Q2 2020 AES Corp Earnings Call
Welcome to the E Corporation's second quarter 2020 Financial review conference call, all participants will be in listen only mode.
So because they know what conference specialist by pressing the star key followed by zero.
After todays presentation they'll be an opportunity to ask questions. Please note that this event is being recorded.
I'd now like turn the conference over to amid a shop for sure and Vice President of Investor Relations go ahead.
Thank you operator, good morning, everyone and welcome to our second quarter 2020 upon in children fuel costs, our press release presentation and electric financial information all available when all upside that he start cool.
Today, we will be making forward looking statements during the call.
Many factors that may cause future desserts to differ materially from these statements, which are discussed in our most recent 10-K and 10-Q quite a bit D C.
He conciliations between GAAP and non-GAAP financial measures can be phone plenty of upside along with the presentation.
Joining me this morning, I'll, just go ski our president and Chief Executive Officer.
Tell them into our Chief financial Officer, and other senior members of our management team with that I will turn the call over 200 Andreas.
Good morning, everyone and thank you for joining our second quarter financial review cool.
Today I'll spend some time on three near term priorities.
Leaving our Twentytwenty guidance.
Attaining a second investment grade rating.
And Decarbonizing our portfolio.
We believe that progress in these three key areas will allow us to reach a larger investor base in the near term.
They will also advance our longer term strategic and financial objectives.
After discussing these three themes.
Provide an update on a sustainable growth initiatives and our effort to create a technological competitive edge.
Last quarter I indicated that we were well positioned to extend the impacts of the cobot 19 pandemic.
Due to the resilience of our business model.
I'm pleased to report that our second quarter results demonstrate this resilient.
And keep us on track to achieve our full year guidance.
We delivered adjusted EPS of 25 cents in the second quarter inline with last year.
This reflects the strength of our business model, which is based on long term take or pay contracts with credit worthy customers.
As a result, we're very confident we will achieve our twentytwenty adjusted EPS guidance.
I have $1.32 to $1.42.
And our expected parent free cash flow of 725 to 775 million.
At the same time, we've continued to grow our free cash flow.
We ended the second quarter with a parent free cash flow to debt ratio of 24%.
Which is comfortably above the 20% threshold required for investment grade ratings.
As a reminder, we've already received one investment grade rating from Fitch.
And remain optimistic that we will attain our second investment grade rating later this year.
Turning to our aggressive decarbonization goals on slide four.
As we've said before we're very focused on reducing our generation from coal.
Less than 30% of total generation to comply with Norges Bank environmental investment criteria.
On this front, we've made great progress over the past two months.
Signing binding agreements to sell OPGC in India anytime in the Dominican Republic.
These sales will reduce our generation from coal by 11 percentage points to 34%.
We're working on a couple of additional transactions that combined with our growth in renewables.
Well allow us to easily comply with Norges bank criteria by next year.
To further our reduction in coal exposure.
Yes, there is negotiating with several off takers in Chile to de link P.A. from physical assets.
And be able to monetize the value of long term tolling agreements.
These transactions will demonstrate that the real value of the business is then its contract and customers, while providing funding for isn't there successful green blend and extend renewables growth strategy.
Turning to slide five and sustainable growth.
I'm happy to announce that since our last call. We had been awarded or side 852 megawatts of new renewable PPH.
This brings our year to date total to 1.5 gigawatt, including 346 megawatts of energy storage.
As a result, our backlog of new renewable projects increased to 6.2 Gigawatts.
About half of this backlog isn't the U.S. and.
And the majority is expected to come online between 2021 2024.
Therefore, we remain on track to continue to add two to three gigawatts of new renewables per year by capitalizing on our business platforms and our growing technological expertise.
In addition to our 6.2 gigawatt backlog, we have a pipeline of 15 gigawatts of renewable projects under active development in the U.S.
This considerable pipeline positions us very well for an acceleration in U.S. renewables growth.
Federal policies change.
Following the November elections.
Turning to slide seven.
We're also consolidating our position in existing renewable platforms to that end, we recently acquired additional shares A.S.J.
Increasing our ownership from 24 person to 43%.
We will find that this acquisition, mostly through nonrecourse debt in Brazil.
It is accretive from day one.
We plan to upgrade and yes, it there's listing to noble medical on the baseball.
Where companies trade at significant premium due to best in class governance.
This move is expected to further unlock the value of yesterday for the benefit all of its shareholders.
