The Testbed for Asia's Clean-Tech Future | Ep272: Jaime Z. Urquijo

Jaime Z. Urquijo

If this energy transition is ever going to happen, or these net zero targets are going to happen, bringing coal plants offline is going to have to be part of these solutions. And I think the reality was that actually Southeast Asia has some of the youngest coal fleets in the world.

Marie Cheong

And so what are some of the challenges of that?

JU

Huge amount of challenges. Obviously, just bringing a coal plant offline, you have massive repercussions. A, what are the investors in these plants ultimately going to say? They still want to be kept whole. And B, these countries are continuing to grow, they need more and more energy.

Bringing off huge amounts of energy capacity from sort of just sort of flipping a switch is going to make usually regulators and grid operators very uncomfortable, very unhappy. However, you know, as the prices of batteries continue to come down, and we know how fast solar and wind plants can now come up, does that now potentially become an interesting tool that could be used as a replacement here?

Michael Liebreich

Hello, I’m Michael Liebreich and this is Cleaning Up. Welcome to Season 19 - I hope you’ve had a wonderful summer.

One of the priorities we set for Cleaning Up this year was to showcase the transition as it is playing out outside the US, Europe and China - in what we call ‘Most of World’. That’s where 70% of the world’s population lives, where we see almost all of the world’s demographic growth, and where energy demand is growing fastest.

We also set a priority to introduce new voices to Cleaning Up. Keen audience members will know that I invited my guest on episode 265, Marie Cheong, who is based in Singapore, to host some episodes from South and South East Asia. Today, I’m delighted to introduce Marie’s first episode as host, to help us kick off this season.

If you want to know more about Marie, and her day job as founder of venture capital investor 100x100, make sure you listen to her episode as a guest on the show - which includes our visit to the People Bee Hoon noodle factory to see AI in action.

In this, her first episode, Marie will be zooming in on the Philippines - the world’s fourteenth most populous nation and 35th largest economy, roughly on a par with the economies of Austria or Norway.

Please welcome Marie Cheong to the hot seat here at Cleaning Up.

MC
Hello, I'm Marie Cheong and this is Cleaning Up. For listeners who don't know me yet, I run an early stage climate tech venture capital firm in South and Southeast Asia. In the episodes that I guest host, I'll do my best to showcase what the green transition looks like in my part of the world. In this episode, we're focussing on the Philippines, a country of over 7,000 islands and 110 million people. While the average household earns between $400 and $500 USD per month, the country is growing two to four times faster than developed markets in Europe and in America. The Philippines is a hard place to run an energy transition. It has the highest energy costs in Southeast Asia, and 60% of the grid is still powered by coal. The country is prone to frequent brownouts and blackouts and is vulnerable to typhoons and natural disasters.

The Philippines is also home to one of the oldest companies in the region, Ayala Corporation was founded in 1834. It masterplanned the business district in Manila, and amongst other holdings, owns the country's largest developer, oldest bank, and the largest listed renewable company in the Philippines. My guest today is a fourth generation member of this family business and is now the group head of Urban Estates at Ayala Land. He is also director of ACEN Corporation, Ayala's renewable energy business, and was previously the group chief sustainability and risk officer. Please welcome Jaime Urquijo to Cleaning Up. Jaime, thank you so much for joining us on Cleaning Up.

JU
Thank you.

MC
We're going to start the way that every episode starts. So in your words and the short version, who are you and what do you do?

JU
So my name is Jaime Urquijo. I'm a half Spanish half Filipino, who spent a little bit of time in the UK and the US for kind of schooling, and that's where I started my career. But for the last 13 years have been living and working in the Philippines for a company called the Ayala Group of Companies. Basically, I spent the majority of my time there in our energy and infrastructure divisions, and most recently I'm now working in Ayala Land, leading our urban estates team.

MC
Exciting. And you have two kids, you're a diver, you love being outdoors.

JU
Yeah. So very proud husband and father of two amazing, amazing kids. I have a six-year-old boy and a three-year-old girl that have just been just the most amazing additions to our life. I grew up spending a lot of time outdoors, it was really one of the sort of main draws of spending a little bit more time in the Philippines. And yeah, it's been, you know, I think one of the most interesting things about being a parent is now starting to share some of these passions with your kids.

MC
Absolutely. And I think it actually puts a lot of the work that both of us do in terms of green transition, thinking about the future into a much sharper perspective.

JU
Yeah, you know, I think about that a lot Marie, because I grew up a lot of time underwater. And coral reefs, I think very often come up as one of the kind of areas that are probably most at risk because of climate change. Very, very scary sort of figures as to whether coral reefs are going to exist in the next sort of 50 years. And that to me has always put things into perspective. And especially being a father, being able to ultimately share and sort of show a lot of this to my kids has always made it very, very real, especially living in the Philippines.

MC
So speaking of the Philippines, for listeners who have not been to the Philippines or not spent much time looking at the region, how would you describe the country?

JU
So taking a little bit of a step back, it's an archipelago, so 7,000 plus islands in three main island groups, Luzon, the Visayas, and Mindanao. It's about 110 million people, which is a staggering number. And I think one of the facts that I think is important for people to realise is that the median age of the Philippines is about 27 years old. And so a very, very young, large population, English-speaking, so the official language in the Philippines is Filipino, Tagalog, and English. And describing the Philippines, it's a really, really fascinating melting pot, hundreds of years under Spanish colonial rule, and then spent just under 50 years under American colonial rule as well. And I think has emerged as a really, really fascinating melting pot with a lot of these different cultures, a lot of Chinese and Malay influence as well. And so yeah, it's built a country, which has a tonne of possibilities, because of this incredibly young population. The fact that English was an official language has meant that Filipinos are now very employable abroad. And so if we think through the Philippine economy, about 10% of our economy is actually overseas foreign workers sending remittances back to the Philippines, because they in the past were employed more in manual labour jobs, but increasingly in more educated and highly skilled roles, nurses, engineers, teachers. And so they're very employable abroad and send a lot of remittances back. Again, that English piece has also meant that there is a huge BPO, a business process outsourcing business.

