noted that the global move­ment to lessen car­bon emis­sions was prompt­ing many coun­tries to slowly tran­si­tion from fos­sil fu­els to RE in gen­er­at­ing en­ergy. This has been ac­com­pa­nied by a steep de­cline in the cost of re­new­ables in the past decade.

Most no­tably, Aba­cus cited stud­ies show­ing a 89 per­cent drop in the cost of pro­duc­ing so­lar en­ergy, which used to be the most ex­pen­sive en­ergy source 10 years ago. On­shore wind costs also dropped by 70 per­cent over the same pe­riod. On the other hand, it noted that the cost of us­ing coal en­ergy barely im­proved in the same pe­riod. On the other hand, Aba­cus said the fuel costs of coal and nat­u­ral gas were serv­ing as the floor price for these tech­nolo­gies.

In the Philip­pines, govern­ment reg­u­la­tions fa­vor­ing RE—par­tic­u­larly the manda­tory in­crease in dis­tri­bu­tion util­i­ties’ use of RE to 35 per­cent by 2030 and the mora­to­rium on new coal plants—are also seen to fa­cil­i­tate the tran­si­tion.

Be­cause re­new­ables do not make use of fuel, its cost is merely the tech­nol­ogy, which is seen lead­ing to a vir­tu­ous cy­cle.

“Put sim­ply more pro­duc­tion leads to lower prices, which leads back to more pro­duc­tion ad so forth.”

—Aba­cus Securities

This story was first published in the August 27, 2021 issue of the Philippine Daily Inquirer’s Road to Clean Energy special report.