Q2 2022 AES Corp Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the H E. S Corporation second quarter 2022 financial review call. My name is Irene and I would be coordinating. This event. If you would like to ask a question on today's call is leased.

Star followed by one on your telephone keypad. If you change your mind. Please press star followed by two I would like to turn the conference Oh, well host Susan Susan Hardy corporate Vice President of Investor Relations. Susan. Please go ahead.

Thank you operator, good morning, and welcome to our second quarter 2022 financial review call our.

Our press release presentation and related financial information are available on our website at E. S Dot com.

Today, we will be making forward looking statements. There are many factors that may cause future results to differ materially from these statements, which are discussed in our most recent 10-K and 10-Q filed with the SEC reconciliations between GAAP and non-GAAP financial measures can be found on our website along with the presentation.

Joining me. This morning are Andres Kluski, our president and Chief Executive Officer, Steve Hoffman, Our Chief Financial Officer, and other senior members of our management team.

With that I will turn the call over to Andreas.

Good morning, everyone and thank you for joining our second quarter 2022 financial review call.

As you have seen from our earnings release, we reported second quarter adjusted EPS of <unk> 34, which was in line with our expectations and consistent with our historical quarterly earnings profile.

Our CFO , Steve Coffman will discuss our financial results in more detail.

Based on our year to date results and outlook for the second half of the year, we are reaffirming our 2022 guidance.

Our expectation for annualized growth in adjusted EPS and parent free cash flow of 7% to 9% through 2025.

I would also note that our guidance and expectations do not include any benefit from proposed U S climate legislation, which we see as a meaningful source of potential upside.

It would drive additional demand for renewables and energy storage and accelerate the development of green hydrogen projects in the U S.

This morning, I will discuss our strategy in the context of two broad themes first our resilient to microeconomic volatility.

Judy high inflation high commodity prices fluctuations in foreign currency.

And ongoing supply chain constraints.

And second continued strong demand for renewables, particularly from corporate and industrial customers.

With this backdrop in mind I will discuss the robustness of our business and also review our disciplined approach to grow.

Both of which provide us with full confidence in our ability to hit our financial and strategic goals this year and beyond.

Beginning with our resilience on slide four.

As a result of the transformation of our portfolio over the last 10 years.

Our financial results. This quarter were insulated from the impacts of rising inflation, the appreciating U S dollar and volatile commodity prices we.

We do not expect any of these factors to have any impact on our full year results.

As I have discussed on previous calls 85% of our adjusted pre tax contribution is derived from long term contracts where generation in our regulated utilities.

For the 15% of our earnings that is not derived from long term contracts or utilities.

Such as our legacy Southland business in California.

Or the 10% that is not denominated in U S dollars.

We have largely hedged both exposures.

In some cases are strong contractual arrangements have allowed for additional upside.

Throughout 2022, we have signed agreements to redirect excess LNG from Panama to international customers.

The benefits of these agreements will accrue through the remainder of the year.

And we have the potential to sign similar agreements next year, depending on market conditions.

Turning to construction and supply chain on slide five our strategic.

Strategic sourcing and ability to execute on our commitments are key competitive advantages and we expect to complete all the projects in our 10.5 gigawatt backlog with no cancellations or significant changes.

We take a proactive approach to working with our suppliers and as a result, we had all of the solar panels required for our 2022 projects in country earlier this year.

More recently, we worked to quickly resume imports following the button administrations June executive order.

And none of our suppliers panels have been stopped by costumes this year.

We also took decisive steps to further decrease solar panel suppliers by creating a more robust U S supply chain.

In June we launched the U S solar buyer consortium, along with three other solar developers to significantly drive the expansion of domestic solar manufacturing.

Collectively we committed to purchasing more than $6 billion of solar panels for manufacturers.

Can supply up to seven Gigawatts of solar modules per year made in the USA starting from 'twenty to 'twenty four.

Therefore, despite industry wide supply chain challenges, we do not anticipate any major delays to our U S renewables backlog of 5.9 Gigawatts.

I would note that only two projects have been shifted from 'twenty to 'twenty two to 'twenty to 'twenty three.

And these were moved as a result of changes requested by customers with no impact on our guidance and expectations for this year or next.

In addition, we recently broke ground on the largest utility scale solar plus storage project in the state of Hawaii.

Across the state, we have more renewable projects under development and or under construction than anyone else.