MC
Oh well done with the acronym.

JU
Trying to catch them as much as possible. And so it's a huge part of our economy, another 10% as well, again, with a lot of different businesses outsourcing to the Philippines. I think maybe on the more sort of fun side, Filipinos, we all love to eat food is a huge, huge, huge part of daily life. And again, Spanish, Malay, Chinese influence when you kind of describe Filipino food. I think as I was thinking through the best way that I usually like to describe Filipino food, I usually describe this one dish, which is green mango and something called bagoong, which is like fermented shrimp paste. But I mean, that one dish to me perfectly represents Filipino food because you have a sweet, sour, salty, funky all in one dish, which I think perfectly represents Filipino food and gives a little bit of a taste of the Philippines.

MC
I mean, we work there, we've got five portfolio companies there, so we're there all the time. It is a very warm, vibrant country.

JU
Yeah. I think when you ask most people what their interactions with the Philippines are, clearly a very beautiful place, a lot of really fantastic beaches, but I think the one thing that really sticks in people's mind is just the warmth of the people. Karaoke is almost a national sport. I would say at this point, we have fantastic singers, Filipino singers all over the place because of the importance of karaoke. So yeah, one of the very many things that makes the Philippines a very unique country, I would say.

MC
And what about your family's role? And I mean, please introduce Ayala Corp, because I say in my introduction, founded in 1834, your family's history is very much entwined with the modern history of the Philippines.

JU
Yeah. Well, you know, as you mentioned, coming up to close to 200 years since it was established. And I think for the majority if not all of that time, really grounded on a very, very clear purpose, which was to build businesses that enable people to thrive. And so as we look through the history, there's a lot of really, really fantastic examples of this. It was involved in the creation of the first bank in the Philippines, what's now known as the Bank of the Philippine Islands, was involved in many respects in the creation of the first mass transit, the Tranvia that was created in the Philippines, was part of the water privatisation movement to really create an incredible success story in Manila water. And today has four main pillars, I would say. There's a financial and sort of banking side of it, telecommunications with Globe Telecom. There's a land component, land development side, and then finally, a renewable energy sort of pillar. And then increasingly, there's a portfolio of new and growing businesses in the healthcare, mobility, education, and logistics spaces.

MC
Can you give me Ayala Corp in numbers? So, you know, top line, market cap.

JU
2025 numbers and again rough numbers, revenue of about $6 billion, net income of about $1 billion, and market cap at the moment is about $5 billion.

MC
You know, the question that Michael asked me to ask is, there's a lot of Jaimes in Ayala.

JU
Yeah, so at the moment, our chairman Jaime Augusto was really a very, very big driving force of the success that the company has had over the last 30 years. The Manila Water example that I mentioned, Globe Telecom and the success that that's had were really very, very big moves that were really architected by Jaime Augusto. We then have a cousin of mine, Jaime Alfonso, who's currently leading our mobility business and again, an incredible success story, and I think very much in line with the purpose and the direction of the types of businesses that we like to invest in. And happy to dive into that a little bit more, because it's really an amazing story. And then myself, Jaime Urquijo as well yeah. And you know, to make it even more complicated, our grandfather, who was chairman and CEO for a number of years, was also another Jaime.

MC
Family name

JU
We're not usually very creative with these names, and it always creates a wonderful introduction moment whenever we're travelling together, and the three of us introduce ourselves as Jaime, Jaime, Jaime. But yeah, we managed to navigate through that.

MC
So I want to switch now a little bit to Ayala's view on sustainability. Ayala really stands out in the Philippines for sure, but in Southeast Asia overall, because in 2021, it made a 2050 net zero commitment.

JU
Yeah.

MC
So I guess the first question is, what does sustainability mean for Ayala?

JU
This was a role that I stepped into three or four years ago now, where I was asked to come back to Ayala Corporation at the time I was actually with ACEN, which is the renewable energy development arm, to take on the sustainability risk portfolio of Ayala Corporation. And it was a really interesting challenge because I had relatively limited corporate sustainability experience. Again, as I mentioned, the majority of my experience is really in the energy and investing side of things. And so my first real challenge was to figure out what is sustainability? Like, what does this ultimately mean? And I think what was difficult is that it could mean a lot of different things to a lot of different people. And so I spent a lot of time really trying to sort of dig into the history of corporate sustainability, how this kind of movement has ultimately evolved.

And ultimately, I think in my mind, it comes down to what is ultimately the responsibility of a company, right? First and foremost, for us, a very, very clear North Star of purpose, build businesses that enable people to thrive. And so in that context, the sustainability question becomes a little bit more straightforward, because you know that all of these businesses ultimately have to be improving individuals' lives. Where I then sort of moved from there was, OK, well, now we have this corporate sustainability team, what is the corporate sustainability team actually going to be doing? And I came across this really fantastic definition from WBCSD, which is the World Business Council for Sustainable Development, who defined sustainability as a strategy that is aware of its negative externalities on the environment and society. I thought that was a really great way to ultimately define what sustainability was.

MC
So about awareness.

JU
Yeah,so are you aware of what your negative impacts and your negative externalities are. And then I think where we would sort of then take it is corporate sustainability is A, being aware of it, so ultimately trying to track as best as you can what those negative externalities are. And then for us, trying to find value creative ways to ultimately decrease those negative externalities.

MC
So that's actually a really good point that I want to double click on. The Philippines is a young country in growth, but still relatively low average household income, do customers care about sustainability? Will they pay more for sustainability? Does it actually make business sense to implement all of this?

JU
I think especially people who are in the sustainability function would love that to be the case. But I think you have to start from a position of no, that there is not going to be this premium that's ultimately going to be sort of afforded for something that's green. I think where I've been very fortunate in when I stepped into this role and ultimately where we are, is that I think we're now at a point where a lot of these fantastic trailblazers have ultimately been investing in and sort of doing so much in this space, that now these technologies, you don't have to take a punt on them anymore. Like they are really value creative.

MC
And can you give me an example of what you mean by this?

JU
EVs or RE.

MC
Electric vehicles and renewable energy. I'm getting better at this, I'm getting better at it.

