Q1 2021 AES Corp Earnings Call
Okay, Chief Treasurer, and Vice President of Investor Relations.
Thank you and what do you think you operator, good morning, and welcome to our first quarter of 2021 financial review call on press release presentation Timberlake financial information are available.
Website at <unk> Dot com.
Today, we will be making forward looking statements during the call.
Many factors that Nichols future results to differ materially from these statements, which are discussed in our most recent 10-K and 10-Q filed with the T V. Conciliations between GAAP and non-GAAP financial measures can also be found on our website along with the presentation joining.
Joining me this morning, <unk> on President and Chief Executive Officer.
I will come into our Chief financial officer any of their senior members up on management team a day.
Hi will turn the call over to on this on this.
Good morning, everyone and thank you for joining our first quarter financial review call.
Our first quarter results put us on track to achieve on 2021 guidance and 729% average annual growth through 2025.
Gustava will provide more color on our financial results later on the call.
As we spoke about on our Investor day in early March we see a great opportunity for growth give.
Given the momentum changes on our sector.
And we are very well positioned to capitalize on the ship to low carbon sources of energy over the past five years, we have transformed our company to be a leader renewables and we have invested in innovative technologies that will give us a competitive advantage for many years to come although it has been less than two months since our investor day.
We have a number of significant achievements to announce including a landmark deal with Google, which I will describe in more detail later.
Moving to slide eight our second key goal for this year is to launch the first 24, seven energy product that matches a customers alone with carbon free energy on an hourly basis to that end earlier. This week, we announced a landmark first of its kind agreement to supply Google's, Virginia based.
Data centers with 24, 7% carbon free energy source from a portfolio of 500 megawatts of renewables.
Under this innovative structure.
Yes will become the sole supplier of the data center's energy needs.
Ensuring that the energy supplied will meet carbon free targets when measured on an hourly basis for the next 10 years, the carbon free energy will come from an optimized portfolio of wind solar hydro and battery storage resources.
This agreement sets, a new standard and carbon free energy for commercial and industrial customers, who signed 23 Gigawatts of Ppas in 2020, as we discussed at our Investor day, the almost 300 companies that make up the R. E 100 will need more than 100 gigawatts of new renewables by <unk>.
<unk> thousand 30.
This transaction with Google demonstrates that a higher sustainability standard as possible.
And we expect a substantial portion of customers to pursue 24 seven carbon free objectives based on our leadership position. We are well placed to serve this growing market and in fact, we've already seen significant interest from a number of large clients.
Turning to slide nine our third key goal is to further unlock the value of our technology platforms.
One of these platforms as Uplight and energy efficiency software company that works directly with utility and has access to more than 100 million households, and businesses in the U S.
Uplight is at the forefront of the shift to low carbon and digital solutions on the cloud.
In March we announced a capital raise with a consortium led by Schneider electric valuing up line at $1 5 billion.
Now to slide 10, we're seeing increasing value in many of our other technology platforms as well.
Lastly, we continue to work towards the approval of the first large scale green hydrogen based ammonia plant in the western hemisphere in Chile.
Moving to slide 13.
We have undergone one of the most dramatic transformations in our sector.
Over the past five years, we have announced the retirement or sale of 10, seven gigawatts of coal.
Our 70% of our coal capacity one of the largest reductions in our sector.
We recognize that we have more work to do and has set a goal of reducing our generation from coal to less than 10% of total generation by 2025. Furthermore, we expect to achieve net zero emissions from electricity by 2040.
One of the most ambitious goals of any power company.
As we achieve these de carbonization targets and continuing our near term growth in renewables, we anticipate being included in additional ESG oriented indices.
Finally, turning to slide 14, we see natural gas as a transition fuel that can lower emissions and reduce overall energy costs as markets work towards a future with more renewable power.
Last month, we reached an agreement to provide terminal services for an additional 34 Tera Btu of LNG throughput under a 20 year take or pay contract.
This will bring our total contracted terminal capacity in Panama, and the Dominican Republic to almost 80%.