We continue to actively pursue new technologies to support our growth in renewable and innovative products.
That meet the changing needs of our customers.
As you can see on slide eight.
What our joint venture with Siemens itself energy storage technology to third parties continues to be the global market leader in this sector.
This leadership is based on our track record of deploying more than two gigawatts of energy storage.
Lessons in 22 countries and offering more than 40 digital applications to our customers.
This year for Linzess revenue is expected to reach $500 billion.
An increase of 400% in relation to last year.
We believe the energy storage will play a major role in the global transition to a low carbon economy.
As a result, we expect influences revenue to grow at 40% compounded annually.
To reach $3 billion by the end of 2025.
Turning to slide nine.
We are already experiencing this acceleration of growth in demand for energy storage.
In June fluent lost its sixth generation product, which includes a modular and factory assembled Q design that is safer more reliable and lower cost.
Fourth is nuke already has order for more than 800 megawatt to be delivered over the next three years.
As you May know fluids is currently running a private placement for minority partner in order to capitalize this high growth business.
We are encouraged by the strong interest we're seeing from potential investors and we expect to have concrete details to share with you before the end of the year.
Together, yes influence continue to pioneer new applications for lithium ion battery energy storage technology.
One example is a virtual reservoir for one of the rubber hydro projects.
Utilizing energy storage charges will power prices are low and discharges during peak hours.
As shown on slide 10 at the quarter, yet hydro complex in Chile.
We just commission the world's first such a virtual reservoir with 10 megawatts or 50 megawatt hours of energy storage.
We can further expand this facility to 250 megawatts 1250 megawatt hours over the next couple of years.
Today about half of all our renewable projects have an energy storage component.
Now moving on to slide 11.
We continue to pursue new technologies that have the potential to provide us with a competitive advantage in our markets.
To that end, we recently acquired a 25% stake in five be a prefabricated solar solution company in Australia.
Five be patented technology solar projects can be built in a third of the time.
And it has the space.
We believe that being able to double solar energy output from a given area will become increasingly important that solar penetration increases, especially near urban or congested areas.
In addition to find these potential pipeline of more than 10 Gigawatts of third party projects in Australia, we see an additional addressable market of five gigawatts across our development pipeline.
As part of this strategic agreement.
We have exclusive rights to develop utility scale projects using five based technology in our key markets.
Including the U.S.
We have already started the deployment of two megawatts in Panama and 10 megawatts in Chile, we.
We aim to be the most competitive solar developer by using five b to reduce time to build and increase energy density well, combining it with a robotic and digital solar initiative.
Turning to slide 12 in 2018, yes invested in applied to improve our customer experiences.
But digital cloud based technology.
In addition applied provides cloud based services third parties to improve energy efficiency and balance system to that this fast growing business already reaches more than 100 million households, and businesses in the U.S. and expects a 20% increase in annual revenue in Twentytwenty.
Finally regarding our partnership with Google It is progressing well and you as you might have seen we recently launched the RFP for one gigawatt of carbon free energy in PJM.
We're working on several other significant initiatives with Google and we will share additional details at least from up.
In summary, our ongoing leading technology efforts aimed to give us a competitive edge to deliver the products and services required by our customers in the rapidly evolving and growing market.
No I would like to turn over the call to stop him into our CFO. So he can provide more color on our results that profile guidance.
Thank God dress today over three key topics a resilient business model.
Performance during the second quarter and our capital allocation plan.
Let me start without resilient business model on slide 14.
As you can see 85% of our earnings are from utilities and long term contracted generation with an average contract life of 14 years.
This provides significant the stability awareness and cash flow.
We have also reduced our exposure to volatility for encouraged.
By growing the portion of our U.S. dollar earnings.
As you can see on slide 15 today, 85% of our earnings are in U.S. dollar as compared to approximately 60% a few years ago for context through 2022, a 10% appreciation of the U.S. dollar would reduce our annualized EPS by only 1.5%.
Our two cents.
Looking at Latin America, specifically, almost all of our business in that region. Our contracted as you can see on slide 16, nearly 60% of this businesses have no volumetric risk as a result of the take or pay nature of the contracts. The remaining capacity is mostly contracted with large industrials and.
Sport oriented mining companies that's continued to operate despite covert 19 as they are deemed essential.
We intentionally work with high quality off takers and there's a strategy is also contributing to the resilience of our business model. For example, as you can see on slide 17, roughly two thirds of our customers in Latin America heavy investment grade profiles.
The remaining customers are largely backed by government on institutions.