JU
Yeah, great call out, my apologies for that. So let's take renewable energy as a really fantastic example, 2012, 2013, which is really when the feed-in tariffs were introduced in the Philippines to really encourage renewable energy development. I mean, if we look at the story of ACEN at the time, the current CEO a gentleman called Eric Francia, put forward this plan to start investing in renewable energy. And at the time, there were a lot of naysayers because this was never going to be a technology that was really going to be able to stand on its own two feet. This was always going to rely on a lot of government incentives to really be a true asset. Why waste time and energy on something that's ultimately fringe? And that's a little over 10 years ago. We now know today that that couldn't be further from the truth.

The costs are at such a competitive stage that it's now the cheapest form of electricity. And of course, there are some downsides to just pure solar and sort of wind. But now we're seeing battery prices ultimately come down that when you stick a solar and battery plant together, that this now potentially is becoming as competitive as some of the traditional forms of thermal. And so I've been very fortunate that I've been at a time in this space where you're not having to evangelise as much, you're not having to take a punt.

Electric vehicles, another really fantastic example. So three years ago, you could count on a couple of hands the number of electric vehicles that were sold in the Philippines. And again, they were really fringe for individuals, usually a little bit wealthier, who could afford to spend on an electric vehicle. Where the price of gas is at the moment, and ultimately how far down the price of electric vehicles have ultimately come has now made them, the cost parity is absolutely there. And actually, you save by switching over to them because of the cost of fuel at the moment, and so you're not having to take these punts anymore. And so I count myself very lucky that I've been ultimately working in this because I think it will have been incredibly hard in the past, but now technology is ultimately catching up where these technologies just make more sense.

MC
So we'll get into ACEN, but I just want to just kind of come back a little bit to the net zero commitment. And from 2021 baselines, quite a lot of improvement in scope one and scope two but of course, the majority of emissions and it is fairly large at 10 million tonnes of carbon dioxide as a group?

JU
As a group, yes.

MC
So kind of curious about that and what your approach has been?

JU
Yeah, so at the time we had a visionary CEO Fernando Zobel, who decided to really sort of plant a flag in the ground and sort of decide that we as a group were going to make this net zero commitment. And I think that that's one of the benefits of having family leadership in some of these positions that ultimately, there was this vision and sort of direction that was there and ultimately, the task was to really try to think through how to really achieve that, again in value accretive ways. As a diversified conglomerate, it's extremely complicated to sort of think through this. We have very, very diverse businesses, from construction businesses to a bank, to a telco and ultimately an energy company. And so really thinking through how all of these businesses were going to achieve that has been an incredibly interesting challenge. I think for us, we start with thinking through how do we define this, how do we measure this in ways that we can really stand behind? And so for us, that really started with SBTI or the Science Based Targets Initiative. And we found that that was a really fantastic, incredible way to really communicate these aspirations.

MC
So Ayala Land has SBTI, I think I can use them now, baselining. But is that still the only?

JU
So of the four main businesses, two of them are now SBTI accredited.

MC
That’s fantastic.

JU
So Globe Telecom and Ayala Land are there. The two that have been a little bit more challenging have been ACEN and Bank of the Philippine Islands. The banking sector, as we know, is a very, very, very difficult one to think through, especially as you think through financed emissions and Scope 3. Where we've really decided to focus is on Scope 1 and Scope 2, Scope 3 is a little bit more challenging and so we're still trying to wrap our heads around how best to tackle that. And ACEN as a renewable energy developer, the irony there is that it is still a little bit more complicated because of the timeline. Actually for energy companies, it's not a 2050 target, it's a 2040 one and so we're still trying to sort of wrap our minds. So we have a plan that's aligned, but it's not accredited yet.

And again, I come back, I think one of the areas where our life has been made a little easier is that some of these switches that can be made, there's a lot of low hanging fruit. And for us, the big one has been a switch over to renewable energy procurement. Obviously, with a renewable energy developer within the group, we've been able to really track how the prices are ultimately evolving, how the options are evolving, especially for businesses to procure renewable energy. One of the benefits of the Philippine energy environment is that companies can procure directly from retail energy suppliers, RES suppliers. And so we've been able to have a massive switch over. So over the last kind of three to four years, from about a quarter of our energy from renewable energy sources, it's now about three quarters group wide and that's led to a huge amount of savings. It's roughly about $4 million a year that we've made by switching to that. And so Scope 1 and Scope 2, we have a decently good kind of control over, we understand what those levers are, Scope 3 has been a challenge. And, you know, I think one of the ironies of this is we have seen our group wide Scope 3 increase over the last few years. Obviously, as the group grows, this is always going to be a big challenge that we need to kind of debate around. But one of the biggest areas of growth in our emissions have actually been because of our mobility platform, because of the success of the BYD business. And so you would...

MC
Because more energy being drawn, 60% of the grid still coal fired or...

JU
There are still emissions or greenhouse gas emissions that are generated when producing one of these vehicles. So even though you are switching these individuals over from an internal combustion engine to an EV or hybrid vehicle, as a company our emissions still increase because of that. Because we are ultimately selling more cars, even though they are EV and hybrid cars, the emissions do increase. So that's another thing that we've also had to kind of navigate through that ultimately, the number increases, but we clearly know that this is having a good impact in the country. And so that's something that we've had to sort of navigate through.

And I think the last point that I'll mention is one of the numbers that we've increasingly been looking at is the greenhouse gas economic intensity number, so ultimately, the amount of revenue that you generate for the amount of emissions. And so it's again not necessarily used when talking through SBTI, but it's an interesting number for us to think of, especially as the company continues to grow, are we getting better at decreasing that intensity?

MC
I mean, it's one of the big, I would say, macros perspectives on the region, right? So across Southeast Asia, our growth is still directly linked to emissions growth.

JU
Yes.

MC
And that's what I think one of the big challenges in this region is how do we keep growing because growth is so necessary. And we have one of the fastest growing regions in the world. But we need to sort of de-link that now from emissions in order for this to be sustainable over a long time.

