Emerging offshore wind opportunities in the Philippines

Thank you all once again to those of you in the audience for attending today's briefing on offshore wind opportunities in the Philippines. As Johnny said, my name is Kevin Liu.

I work for Scottish Development International, which is the Scottish Government's international agency out here in Asia Pacific. And I will be your moderator for today's session.

Now, I must admit, when we were designing and putting together this programme, we weren't entirely sure about the level of interest we would receive in this event. And it's very encouraging to see that we now have just under 200 people dialling in, which indicates that there is indeed very strong interest.

And that's fantastic to see, because the Philippines as the second most populous nation in south-east Asia, and also regional economic power in its own right, is a truly exciting economic proposition for UK PLC and the wider international community.

And we will soon hear from four distinguished speakers who will tell us a bit about opportunities in the offshore wind industry, in the market, which is just beginning to, to develop itself.

Now, before I hand to hand you over to all of this, because I've just been made aware that our LinkedIn entry, our events entry on LinkedIn, has just been spammed. And I do apologise for this but I hope you weren't affected at all. But I really do apologise for this. And we'll certainly feed this back to to LinkedIn straight after this event.

I should also thank our partners, the Philippine Trade and Investment Centre, and also our colleagues at the British Embassy in Manila for their expert guidance and support.

Now if I can now introduce you to our first speaker, director Mylene Capongcol, who is in charge of the Renewable Energy Management Bureau at the Department of Energy in the Philippines, who will give us a much needed overview of the various policy mechanisms that will be supporting the development of renewables in the Philippines in the years to come. Thank you so much, Director, Mylene for joining us. And over to you.

Yeah, thank you, Kevin. First of all, I would like to greet everyone, good afternoon in the Philippines and good morning to you there.

Um, but before I start, let me thank Kevin and Scottish Development International for organizing this webinar, focusing on the Philippine offshore wind development.

So this morning or this afternoon allow me to share with you the Philippines, offshore wind development, opportunities. Next slide please.

So let me begin by introducing the mandate of the Department of Energy and the most relevant laws that was enacted, that will actually impact or affect renewable energy projects in the Philippines.

So this is the Department of Energy Charter, which is Republic Act 7638, which mandates the Department of Energy to prepare, integrate, co-ordinate, and supervise, control, or glance programs and projects, as far as energy secretary's concern.

So we do prepare the energy plan and for the renewable energy we have what we call the National Renewable Energy Program.

And it is in 2001, the Republic Act 9136 has restructured and privatised the electric power industry, we call this EPIRA.

So, these are prescribed the privatisation and restructuring of the power industry whereby generation and supply is competitive in nature, and transmission and distribution sector remains a monopoly business. And of course, in 2008, the government ordered that the legislator has enacted into law the Republic Act 9513, which intends to develop, accelerate, renewable energy development in the country.

Next slide, please.

So, what I'm showing you is actually the restructured powers that are brought about by the passage of the Electric Power Industry Reform Act.

As I mentioned, although our market is actually small, we have a robust wholesale electricity spot market. This is a gross pool in which all generators are scheduled by our independent market operator.

And, of course, this is supported by the privatisation or the entire upright beat sector in the generation business.

And to facilitate competition in the generation and the supply, transmission and distribution lines are open and non discriminatory to all users. Of course, as part of transparency also, and to empower the customers to understand now what they are paying, the law mandates the unbundling of electricity rates and charges to the consumers. And, of course, as mentioned earlier, we have the retail competition in which Contestable Market as we see, have the choice as to where they will get their supply of electricity.

So this is, again, continuing to develop and to move into more full retail competition, looking forward into the household level.

And, of course, electrification remains to be a flagship program, the Department of Energy, and the government of the Philippines. Next slide, please.

So let me give you a snapshot of who and what are in the main grid of our power system.
As, you know, the Philippines is composed of more than 7,100 islands - in fact, there are 7,600 islands, and there are three main grids now. We call it Luzon, Visayas, and Mindanao grid, and the rest are what we call off grid areas. And let me focus on the main green area.

So you can see that in 2020 we have a peak demand of about 15 GigaWatt, but because of the pandemic that we experience, in 2019 the total consumption for electricity is down by 4%.
From 160 TeraWatt hours into 2019, down to about 101 TeraWatt hours in 2020.