As you can see on slide six we anticipate completing one eight gigawatts of new renewable globally. This year 4.6, Gigawatts next year for a total of $6 four gigawatts by the end of 2023.

Turning to slide seven looking to our future growth.

We continue to see strong demand for renewables from our key customer groups.

Despite increases in the cost of renewables, resulting from inflation and supply chain constraints.

The far greater increase in the cost of fossil fuels has made renewable energy even more price competitive.

As a result demand from corporate customers has never been higher.

So far this year, we have signed or have been awarded one six gigawatts of long term renewable ppas.

The majority of which have been negotiated on a bilateral basis.

For full year 2022, we.

We continue to expect to reach a total of four and a half to five and a half gigawatts.

As shown on slide eight we now have a backlog of 10 five gigawatts all of which is expected to come online through 2025.

Turning to slide nine I'd like to note that we currently have 13, seven gigawatts of renewables in operation.

So this backlog of projects in construction or with signed Ppas represent more than 75% growth in our installed renewable capacity over the next four years.

Including additional Ppas, we expect to sign.

2025, our portfolio will grow to almost 50 gigawatts of which 77%.

Will be renewables.

We also expect to have completely exited coal at that time.

As we scale up in renewables, we continue to complement our portfolio with innovative businesses and solutions, which require the best talent in order to deliver on our commitments.

Earlier this week fast company recognized a yeah in their top 10 rankings are best workplaces for innovators and as the winner in the category of best workplaces for early career innovator.

We are very proud of receiving this recognition and our innovative teams and their many accomplishments.

Additionally, although we don't have any specific announcements to make today.

We continued to make good progress on our two large green hydrogen projects in the U S and Chile.

These projects include the integration of Electrolyzed water and renewable.

And has the potential to provide significant new sources of growth.

I will provide additional updates in the coming months.

In the meantime, we launched a 2.5 megawatt pilot project in Chile.

This project will be a hydrogen fueling station and will produce up to one metric ton of green hydrogen per day.

Finally, turning to slide 10.

Growth opportunities at our U S utilities represent one of the key drivers of our overall, 7% to 9% annual growth in earnings and cash flow.

This growth also advances our objective of increasing the proportion of our earnings from the U S to 50%.

As a reminder, in both Indiana, and Ohio, we had the lowest residential rates in each state, providing a great runway for growth and investment while keeping rates affordable for our customers.

Through 2025, we expect to invest a total of $4 billion in new renewables generation transmission modernization and smart grid at our U S utilities.

These investments will improve our customers' experience and translate to average annual rate base growth of 9%.

Which is at the high end of growth projections for U S utilities.

We expect the earnings from these core businesses to grow in line with the rate base.

At Aes, Ohio, we are currently awaiting the commission's decision on our distribution rate case.

As a reminder, we see significant opportunity to invest to improve reliability and strengthened aes Ohio's balance sheet, while remaining cost competitive.

With that I will now turn the call over to our CFO Steve Crawford.

Thank you Andres and good morning, everyone.

Today, I will discuss our second quarter results 2022 parent capital allocation and 2022 guidance.

Turning to our financial results for the quarter beginning on slide 12.

I'm pleased to share that we had a good second quarter in line with our expectations, which keeps us well on track for our full year guidance.

Adjusted EPS was <unk> 34 cents versus 31 cents last year driven by growth in our core business segments higher margins, primarily at a S Andes and a lower adjusted tax rate.

These positive contributions were partially offset by the higher share count as a result of the accounting adjustment we made for our equity units.

Parent interest expense related to growth funding and onetime outages at select thermal businesses.

These outages were primarily driven by turbine manufacturer component defects and the plants impacted are now all back online.

There are two additional points I would like to highlight from the second quarter.

First we successfully closed several nonrecourse subsidiary financings extending tenders at very attractive rates and expanding facilities that support our renewables growth.

And second our collections and days sales outstanding at all of our businesses remained strong reflecting our predominantly investment grade rated customer base.

Turning to slide 13, adjusted pre tax contribution or PTC was $304 million for the quarter, which was relatively flat year over year.

Just sit with the drivers I just discussed.

I'll cover the performance of our strategic business units or SP use in more detail over the next four slides beginning on slide 14.

In the U S and utilities SBU lower PTC was driven primarily by outages at South Arne and a S, Indiana as well as lower contributions from Aes clean energy due to increased investment in renewables development.