JU
And, you know, that EV example is a great example. I mean, as the country grows, you would think that more individuals are going to buy a vehicle, but ensuring that they are buying a hybrid or an EV vehicle clearly is better, but you are still generating more emissions because more individuals are buying cars. And so I think one of the other issues that, or debates that I've always had around corporate sustainability is in the past, I've always felt a little bit disheartened by how binary this conversation can be. Obviously, because of the consequences that we're talking about, I think it is very natural for there to be this argument that things are inherently bad or inherently good, the sort of good versus sort of evil in these discussions. And when talking about corporate sustainability, when talking about the future potential of a country, you need to be able to understand both of these pieces and ultimately realise that there are some trade-offs here and have a conversation sort of through that. And I think at times, the sustainability movement gets a little bit tripped up because of that, which I think we can all understand why that's there because of the consequences. But when thinking through some of these solutions and the sort of steps ahead, I think we have to get comfortable with some of that nuance. We have to get comfortable with ultimately having all the data points in front of us and navigating through a path that we ultimately think is a net good.

MC
So maybe the last question in this section is, do you think you can get to net zero without carbon credits? And what has some of your experience been in this space?

JU
Yeah, I mean, one of the fascinating things about these 2050 aspirations is for a company, you very rarely take a step back and think through what are the next 25 years of growth going to look like. And I actually think that's one of the benefits of looking through things in that kind of time frame, because it's actually made us almost going back to the drawing board as far as what we should be doing as a company. Because when we think through the next 25 years for the Philippines, a huge amount is going to happen in this country. A huge amount of construction needs to happen, a huge amount of growth needs to happen. And we need to think through how we want to position ourselves as a company to really help catalyse but also help sort of be part of that journey.

And so when thinking through the net zero, I think it's a very, very useful exercise, A, just to be very, very clear as far as what the footprint is. And then, you know, ultimately, try to find ways that are value accretive to ultimately sort of decrease that. So the targets are there, at least for two of the companies right now, we're still working on another two, do I think it's it's achievable, I'd love to be aspirational on this and I think a big part of this is, we need to keep trying and sort of pushing for this. We have no idea what technologies are just around the corner. But I think being involved in this process, having the teams realise the accounting and ultimately realise the footprint that we're having, I think is ultimately a net positive.

I'll give you one very small anecdote from this. As we've started to think about what that footprint looks like and I think about the real estate company, we have a construction company within it, it's called MDC, the Makati Development Corporation. The greenhouse gas emissions have now become a KPI all the way down to the construction site. and so construction managers are now aware of what the footprint is.

MC
Wow.

JU
So what we've seen is that actually, a lot of the generators that are used on construction site, our diesel bills have dropped off a cliff. And I think this was a cost that might not have been as big to sort of the bottom line. But now, you know, as individuals are aware of this, maybe this generator doesn't actually need to be on right now, maybe I can be shutting it down. And so again, having awareness, having these KPIs, I think has been a very, very interesting and useful exercise to us. I think we've had the benefit of the last few years of a lot of low hanging fruit to be able to kind of address this. I think the next few years are going to be very, very interesting as we start to think through how best to sort of keep moving it.

MC
I'd like to spend some time on ACEN. And we can start with, is ACEN an acronym? So previously, Ayala Corporation Energy, but now changed.

JU
So I mean, ultimately it's AC Energy, but ultimately just became a standalone ACEN. But it stands for AC Energy, that's ultimately how it was built out. And, you know, a fascinating story. So started just under 15 years ago, complete standing start. At the time, we had zero exposure, zero interest in the energy market. And again, full credit to the current CEO of the business gentleman called Eric Francia, at the time, he was leading strategy for Ayala Corporation, and the lens here is we want to build businesses that enable people to thrive. And at the time, he realised that there was a very, very interesting inflection point in the energy space. We had a lot of incumbents who were really focused on thermal energy, The one exception actually being a company called EDC. I have to look up what exactly.

MC
We’ll put it in the shownotes.

JU
But one of the largest geothermal companies in the world actually, which has been there for a number of years, and we've had some hydro operators as well. But aside from that, incumbents really focused on the sort of thermal. And so he saw a really interesting opportunity to now build a business on the back of renewables. As I mentioned at the beginning, at the time, there was a lot of naysayers but he really thought there was a good opportunity. And a good time to sort of also introduce a lot of the regulations that the Philippines have put in place to really enable and ferment.

MC
So one of the most liberalised energy markets in Asia?

JU
In Southeast Asia, for sure.

MC
Please describe, what does that mean?

JU
So 2001, we had the EPIRA law, so the Electric Power Industry Reform Act. And ultimately, what it did was it unbundled the sector, really differentiating generators from transmission and distribution utilities, and ultimately allowed for a lot more private investment into the space. It also created a wholesale market in the Philippines. And in Southeast Asia, there are only two countries that actually have a wholesale market, Singapore being one of them, the Philippines being the other. And so what this ultimately enabled was a lot more private investment into this space.

And 10 years after that, we had a feed-in tariff that was introduced to really spur renewables. It was a really, really crazy time. What the government decided to do was cap the amount of installed capacity that was going to be given, a feed-in tariff or a FIT, and ultimately said that the first projects to ultimately achieve or reach this sort of cap were going to be awarded this feed-in tariff. Anyone who sort of didn't make it, no.

MC
So it was a bit of a gold rush.

JU
It was absolutely a race, basically. And people at the time thought that was crazy, who would take that risk? But actually, a huge amount of projects came online, and that's really where AC Energy started. As the company grew, the Philippine energy requirements were so massive that the company did also invest in thermal assets. And so we built up a significant coal portfolio as well, because of how much new capacity was ultimately needed. And then five, six years ago now, there was a decision that was ultimately made to make ACEN fully focused on renewables, really make that the sort of full focus. And so they sold down the thermal investments, some of them are still retained at Ayala Corporation.

MC
Yeah, I was about to say, so is there still coal in Ayala?