But because of the work at home arrangement, and a lot of establishments and manufacturing, and even the all business, are closed, commercial establishment or commercial consumption was down by 19%, and industrial at 9%. So, that's the impact of Covid in the country in 2020. Next slide, please.

So let me give you just a snapshot of the National Renewable Energy Program, 2020 to 2040.

Since the passage of the renewable energy act in 2008, there have been a lot of policies by the Department of Energy now in consultation with all stakeholders. And this resulted in increased investment and job creation, additional power capacity for the grid.

And of course, we have paved the way for the consumer to choose their own energy sources, particularly renewable. And the National Renewable Energy Program is working on achieving at least 35% renewable energy (RE) share by 2030. This is on the power generation mix.

You may recall that when the law was passed in 2008, the share of RE is about 34, But as of 20 20, it's about 21%, in terms of RE or power generation.

So, would we just want to first go back to our original status where the RE share is about 35%, and then by 2040 we hope to dominate. Or more than 50% of the RE share will be realised in the power generation mix.

Next slide, please.

Now to achieve this national renewable energy goal of 35% RE share by 2030, and the more than 50% by 2040, there are policies and programmes that have been initiated and is currently starting to roll out together with the support programme.

So first are the implementation of what we call the RE development support mechanisms that are currently embedded in the renewable energy act except for the Green Energy Option, which support the continuation of this programme on a utility scale.

For the Renewable Portfolio Standard, again, this is a mandatory programme where in distribution utilities, or load-serving entities, may supply a portion of their supply to the customers.

So this is a mandatory programme and they have to blend in renewable energy based on the prescribed RPS requirement on an annual basis.

And then of course to facilitate the compliance of the mandated participants in the RPS, we have established the renewable energy market.

However, it's not yet in the commercial operation stage, because we're still awaiting some assurances from our regulator, as far as the RE certificate, price gap, and the model methodology, which we believe will be subjected to a public consultation.

Of course, the green energy Option policy is a new policy that was developed by DOE, initially to help the mandated participants, particularly the distribution utilities, to comply with the RPS. So we're coming up with a joint undertaking among all distribution utilities.

However, we have made some changes because of the, so many moving parts.

So, what we did is we will follow the mechanism of the feed-in tariff, except for the price discovery.

This time, it will be through auction, not through a fear, that I mean, trip rate determined by the Energy Regulatory Commission. So, anytime soon, we will be coming out with a revised policy on the Green Energy Option programme.

And then next, actually is the Green Energy Option programme, which is a customer programme.
This is a voluntary that allows electricity end users with demand of a hundred kilowatt and above to choose their own renewable energy suppliers.

So, the Department of Energy has already issued around 14 Green Energy Option programme operating permits, so that they can start marketing their energy generation or their supply of RE.

Then, of course, recently, the Energy Regulatory Commission has released its regulatory framework for the JM, So, we're starting out the fully implement the Green Energy Option programme.

And, of course, recently, the Department of Energy has issued a policy that would expand the application of the net metering not only in the main grid, but in the off grid areas, as long as they are connected and served by the host distribution utility.

So, that's one probations that we tried to, for the end users, to really participate in the development of renewable energy in the country.

And, of course, the field entirely has a lot of contribution as far as the increase in capacity, particularly renewable energy, particularly from 2014 to 2016.

However, the Department of Energy is concerned because the rates are actually passed on to the electricity end users. So, that's why we, we developed what we call the Green Energy auction Program.

And the development costs since 2013, 2014, has really gone down. So we believe that doing the auction is good for not only for the country, but particularly for the customers.

And, of course, to support all these renewable energy projects that the Department of Energy in collaboration with the USAID and the National Energy Laboratory came up with what we call the 25 competitive RE zones.

And, we have already identified, I think, you can see them in our website.

And, we're now doing the base load implementation support is being undertaken together with a study on long term planning, load, planning, and load forecasting, for the power sector.

As well as a study on the energy, storage system, and ancillary services so that we can actually accommodate much of the renewable energy in the grid. And, of course, there are other supports, programmes and projects.

Next slide, please.

Let me give you now specific initiatives on offshore wind.