Contributions from new clean energy project commissioning will be more skewed to the second half of the year.

Higher PTC at our South America, SBU was mostly driven by higher contributions from Aes Andy's, resulting from our increased ownership as well as higher margins, partially offset by the outages I previously mentioned.

Higher PTC at our Mexico, Central America, and Caribbean or M. C. A T SBU, primarily reflects favorable market conditions caused by better hydrology in Panama.

As Andres discussed the reduced need for thermal generation in Panama has allowed us to sell our excess LNG on the international market at higher prices, which will serve as a positive driver in the remainder of the year.

Finally in Eurasia, while our business performance has been very strong the lower PTC reflects higher interest expense coming from additional nonrecourse debt at one of our Eurasia Holdco.

Now to slide 18.

We are on track to achieve our full year 2022, adjusted EPS guidance range of $1 55 to $1 65.

Our typical quarterly earnings profile is more heavily weighted towards Q3 and Q4 with about two thirds of our earnings occurring in the second half of the year.

We continue to expect a similar profile this year as we grow more in the U S where earnings are higher in the second half based on solar generation profiles utility demand seasonality the commissioning of more new projects in the third and fourth quarters and higher demand at Southland in the peak cooling months in southern California.

Growth in the year to go will be primarily driven by contributions from new businesses.

1.4, gigawatts of projects in our backlog coming online over the next six months as well as further accretion from our increased ownership of a S. Andes higher LNG revenues and growth at our U S utilities.

We are also reaffirming our expected 7% to 9% average annual growth target through 2025 based on our expected growth in renewables energy storage and U S utilities.

Our guidance also assumes the recycling of capital from many of our thermal businesses into those three growth areas across our portfolio.

Now to our 2022 parent capital allocation plan on slide 19.

Sources reflect approximately 1.6 billion of total discretionary cash, including $900 million of parent free cash flow.

Due to timing uncertainty around our planned asset sales, we are now expecting to achieve the lower end of our 500 to 700 million asset sale target within the year with the remaining sales expected to close in 2023.

To fund our strong growth expectations until the asset sales are completed we plan to issue approximately $200 million of Nu parent debt, which was already included in our long term capital allocation plan, we laid out earlier this year.

On the right hand side, you can see our planned use of capital.

We will return nearly $500 million to shareholders. This year.

This consists of our common share dividend, including the 5% increase we announced last December and the coupon on the equity units.

We plan to invest approximately $1 1 billion in our subsidiaries as we capitalize on attractive opportunities for growth.

About half of these investments are in renewables, reflecting our success in securing new long term contracts during 2021 and our expectations for 2022.

Nearly a quarter of these investments are in our U S utilities to fund rate base growth with a continued focus on grid and fleet modernization.

In summary, nearly three quarters of our investments this year are going to grow a S. As renewables businesses and our U S utilities, reflecting our commitment to continue executing on a S. This portfolio transformation.

We have made great progress on our growth investments so far this year and remain on track with our annual investment target.

We will continue to allocate our capital in line with our strategy to lead in renewables grow our utilities by 9% annually and to recycle capital out of thermal assets to Decarbonize our portfolio.

With that I'll turn the call back over to Andre.

Thank you Steve in summary, our actions and strategy have put us in a strong position to achieve this year's guidance and a 7% to 9% annualized growth through 2025.

Once again, our portfolio of businesses is proving its resilience to any macroeconomic volatility in the U S or internationally.

We have signed or have been awarded 1.6 gigawatts of new renewable ppas year to date, and we're targeting four and a half to five and a half gigawatts this year.

Our backlog has reached 10, five gigawatts and our construction schedule has not been affected by supply chain issues.

To further derisk our supply chain, we have led a consortium to buy up to seven Gigawatts of U S made solar panels annually starting in 2024.

Finally, we see significant upside to our growth, including green hydrogen in the U S should the proposed inflation reduction act be approved.

With that I would like to open up the call for questions.

Yeah.

Thank you.

Gentlemen, if you would like to ask a question. Please press Star then one on your telephone keypad now if you wish to withdraw your question. Please press star followed by number two when do you think gossip and police and show you on mute it locally.

Our next question comes from into Kim from Goldman Sachs.

Your line is open.

Hey, Thank you first question starting off with the I R. A bill. Thank you for the comments on the potential upside and all.