JU
There is. So we are no longer the majority owners, we sold down a lot of them and still have some minority interest in some of the coal assets. And then AC Energy was solely focused on renewables. And today, AC Energy has about seven gigawatts of installed capacity and what's truly amazing is, thanks to a lot of the learnings that were really instigated in the Philippines because of some of the policies that we sort of mentioned, it actually provided a really fantastic platform for ACEN to then go abroad and actually go international. And so seven gigawatts of attributable capacity, about half of that is in the Philippines, the other half is split between Vietnam, Indonesia, India and Australia. And so an amazing case study of what Philippine companies could do, especially since they got a little bit of a head start in this renewable investment wave. We were really able to translate that into Vietnam, which came online a couple of years later. And so we have about a gigawatt's worth of attributable capacity.

MC
And you're involved in the region's largest wind project, Monsoon?

JU
Yeah. Fascinating, fascinating project. As we talk about the potential of the ASEAN power grid, this is one of the really, really fantastic examples or first illustrations of that. It's a 600 megawatt wind plant that's built in Laos, but ultimately has an offtake in Vietnam. And, you know, just an incredible, incredible sort of project, and I think shows the potential of what is possible in the region. And full credit to the team for really being able to build out this incredible platform. And I would say a huge part of that success, the Philippine policies to really allow for these learnings to sort of really build out and then able to then sort of jump into other markets. The other big key to success, at least for ACEN, has been really fantastic local partners. There is a really big awareness that we will never know local markets as well as local sort of players and partners. And so in literally every single country that we've entered, it's always been through a partnership model.

ML
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MC
You've mentioned 7 gigawatts, there's a target to get to 20 gigawatts in the next four years. So that's almost tripling your current install capacity. How do you get there?

JU
So I was going to mention that. So that target has been brought down a little bit recently to sort of 15 gigawatts. And I think Marie, as this industry has continued to evolve, I think a lot of the players and companies in this industry also have to evolve. And so I think there was a time where, you know, you described it as a sort of a mad rush to sort of really build as much as possible. And, you know, I think a lot of these markets, especially the Philippines, I think of Vietnam as well, there's now less of a mad rush. But now it's really becoming how to really build the best sort of plants. And as we all know, this is ultimately a commodity business. And so there has to now be an increased focus in the sort of quality and ultimately ensuring that we are offering flexible products at the lowest cost possible. And so that usually takes a little bit of kind of looking yourself in the mirror and really thinking through what are the skill sets that are here? How do we ensure that we're evolving and changing?

MC
Yeah. But I also just I want to jump in because I also want to be honest about the challenges of operating in the region. You know, ACEN I think in the last financial year took some write downs on some of its assets.

JU
Yeah.

MC
Challenges with gearing, with debt. I mean, it's not always straightforward. And I think Southeast Asia, for a number of reasons, capability, even things like land rights. There's lots of challenges building a renewable portfolio here.

JU
You know, as you think through Southeast Asia, so it's a combination of very, very different countries and I think there needs to be an understanding and almost a humbleness that in each of these countries, you're dealing with very, very different operating systems as well.

MC
Yeah.

JU
And I think this is one of the challenges of ASEAN ultimately sort of coming together, how to ensure that these challenges are ultimately thought through. You're 100 percent right, I mean, in Vietnam I mentioned the one gigawatt of actual capacity, but Vietnam went through a wave of building a huge amount of renewable energy capacity.

MC
Similar feed in tariff incentives that then were taken away.

JU
I mean, it was close to nine gigawatts that were built over a three year period, just a massive amount. The difference with Vietnam to the Philippines is that there was no cap on the amount of energy. So the Philippines capped the amount of energy that they were going to give the feed in tariff to. In Vietnam, there was kind of a timeline, but ultimately it was build as much as you can. So a huge amount came online, and Vietnam has been for the last few years, really grappling with how to best adjust to this huge amount of capacity that sort of came on. And I think that there needs to be a realisation that that's there. You know, you would think that that would then translate into some of the premiums and the investment hurdles that you would sort of put in because of some of that increased risk.

And that was definitely kind of reflected. But there needs to be just an understanding that a lot of these countries are still trying to figure out how best to bring on a lot of this new capacity. And by the way, it's capacity which the whole grid now needs to adapt to. Grid operators now need to know how to adjust its capabilities, its competencies to sort of really deal with this. And that will absolutely mean that there are some speed bumps along the way and so there needs to just be a realisation that's there.

MC
I want to leave a little bit of time to make sure that we talk about the energy transition mechanism. So in 2022, ACEN completed the first market-based ETM, energy transition mechanism, for one of your thermal plants in South Luzon, so tell us a little bit about how that came together.

JU
You know, again, full credit to Eric Francia. I think the realisation was if this energy transition is ever going to happen, or these net zero targets are ever going to happen, just as a concept, bringing coal plants offline is going to have to be part of these solutions. And I think the reality was that actually Southeast Asia has some of the youngest coal plant fleets in the world.

MC
And so what are some of the challenges of that?

JU
Just a huge amount of challenges. Obviously, just bringing a coal plant offline, you have massive repercussions. A, what are the investors in these plants ultimately going to say? They still want to be kept whole. B, these countries are continuing to grow, they need more and more energy. Bringing off huge amounts of energy capacity from sort of just sort of flipping a switch is going to make usually regulators and grid operators very uncomfortable, very unhappy. But again, to give credit, it doesn't mean that we shouldn't at least be exploring how something like this could work right. And again, talking about some of these nuances and sort of trade-offs, I think let's all be fully aware of what these trade-offs are and then explore if there might be something there.

And so this is actually a concept that the Asian Development Bank, ADB came up with a number of years ago as a way to potentially bring forward the retirement age of some of these coal plants. And so, Eric and his team very successfully were able to implement the first market-based energy transition mechanism that ultimately brought the operating life of this coal plant from beyond 2050s to 2040, potentially reducing the life by about 15 years.

MC
Through a combination of?

JU
Ultimately refinancing.

MC
Debt, right?

JU
Yeah, ultimately refinancing. And you are ultimately refinancing this with providers who are okay with a lower return because you're ultimately shaving off sort of 15 years of potential life. That's ultimately what it was in a nutshell. I think where Eric has really been focused on now, and again really, really interesting is, well that's 2040, is there any way that you could potentially bring that forward to 2030? And so, he's been exploring the use of carbon credits to potentially do this. And they've been backed by the Monetary Authority of Singapore, GenZero has been very involved in looking at this, but a lot of complexities with doing that.

