ENERGY DEVELOPMENT CORPORATION LONG ISLAND INVESTMENTS (TEAM ASIA-PACIFIC) ENERGY DEVELOPMENT Steam CORPORATION Production • Largest geothermal energy producer in the Philippines,aa 2nd in the world Electricity • 80% of revenues from steam Generation and electricity sales topower distributors • 66% of geothermal energy in Distribution the country • Fully privatized in 2007 EDC’S 52-WEEK STOCK PRICE INVESTMENT MERITS 5.50 Industry Forces Spur 4.50 Interest in Renewables PHP 5.0 3.50 MAR 31 2.50 Timely Strategies Seize 1.50 Market Opportunities 09 09 09 09 09 10 - - - - - - Jun Oct Apr Feb Dec Aug Source: Philippine Stock Exchange Risk-Reward Analysis Shows Upside Potential 1-YEAR PRICE TARGET: PHP 7.10 42% UPSIDE BASED ON DCF-FCFF BUY RECOMMENDATION *FX: PHP 45.09: USD 1 as ofMarch 31 INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL Regular power interruptions in southern and central Philippines since 2009. Blackouts felt throughout Metro Manila last February. Energy Crisis Calls for Immediate Action Legislation Favors RE Sector Geothermal Energy to Remain Competitive Source: Philippine Daily Inquirer INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL Regular power interruptions in southern and central Philippines since 2009. Blackouts felt throughout Metro Manila last February. Philippine Energy Demand and Supply Energy Crisis Calls for 18 Immediate 25% of Philippine Peak Demand Action 17 households without access to electricity 16 Annual growth of 4.4% with an energy-to-GDP Legislation 15 elasticity of 1.1 Favors RE Sector 14 000’s MW 000’s 13 Geothermal 12 Energy Prevails Over 11 Competition 10 2008 2010 2012 2014 2016 Source: Department of Energy (Philippines) INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL Regular power interruptions in southern and central Philippines since 2009. Blackouts felt throughout Metro Manila last February. Energy Demand vs. Supply Energy Crisis Calls for 18 Immediate Peak Demand Action 17 16 Legislation 15 Shut down of plants due to Favors RE age, maintenance and fuel Sector 14 scarcity 000’s MW 000’s 13 Geothermal 12 Existing Capacity Energy to Remain 11 Competitive 10 2008 2010 2012 2014 2016 Source: Department of Energy (Philippines) INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL Regular power interruptions in southern and central Philippines since 2009. Blackouts felt throughout Metro Manila last February. Energy Demand vs. Supply Energy Crisis Calls for 18 Immediate Peak Demand Action 17 16 Legislation 15 Shut down of plants due to Favors RE age, maintenance and fuel Sector 14 scarcity Committed Capacity 000’s MW 000’s 13 Geothermal 12 Existing Capacity Energy to New additions Remain 11 Hydro plants may suspend unable to keep up Competitive operations during El Nino with retirements 10 2008 2010 2012 2014 2016 Source: Department of Energy (Philippines) INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL Dubai Crude Oil Price Forecast 160 Continuous decline Electricity Rates, 2006 Energy Crisis 140 in reserves In US cents per kWh Calls for High Japan 17.54 Immediate 120 Gradual recovery of world Action economies in 2010 Philippines 14.01 100 Hongkong 13.44 India 11.42 80 Base Legislation Indonesia 11.32 Favors RE 60 USD per barrel per USD Singapore 10.59 Sector 40 Low Vietnam 9.83 45% of Philippine power China 8.24 20 relying on imported fuels Thailand 7.92 Geothermal 0 Energy to Malaysia 6.71 2007 2009 2011 2013 Remain Source: Wholesale Competitive Electricity Market Source: Asian Development Bank (Asian Development Outlook) Report Only sustainable option is to develop low-cost indigenous energy sources INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL 2009 RE Law Energy Crisis (Renewable Energy Law) Calls for Immediate Action Incentives Pre-RE Law RE Law Corporate Income Tax Rate 30% 10% Legislation Favors RE Sector Income Tax Holiday for New Plants 5 years 7 years Royalty Fees for Use of Steam Fields 6% 1.5% Geothermal (% of gross revenues) Energy to Remain Competitive Incentives to trigger RE investmentsof overPHP 90B INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL Energy Crisis Calls for Immediate Current Favorable Action Energy