First quarter results and outlook for the year in the following slides.
Turning to slide 17, adjusted EPS for the quarter was 28 <unk> versus 29 cents last year.
With adjusted PTC, essentially flat there one cent decrease in adjusted EPS was the result of a slightly higher effective tax rate this quarter.
In the U S and utilities is strategic business unit or SBU PTC was down $27 million driven primarily by a lower contribution from our legacy units at Southland and higher spend in our clean energy business as we accelerate our development pipeline given the growing market.
It is.
These impacts were partially offset by the benefit from the commencement of Ppas at the Southland energy combined cycle gas turbines or <unk>.
At our South America, SBU PTC was down $31 million, mostly driven by lower contributions from a S. Endless formerly known as Aes hernia due to higher interest expense and lower equity earnings from the growth colder plant in Chile.
These impacts were partially offset by higher generation at the <unk> hydro plant in Colombia.
Lower PTC at our Mexico Central America, and the Caribbean, Our MCC SBU, primarily reflects outages at two facilities in Dominican Republic, and Mexico with both already back on line since April <unk>.
Results also reflect the expiration of the 72 megawatt barge people.
In Panama.
Finally in Eurasia higher PTC reflects improved operational performance and lower interest expense in our Bulgaria businesses.
Now to slide 22, with our first quarter results. We are on track to achieve our full year Joanna to anyone on adjusted EPS guidance range of $1 $54 58.
Our expected twenty-two anyone quarterly earnings profile is consistent with the average of the last five years.
Our typical quarterly earnings is more back end weighted with roughly 40% of the earnings occur in the first half of the year and the remaining in the second half.
Growth in the year to go we will be primarily driven by contributions from new businesses, including a full year of operations of the Southland Repowering project too.
Two three gigawatts of projects in our backlog coming on line during the next nine months.
Reduce it interest expense the benefit from cost savings and the med normalization to pre COVID-19 levels. We are also reaffirming our expected 7% to 9% average annual growth target through 2025.
Now turning to our credit profile on slide 23.
As discussed at our Investor day, and strong credit metrics remain one of our top priorities in the last four years, we attained two to three notches of upgrades from the three credit rating agencies, including investment grade ratings from Fitch and S&P.
This actions validate the strength of our business model and our commitment to improving our credit metrics we.
We expect the positive momentum in these metrics to continue enabling us to achieve triple B flat credit metrics by 2025.
Now to our 2021 parent capital allocation plan on slide 24.
Consistent with the discussion at our Investor day sources reflect approximately $2 billion of total discretionary cash, including $800 million of parent free cash flow and $100 million of proceeds from the sale of a taboo in the Dominican Republic, which just closed in April.
Sources also include the successful issuance of the $1 billion of equity units in March.
Eliminating the need for any additional equity raise to fund our current growth plan through 2025.
Now to uses on the right hand side.
We will be returning $450 million to shareholders. This year.
This consists of our common share dividend, including the 5% increase we announced in December and the coupon of the equity units and.
And we plan to invest approximately $1 $4 billion to $1 $5 billion in our subsidiaries as we capitalize on attractive growth opportunities.
Approximately 60% of those investments are in global renewables, reflecting our success in renewables origination doing training training and our expectations for 2021.
About 25% of these investments are in our U S. It's allowed us to fund rate base growth with a continued focus on green and fleet modernization.
In the first quarter, we invested approximately $450 million in renewables, which is roughly one third of our expected investment for the year.
In summary, 85% of our investments are going to the U S utilities and global renewables, helping us to achieve our goal of increasing the proportion of earnings from the U S to more than half and from carbon free businesses to about two thirds by 2025 the.
The remaining 15% of our investments will go towards Green LNG and other innovative opportunities that support and accelerate the energy transition with that I'll turn the call back over to address.
Thank you Gustavo.
Before we take your questions, let me summarize today's call.
As I have noted.
We have made great progress on our 2021 and long term strategic goals.
And we are reaffirming our 2021 guidance and expectations through 2025.