The result of this resilient contracting structure and customer base can be seen in our collections performance on slide 18, with Q2 receivables and they sales outstanding remaining very much in line with historical levels.
Moving onto the impact of global locked down on our financial results on slide 19.
As you May recall, we had anticipated and extended U shaped recovery in energy demand across all markets.
These are some the second quarter wouldn't be the hardest hate without the men drop of about 10% to 12% at our U.S. utility businesses and between seven and 15% internationally.
The actual result was not as severe as anticipated with volume at our you asked you to let it drop mid single digits and demand in other markets is declining in the range of low single digits too low double digits.
As I have noted our generation business did not experience any mature impact on earnings from lower demand.
Our utility business, where most of our volume export her is experienced any back of about two cents and I've. Just said if you ask for the quarter better than our initial expectation of three to four cents.
Despite these encouraging results we continue to assume an extended U shaped recovery for guidance purposes, given the overall uncertainty around the macro environment.
Now turning to our quarterly results on his lightweighting.
I'd, just say Dps was 25 cents for the quarter versus 26 cents last year.
This reflects the lower demand at our regulated utilities I, just discussed and the regulatory change there were implemented at the payout and Argentina into any 19.
We're able to offset this had the ways through higher contributions for an hour South America, and Eurasia, S. views as well as our cost savings and the leveraging initiatives.
Turning to slide 21, I just had pretax contribution our PTC was relatively flat at $238 million for the quarter.
With that degrees of only $2 million versus the second quarter of two any 19.
Oh over our results in more detail over the next four is light beginning on slide 22.
In the U.S. entity lettuce, SBQ, nor PTC reflects the lower regulated tariffs implemented in Q4, two any 19 due to the reversion to yes, you want rates at DPL as well as lower demand at utilities due to the impact of course with 19.
Additionally, at South we had lower capacity revenues as a result of the retirement of some of our legacy units into any 90.
And our South America SB, you hire PTC was primarily driven by higher contributions from the U.S. and air including better operating performance at our Guacolda plant and recovery of previously expensed payments from customers in Chile.
Hi, PTC at our M.C.C.S. view reflects improved availability at our chunky not a hydro planting Panama.
Following an extended major outage last year.
We also benefited from improved hydrology in Panama following a very dry at year end to end the 19.
This was partially offset by outage related insurance proceeds into the medical Republic last year.
Finally in Eurasia, Hi results reflect improved operational performance in Vietnam, and the impact of the sale of our laws, making business in the United Kingdom.
Now to slide 26, just summarize our performance in the first half of the year. We earned adjusted EPS of 54 cents versus 53 cents last year, we are reaffirming our two any to any I'd, just say dps guidance range of $1.30 to try to 42.
Relative to the first half of two any to any performance into second half of the year will benefit from contributions for new businesses, including the 1.3 gigawatt Southland Repowering projects for which the 20 year contract again, the second quarter and about one gigawatt of renewables coming online.
Now turning to our credit profile on his lights went to seven.
As we discussed on our fourth quarter call since 2011, we reduced our parent that by approximately $3 billion or about 50%.
At the end of the second quarter, our parent leverage was 3.5 times and our parent free cash flow should that ratio was 24% comfortably within the investment grade thresholds of four times and 20% respectively.
These highlights wants more alright credits breath and give us confidence in obtaining our second investment grade rating later this year.
Moving onto liquidity on slide 28.
We have $3.5 billion in available liquidity, two thirds of reaching cash.
As you may recall for an hour prior call we have taken a conservative approach to enhance our liquidity at the beginning of the Corbett 19 outbreak by drawing on about $500 million of our revolvers.
As a result of the strong collection, we experienced in the quarter, we decided to pay back most of this facilities lowering the overall interest expense for businesses.
Next I'd like to provide an update on our refinancing on this slide 29.
As you know we have been proactively is strengthening our that maturity profile.
Since last year, we executed more than $7 billion in liability management across our portfolio.
The second quarter alone by taking advantage of a low interest rate environment, we refine its more than $2 billion of that.
Significantly, reducing our interest costs, while eliminating any mature refinancing needs at both a S Corp, and the appeal for the next five years.
Now to 22 any parents capital location on July 30.
We expected to $1.4 billion discretionary cash this year, which is largely consistent with our previous disclosure regarding asset sales would have already announced agreement to sell two gigawatts of cogeneration, achieving roughly half of our target for 22 any.