All that stuff I guess are you inferring that if this bill does pass as proposed that you could potentially see upside to your 79% EPS growth over the next few years kind of on a CAGR basis.

Yes, good morning as you.

Look what we're saying is that there is a number of very good opportunities.

Which would be certainly made more likely by the IRA Bill.

One of them for example is green hydrogen.

In the U S. We'd also expect a greater demand.

From utilities and corporate customers as well so it's generally so rather than say, where we're going to exceed that and certainly with pushes towards towards the higher end.

If these come through so that that's how I would think about it.

Okay, and you think at that higher end, there's enough visibility of that.

If the components of the belt Bill does past.

Yes, I mean, I think there'll be discrete projects potentially in green hydrogen and and also you would see it in.

In.

The number of renewables that we signed in the U S.

Got it my second question on that consortium for domestic pay on manufacturing on solar.

How should we think about what the what that does for the projects that get those those titles domestically on a from a cost perspective, and just any changes to the return profile for those projects that we should be considering.

Yeah.

Well you know this this starts in 2024, a I would say that the the major component is the security of supply you know as.

As we've seen this just this week and now having a domestic manufacturing is very beneficial.

You'll also see the that fluids came out with an announcement that they're going to manufacture their modules.

In Utah here in the states, So I'd say look at the.

<unk>.

It's a large enough that it would be cost competitive and so this would be incorporated in we have to see what is the market clearing prices.

Here in the U S for solar projects now as we've talked about in the past we were most of our projects in the U S are bilateral negotiated with corporate client.

We're not just adding a generic.

Clean kilowatt hours, we're also adding other features and more value for our customers. So you know I think this will help us be more cost competitive I think the but the most important factor is that.

It will insulate us from any sort of a trade restrictions in the future on imports of a.

Solar panels from Asia, So that that is the I think the main benefit.

Understood. Thank you so much.

Thank you.

Thank you Angel. Our next question comes from David I cut off from Morgan Stanley . David You May ask your question.

Oh, hi, good morning, Thanks, so much for taking my question.

I was wondering on the pace of PPA signings here.

What's the pace, we should expect through the rest of the year, we've seen a I guess a.

A bit of a slowdown in the second quarter with the uncertainty around the tariffs.

What's your confidence level, right now and still achieving that four and a half to five and a half gigawatt level by the end of the year.

Yeah.

David Great question.

I had said on the prior call that we expected this to be more weighted towards the second half of the year because of uncertainties that we continue to negotiate it with key clients, but there was a certain amount of price uncertainty that we had to has cleared and that has occurred. So you know just as we speak right now.

We expect.

Decided.

500 megawatts roughly today.

And that would bring us up to 2.1.

So you know as of again.

We expect you know sort of breaking news, we expect them to be signing as we speak and if that occurs then we would be at 2.1, which is you know.

Close to the path of the bottom range, but we do expect activity to pick up in the second half. So we feel confident that we'll be in the range of four and a half to five and a half.

These are lumpy. So you know you noticed at this it's not like we're signing them and 50 megawatt increments. If it had this occurred one day earlier.

Information on the press release and in the.

Our disclosure would've been different so we expect to sign you know this morning.

And with that you know we would be at 2.1.

Got it Okay now that's great to hear.

It sounds like active dialog going on obviously and then I just wanted to touch on our foreign exchange no. We've seen some tactical moves in the foreign exchange rates.

What are you seeing or any way you could quantify the potential drag there was some impact on the on future years and.

Efforts are kind of underway to look for offsets it.

We can manage that any any downside exposure there.

Yeah, Hey, this is Steve.

So we are I think you're asking for the longer term, but we are very well hedged through 2023, even a little bit beyond so actually where we actually see some net upside frankly this year based on our hedge positions.

The other thing to keep in mind is that we're about 90% of our of our business is U S. Dollar denominated so where we're exposed.

There's a limited set of businesses its Argentina it's.

It's Brazil.

And Colombia, so it's.

It's it's basically a fairly small exposure.

Thank God in fact in Brazil, we've seen the Ray I. Appreciate this year. So we had some favorability there. So I would say really it's just we have to keep our eye on Argentina, we have ways to mitigate that.

We have expense.

Expenses in the country of local debt in the country. So it's.

It's it's it's manageable within within the guidance is how I would look at it yeah I would add also that part of that's Bulgaria, Yeah, which is euros.