We see a tremendous opportunity for growth.
And further increasing our technological leadership as the industry transition unfolds.
From advancing our renewables to unlocking the value of our new technology businesses.
We have a competitive advantage that will continue to benefit our customers and investors.
With that I.
We'd like to open up the call to your questions.
Okay.
Thank you.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
The first question is from the line of Richard Sunderland from J P. Morgan. Please go ahead.
Hi, good morning, Thanks for taking my questions.
Morning, Paul to start off I think you just wanted to start off on the North fault agreement and what it could mean to fluids, maybe the energy storage market more broadly and kind of curious on the development from itself is this more sort of iterative development work or further up the development curve.
Yeah. That's a great question look this is really a landmark agreement.
As we move to SM.
Essentially have strategic relationships with battery manufacturers. So north bolt is building a new plant in Sweden, and Poland and we will have one train of the plant in Poland producing batteries for us.
So as this market expands and as you have you know a real growth in demand. This assures battery supply from one of our markets and also I would say Europe Middle East Africa.
In addition, we will not only have supply of batteries and again, a dedicated train to us, but we will also be working with moorefield to have.
The new developments in battery so in terms as battery technology develops as you have better chemistry.
As we say fine tune our.
Cube stack design.
We will have a joint development of additional improved batteries are on on multiple fronts. So this was on.
I think a very interesting development of getting a little bit more involved let's say one step prior to just being the integrator and.
In providing the control software.
Got it. Thank you for the color and then separately thinking about this Google appeal.
What is the ability to replicate that with other C&I customers.
I know you mentioned some interest already in I guess curious alongside that.
Some aspects around the agreement itself, whether you know this is about having the right assets on the right locations to procure or about the energy kind of management angle as well.
Paul.
It's it's both.
So let me take the second part first explain a little bit what the product is so the product really that the key point is that we're netting on an hourly basis.
A carbon free energy. So this is you know.
Most contracts of prior to this.
Virtually all are really netting you know to be on a yearly basis could be et cetera. So you have on excess purchases of renewables during certain hours, which are actually using non renewables. During other hours. Obviously when you don't have peak production of the renewables. This is actually saying on an hourly basis the energy that I'm getting is carbs.
Terry.
So you asked the right question its not just a question of having a overbuilt solar or overbuilt when it's really how do you manage these different.
Different sources of energy.
Not only to ensure that its carbon free but to minimize the cost.
So you know when are you buying what are you using wind when are you using solar and the real key to make this happen is adding up.
Hydro small hydro's and adding of course battery storage.
So it's really how do you optimize multiple users of multiple sources of renewable energy to provide the lowest cost.
Guaranteed carbon free energy netted on an hourly basis.
So behind this offer there's a lot of math a lot of algorithms a lot of risk management.
And we think that you know this is a deal that will you know with Google itself. You know, we had a $1 billion I'm sorry, one gigawatt.
Agreement and you know this is the first 500 and we expect it to grow as demand in these data center growth.
But of course, there are other corporate clients that are interested in this and we've seen interest from them. So as people I would say up there.
Environmental goals from saying well, we're going to be.
Net zero carbon emissions on a.
Global scale and really having on hourly netting.
This is really the only product on the market. So of course those companies that have the highest environmental standards are interested in this product. So it's a.
We think a very interesting development and one that we expect to replicate.
With multiple clients.
Great. Thank you for your time today.
Thank you.
The next question comes from the gas Chopra from Evercore ISI. Please go ahead.
Hey, good morning team. Thanks for taking my question maybe.
Maybe just I wanted to start with the 2021 target.
Analyst Day, you guys were targeting three to four gigawatts of Ppas This year and now it sort of seems like it's for.
I just want to make sure I'm sure.
Understanding that correctly is that just because you had a strong start and now youre expecting four instead of Q2 or at the analyst day.
Yes, I mean, we've we did three.
The 2019 and 2020.
We're seeing a strong start.
You know not only inside ppas, but the deals we have in progress.