Crisis Legislation Legislation Favors RE Sector ● Attractive prospects for RE industry Geothermal ● Competitive Energy to Remain environment Competitive INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL Geothermal energy is expected to become more relevant in the future. Energy Crisis Calls for Immediate CLEANER CHEAPER MORE RELIABLE Action Carbon Emissions Generation Cost Average Downtime 12 7 80 6 Legislation 10 Favors RE 5 60 MWh 8 kWh Sector / 4 40 kg 6 2 3 Downtime% 4 PHPper 2 20 GeothermalGeothermal 00’sCO 2 1 EnergyEnergy to 0 0 0 PrevailsRemain Over Oil CompetitionCompetitive Oil Geo Geo Geo Coal Coal Coal Solar Hydro Hydro Nat gas Nat Gas Energy Source Source: Credit Suisse, Department of Energy (Philippines) INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL Geothermal energy is expected to become more relevant in the future. Energy Crisis Calls for Immediate CHEAPER Action Generation Cost 7 6 Legislation Favors RE 5 Geothermal energy’s Sector kWh 4 low cost complements 3 the Philippine PHPper 2 electricity spot market GeothermalGeothermal 1 EnergyEnergy to 0 PrevailsRemain Over CompetitionCompetitive Oil Geo Coal Hydro Nat gas INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL Philippine Electricity Spot Market, 2008 8.00 Next MARKET CLEARING PRICE lowest 7.00 Energy Crisis Next Calls for Next 6.00 lowest Immediate Next lowest Action 5.00 lowest Lowest 4.00 price Legislation 3.00 Favors RE PHP per kwh Sector 2.00 1.00 0.00 GeothermalGeothermal EnergyEnergy to 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% PrevailsRemain Over Spot Market Demand Source: Philippine Energy CompetitionCompetitive Market Corporation Energy sources with the lowest prices are first to be dispatched. Process continues until demand for electricity is satisfied. All energy is sold at market clearing price. INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL Philippine Electricity Spot Market, 2008 8.00 MARKET CLEARING PRICE Oil 7.00 Energy Crisis Calls for 6.00 MARGINS Immediate Coal Natural Gas Action 5.00 Geothermal 4.00 Hydro Legislation 3.00 Favors RE PHP per kwh Sector 2.00 1.00 0.00 GeothermalGeothermal EnergyEnergy to 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% PrevailsRemain Over CompetitionCompetitive Spot Market Demand Low cost guarantees all geothermal energy produced is sold. Geothermal suppliers also realize wider margins. INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL PLAYERS IN THE PHILIPPINE GEOTHERMAL INDUSTRY Steam Field Power Plant Vertical EDC Vertical Integration Integration Strengthens Chevron Secures Competitive Dominance Position Aboitiz Source: Company Data Expansion Activities Address Shortage Higher operating efficiency Lower production costs by due to coordinated 30% due to internal scheduling of resources generation of steam INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL EDC will have over 1,600 MW in installed capacity by the time new geothermal EDC pursues a diverse approach in expanding operations entrants complete their exploration stages which take a minimum of 6 years EDC’s Expansion Activities Constructionof Vertical Upgrade of 7 new plants 2,000 Acquisition of Integration Steam Field plants being Strengthens 1,800 Capacity Additional 645 MW Competitive privatized 1,600 or 54% over Position Exisiting 1,400 existing capacity Capacity 1,200 A head start to Expansion 1,000 Activities meet market Address 800 demand Shortage 600 MW Capacity (Electricity) 400 200 0 2007-2008 2009 2010-2012 2013-2021 Source: Company Data INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL Available financing to support expansion activities EDC’s OCF and CAPEX 16 Vertical Integration 14 Secures 12 Dominance 10 8 Construction Expansion 6 requires only half Activities Billions PHP of OCF for new Address 4 Shortage plants 2 0 2010 E 2011 E 2012 E 2013 E 2014 E INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL EDC’s Strategies Industry Opportunities Maximized Vertical Open market Integration Expansion Power shortage Activities RE Law incentives INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL FCFF incorporates EDC’sFinancial growth potentialProspects given