Then, of course, the World Bank has funded,  undertaken a study in 2019 that showed that the Philippines has a total technical, offshore wind potential of about 178 GigaWatts, 160 of which is basically bought for floating and 18 GigaWatts are basically for a fixed-bottom design.

This actually is about seven times our demand as of 2018. Then that study identified areas in which options are suitable to implement or to develop. Next slide, please.

Now, a report from HSBC has called the Philippines as the second best investment destination for R&D in the south-east Asia.

Because number one, we have an attractive regulatory environment and a highly liberalised spot market, coupled with the reduction in wind and solar costs.

And so, just to give you an update on the service contract that we issued as of December 2019, we have awarded five Wind Energy Service Contracts, only for offshore wind. And this has about the potential capacity of 1.85 GigaWatts.

And initially, these projects are targeted to be online by 2031 and as of July 2021 we have received nine applications, and nine more letters of intent. These are the intention to build offshore wind with a total capacity of about 12 GigaWatts.

You can see the map reflects the service contract that we have issued, and the location of the offshore wind development projects. Next slide, please.

So, the department is closely working with the World Bank on the development of a roadmap for the Philippines, and this is done in consultation with the BVG Associate, the consultant that was engaged by World Bank to bolster the development and utilisation of offshore wind resources in the country.

So it has two components. One is the roadmap, that would cover opportunities for offshore wind. And then what are the policy recommendations given our current status, and the challenges that our existing service contract holders are experiencing. And, of course, what they want is a practical roadmap.

That is doable and actually beneficial to both the investors and the government in the Philippines.

And the component to, would talk about the project, demonstrate the demonstration concept, which will identify high development areas and recommend appropriate delivery mechanisms.

So, we will be able to tap this proposal, so we're coming up with a demonstration project.

So, the provide you a brief status of the project, a big global launch was done in June of this year, and as planned, the roadmap is expected to be completed in April 2022.

Next slide, please.

So, we are very thankful to the UK government through its ASEAN low carbon energy programme because of the series of capacity building that they have provided the Department of Energy and our stakeholders.

Actually, we were, we're happy that we are getting more information on background and it's really capacity as to how we will be able to approach onshore wind now because previously, with offshore wind as their normal wind energy.

But given it's a tremendous task, and the policy requirement, as well, to develop offshore wind, I guess, this webinar series that was initiated by the UK government, and Ernst and Young, EY,  as the facilitator and the program manager, has already provided us the necessary capacity, building program for the DOE.

And of course, we would like also to thank some governments in in Europe that have been offering the Department of Energy with more use as capacity building, so that we can be fully inform about how we will be able to come up with the Roadmap soon.

Next slide, please.

So, to top it all, aside from the roadmap and the capacity building programme, we're able to be assisted by the Carbon Trust and the Global Wind Energy Council who made possible the establishment of what we call the Joint Industry Platform. So this is like, in the Philippines, this is like a small brother, big brother, sort of thing that the Philippines will be able to access expertise from either jurisdiction, from a pool of experts available in many of the partners in this industry platform.

So we're hopeful that this platform of complex barriers and challenges in offshore wind development will be resolved. Next slide, please.

So just to support our initiative for cleaner energy in the country, the Department of Energy actually has launched the clean energy scenario and come up with a coal moratorium.

So, this will help renewable energy fill in the gap that will support and supply the needed demand for electricity until 2040.

Next slide, please.

And also to support our investors and applicants for service contracts, there are laws that was, and issue one says that the government and the Department of Energy has issued no.

So, this issuance actually aims to facilitate the immediate and the timely completion of all our projects, which agencies are mandated. The issue, the prescribed days, the number of processing days for them to issue the permits and licenses.

And, actually, the, the RE developers are the investors can really track as to where their application is already, licences are located so that you can do that. And actually, if they will not follow, there's a criminal offense to that.

So, all government agencies are looking forward to having these laws enacted or implemented fully so that we can actually have more investment coming in on a timely basis.

So, with that, I think this is my last slide. I'd be happy to respond to questions later on.
Again, thank you. And good afternoon, or good morning.

Thanks, Mylene, thank you so much. There was a lot in there and we have indeed received a couple of questions but I think, in the interest of time, let's move on.

It's always introduce a good friend and colleague Robert McGregor who is one of the GlobalScots in the Philippines, but also, as you can see in front of you, Executive Director and Chief Investment Officer at Aboitiz Corporation. Over to Robert for an industry view.