So we feel sufficiently confident to say that you know we expect to be at the upper end of our initial guidance range of three or four so we expect to be.
And four Gigawatts of new renewable Ppas signed in 2021.
Yeah.
That's perfect. Thank you for clarifying that Andreas maybe just can I get your thoughts on competition on dress, obviously theres a lot of U S sort of domestic players in the market Youre seeing a lot of international competition, maybe just any thoughts as usual compete where these ppas, what's the competition like and sort of.
What's what's your key competitive advantage.
Well look we do see on you know a lot of competition out there in the market our strategy has been to offer.
More value to our clients. So we don't want to just compete for Commoditized.
Bus bar renewable ppas.
So we have several competitive advantages and of course was our knowledge of.
Energy storage, we have been really a leader in the new applications for energy storage not only through fluence. It jumped the new design, but you know AI bidding enabled bidding engines and how do we combine them.
So the.
Google deal is a perfect example of how we brought together multiple energy sources of renewable energy sources and provided a unique product to a very demanding client.
So that's our angle our angle is really you know how we bring these things together, how we create more value for the client and I think very importantly is that we co create with our clients. So this was a joint project with Google.
Reflects.
More than a year's work, it's just like what we did in Hawaii, what was really sort of the first sort of 24 seven.
Solar energy storage.
Product offering we co develop it with the Hawaii Island utility cooperative. So that's our unique angle. So again, we see more deals like this a Google deal.
And more ways of working with clients to provide more value and just not a commoditized product.
The other advantage. We have is look we started working on our pipeline. So we have a pipeline of 30 gigawatts globally, we have a pipeline of more than 15 gigawatts in the U S.
And <unk>.
Pipeline is not up.
Equally defined term across all players.
Well, we mean our pipeline is these are projects that we can execute on so we have a land bank we've been buying land, we've been buying land rights we've been.
Getting interconnection rights are looking really at the overlay of like best Solar irradiation best.
Interconnections with the grid.
And in addition, you know.
That's wind sites. So we feel very good I mean, the putting something together like we did for Google in Virginia is something that we can replicate in other markets, where we have big presence, whether it be new York, whether it be California.
That we don't think other people can present, so I think we're very well situated.
And we also have some other angles that people don't have that are very new one.
One O mentioned is five big <unk> allows us to double the energy density So think about it if you need to locate 100 megawatts of energy we can do it in a space. Other people can do it in 15, we can build it in a third of the time.
Now five b the Maverick product is still early in its stage of development, we still have to massify it to drive down costs and improve it out but it has unique characteristics not only the ones I've mentioned, but in Australia has been tested in actual life situations like category four hurricane winds.
And that's something that conventional solar cannot do so we feel very optimistic of offering this.
Suite of technologies and also a unique way of bringing them together and also a unique way of working with clients.
That's great. Thank you for that color on dress lots of exciting stuff I'll jump back in the queue. Thanks for the time.
Thank you.
Thank you.
The next question is from the line of Stephen Byrd from Morgan Stanley. Please go ahead.
Hey, good morning.
Good morning, Steve.
Wanted to talk through.
Supply chain.
Stresses we regularly get questions just throughout the whole renewables value chain about.
You know shortages cost increases et cetera, and I respect that sort of the Northolt agreement is one example of many ways that you.
Ensured availability, but I guess broadly put across you know solar across the balance of system cost storage et cetera are you seen any stresses on supply chain for you all any impacts from that broadly.
Yes, that's a great question and as you know we've been.
I think.
Always very concerned about this you know when we talked.
You know the beginning of last year about COVID-19 at the time and we said look we were concerned about supply from Asia and the possible effects of COVID-19 on the supply chain even here in the states.
So you know we've been on top of this right now we're not seeing any real <unk>.
Supply constraints.
Whether it be on batteries.
Whether it be on solar panels, whether we see on wind turbines. However, if you look at the growth plans.
That are reflected in for example, the <unk>.
Bidens, a renewable energy agenda.
And you see what the utilities are talking about you are seeing a dramatic increase.