So if you look at between dollars and euros, you're probably getting to about 95%. So you know we're very much in strong currency. This is Joe again.

A decade of work and the great job that our finance team has done in <unk>.

Keeping our portfolio, but also making sure that the new contracts, we signed are primarily in dollars.

Got it that's helpful. Thanks, so much.

Thank you.

Thank you David.

Our next question comes from <unk> Chopra from Evercore Yogesh. Your line is open.

Hey, good morning team Andre Ricky breaking news instead of the 500 megawatts can you is that when one is.

Is that when one customer congrats by the way is that with one customer or is that multiple customers.

That is one transaction.

That is one trends okay.

Excellent congrats on that okay. So I wanted to kind of dig in a little bit on the alternative minimum tax.

And how do you think that that impacts you and your business I mean, I think the last time, we talked about at the the headwind was offset by credits.

Maybe just talk to that and then Andreas I'd love to get your views on this transferability concept that is introducing the bill how do you think that works.

Okay. So I'll take the on the tax side I guess so.

Look at it is still it's still somewhat early the situation is still fluid and moving around but based on what we know at this point, we don't see any material impact from the 15% global min tax in the near term.

So we'll continue to look into the details and monitor it.

And we'll make a final assessment once the bill is finalized if anything it would be several years into the future and I would expect that we would have we would have offsets and planning activities by that time. So basically this is like it's a parallel methodology, we already are subject to the guilty tax.

Jim This is just another way of calculating to ensure they reach a minimum.

Again, I don't expect in our taxi and doesn't expect it to impact us over the next few years.

Yes regarding your question on Transferability this is being.

Being able to sell tax credits.

Do you know to third parties.

We don't see like a major impact, but you know we see it as an additional tool in our cash management practices. So that's favorable.

Could it could impact the way tax equity partnerships or structure could make it.

Simpler, perhaps so we've got to see what all the rules are around around the transfer ability first.

If anything it looks that it may make the financing structure is simpler to manage an account for.

Got it okay and I appreciate it's early so thank.

Thank you for the discussion maybe just really quick follow up Steve.

Steve just that when you say, it's several years out on the alternative minimum taxes that because of your U S businesses and all of that $1 billion threshold is that is that why it is or when you say several years out what does that mean.

Yeah. So there's a there is a $1 billion test as you referred to so I don't expect that we would meet that and there's like a three year I think averaging of that I don't expect we would meet that for several years to come.

Got it thanks for the time guys.

Thank you.

Thank you.

Next comes from Richard Sunderland from J P. Morgan Richard Your line is open.

Hi, good morning, Thanks for the time today.

With the two H walk I see eight central new renewables I'm curious is that or is that pretty locked in giving your commentary around the only key projects shift to go to 2023, I guess similarly on that front that the eight cents of LNG as utilities and other can you break that down to the component pieces and relative wireless sites in the U S utilities portion.

You've given Ohio remains outstanding.

Yeah. So.

The eight cents of renewables, yes, I feel I feel very good about both of these buckets frankly, so the renewables is both the growth and new projects as well as we do have some.

Uh huh.

Higher generation out of our hydro portfolio as you recall last year was a poor hydro year. So that's in that bucket as well.

And then on the utilities and LNG side as Andreas mentioned.

We've had a we've been really on the right side of things with the commodity.

<unk> this year so.

The international prices are quite high.

We have LNG position of course in our <unk> unit, specifically in Panama, where we've had quite a wet year, we've been able to you know not use that gas in Panama and redirect those cargoes and sell them on the international market.

So there while that's not in the year to date. It is a year to go favorability. So you know that's a.

Little over half I would say of that eight says we've got some additional utility growth baked in for the second half of the year. Those are the two primary components of that eight cents and frankly, frankly, I see potential for even more upside.

So so that's and then I think you asked about Ohio as well.

So you know with Ohio, where as Andres said in his.

His comments, we don't yet have a decision it's not something that we had a material contribution assumed from the new rates this year.

So certainly we look forward to a decision continue to expect a constructive outcome, but it's not going to be a driver one way or the other for this year.

Understood I appreciate the color there.

And then thinking broadly about the U S green hydrogen opportunity.

Do you think this ties in with the existing renewables platform, how can they expand I guess supposed to demand for new renewables and tie in with some of the.

More complex structured products opportunity issue capitalized on in the past two years.