We are working on a few other transactions and feel good about the prospect of achieving our targeted asset sales of $550 million for this year.
Moving to use this on the right hand side.
Including the 5% dividend increase we announced in December we expect that you returned $381 million to shareholders. This year.
We plan to invest $700 million in our subsidiaries, 90% of Leach isn't the U.S.
Demonstrating our proactive actions should grow the portion of earnings come from the U.S. troubled half my 2022.
These investments include funding I renewables backlog the equity for the Southland Repowering and the investment in rate base growth at our utilities.
Regarding they ask an air as Andres mentioned, we're in negotiations to delete the BPAC from the coal assets and monetize the value of some of its tolling agreements as a result, we now expect the capital increase in our contribution of equity to happening 2021.
There's leave us with up to $370 million to be allocated into any trading.
Next moving to our capital allocation French many to any sort of 2022 beginning on July 31.
We continue to expect our portfolio to generate $3.4 billion in discretionary cash.
Three quarters of this is expected to be generated from parent free cash flow with the remaining $900 million come if an asset sale proceeds.
Turning to the use of discretionary cash on slide 30 June.
Roughly one third will be allocated to shareholder dividends.
Subject trying to review by the Board, we continue to expect to increase the dividend by 4% to 6% barrier in line with the industry average.
We also expect that you used $1.9 billion to invest in our backlog new projected BPAC CND investments at IPO. The partial funding of our Vietnam LNG project and the investment in A.S. hand, there. There was $1.9 billion also included a $300 million infrastructure investment in the piano.
Once completed this project will contribute to our growth through 2022 and beyond.
In summary, we're very encouraged by our solid financial performance to date, despite being in the middle of an unprecedented global crisis, our performance and position validate the actions we have taken over the last several years to materially improved the quality and resilience of our business model and we remain very confident in our ability to continue delivering.
When I was strategic and financial objectives with that I'll turn the call back over to address.
Thank you just though.
Well, we take your question, let me close todays call by saying that we remain very confident.
In achieving our guidance for 2020 and growth rates through 2022.
Attaining a second investment grade rating before year end.
And realizing our de carbonization goals to meet Norges bank threshold by the end of the year.
At the same time, we continue to make progress on deploying innovative technologies that we believe will give us a competitive edge in today's rapidly evolving and growing market.
With that I would like to open up the call to your questions.
We will now begin the question and answer session. So ask a question you make press Star then one on your Touchtone phone.
Yes, you are using a speakerphone. Please pick up your handset before passing the key to withdraw your question. Please press Star then to leave no Kim Please UN mute your web cast before asking a question.
This time, we will pause momentarily to assemble our roster.
Oh first question is some Julien Dumoulin Smith from Bank of America.
Well I have thank you.
Good morning, everyone. Thanks, so much of the time appreciate it.
And congratulations on continued execution here, perhaps just going back to the 20 guidance and I know you guys. Just commented here in your prepared remarks about a little bit of your positioning, but I'd like to dig a little bit further into that so you're saying that you're a few pennies ahead relative to initial expectations for the utility after.
Last quarter's update you are saying your power outlook is not appreciably impacted from lower demand just.
Helps frame where are you are within that 20 guidance range as a consequence that these updated assumptions and then thirdly I Didnt you comment specifically on how the asset sales indoor extracted asset sales impact and the potential dilution from those impacts where you are within that range.
That makes sense yeah, Okay, let's put this in the two I'll take the first half and gustava can take the second half.
Look we feel confident we're going to hit our numbers, we feel very good we have a lot of good things happening.
You know, we're still I think all of us and uncharted territory. You know this has to play out for the second half of the year.
I think our business model has demonstrated its resilience.
I think very importantly, you know both earnings and cash.
Counts receivable or you know very much in line for where they were last year.
So you know we feel good about it we have a lot of positive things, but you know there is some uncertainty. So we what we're saying as you know we feel very confident we'll hit these numbers.
And the model is resilient, a and let's see what plays out in the second half of the year.
With that I'll pass it over to start with talk a little bit about asset sales. So do then yes. Those two asset sales that were already incorporated in our long term forecast. So there associated dilution is already in the seven to nine so going back to our forecast.
[noise], nor nor the impact if any perspective further so well that's around the addition of less true to reach the $500 million are also and this plan the 79% growth.
In other words, there assumed in our forecast.
And if I can ask your just a step further here I mean, you you guys made or a further commitment in Brazil. In recent weeks can you talk to your thought process about realizing the full value there I mean I suppose it's a unique situation in backdrop, where you all are I suppose your your pure shareholder.