MC
Is this actually a model that's replicable?

JU
I think still a little bit too early to say, I would say. Carbon credits in general have gone through an interesting sort of evolution and that was seen as a really fantastic way to potentially bridge some of these gaps between what investors were ultimately expecting and what the impact of ultimately bringing some of these plants offline might be. Because of how carbon credits have just evolved, I think that's becoming maybe less of an interesting solution. But it doesn't mean that something might not come out in the next few years. And so, I think, you know, where we pride ourselves is to try to be involved in a lot of these conversations and discussions and let’s ultimately explore what's possible, what's feasible in value creative ways. I don't think anyone is thinking about doing this in ways that would be destroying value. And again, very cognisant of the fact that the country needs energy.

MC
And more energy, right? Fastest growing region in terms of energy growth, energy demand. It's just not viable to turn off some of our most reliable and flexible assets.

JU
Maybe I should have mentioned, so the country of the Philippines has about 33 gigawatts of installed capacity across the country at the moment. If you take some of the Department of Energy estimates over the next sort of 15 to 20 years, that will likely need to 3X or 4X right? That is a huge amount of growth. I mean, just, you know, thinking about the transmission that's going to be needed, where all of these plants were going to sort of need to be built. And so suddenly bringing on the concept of the idea of potentially bringing off a 250 megawatt coal plant makes a lot of individuals a little bit uncomfortable. However as the prices of batteries continue to come down and we know how fast solar and wind plants can now come up, does that now potentially become an interesting tool that could be used as a replacement here?

As we think about just the incredible success that rooftop installations have also sort of had, maybe that growth curve is not as kind of, or that requirement is not as steep because solar rooftops are now, you know, filling in some of that gap. Does that potentially give you some room to maybe explore some of this? And that's ultimately, the aim is to just be involved in some of these conversations and explore what's ultimately possible in value creative ways, ultimately.

MC
Yeah, yeah. I mean, in the episode I did, we were talking a lot about these skip the landline moments, right? We don't have to follow the same path that developed markets in Europe and the US have done. And so I think that's actually a great transition to talk maybe a little bit more about the future. So you've recently taken on the role of Group Head of Urban Estates at Ayala Land, so you get to spend all of your time imagining and designing what the future of cities in Southeast Asia will look like. Can you tell us a little bit about this? And maybe again, just to bring it back to the context of the Philippines and adaptation and resilience, this is a country that is very prone to natural disasters, typhoons, earthquakes. Every year we hear about the loss of property risks to assets, but also unfortunately the loss of lives. So tell us a little bit about what the future of cities looks like.

JU
Yeah, I mean, it's a really fascinating discussion, because on one side the risks are very, very large. You know, one of the other points that I forgot to mention is that the Philippines is on the Pacific Ring of Fire, also part of the sort of typhoon belt. And so typhoons, earthquakes, volcanoes, also a regular occurrence sort of every year.

MC
I left out volcanoes.

JU
Yeah, it's absolutely an issue. And you know, we're sitting here today, having gone through the last sort of two to sort of three weeks where in one six hour period, we received in certain regions of the Philippines, about 300 millimitres of water of rain. Just to give you a sort of a kind of a reference point, we tend to receive about 10 millimetres of water a day. And so 300 millimetres fell over a kind of six hour period. And so a huge amount of floods that have affected about five million people. In the Philippines, we've had a number of deaths as well, and this is increasingly becoming a regular occurrence. And so as we think about how cities and the country will evolve, that has to be something that's really, really front and centre, because it really is having a big impact. I mean one of the fascinating recent estimates, when a lot of these floods happen, people can't get to school, people can't get to work. That will have massive repercussions in the future of individuals getting to work and logistics ultimately sort of breaking down.

So that's that on one side. On the other side, you know, the country's about 110 million people over the next 20 to 25 years, there are some estimates that's going to grow to about 150 million people. And so a huge amount of new infrastructure and new builds have to really come online to accommodate all of this. I mean, by some estimates, six to seven million new homes over the next 15 to 20 years. I think what's so exciting about the Philippines is there is a huge amount that needs to be done but we have learned so much in other countries and as some of these technologies become more mature, that we can now bring into and think through how best to sort of build a lot of this. And so yeah, in our current role we think about this a lot.

As we think about how we develop, or help to sort of develop new districts and new communities, how do we build to ensure that they are as resilient as possible, that within these communities life can still go on, either when it's extremely hot out, or when it's raining a lot? How do we ensure that we are also making the most of the current infrastructure that's there? A big, big part of what we're doing is there has been a considerable amount of infrastructure that's already been built out. How do we make sure that we don't have to just completely reset and spend years and years and a lot of investment to build out new infrastructure? How do we make the most of the current infrastructure that's there? And you know, one of the big focusses for us has been making the most of some of the road infrastructure that's already there because our public transport penetration is actually very low.

MC
And traffic is terrible.

JU
And traffic is extremely bad. And so I think in our minds, in the past at least, we tend to sort of think about, well, the fix is ultimately widening roads or sort of new roads. A lot of urban planners will tell you that that could be a solution but ultimately, the best solution is to figure out how to use that existing infrastructure better. And so that means utilising more buses, we're exploring BRT systems, which have been very, very successful.

MC
BRT?

JU
Sorry, Bus Rapid Transit System.

MC
Right, interesting.

JU
They've had a lot of success in some South American countries, ultimately utilising the infrastructure that you have to ultimately get a lot more people sort of through it. And so that's what we spend a lot of time ultimately thinking about.

MC
And are you looking at electrification of buses, alternative fuels for buses?