Well you know as we said in the past you know we are looking.

Looking at.

Our partnerships.

With.

Producers of of.

Hydrogen.

Two to actually you know get more integrated in the hole.

Production chain. So it's very you know what's very interesting is that the.

Problem of producing cheap green hydrogen is it's very much like.

Supplying 24, seven you know, 100% green energy or carbon free energy to datacenter. So you know we think we have a leg up here.

So you know were working on this.

If the legislation passes then it's very likely to move forward. So that's what we've been waiting for it in the meantime, though in Chile, we have a different project, which obviously does not depend on this.

And that would be much more to supply the local market and we have done a very good job of decarbonising.

The Chilean system and the mining sector in particular so.

We feel good about both of these and these would be significant project. So they would like.

It will accelerate the growth of renewables because there'd be additional demand.

Understood very helpful. Just just one final cleanup for me the cell phone out outage, what led to that and any impacts there.

Yes, so it was actually south and also it was the same root cause at Indiana. So there were.

There are veins on the turbine compressor unit I understand so.

Don't ask me to go into too much detail on it but they are there is a failure of a component related to manufacturing.

Defect and so those units both had replacements in Eagle Valley in Indiana and at our Southland, The new Southland combined cycles in the gas turbine. So those have been replaced they are they are both back online at this point.

Understood. Thank you for the time today.

Thank you.

Thank you. Our next question comes from Andrew <unk> from Seaport Angie Your line is open.

Okay.

Thank you. So I wanted to go back to the Ohio rate case, I understand that it has no impact on the timing of the decision has no impact on 'twenty two but it will have on 'twenty three.

I mean by all accounts it sounds like you will have to file on E. S. P. So it might take time.

I know that their solution. So there should be an impact in 'twenty, three and so and in that context.

Mean.

I mean, you mentioned that there is additional optionality around the LNG cargoes that that that could impact 'twenty. Three so is it fair to assume that any impact from that Ohio rate case delay could be mitigated by those you know by the shifting of the LNG cargoes also in 'twenty three.

I mean, it certainly could be we're not necessarily attributing one as an offset to the other angie so b.

The issue that the staff had already come out and supported a rate increase the issue at hand was weather because we've had historically had this rate stability charge.

In place it's been in place for about 20 years now whether the rate any new rates could be implemented while that charge is still in place and so that's I think the fundamental issue being evaluated by the commissioners.

Yes, if if in fact, you know the rates are frozen will move quickly to.

File a new ESP.

And that will have new riders associated with it and so it would be more of a delay than anything so at that point be the current rate stability charged with stay in place we would.

File a new ESP and we would then and.

The new rates would be implemented once that ESP is done and approved so that would take you into the middle of next year. So some delay.

Were still optimistic based on that.

Our belief of our.

Our legal position here that the rate freeze is not necessary or not it should not be required.

That's the outcome will be in in our favor on that.

But regardless, we see a path to what we included in our in our guidance just could be.

A delay if we have to go down the path of the rate freeze.

<unk> as I described to get that ESP failed.

And as you maybe to describe a little bit the opportunity in Panama, we have hydro's, but we also have the LNG Regasification terminal.

Being at Henry hub prices of course, Henry Hub Places plus you know transportation liquefaction Regasification.

But nonetheless, it's kind of a one sided bet because we have enough gas to fulfill our contracts, but we have the opportunity. If there is a lot of water and a lot of water in the reservoirs to not burn and therefore.

ZIP those cargoes to international customers and obviously the international rate. So there's a very interesting arbitrage opportunity. There. So it's a one sided but if it does if it stops raining or the <unk> of the reservoir levels fall.

And then we'll just consume the gas and fulfill our contracts.

And and how soon are you going to know that so in a sense.

I mean, it's hard to predict hydro conditions, but.

I mean isn't there like a rainy season that backed by some lumpy now [laughter] yeah.

Yeah. So look it's been raining a lot you know so the rainy season has started the reservoirs are full and that's why we're able to make these oh.

So gas to international customers and get that arbitrage, you know what I'm, referring to more really would be twenty-three do these conditions persist or does say 'twenty threes have a start off being a very dry year. So you know for 'twenty two we're locked in it it's really a question of will this opportunity repeat in 'twenty three.

Okay. Okay. So moving on to the other inflation bill. So so I understand the comments you made about how green hydrogen and and energy.