Thanks, Kevin, perhaps we can go to the first slide.

I'm the Chief Investment Officer for one of the largest of the power companies from the Philippines. We've got four GW of power, we're intending to grow to 9.2 GW in the next 8-10 years.

As Kevin said, I'm a GlobalScot. I've been in Asia for 24 years now, largely I was in investment banking, but I previous worked for Scottish Hydroelectric just before they became Scottish Southern. My company in the Philippines, it's very interested in offshore wind because it's a great way for, for us to grow our renewable energy quickly.

My talk was, I was not going to use slides that are hard to read.

I was due to come on at the end, I think, for 10 minutes, and I'll try and just 10 or 15 minutes, max.

It was already mentioned that the World Bank study indicates all 178 GW of potential offshore wind.

And you will have picked up that only 18 GW is fixed and 160 GW is floating. And obviously, that brings in a technology need, because the seas are particularly deep around the islands. Just to provide a bit of context, the renewable energy share in the Philippine market was about 21% in 2019.

The legislation that the government's introducing is to try and get something like 35% by 2030. And obviously, you know, as one of the market participants, we want to get a good share of the market. But if we go to slide two.

As someone who's living within the ecosphere of the government systems, I think for an investor there are some challenges.

The companies that we speak to, the developers looking to come into the Philippine market, feel that it's impossible to be cost-competitive on any single project.

So most of the developers that we speak to tell me that they're looking for multiple opportunities across south-east Asia in order to bring down the cost.

Because the moment you still have to rely on either a contract situation or wisdom and so the offshore situation is a little bit expensive at the moment.

I'll go from left to right on the slide, the transmission system in the Philippines is also a bit of a challenge. There are grid constraints.

There's no national network across the three main island  groupings. You've got limited inter connection so, the product is not really fungible, so, you could be subject to constraints. There's a bit of planning that would need to be done. The numbers are very big in relation to the grid size. So, the transmission system stability would be an issue.

It's a privately owned entity, the upgrades are very slow, because they won't implement capital increases, unless the capital increases are kind of approved by the regulator.

So whilst people are arguing that, the system must, you know, maybe there are demands for us to want the system to be upgraded, and it's slow to happen. Because of that, the cost for a grid connection is almost certainly going to be something that needs to be a part of the project cost.

It's likely that the project proponent will need to build the transmission connection to the nearest grid.

It's not always the case that you can recover the cost in terms of selling the asset back to the grid. So, you need to be able to recover it from a project.

Our experience of the policy and permitting, as Mylene mentioned, you know, the, the roadmap is in discussion at the moment.

So the planning's at very early stages and there's maybe not a crystal clear policy for the framework and the permitting process.

As a user, we would need clearer policies and regulations to make it work for us,

Moving on to environment challenge. There's a lot of marine biodiversity in the Philippines. So that needs to be taken into consideration when evaluating sites.

It's also an area that is prone to a regular typhoon season and so, obviously, that impacts on the technical design of, you know, any of the plants that need to be considered.

Supply chain challenges.

I think, ideally, you would like to have ports, which are available, you know, to allow Fabrication and Assembly, but they don't really exist here.

So, that's going to be something that needs to be taken into consideration when you're looking at the logistics of trying to put together a project offshore when there's nothing really onshore to help you. And the associated infrastructure and the logistics, that could take maybe 7 to 10 years to build.

The planning, and the applications for projects need to start now. But it's just a heads-up to people to let you know that there are challenges in the market.

Maybe the last one is one that we face, even though we're a very prominent local power company. There's a shortage of qualified labour for projects like this. There's no local experience with offshore operations of this nature.

We would be entirely reliant if we enter a project, our partner would either have to bring the expertise, or we're going to rely on the O&M and the equipment manufacturers and suppliers to bring the capability with them.

So, not an easy run. Let me go to slide three.

I was asked to comment on the Finance market in the Philippines. I would say that the Philippine banks are highly liquid.

They're extremely keen to invest in renewable energy under our policies been put in place to encourage that.

The challenge that will be encountered isn't necessarily the availability of capital. The challenges –
absent of some sort of policy or regulation, which is, you know, some sort of feed-in tariff or support – you could be faced with a merchant risk for the plants that you're trying to build. And, you know, these are not going to be small scale.

