Q4 2022 AES Corp Earnings Call
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Good morning, and a warm welcome to the Aes Corporation fourth quarter and full year 2022 financial results call.
My name is Candice and I will be your moderator for today's call. All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer and if you'd like to ask a question. Please press star followed by one on your telephone keypad I would now like a enjoys all to all host Susan hardcore Vice president of it.
Investor Relations the floor is yours.
Please go ahead. Thank you operator, good morning, and welcome to our fourth quarter and full year 2022 financial review call. Our press release presentation and related financial information are available on our website at <unk> 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.
<unk> Kaufmann, 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 fourth quarter and full year 2022 financial review call.
Today, I will discuss our 2022 financial results.
Strategic accomplishments as well as our 2023 guidance.
Steve Kaufman, our CFO will discuss our financial results and outlook in more detail shortly.
Beginning with our 2022 results and accomplishments on slide three.
I am very pleased with our performance in 2022, which was our best year ever.
Adjusted EPS came in at $1 67.
Above our guidance range of $1 55 to $1 65.
This accomplishment is primarily the result of three factors.
Strong performance across our portfolio.
Growth in renewables, particularly from solar and energy storage in the U S.
And the benefit of embedded optionality in our LNG contracts.
Turning to slide four.
I would like to highlight an area in which we are particularly proud of our performance.
Our success in Britain are construction projects online.
In 2022, despite numerous market wide challenges throughout the year, we added approximately two gigawatts of new projects to our portfolio.
This was consistent with our expectations at the beginning of the year.
Our success was the result of the extensive work we have done to develop the people processes and solid supplier relationships to rapidly expand our portfolio of renewables.
We see our ability to execute as the source of competitive advantage that is highly valued in the marketplace.
Not only does it support our strong global customer relationships, but it also contributes to our confidence in our long term forecast.
In addition to our execution 2022 was a year, where we focused on taking actions that will position us well for future growth.
These actions included.
Signing a record number of new Ppas for projects that we will complete in the coming years.
Investing in our pipeline of future projects.
Creating a leading position in green hydrogen.
Establishing strong regulatory foundation to support future utility growth.
And achieving significant coal phase out milestones and Hawaii in Chile.
As you can see on slide five 2022 was a record year for PPA signings for Aes.
We signed five two gigawatts of renewables under long term contracts, increasing our backlog to 12 two gigawatts.
In fact for the second year in a row.
B M E F reported that a S side more renewable deals with corporate customers than anyone else in the world.
This included an expansion of our 24 seven structured projects.
Moving to slide six we also worked hard throughout the year to grow our pipeline of future projects, which increased by 25% to 64, gigawatts, including 51 gigawatt in the U S.
We see extensive and growing demand for renewables worldwide and expect that in the future a key limitation to growth will be the availability of projects.
We have been preparing by investing in land interconnection and permitting work.
The projects that will be used for future PPA signings.
Turning to slide seven.
We also established ourselves as a leader in green hydrogen.
In December we announced a partnership with air products.
<unk>.
Build and own and operate the largest green hydrogen production facility in the U S.
This project will have the capacity to produce more than 200 metric tons per day of green hydrogen and will include approximately one four gigawatts of wind and solar generation.
It builds upon the expertise we have developed and combining renewables to create around the clock carbon free energy.
This project has the potential to serve approximately 4000 trucks.
While significant represents less than 1% of the current market for long haul trucking.
As such we see a massive total addressable market for Decarbonising transportation sector.
Yeah.
Turning to slide eight another focus of our 2022 work was to develop strong regulatory foundations for future growth at our U S utilities, where we expect to grow the combined rate basis, 9% annually through 2025.
Specifically at Aes, Ohio, We filed the new electric security plan or ESP for to enhance and upgrade the network and improved service reliability.
With the lowest C and D rates and the states across all customer categories.
As Ohio is well positioned to make the much needed customer centric investments.
A ruling by the Ohio Commission on ESP for is expected this summer.
Finally, we're pleased with the constructive outcome of a S, Ohio distribution rate case.
The Ohio Commission approved an annual revenue increase of $75 6 million.
At Aes, Indiana, we filed our integrated resource plan or ERP with the Indiana utility regulatory Commission in December .
Hey, Yes, Indiana near term plan includes the conversion of the utilities last two coal units to natural gas in 2025, using an existing onsite gas pipeline.
It also includes the addition of up to one three gigawatts of new wind solar and energy storage by 2027 and.