Energy storage, but then when you actually listen to smaller developers. They are also talking about maybe installing US you know, adding solar PV three existing sites. So.

Of conventional power assets are retrofitting existing assets with the storage facilities, I mean, and some some changes and every powering of our wind farms Ah I mean, there are some I would say secondary benefits from that bill, which could also bench.

It fits your portfolio and I guess it depends on the age of your contracts.

And you know and and how much how heavily they are in the money but.

But could you talk about again benefits additional benefits that this adds to the existing portfolio.

Well you know of course, I think it helps repowering and add ons.

Well, we'd have to see is that you know.

We already have contracts in in these places and so the question is you know do we negotiate on additional contract.

From that location based on the reports you know we've done a repowering already we're starting to we've been repowering units in California.

At Mountain view and also.

<unk> planned to do some in in Maryland.

Laurel Mountain. So this helps those to happen and you're right. It does when does have to look at what you have existing and what additional opportunities there, but you know since we are on.

On the renewable side pretty much fully contracted then the question would be you know that additional energy you know do you is there an adder that you could add to the same client to keep it simple or are you know what are the opportunities there, but you're right. This is a upside that's a smaller so we haven't talked that much about it.

Okay and lastly.

I mean, we saw these media reports about Vietnam and offshore wind I mean, I don't think that I have ever imagined.

Yes, and I'll show and in the same sentence. So could you talk about that opportunity.

Sure well you noticed it wasn't our press release first so I'd say look this is a we were in Vietnam, we're helping the Vietnamese come up with a plan to decarbonize their grid.

So you know we do have the LNG terminal project, there and we all have been.

Talking about bringing in energy storage and other renewable so to eliminate.

Eliminate the need for additional coal plant.

So at this point I'd say this was you know more of a sort of a.

An exploratory issue you know we have we will.

Be very disciplined and committed to all the goals that we've given you know 50% U S. 50% renewables now whenever we get into a new technology, we'd obviously.

Have to partner with somebody so you know we haven't done any offshore wind because it didn't make sense.

Economically you know the markets were in like the U S. There's still plenty of of our land and it just really wasn't cost competitive, but we have nothing against the technology itself, but of course, we would have to partner with somebody who has a long experience and so we're not going to get into a new technology in a large scale.

You know on our own at this time and so this was again this is not an announcement from us and but we guarantee is we're going to stick to the exact goals that we have given you.

Great. Thank you.

Thank you.

Thank you Angie.

Our next question comes from Julien Dumoulin Smith from Bank of alumni from Bank of America Julien Your line is open.

Hi, Good morning, it's Paul Zimbardo pinch hitting on this busy morning, Thanks a lot.

Okay.

George I wanted to check in.

I believe the last long term guidance you gave for Aes next was.

Breakeven net income by the end of the plan in 2025.

That's still a good assumption and how could that evolve under the inflation reduction Act.

Yeah actually it was 2024, Paul that I said that so yeah.

Look.

Fluids is the largest component of next so I can't go into detail they'll have their call soon.

We will talk about their performance.

But.

Executing on a number of things lately.

About they're there they're launching their Utah manufacturing facility they are diversifying their battery supply chain.

Supply base. So we fully expect based on what they've guided to which is that L. B.

Bottomline neutral by 2024, that's very consistent with what we've included in our guidance as well and so I would say you know they'll they'll talk about their their progress but we.

We feel good about both what fluids is doing as well as the levers that aes has.

Godless of what happens with fluids.

That portfolio will be neutral and then growing from there.

And you know maybe you speak a little bit about the other components like Uplight as you know they did the deal with Schneider electric.

So they now have a much.

Let's say wider product offering.

And you know very strong strategic partner in Snyder.

And then you have five b, which.

As the produce of Maverick the prefab solar we're seeing a lot of interest in Maverick.

Maverick are where you have the first large scale.

<unk> of being completed in Chile.

We have big projects in Puerto.

Puerto Rico.

And you know we've already done the small project in Panama and so what's very important about this project as this product is at its hurricane wind resistance. So we're seeing a lot of interest in the whole sort of us hurricane built of the Caribbean for this product.

And Theres also been a change of government in Australia. This is an Australian company.

So they have very large projects in Australia, which youre looking up very favorably in there to be a sort of a home.