JU
I mean, you know, it's the starting point now. I mean, you know, we are exploring a BRT, a bus rapid transit project actually within Makati, which is one of the central business districts of the Philippines. And, you know, the starting point is an EV BRT system. The ICE or internal combustion engine sort of equivalents are really very, very far down the list when we sort of think through the options. And even in our own sort of neighbourhood, Indonesia has had a lot of success really building out some of these BRT systems. And we were able to visit the operator Transjakarta, they mentioned that when they started this system, they were all diesel buses. They started to introduce some EV vehicles for some of the operators, and they had to create certain incentives to ensure that the operators were really going to start using them. It has had so much success that now they've completely had to remove a lot of those incentives because the operators are switching over so fast that they need to kind of calm sort of expectations, ultimately because it's cheaper and sort of easier to sort of manage. And so again, the benefit is that the technology is there. It's mature. And so that's what we spend a lot of time thinking through..

MC
Yeah, fantastic. And construction is one of the most emissive sectors, cement, steel, how are you approaching that? Do you have some examples of some initiatives, for example, in green steel that have worked? Are the economics there?

JU
So, as we, again, went through this net zero exercise, it really made us really think through all the different components of the business, especially in the construction industry. And we are a large residential developer as well and so we build a large number of homes and offices every year. And so really thinking through what are the main sources of emissions and a huge part of that was steel and sort of cement. And actually fascinating conversations that sort of then are triggered by that. So when we started to think through who a lot of the sort of steel manufacturers are in the country, we actually only have one electric arc furnace in the whole country. Which again is a much cleaner way of producing steel, you're ultimately recycling a lot of this sort of a lot more. And so we started having a lot more in-depth conversations with them. They're a company called SteelAsia that have ultimately had a lot of success in sort of building out the steel sector in the country. And we found out that actually the electric arc furnace that they happen to operate was almost 100% powered by geothermal energy.

MC
Oh?

JU
And which was absolutely incredible. And so SteelAsia, with the partnership with Ayala Land, then got sort of a DNV to help accredit some of the steel that they are manufacturing. It turns out it's some of the greenest steel on the planet because not only are they using electric arc furnace, but it's almost 100% powered by geothermal. So a really, really phenomenal kind of find for us. And so we now work with them to provide a lot of the steel scraps and ultimately secure close to 20% of all of our steel as some of this green steel. And an interesting discussion, and it leads to other really fascinating conversations because they have a very interesting model that's kind of working here. They would love to sort of expand that sort of model.

MC
And their steel, is it cost parity?

JU
Yes. So I think, again, we really want to be doing this in value accretive ways. And so because they were able to secure this very, very long-term sort of energy contract, it really is at sort of parity and so we would love to find more examples like that. It becomes a little tougher as we start to look through the value chain but I think that the example gives us confidence that it's possible. We just need to find the best ways of ultimately bringing that all together.

MC
And actually, I think that the next question that I wanted to ask was really around what kind of innovation is needed. If we're really thinking about more and more people moving to urban centres, congestion, the challenges of moving around big cities in Southeast Asia, what sort of innovation is needed? Does innovation look different here compared to other parts of the world?

JU
You know, you'll be a much better expert on a lot of this stuff than I am. You guys are ultimately the forefront of a lot of this really, really exciting work. I think as a group, what we pride ourselves in is we want to be very open minded to ultimately learn as much as possible, either from sort of partners or even startups. And so I think we need to create an ecosystem that allows for that to ultimately sort of come in. And there's some really exciting stuff happening. We have a really fascinating company in the Philippines called Hive Modular that's now exploring modular construction, how do we start really fixing some of the issues with construction in the Philippines by making it ultimately more modular? One of the large construction companies in the country, a company called Megawide, also exploring this, especially for high rise developments. So many fixes that can happen here.

You're going to have less people spending less time on site. And again, construction sites are becoming very difficult places to operate in because of the heat, because of the rain. How could you now bring this into a controlled environment and ultimately then put everything together in Lego sort of pieces, have a lot more control over how the quality also increases. We see that really help from an energy efficiency standpoint, as the quality increases in some of this construction, you're going to have less leaks, less gaps, you tend to be a lot more energy efficient when being able to sort of do that. And so two really, really interesting companies that are doing that.

MC
I think it's a great point, because I think you mentioned it was six to seven million homes, new homes needed.

JU
Yeah.

MC
So our region is in a very different position to other parts of the world, which is that that demand is really there, right? The demand for new homes and demand for new buildings, which then creates opportunities where we're not, we're not layering on energy efficiency. But there's an opportunity to design green from day one, and if you can do it with the right unit economics, if it makes sense from a commercial perspective.

JU
And I think building materials and another huge kind of area that I think is going to be very interesting to explore. We have a number of developers who are starting to explore this increasingly. You know, bamboo grows extremely easily in the Philippines and we have a large developer called Arthaland that's increasingly exploring how they can be using bamboo in their construction cycle. Regulation will also have to evolve and sort of keep up. There are a lot of restrictions in the building code at the moment to using things like bamboo, but as we know, treated wood and sort of wood has now been used as a building material.

MC
Is it Cebu airport?

JU
Yeah, a huge amount of it was used. And so the possibilities are there, we need to just evolve with how this is also coming along to really sort of jump into this and sort of use a lot of it as best as we can.

MC
Yeah, fantastic. Well, I've got a couple of closing questions to kind of just wrap it up. What is the one or maybe two things that you really want listeners to take away about the green transition in the Philippines?

JU
Yeah, I think the Philippines is going to be a really phenomenal case study for what a green transition could ultimately look like, just because of the amount of things that need to be built over the next few years. And so I think the Philippines becomes a really fantastic environment to really test a lot of these concepts out. Again, it's an English speaking country, one of the areas that I think the Philippines is a very interesting stepping stone for the rest of Southeast Asia, because a lot of these startups are new companies that might have been developed in Western or English speaking countries, the Philippines becomes a very interesting environment to test a lot of these concepts out before then potentially moving into the rest of Southeast Asia, which, as we know, is a huge economy.

MC
So innovators come to the Philippines.

JU
Well, we would love to see more. We would love to see more ultimately sort of coming into the Philippines. And so I think a huge amount needs to happen in the Philippines and so please do come.

MC
Where are some of the tailwinds for innovation right now?