So, that means that you either have merchant risk, or you might be able to get short-term contracts, because the customers in the Philippines are not willing to commit to long-term, because there's plenty of energy available.

That means that you are exposed to being able to get the finance, but you may also have to come in with a guarantee, rather than be able to get completely, you know, non-recourse debt.

So despite all of the challenges that I've mentioned that you saw from Mylene's presentation, that there are many developers are already involved in trying to secure the, you know, the permits, and the energy service contracts.

We're also aware that there are a number of people in the market who are undertaking the marine studies, they're trying to identify their chosen site.

I would say it's a very hot market. You know, despite all the challenges is it's a hot market. I suppose the attendance on this call is indicative of that. I just think that it won't happen overnight, and until we get a little bit of clarity on the implementing rules and regulations, I think, people have to maybe have patience on the one hand, but, you also need to get a move on on the other so that you can reserve your project. But, be prepared for the fact that you might not be able to get to execution mode quickly.

So, the last slide.

Um, my colleague had prepared a little bit of advertisement for us, but I think given the rules of a conference call, I'm not going to advertize the company. And I'll hand it back to Kevin. Thank you.

No problem at all, Robert, that's absolutely fine. But thank you so much for your insights, as always.

And we'll now hand over to Rachel Gan Shai at the British Embassy in Manila. Now, regrettably, Scottish Develop International does not yet have a presence in the Philippines, and that's why we're so reliant on our fantastic GlobalScots in the country. But we do work very closely with our colleagues at the British Embassy in Manila.

So here, to tell us a bit more about how the Embassy and in particular, the Department for International Trade, can help all UK companies looking at the renewables market in the Philippines, is Rachel. Over to you, Rachel.

OK, Kevin. Good afternoon to everyone and good morning, perhaps, for some of you dialing in from other parts of the world. So I am Rachel Gan Shai, a Senior Trade Manager at the Department for International Trade at the British Embassy in Manila, and I lead on infrastructure, wider infrastructure. That also includes transport. So talk about rail, airports, ports, but also covers renewable energy. And part of the team also looks after defence and security.

So, I'm here, just quickly to move on to what we do in the country to support and to help UK companies, such as yourselves, as the ones dialling in. But how we also collaborate with local stakeholders here, to try and support the partnerships between UK companies and project proponents here.

So, just quickly, and you will have heard some of this from Director Mylene's presentation earlier, in terms of capacity building and market development support, we work very closely with our colleagues at the embassy.

So it is a one team here at the embassy. We're not just a commercial carved out from the office, but we do work closely with our colleagues from the political section.

And here we work with our prosperity program colleagues, and then they have delivered, as Director Mylene mentioned, the ASEAN Low carbon energy programme.

That is roughly a £15 million support programme to ASEAN countries to promote and facilitate the development of low carbon energy strategies. And to quickly give you an overview, just think of 2, 4, 6, so you're looking at two pillars here.

The program addresses two, Pillars: one on Green Finance, and the other one on energy efficiency, and transition.

And there are four areas of support, which could be all or one, or a combination of any of the four, which we'll touch on policy support, capacity building, technical assistance, and market development. And the six bit is, you're looking at six partner countries, although she Philippines is included, and the others are Indonesia, Malaysia, Myanmar, Thailand and Vietnam.

So specific to the Philippines, as again mentioned by Director Mylene, they've run a series of workshops with DOE and other government stakeholders and industry stakeholders on offshore development to support them on aspects and the various components and elements to a framework for promoting offshore wind projects here in the Philippines.

After the initial workshops, we will continue to work closely with the Philippines to support the development of offshore wind, and obviously build a lasting partnership in this area.

The second initiative that I want to share with you would be the Renewable Energy Business Opportunities report, which was published in February of this year. It's a short report, it's a relatively I would think it's a useful report for companies who are looking at the Philippines for the first time, not just for offshore wind, but for wider renewable energy opportunities.

So there is you get a snapshot of the Philippine Energy Industry of market characteristics and the Conditions for various RE options. So there's solar, it tackles solar, wind, both onshore and offshore, hydro geothermal, including electricity networks and storage.