Hometown champion for it so we feel good about that as well. So overall, we feel that a S. Next is fulfilling its mission of really giving us the leading edge technologies and giving us the opportunity to be the first to roll them out.

Okay, great. Thank you and then separately could you please elaborate a little bit on the recent California legislation, then how that would impact either extending increasing or both the cash flows from the gas assets you have there.

Yeah, no we feel very optimistic.

We have as I.

<unk> talked about previously we've only included.

Southland legacy.

Businesses, you've got Alamitos Huntington Beach in Redondo through 2023.

So it may not be all three.

Our plants, but I would say probably at least to.

We would expect to be extended possibly for several years.

So the formal process I would expect in terms of permitting the once through cooling.

Permits that are needed et cetera will likely kickoff here in the next.

One to two months and then that will run into the first half of next year through the first half of next year.

As we've done in the past when we've been facing a potential extension.

We've looked to do where we've executed contingent.

Capacity contracts.

Upon the permitting and all of that coming forward going forward. So we'll start looking at commercial opportunities for the extensions once the formal process gets underway in the state and so we'll have more certainty next year, but I would say.

We're all very optimistic here that given the fundamentals of the California system.

And the droughts in the southwest of the U S.

But that additional peak capacity.

Capacity is going to be needed for several years to come and so we feel we're in a good position to to provide that and that that will provide some upside to our plan.

Great. Thank you both.

Thank you Paul.

Yeah.

Thank you. Our next question comes from David Peters from Wassa Research David Your line is open.

Yeah, Hey, good morning, everyone. Andre So I was just wondering if you could comment specifically with respect to the U F. L. P. A.

We've heard from some companies here recently that they're seeing issues with panels being stopped recently at the border. Just wondering if you all are seeing this at all and if not kind of what youre doing differently I guess.

Yeah the.

We grew forced labor.

<unk>.

We have not seen any of our panel imports.

Stopped.

Excuse me.

As you know we've been on top of this matter for a long time.

You know the poly silicon.

First the panels that we import to the U S come from Southeast Asia.

ASEAN countries and you know we have asked the manufacturers to make sure that there's nothing that comes from Western China.

That could be a allegedly using forced labor.

Poly Silicon the plan is that we're starting to use poly silicon coming from Korea.

And that China would be the more likely place where you there could be a allegations of forced labor, but as you know the making of the.

You know wafers themselves you know 95% of that today is still occurring in China.

So we have to move that supply chain out of China, but it's going to take some time, but you know the short answer is no. We haven't seen anything and we believe our suppliers as a best place not in the half.

Any issues and Documentations and you know we've been working with them.

For a long time now so this is nothing new but you know.

We have to just see how this develops but we don't expect any any major issues.

Great and then just one other one on the asset sale target being at the low end and I guess you were expecting a little less dilution. This year as a result, too can you just give a little bit more of an update on the the processes and in Vietnam in Jordan and just went when are those expected to close I guess.

Yeah look what's basically have at least have to do with government approvals. So you know we've agreed with our counterpart, it's not a question of price.

It's just a question that the government.

The case of Vietnam, It's been the government approval of the new operator of the plant and so that's taken some time for them to get comfortable with it that's why it's dragged on a bit.

But we do expect resolution by the end of this year and the other cases I think you mentioned as Jordan and that really has to do with.

Some of the lenders are including the U S government signing off on the loans.

To the to the new buyers. So these had been really just bureaucratic issues, but you know the sale price the buyer the conditions have all been agreed to and it has taken longer than we expected.

Yeah, Yeah that's.

And that's the majority of the 500 million. So we feel good as Henri said, well, we'll get there on those by the end of this year.

And then we have been working on additional sales and sell downs.

Primarily thermal businesses, so as we work towards those and the timing around those some variability.

It looks like some of that May happen in in say the first half of 2023, which is why we said, let's let's focus on $500 million. This year. The remaining of the 500 700 will come in through next year.

And then we have the full billion dollar target, we feel well on track for us. So it's just a matter of some timing expectations around what we're doing in the next say 12 months or so.

Okay. Thank you guys.

Thank you.

Mhm.

Thank you.

And we have no further questions. Therefore, I would like to hand back to Susa Harcourt for any closing remarks, Susan. Please go ahead.

We thank 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 thank you and have a nice day.

Thank you ladies and gentlemen, this today's conference call. Thank you for being with US today have a lovely day ahead you may disconnect your lines now.

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