JU
So I think the energy sector in general is really ripe for a lot of innovation. I think the pieces are all absolutely there in order for new entrants to really come in and think through how best to take all these different pieces and ultimately provide solutions to a very, very large segment. I think as the market has continued to liberalise, there is now increasingly open access where retail energy suppliers can now actually directly go to the home. In the past, distribution utilities basically had a monopoly over supplying the household. Increasingly, there are opportunities for new RES suppliers to actually go directly to the household. There are still some barriers there…

MC
Yeah, licencing.

JU
You also have to sort of aggregate a certain number of homes so there are definitely barriers there. But there is no other country in Southeast Asia except for Singapore where this is possible. And again, figuring out what works in a Southeast Asian context, the potential is really very, very, very big as you start to think through other markets than liberalising. And the Philippines is a very, very interesting inflexion point where it's not completely open access, but we're getting very, very close to that. And so I think that there's a huge amount of interesting opportunities there. In addition to that, energy efficiency I think is very top of mind for people. And so that's I think another very, very interesting area.

MC
Because energy prices are so high, Filipino households really feel the difference between a 10 or 20 percent efficiency on their monthly bills.

JU
And it's very top of mind for them today. And so I think as more and more of these solutions start to sort of enter the market, I think that's really interesting. A little bit of a kind of a curveball or outside of the energy space, I think there are a huge amount of opportunities in waste and it's a massive, massive problem that we have in the Philippines. Usually a problem that's at what we call the LGU or local government unit level, increasingly, a lot of these LGUs are looking for newer solutions to deal with a lot of the waste that's been generated. We are one of the main plastic polluters into our oceans. Again, 7,000 islands, a lot of rain that sort of comes in, if a lot of this waste is not properly stored and sort of taken care of, a lot of this ultimately flows into the oceans. And so I think increasingly people are very open minded to some of these kinds of solutions. And so I think that that's a very, very interesting new area that we haven't traditionally seen a lot of investment in but I think could be really ripe for disruption.

MC
What do you need to go faster? You mentioned the 33 gigawatts today, the fact that that's going to triple, quadruple, what would get the Philippines to lower emissions or net zero faster?

JU
Yeah, I think a lot of this will really come from how the technology evolves. The one I think really, really key technology that we're following very, very closely are battery prices. We're really at a point where as battery prices continue to come down, I mean, all bets are off as far as how we think about development moving forward. I mean, just thinking about the success that rooftop solar has had as you start to now incorporate batteries into all of these homes as well, how we develop energy or power grids will really, really, really have to sort of evolve.

MC
It's a new type of decentralised energy infrastructure, right? So much promise there.

JU
And as you start to also incorporate some of the EV batteries that are also now coming into the market, I mean we're going to have to drastically rethink what that looks like. I think construction materials as well, thinking through how to make a lot of these developments and construction projects ultimately more resilient by leaning into some of these new technologies, I think are going to be very, very interesting. And so, again, I think it's maybe an extension of the first question, which is, I think the Philippines needs to be a place where a lot of these ideas and concepts are ultimately tested so that we can really grow and learn a lot faster.

MC
In our conversation before we started recording, we were talking about where Filipino growth could actually go.

JU
Yeah.

MC
And so I think at the moment it's about 3-4%?

JU
Yeah. You know, GDP I think, has gone through a number of different issues over the last few years. Obviously the Iran war crisis is a big overhang at the moment. Interestingly, there's been some really positive impacts to the country because of the fact that we are so reliant on imports for a lot of our energy that it's really led to the huge boom that we're seeing in solar rooftop installations and the EV cycles. Obviously very, very detrimental sort of impacts. But there have been some interesting other catalysts that it's ultimately driven for. But as we get through, hopefully some of these headwinds, you would think that that 5-6% GDP growth rate is achievable.

I think what's very exciting to us is because of that incredible population growth, you would think that that GDP sort of level is achievable, but as all of these pieces really start to sort of come together, could we be potentially even achieving sort of higher than that? And there needs to be government support and government sort of policy to really help support that. But the Philippines has a really interesting track record of being able to unlock that. We've seen that in the energy sector. Could that now be potentially replicated in other sectors as well to really bring this all together? And so I think that's an exciting piece on the horizon for us, at least.

MC
Very much so. And so we'll end with our usual closing question: are you optimistic or pessimistic?

JU
So I think as a person, I'm very, very optimistic. I think having spent the last few years working through a lot of these challenges, I think there's a certain amount of realism that also sort of comes in, especially operating in a region like Southeast Asia. Clearly being here, and you will know this better than most, there is a lot of reason to be optimistic. And so that's ultimately I think why all of us go to work every day. But I think that the reality checks of also operating in these environments, you also have to weigh that out a little bit. But definitely, definitely optimistic.

MC
Thank you very much, Jaime. Thank you for joining us.

JU
Thank you very much for the invite. Really appreciate that, I super enjoyed that.

MC
That was Jaime Urquijo, Group Head of Urban Estates at Ayala Land. Thank you, Jaime, for joining us on this episode of Cleaning Up. As always, we'll put in the show notes links to the resources that Jaime and I mentioned during the conversation. So now it's time for the thank you’s, thank you to Oscar Boyd, our producer, Jamie Oliver, our video editor, Kendall Smith, the head of operations, and the whole team at Cleaning Up who work behind the scenes on this episode. I'd like to thank our Leadership Circle, without whom none of this would be possible, and of course, you, the audience, for listening to us today. Please join us again next week at the same time for another episode of Cleaning Up.

ML
Cleaning Up is proud to be supported by its Leadership Circle. The members are Actis, Alcazar Energy, Arup, Climate Imperative Foundation, Copenhagen Infrastructure Partners, Cygnum Capital, Davidson Kempner, EcoPragma Capital, EDP, Eurelectric, KKR, Mitsubishi Heavy Industries, National Grid, Octopus Energy, Quadrature Climate Foundation, Schneider Electric, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live. If you're enjoying this episode, please hit like, leave a comment, and also recommend it to friends, family, colleagues, and absolutely everyone. To browse our archive of around 250 past episodes and to subscribe to our free newsletter, visit cleaningup.live.