It is receiving a premium bid.
And you all are stepping into the basically say.
We see greater value. So can you evaluate can you elaborate on and where you see that value coming and maybe further next steps in realizing that.
Sure look we have I think a very good track record in Brazil of creating value in our separate companies. You know if you think of the sale of school they'll have electro Pablo you think of the sale of our telecom a chipmos. So what we're doing here is we be NDS wanted to sell a part of its a share.
So by buying BFDS his shares we go from 24% ownership to around 43% ownership.
This will allow us to list asked today on the nobleman callable.
And the no better Carlo generally companies trade at a 10, 20% premium versus where they trade on ordinary listings see in Brazil. You have you know preferred shares directly don't have a vote and receive a 10% dividends.
Then you have normal ordinary.
Which have votes, so our shares and Vfds this year as our ordinary shares. So what we see here is an upgrade of the company a in terms of its market listing in terms of who can invest in the company.
And were able to go to noble medical it because now we own a much larger.
What percentage of the company. So it's one share one vote.
We still control this company Oh, let's say Furthermore, you might have seen you know there though.
Sure. They actually is a good platform wrote.
It has oh, almost 40 gigawatts of 100% renewable energy.
And we've been able to do some very innovative things there. So in terms of our big strategy. It makes sense as well. So it makes sense for me money point of view, because we're buying it accretive.
We are.
Its accretive at these prices second I would say that up you know, it's it's a platform for growth and fits into our overall strategy.
Reducing our carbon intensity the carbon intensity of our footprint.
Sorry last quick clarification.
What's the contribution for renewables in aggregate in 2020 and beyond just getting his question consist of course.
Look right now, including again renewables for hydro, it's about a third of our fleet.
Greetings Trps.
Earnings a wait and see yeah, I think it's pretty much in line.
All right I won't pressed for thank you very much.
Sure.
Our next question is from Angie Storozynski some seaport Global go ahead.
[laughter] Oh Andy.
Angie.
Angie.
[noise]. Our next question is from Stephen Byrd from Morgan Stanley Go ahead.
Hey, good morning, Oh people are doing well.
Hey, Steve.
[noise] great update on a lot of fronts just on the the storage side of things obviously does the size of this business and the growth is is impressive could you just speak maybe generally too.
The capital needs for this business strategically how you think about the gross to this business within a S and just in its just an unusual business given the incredibly rapid growth rate and just curious sort of strategically how are you thinking about this business.
Well, let you know we started 12 years ago.
So we have a long history of energy storage.
And we really been an innovator in applications.
So you know we've decided to sell it to third parties, you know vital fluids and we're very happy with the partnership with Siemens because it allows us to sell it.
In 160 countries. So what we're seeing is it is a very rapidly growing market. So fluids itself. We see you know lot of new applications, you know not only the virtual reservoir, but I can see a grid booster, which really reduces significant long distance transmission.
<unk> expenses or investments so that that I think is the next front. So I think you know this is an area that is going to grow very quickly. So how does it fit and then yes. We'll first then of course, we're happy with the investments. We've made a influence I think time will show that that was a very good investment, but it's also good for us in the sense, where one of the.
Big customers influence so today half of our product offerings have an energy storage components. So we have standalone storage, but we also have an integrated into you know solar as you know our.
Award winning project out why but we also have it in corporate for example, wind so when we talk about green blend and extend and meeting customers future needs. You know if customers want at 24 seven for example, renewable energy storage plays a big on it.
No I I'm, a believer in lithium ion batteries for a or batteries lets say electrical batteries because it doesn't have to be lithium I am.
For the you know.
Next to you know five to 10 years for many of the applications and the reason is that it's very as the batteries become more efficient become cheaper you're basically going from electric <unk> you know in some cases like chemical back to electric and eat the losses or very low.
You know there's been a lot of talk about hydrogen for example, hydrogen has advantages that has much greater energy density. So we see much many more applications and transportation, where the weight of batteries you know a precludes a long distance a big trucks using a battery. So I think this is a very interesting area.
But if you're talking about sort of you know combining renewables with storage or day to day applications.
We really think that a battery seem to be the killer App now we've put a total into water into hydrogen as well you know weve actually run some tests on old coal plants in the in Chile.
You know basically.