So this report was developed, coming out of, you know, obviously, desk research, but discussions, more importantly, discussions with private and government stakeholders to identify opportunities in the context of that stage of development of that particular sub sector.

And we'll be happy to share the document to those interested. So do please email us, I'll flash the email address at the end of my presentation. And we can send those to you if you just let us know.

And the last bit, here, it's a separate initiative, although, in parallel, there is the World Bank's Philippine Offshore Wind Roadmap. It is an initiative that is led by the World Bank's Energy Sector Management Assistance Programme.

We're looking at helping emerging markets in developing countries assess their offshore wind potential, and provide technical assistance.

And here, the reason why we flash this here, is while it is an initiative of the World Bank, there is some level of UK support - formal funding from the UK government.

And there's that. Next slide, please.

So from capacity building and market development support, zeroing in on the commercial side and how we support UK companies pursuing project opportunities. This is a short, a very short snapshot, a very quick snapshot of what we try to do, to support UK companies. So, obviously, we provide a view of the market opportunities. Risks through information, insights, gleaned not just from research and documents, but also discussions and engagements, you know, from, for a period of time with industry players, both private and public. And we also help companies to target the right stakeholders.

So you can have the right conversation and form a better understanding of the landscape and develop your own entry approaches. In most cases, you will need to partner with local contractors or even distributors. And you might also be required to set up your own office.

It all depends on the nature and the requirements of the contract, or project, or engagement that you might eventually, successfully, put in place with any of the project proponents here.

Of course, we work closely and collaborate with the British Chamber of Commerce in the Philippines as our delivery partner for support for UK companies looking to enter and/or expand their presence in the Philippines. In the same manner, will also help plan and deliver events sometimes in collaboration with the British Chamber, as well.

We do webinars, Seminars, and workshops. We help design that for you. We help target the attendees, and we run the workshops or the seminars on your behalf.

We also do networking cocktails, depending on the nature, depending on the objective and your planning objectives, and your strategy, and how it delivers value for what you want to achieve in market.

So that's something that we would be happy to work with you on.

Recently, we actually helped the company set up an office here as well, and it has to do with a contract with an LNG facility and they had to set up an office here to be able to deliver a contract on this.

And we work with the Philippine Embassy in London as well. And in making you know compliance wise, we co-ordinate and collaborate with other relevant stakeholders in country to hopefully make it as ... less of a headache. As seamless and smooth as possible for you to set up an office here or deliver on your contracts.

So, DIT Manilla operates and delivers support to UK companies as part of a wider reach our APAC teams. So we're part of, we have a regional APAC lead on offshore wind, Richard Birch. At some point, if you want to put the put in touch with him to let us know, we'd be happy to do that.

But we also work under a south-east Asia Regional Infrastructure campaign, which RE is a part of.

So in most cases, and admittedly, the Philippines is not a big enough market to stand on its own. So when a UK company approaches us, we work together with our colleagues in the region. And it's always been a case where we say, "have you looked at other markets, would you want us to introduce you to them?"

So the support that you will get from DIT is not just from the Philippines, but in view of the region as well, to help you look at this part of the region. Not just a specific market.

And of course, we work with Kevin and SDI for when they need additional support for the companies that they're also assisting. Next slide, please, and I think this is the last one.

Just a quick view of one, HMG team in the Philippines. So, we're not operating as just DIT separate from the embassy. But we do work closely with the British Embassy in Manila, our colleagues from the climate change and environmental team.

We work with them on relevant events and try to make sure that we're able to point you to companies and promote UK capabilities and some of the events that they do work with the perspective program team and for the ITF post. Obviously we have our country director which you can approach. Our UKEF country head, who will speak after me, then myself and the infrastructure team, and again, APAC offshore wind lead.

I think, that's it from me. The next last slide will show show you the email address, and if you're interested in getting a copy of the RE report, do, email us and we'll send that to you. Thank you very much. Thanks, Kevin. Thanks, everyone.

Rachel, thanks so much. And you did my job by helping me to introduce our final speaker, Tim Meaney from UK Export Finance. So, without further ado, over to you, Tim.

OK, thank you very much, Kevin, Good morning, good afternoon, good evening, wherever you are.

First of all, thank you very much to SDI for arranging this webinar. And inviting UK Export Finance to present. It's been a great pleasure and highly instructive to hear the very balanced views from the preceding presenters and I think I need to advance an apology because some of the statistics or references are going to sound very familiar.