In demand and we think that that could be a problem in the future.
So we're getting out ahead of this and you know I think you know it's not only the physical suppliers that you know we're talking about.
But it could be things like land for example, how many megawatts of readily available land is there to meet this.
Great need so right now we're not seeing it Steve.
But we're on top of it and that's why we're making the kind of strategic agreements like North fault.
Spec more I would say.
Because that that we think is a key element I mean, we expect this market to grow very rapidly and we think you have to be thinking about that now at all angles, whether it would be people.
Land interconnections.
I do see.
I think we've spoken about it in the past.
Energy storage, playing a role in eliminating transmission constraints.
So that's an exciting new area that needs to be developed and it really isn't tap so.
Getting to your answer we're not seeing it today, we're on top of it I do expect there to be a pinch it sometime in the future when I don't know.
It could be 12 months could be 18 months, but where we're preparing for that possibility.
That's really helpful. And then maybe shifting gears to five b, you've you've spoken about this before you laid it out again today and I was just curious your latest thoughts in terms of.
As you think about the growth of a five b whether that this is going to be.
Is there a potential given just how beneficial. This approach is that this is something that similar to other.
<unk> technologies, you've developed that chicken broadly monetize broadly market and sell or is this something more for your own purposes over time like how how broad could this be and is this another candidate that can be monetized over time.
Yeah.
The question. So you know we've had my accounting for unicorns small companies that go through more than a 1 billion dollar valuation I think our secret sauce has been to buy small companies I mean, some of them we bought for.
20, $30 million of initial investments and now are worth more than $1 billion and what's the secret sauce. The secret sauce really as one we give them a platform for massive expansion.
Two we work with them to create new applications. So we're not just a client it's like we are co developing and creating new uses for this technology.
So we allow it to grow fast we allow it to grow in new areas, but equally important we're able to keep the entrepreneurial spirit of these businesses. So in other words, even though we're a big company, we make a real effort not to smother them.
And let them run as much as possible on their own.
Now we made a philosophical decision years ago.
Is that just to use it on our own platform, while that gives us a temporary advantage.
<unk> the growth of this new technology.
And quite frankly, a lot of this has to do with massive buying them to really drive down costs energy storage is a lot cheaper today, because we massify. It. We're in 29 countries. We have 5.6 gigawatts in 2009 countries that we either built on we're providing.
Control systems, you know bidding bidding platforms. So that's you know that's quite large and allows us to learn from that so with five beats the same.
We.
We will have.
Certain time of exclusivity in certain markets, but now this will be available to the broader market over time.
So what we're doing with five B is again massive flying it proving proving it out.
And then.
And then eventually we will it will be available to two other players as well. So for example today in Australia. Other people are using <unk> technology.
And I see it very similar to our prior ventures, whether it be a fluent whether it be distributed energy.
That we have whether it be uplight that.
Our philosophy is not just to keep it to ourselves just keep it to our own platform, but expand it more broadly so.
It's interesting we make money on thinking about where we make money for our shareholders in two ways.
One is on our.
Platforms, which we are shifting from fossil fuels to renewables.
And there you know you can.
All you us on you know cash flow earnings per share etc.
But at the same time, we're creating value in these new technological.
Technology companies.
And you know those have a different valuation and a different value creation and that's why selling to third parties is so important to maximize the value of them.
Now the fact is that having the the link between Aes and these startups is key because as I said, we mutually beneficial.
To create value, we help them grow and they help us to really be a leading edge technology provider. If we didn't have that knowledge of batteries that we have we wouldn't have done the Google deal. So there are two ways that we're creating value here with these new companies.
Really helpful. Thanks, so much.
Thank you.
Thank you.
Again, if you have a question please press star and one on this day.
The next question is from the line of David <unk> from.
Walt Research. Please go ahead.
Yeah, Hey, good morning, guys.
Good morning, Dave.
I was just curious on the strategic alliance with Google are you guys still.
Still working on similar agreements in locations beyond Virginia, I guess I'm just wondering how far you expect kind of the scope of that particular particular alliance to reach.