Cracking the hydrogen you know using renewable energy and around $35 a megawatt hour and it's still comes out quite expensive Oh, we do see it could be we've also run some tests on a diesel and it might be interesting for a microgrids. So you know we do have an electrolyzer in Chile, where we sit and watch.
Actually in Argentina, excuse me, where we actually produced hydrogen for our own needs at the Sun Nicolas plant.
So you know we have a foot into it we're looking into is but I. Just mentioned this because there's some people say well you know hydrogen will replace a battery based energy storage and the reason we don't see that is at least in the short term is because you're going from electric to produce a chemical.
Chemical reaction then you have to start Cryogenically then you have to transport. It then you basically have to burn it again. So if you look at the energy from the original electricity losses to electricity again, you know you're talking about at least half, whereas with the battery you're talking about a much smaller percentage now of course batteries don't worry.
Work for intra seasonal.
Difference itself you know, we're looking into it a as and we have some small experiments in some of our different a units.
And as I said the ones that look more promising really are diesel units.
And we're certainly a believer of green hydrogen for transportation.
That's a great description of the market potential of storage versus a versus hydro and thank you and.
I wanted to shift over maybe just to your corporate relationships, maybe we could just briefly touch on Google to make sure. We just talk through the this sort of the commercial relationship I guess, there's sort of an element of near term fees plus longer term margin potential. But then also just thinking more broadly and maybe more importantly, just about the potential for other.
As such corporate relationships, given yes, global footprint and ability to to help customers globally, though decarbonize way. If you could just talk to that opportunity broadly as well. Please yes. Thank you for that question. I mean, you know we are investing very heavily into the U.S. It will start with is about 90% of what we're investing but we do have does a wonderful.
Global footprint. So if a client has global needs. We can satisfy those so when you talk about the relationship with Google You know we are we do our supply them with renewable energy in Chile and.
And we did have the RFP, we have the RFP out for one gigawatt of up.
You know zero carbon energy in PJM.
We're also as I mentioned in my speech.
Looking at other possibilities with them you know I really can't comment that them a about them at this time.
But but it goes beyond just you know.
A single sort of you know RFP or a single P.A. in one country.
Because you know we're doing I think a lot of innovative things like they are.
And so we have commonality of interest in some areas.
But you know just like Google I mean of course, there other companies that are also interested in our global footprint and having a.
Lets say common you know hi tech approach to reducing carbon emissions.
Among multiple countries and we can certainly supply that.
That's great. Thank you so much.
Thank you.
Again, if you want to ask a question. Please press Star then one.
Our next question is from Charles Fishman from Morningstar go ahead.
Hi, kind of first ask a housekeeping question on slide 18, like I said, it's a little more housekeeping, but [noise].
Your receivable balances going lower now first of all I I assume that's apples to apples in other words, you adjusted that for rent for many businesses you've divested between Q4 in Q2.
That's correct charge, that's the stuff that's correct, okay, I assume that but just wanted to ask it now and then I guess more of a.
Big Picture question why is there any particular reason you see your receivable balance going actually lower which is you know certainly great considering the environment where.
Among your well, there's nobody really appear it you guys, but other utilities lets say, which I realize or different businesses.
Most of them help people balances going on the other direction anything that you're doing differently or.
I I, you probably have more contracted type generation I realize that but is there anything else going on yeah no.
I think you hit the nail on the head it's the you know.
[noise], 85% of our business is contracted generation.
And we have credit worthy off takers.
So you know there are situations for example, where.
Say a currency depreciates.
But the what they are exporting it's actually then more attractive because they have a portion of their cost whether it be mining or other such things that they are exporting.
So in general our clients are doing well.
A much better than the markets are then that then there in so I think that's very important but were 85% you know contract the generation and that's the big difference. So have you actually see why we.
Got it down initially a week correctly forecasted that we would have a drop in demand a with the quarantines.
At our utilities or distribution businesses. So so that's what's going on but.
Other than that you know our plants are critical so in those cases, where you know we're selling to the grid or selling too which is you know in many cases backed by the government. You know we are up make sure that we get paid because we're absolutely critical to the grid or the low cost generator in that market. So we're very well positioned in this.
Crisis so.
You know, we don't expect that to change or certainly in the in the generation business.
You know given the current outlook.
Okay, and then under some but can I ask you one strategic question with respect to Fluence why a minority partner at this point what does the thinking behind that.
Yeah. That's it that's a great question because this is a rapidly growing business.
And you know we think it has a great future.
And it's coming out with new products.
Part of it is that both of us Siemens and yes, we would like to have a marker.