As we all know, offshore wind has the potential to be a major contributor to the Philippines energy mix going forward, certainly with regards to the 50% statistic for 2040, referred to by director Mylene.

And obviously, the the issue, which has been presented by a number of speakers before, has been the nature of the Offshore Wind resource, which is primarily floating as opposed to the more traditional fixed.

Obviously, then, this gives the Philippines great positioning to take advantage of the technology developments in floating offshore wind, and improved turbine efficiency and outputs, which are currently underway and very much in the North and Irish Seas.

We're very happy to, of course, to see the development of the Philippines offshore roadmap, and particularly the involvement of BVT Associates, a UK based company, which is very actively supporting, and in fact, is actually the lead consultant in this effort. And this follows on from the Vietnam Offshore Wind Roadmap published earlier this year, which may give something of a template to move forward.

Now, given accelerated introduction to export UK Export Finance, we're already on the first slide, which is great issues here, is that UKEF is a Government department and not a separate corporate entity, and in that, but on that basis, we carry the full Government's commitment through contracts executed by UKEF.

We're established as an export credit agency for over 100 years and as an export credit agency, we are guided by OECD guidelines. But within that, there is potential for significant flexibility, beneficial flexibility, which we believe we can pass on to our clients.

We finance goods and services, so turbines, cables, vessels on one side, but also legal and consulting services, such the project preparation, Project management services associated with projects of this nature. Next slide, please.

Briefly, this just indicates that we have a highly diverse geographic spread, 77 countries engaged in 2020 to 2021.

Next slide, please.

UKEF has a range of products, including direct loans, guarantees, and insurance products. But for the purposes of this discussion, the principal instrument for the Philippines is the buyer credits, and this will be particularly suited to the private sector Funding requirements, which, as Robert noted before, which will be to be the primary source of development spends for the offshore wind sector.

Next slide, please.

In this regard, I would sort of briefly note that for the Philippines, UK export Finance has 4 billion sterling of available country limits.

And, most importantly, in the context of projects in the energy sector the capacity to fund in Philippine Pesos.

Next slide, please.

Very simply, put, UKEF, under the, buyer credit, guarantees a bank providing direct funding by supporting the UK exporters, export contract, and this can be combined with other supplies, including significant local procurements. And, again, I think, Robert mentioned the need to develop the local element of fabrication and procurement to support these projects going forward.
The guarantee can also be provided to support, eligible bond issues, it's not limited to bank loans.

Next slide, please.

As as demonstrated, as would be expected, renewable energy is a key component of UKEF's clean energy growth strategy.

Next slide, please.

The key characteristics of the UKEF buyer credit offer is hundred percent comprehensive guarantee to support the lending bank. We can provide up to 18 years repayment periods.

So that is construction risk plus up to 18 years, which is significantly longer than many banks are capable of offering.

As mentioned previously, we have very much focused on domestic currency funding availability.
We do cover third country imports. So the UKEF loan can cover UK components, other European components, plus a significant amount of local costs compared to other export credit agencies.

We have a very low minimum UK procurements requirement, which is 20%. I mean, obviously we prefer a greater level of procurement. But in terms of thresholds, 20% is the minimum requirement.

And ultimately, we can finance up to 85% of the contract value, within which the UKEF premium can be funded from the loan. Next slide, please.

Other considerations, which, I think really just send the message that the earlier the engagement, for the purpose of exploring the potential for using UKEF is very much better. We do, I think, have time on our hands with regard to this.

But there are, there is potential for the multiple stages of project development to demand significant expenditures, which may be eligible under UKEF support.

And, again, as Robert mentioned, there's going to be very significant, due diligence based on the impact, the future impacts of modelled climate change on weather patterns, given that the Philippines is one of the country's most exposed to the adverse impacts of typhoons etc. And the offshore wind turbines are precisely located where those typhoons take place.

Next slide, please.

I'd like to sort of emphasize the experience that UKEF has gained within the offshore wind sector, particularly in Asia.

Formosa 2, this is one example of an award winning offshore wind project financing, funded in local currency by UKEF. In total, within the offshore Taiwanese sector, UKEF has committed to three projects. And the total commitment amount is in the range of 600 million sterling across three projects.