What what I'd say is that you know what I can say is really that you know we had an initial agreement, which we had.
<unk> talked about.
It was really that sort of RFP for one gigawatt that has I would say developed.
If you're willing to the deal that we have announced.
We expect to expand some of that.
Energy provided over time as their needs grow.
And you know as again, we will we have this unique product that we will offer to you.
Then in other clients at.
At this stage in time.
So that's all I really can say at this stage of the game.
Okay.
And then maybe just on some of the other projects you have in the works has there been any updates on the hydrogen study in Chile or were in Vietnam Mckee LNG in suite C projects I guess since Investor day.
Look regarding first the green.
Hydrogen really green ammonia project in Chile, we continue to work with our partner on the feasibility study.
So you know where it goes on and as I said, you know we will probably have news before the end of the year, one way or the other.
It's really a matter of can we get the costs down to be competitive with.
Yeah.
Gray or blue.
Hydrogen green hydrogen project, you know products, so I'm optimistic we're working hard and stay tuned.
Regarding Vietnam. It's the same thing we continue to work towards a new LNG terminal.
Which would be.
450, or so terribly to use.
So more than double what we have between Panama and the Dominican Republic.
And there is an associated 2.2 gigawatts of combined cycle gas plants.
So not that progress.
Two years on that.
Part of the government's plan.
You know realize at this.
Facility will avoid the construction of many many coal plants.
And I also mentioned that we will be.
As soon as feasible on moving towards providing a green hydrogen, which basically means that it certified that it doesn't it has less than a certain amount of leakage from production to delivery and we think that's very important to really reap the climate advantages of.
Natural gas versus.
Say other heavy fossil fuels.
Yeah.
Great. Thank you for the time.
Thank you.
Thank you.
The next question is from lineup Charles Fishman from Morningstar. Please go ahead.
Good morning, Andrew I wanted to follow up on that.
Question.
The recent strength and.
Crude oil prices.
Help you on the development of that project in Vietnam, I would think I appreciate theres some coal plants there but.
It isn't a lot of the competition or at least that.
He will be replacing.
You'll feel.
It's used for power generation in that region and Oh, yeah.
The strength of the crude oil price on that.
Right.
Our LNG business is really tolling for example, and in Central America and the Caribbean.
So you know we get a tolling fee, we're not taking direct commodity risk now of course, the bigger the spread between Henry hub.
And world.
Oil prices, especially W. Ti.
The more tolling, we'll do it at the at the margins you know a lot of these are take or pay agreements. So what we've announced is take or pay so you know.
We're not so directly affect but you know all things being equal a bigger spread between natural gas and.
Oil is favorable we will do at the margin some more.
In Vietnam. This is a project, which is very much needed because they had been relying on offshore gas and that's running out.
So this will it has an immediate demand unlike say Dominican Republic, or Panama, where we had to develop the demand. This is a situation where you have a pent up demand and you will be relieving a bottleneck because there just arent those fields are basically exhausted.
So you have to bring in gas to <unk>.
The existing combined cycles, so I really don't see it as much as.
You know directly as a.
Oil price gas play.
You know again at the margin.
You you could have more interest rates convert or more transportation convert to compressed natural gas or other forms, but not really need. These are tolling agreements and in Vietnam. The demand is there it doesn't have to be created.
But you know again as this expands for example, the new combined cycles, yes, those will definitely be displacing coal plants.
Onerous as I recall.
Uh huh.
The Vietnam project doesn't enter into the seven and 9%.
Through 2025, that's really a 2025 event on beyond correct.
That's correct.
Okay. Thank you that's all I had.
Thank you.
Yes.
Yeah.
Thank you.
Ladies and gentlemen, this concludes our question and answer session I.
I would not on the conference back on that.
Cash after closing.
That's correct.
Thank you 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, again and have a great day.
Yeah.
Thank you very much ladies and gentlemen, the conference has now concluded.
Thank you for attending today's presentation you may now disconnect.
Thank you.