From a transaction.
You know, we're not going to sell down a very large stake we're talking about a 10% stake. So we think it would be a sudden just good to have the capitalize it you maybe 10% with an outside partner.
And you know obviously work towards a a bigger sell down perhaps in two three years of an ideal but and then we'll have to reassess strategically how we feel about this business, but you know we feel very good about the business and ER as I said I think that this is a mark which is growing very rapidly now something that people haven't talked about I think.
So much as if you do have a change in federal policies in the U.S. to promote green.
Or carbon free.
Generation you know, we're very well position you know foods is very well position.
But specifically a yes, because you know we have a pipeline a 15 gigawatts of potential projects in the U.S. and you know those run the range from you know quite advance to medium as that you know if we looked at.
No just hypothetical projects is a much bigger number. So you know we feel good that we have a pipeline that we could execute on and you know potentially you know double our rate of growth of renewable build in the U.S. should there be such a change.
Okay and the partner, then very well could be financial rather than just somebody like yourself. That's also selling really a confluence product auto correct, Yeah, Oh, absolutely absolutely. Okay. A lot of people looking at I just financials were looking at a good investment a with an eye towards you know.
A potential I'd be able to the three years from now.
Got it okay. That's all I have thank you. Thank you Charles.
Our next question is sound and he's store on then then ski from Seaport Global.
Thank you sell sorry, I missed my my first [laughter] number of question. So.
On the ones I mean incredible results.
But on.
So you know the attempts to monetize the business, which I don't think that you're being paid and the common stock price <unk> Louis among others.
Any EPS contribution supposed to the ones in 2020, Oh, even in an end 2022.
No no I mean, this year IL <unk> it should be probably about one once said you know.
And the reason for that is even though it's like margin positive you know and we haven't been putting more money in essence had this very rapid growth.
It is because our India you have to expense.
So for example, the design work the production work over the next generation of the sixth generation well that is expense so.
Look we we we've talked probably you know I'd say around two years you know.
For the Turner ER positive in terms of S. and you know what basically happens is the fastest grows the more new products you have to come out with you you delay that turning positive. So it's a business that couldn't be positive today is that where the objective, but the objective is to create value. So we think a sell down as you say well give us a marker so people say well how much.
Is it worth well somebody just pace X for you know like we did have for example, with the gas business and the Dominican Republic people weren't getting as much value and we were able to show what what it was worth to third parties.
Mhm.
Good question.
A two part question what was it sounds like a rule of thumb, but I can say a like for example fell to 2021, Yeah. We'll have additional 2000 megawatts of renewables in operation and granted it's definitely going to be a scattered throughout the year, but you know can I say for instance at 100 megawatt.
X and and and if yes.
Well it will depend a little bit because.
Depends what Youre inaugurating.
Right and were.
So there's a difference between solar.
And when and there's a difference outside of the U.S.
Because of tax so its there's no rule of thumb for just like 100 megawatts I don't know who sell because Oh I don't what I'll do is we are putting on average 300 $350 million per year right. So that's how I want to equity in the project would bring partner. So one so he says so call it 12% return on average.
You're gonna come up with the EPS accretion that those deals are bringing to us.
Awesome Awesome and no a bigger picture question, so I've been actually looking at it so I see become investment grade I know, you're ready investment grade by such but I get those additional investment grade ratings would you ever consider or not.
Project finance, but.
Corporate level debt to fund the gross I understand that there's an issue a finite life at contracts for the renewables, but I think that there was this growing.
Section, even among investors that the they useful life of these assets is gonna be longer that didnt Dundee duration of the original contract and under project financing you are.
In a sense, a you know the though that debt amortization <unk>.
Most of that the cash flows on the project and so the the real equity accretion is only you know at the end of this contract. So in a sense. You know you could help gets how quite meaningfully from the castle perspective. If you were started to rely on corporate level.
But that yeah, let me sort of a answer philosophically then I'll pass it to so look philosophically, we like doing project level debt, because it's an acid test.
So since I've been CEO almost all of our major projects I think with the exception of Southland, we brought in a partner.
And the reason was that no bankers have first dibs.
On the cash flow so you have to convince somebody.
A third party that you're going to operate this and that they think it's a good project as well.
So given that you know philosophically, we like using project level debt.
And so I don't see that changing.
For the time you know there there are advantages of certain roll ups. You know, we can aggregate that the sub level you know and there has that for example sit there has that which would get some of those advantages but.