Which Formosa to as a backdrop, I'd like to address some of the commercial financing benefits of the UKEF Solution.

What I've mentioned is the potential for very significant commitment capacities which extend beyond that of many commercial banks. I've mentioned the 600 million, for the three Taiwanese projects.

More recently, earlier this year, UKEF committed £1.6 billion, for a monorail project in Egypt, and I would note Egypt is at an investment grade several notches below that of the Philippines. So I think it could be anticipated that the appetite to be even greater for the Philippines.

What's the impact of using UKEF? Clearly the Philippine local Bank market is very liquid. There is no doubting about that. But UKEF does have the capacity to substantially lower the cost of debt for borrowers, for project developers.

Now, how can we do this?

The UKEF loan is priced off the UK sovereign rating. Since we're giving 100% comprehensive guarantee, we don't require a percentage of risk acceptance by the lending bank which substantially reduces the margin cost associated with the project.

It also reduces the syndication risk undertaken by commercial banks, which will have positive implications on reducing commercial pricing and underwriting feets, particularly the underwriting fees, given that the commercial debt to be syndicated is significantly lower.

I'd also say that UKEF has substantially larger hold positions than many commercial banks.
We don't have the same capital adequacy issues associated with exposure to major project financings. And that is a benefit.

Clearly, the very long tenor allows developers to be more competitive in terms of the bids. Finally, I think is quite important for those who've had the experience of managing bank groups, which can in some cases, become sort of quite unwieldy. The availability of a very significant UKEF
commitment allows the borrower to reduce its bank group to a more manageable level.

But it's not just the borrowers who benefit, for the banks, the UKEF guarantee eliminates the requirements for risk weighted assets under capital adequacy rules, so it has a very positive impact on return on equity.

On this basis, that allows commercial banks to commit greater commitments amounts to a single projects.

In the context of the Philippines, there may be potential issues. I don't think it exists at the moment, but there have been single borrower limits, which have impacted some of the banks given a very congested, top tier corporate markets.

And it reduces commercial exposure, particularly for the more challenging early projects which, as  Robert noted, there are a lot of moving parts that need to be put together And there is potential for delay, unforeseen risks associated with many of these elements, which almost by definition will require joint development. Contemporaneous development, I should say.

Can we move forward to the final slide, please.

This is just our internet international network. Happy to introduce any UKEF representatives around the world. Next slide, please.

In my concluding comments, I'd say that, it is clearly the case, and I think this is very much recognized by all parties on the government side, BVA Associates, the World Bank, IFC.
It's clearly the case that for the offshore wind sector to be a success, it will require the presentation of bankable projects, to attract lenders and investors.

I think the issues addressed by Robert in his presentation earlier were very pertinent in highlighting some some of the issues that need to be addressed well in advance and I assume that this will be the product of the roadmap going forward.

Having said that, I mean, I've worked on Philippine Project Financings for an excess of 20 years across many sectors. And I can say that the Philippines has a long and proud history of developing strong credit-worthy and bankable projects across multiple sectors.

And based on the availability in the offshore wind sector of the ability to learn from successful models used elsewhere, I've no hesitation in my expectation that this will be achieved for offshore wind and that Director Mylene's projected numbers for 50% in 2040 will be met or if not exceeded

Thank you very much indeed.

Tim, thank you so much, that, that was great, and that really concludes this session. Unfortunately, we just don't have time for questions, which I've seen coming in. And, as I typed into the chat box earlier on, we will put these questions to all of our speakers and then get back to you via e-mail, whether around the projected LCOE, the pricing mechanisms, skills, developments, etcetera, all very worthy question.

So, we will surely get those answered by the speakers and get back to you very, very soon. You will, of course, receive a recording to this webinar, as previously mentioned. Here in front of you, you just see my personal contact details. I'm normally based in Taiwan, and you'll see the details for my colleague, who's, based in Kuala Lumper covering south-east Asia. And then also my colleague Murray Bainbridge who supports Scottish Companies with the APAC developments from Scotland.

And what, can I just thank all of our speakers once again for their expert contribution. And all of you for attending today's webinar, Look forward to seeing you in the Philippines very, very soon and very much. Look forward to supporting the development of offshore wind in the Philippines.