We think that the discipline of having to project finance is good and having to bring in partners is good.
So I think I think Andres you covered it well I made it brings more they stepped into the process. It also allows us to more times than that within that BP, a timeframe, which we like we don't want to count on post P.A.P. Richards you know to pay for that quite frankly, so it's just more discipline to think the projects are more sustainable when we validate.
10th it at the project level right with it that there and all the amortization or within within that BP flow.
Mhm Mhm and just one follow up if I can little ones. So we saw at the the results of the investigation by P.S. on the other what caused that Oh. The you know storage system accidents accident and you know they also felt.
On the song from LG Ats interest seems to suggest that they need to be some changes and and Andy configuration of those large systems going forward.
I haven't necessarily seen that the response on fluid but is there.
Any fundamental change and how you're saying, though so storage up mist storage design me could be adjusted and if there is any need to make adjustments you already existing operating systems.
Yeah, I think look that was a unit. It was inaugurated in 2017 were two generations away from that.
The issue because we see it was with a a series.
Of LG Chem batteries specific series that we're producing some factories.
So we've operated for 12 years. This is the first let's say series incident, we pad, but really the best standards are for example, UL 90 45 day.
And a if you look at the best in class standards. The sixth generation incorporates all these.
So if you look at for example, it doesn't require it's not contained so it's actually outside.
The modules are separated so you don't have contagion. It has enhanced fire suppression systems on it and in the worst case should there be any type of thermal event since it's not in close he and the any gases would rise so definitely Wifi.
Ill that you know weve.
Taking all the lessons learned from.
From this event.
We've you know incorporated into the new design, a and really safety was one of our number one.
Priority. So you know again, we have 12 years of operating these and we this is the one really event that we had no regarding those cases, which.
What that money I think in Canada on one hand that all those units that had that series of battery.
In the you know we immediately put out a.
Instructions of you know not to charge on like you know instructions you get on your Tesla car, you know not to charge them above 75% and we've taken corrective actions and we are given more information more training for like you know local fire units.
Et cetera, so yeah with as you know in safety is number one value Super important for US you know we have.
Then you know very serious in very diligent I think about looking into this and supporting our clients and supporting local fire departments on this but I feel very good that the sixth generation Q is you know the safest June it out there and incorporates all of the suggestions or that are out there technically.
Perfect. Thank you very much thank you Andrew.
Our next question is from Richard Sutherland's from JP Morgan.
Yeah.
Good morning, Thanks for taking my questions here.
Turning to Richard.
Just.
Starting off would be the opportunity around are you waiting to see a could you provide a little bit more color around that opportunity versus your current financing plan and you maybe the assumed asset sales as well as they are in future player offset potentially you know with this new consideration or is it more.
If another tool in the so back down the road.
Well, we've always said that you know and their had a lot of tools.
<unk> dress, it's financing needs because it's growing so fast it's been so successful on green blend and extend.
We you know really can't comment on some of these transactions until they close but there are several transactions, where you know were de linking the PPL, which in some cases, what specific to a given asset.
So like this power plant has this BP, a weird de linking them and allowing us greater flexibility in terms of.
How we satisfy that demand or.
Requirements of the customers. So I really can't give you too much color on it other than saying that you know it will help us it will help pentair a with its financing plan.
And so it's very likely that any capital contribution from US we'll be in 2021 set of Twentytwenty. This year, yeah, we tend to be very conservative. So we saw that you don't see there's been advancing a so prior to having these as advances there today, we had talked about A.S., putting in the money this year so that.
That I think is the main chain. So I'd say stay tuned and we can give you more color as these transactions.
Close.
[noise], Great. We'll look forward to that and then just a quick cleanup question B.
The inclusion this quarter I believe it was extreme recovery of expense payments from customers and she likes just with this in your plan specifically in your 2020 blandly costs included in guidance.
Yeah, I mean does this.
You know at they ask what level of me. This is about a couple of cents a in this quarter. When you normalize partnership adjustment and so one it was included a this is a.
Good guy, meaning cash and earnings from prior expenses a pass through costs that we have the with some particular clients.
And were able to firm up those receivables back.
But this is baked into the original guidance yes.
Okay. Thank you very much.
Thank you rich.
This concludes our question and ample Sasha.
I would now like to turn the call back to Ahmed Pasha for closing remarks.
Thank you thanks, everybody for joining us on today's call as always the IR team will be available to answer any follow up questions. You may have thanks, Thanks, again and have a mainstay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.