And should reduce aes indiana's carbon intensity by two thirds from 2018 to 2030.
This plant is an important step to fully transition away from coal and provides the opportunity for substantial additional investments at Aes, Indiana.
Now turning to our outlook for 2023 on slide nine.
Today, we're initiating adjusted EPS guidance of $1 65 to $1 75.
And reaffirming our long term growth rate of 7% to 9% through 2025 for both adjusted EPS and parent free cash flow off a base year of 2020.
Our focus this year will remain on execution.
As you can see on slide 10, we expect to complete approximately three four gigawatts of new projects, including $2 one gigawatt in the U S.
I will note that our 2023 guidance range does not include a potential upside from 600 megawatts of projects currently scheduled to be completed in December 2023, but which are likely to come online in 2024.
Looking at our growth through 2025 on slide 11, we expect to maintain the pace of PPA signings. We have established with an estimated 14 to 17 gigawatts expected to be signed over the next three years.
We see strong demand for renewables across all of our key markets, particularly the U S where the benefits of the inflation reduction act or IRA or becoming even clearer.
Thus given the strength of our backlog.
And our visibility into future PPA signings and project completions.
We are confident in reaffirming our long term guidance through 2025.
Finally today, we are announcing that we will hold an investor day. This spring, we will be sharing our strategic long term view of the company, introducing new business segments, and extending our long term growth rate.
We will provide additional details at a later date.
With that.
I now would like to turn the call over to our CFO Steve Crawford.
Thank you Andres and good morning, everyone. Today I will cover the following key topics our financial performance during 2022, our parent capital allocation and our 2023 guidance and expectations through 2025.
As Andres mentioned, our results for 2020 to demonstrate the strength resiliency and flexibility of our portfolio as we surpassed our guidance range of $1 55 to $1 65.
Overall, our portfolio is well structured to perform in the current market environment and is well positioned for growth. Okay. Yes continues to lead the global energy transition.
Turning to slide 13 full year 2022, adjusted EPS was $1 67 versus $1 52 in 2021, driven primarily by a significant volume of LNG sales and our increased ownership of a S. Andes.
These positive drivers were partially offset by unplanned outages. Several one time expenses, we recorded at our U S and utilities and South America S. P use.
Higher share count as a result of the 2021 accounting adjustment for our equity units and higher parent interest stemming from higher debt balances.
The $1 67 per share also includes approximately 12 cents of losses from Aes next primarily from our ownership influence, which served as an additional drag year over year.
We expect fluence is results to significantly improve beginning this year as they discussed on their recent earnings call.
Turning to slide 14, adjusted pretax contribution or PTC was $1 6 billion for the year, an increase of $149 million and 11% growth over 2021.
I'll cover our results in more detail over the next four slides beginning with the U S and utilities SBU on slide 15.
Lower PTC in the U S was primarily driven by the recognition of one time expenses from previously deferred purchase fuel and energy costs at our utilities.
Outages itself on energy and a S. Indiana in the second quarter and lower contributions from clean energy and the retirement of our coal plant in Hawaii.
Harshly offset by higher contributions from our south and legacy assets in the third quarter.
Higher PTC at our South America, SBU was primarily driven by our increased ownership of a S Andes and higher margins at both a S Andes and Brazil, but partially offset by a prior year gain related to an arbitration at Alto <unk>.
Outages at a S Andes and a onetime regulatory provision in Argentina.
Higher PTC at our <unk> SBU reflects the benefit from a large volume of LNG sales redirect it to the international market.
As I'll discuss later, we do not expect an opportunity of the same scale to recur this year and anticipate lower PTC from MGIC in 2023.
The LNG sales were partially offset by the full year impact from the sale of our coal plant in the Dominican Republic in 2021.
Finally in Eurasia, adjusted PTC was relatively flat year over year with an overall net decline driven by higher interest expense, but partially offset by higher energy prices earned at our wind plant in Bulgaria.
Now, let's turn to how we allocate our capital in 2022 on slide 19.
Beginning on the left hand side.
<unk> reflect $1 3 billion of total discretionary cash.
This includes parent free cash flow of $906 million, which was near the top end of our guidance expectations.
Asset sales were below our expectations for the year, but we still expect to achieve our goal of 1 billion in proceeds by 2025.
Given the delay in asset sales, we accelerated the issuance of some parent debt, which is within our long term expectations.
Moving to uses on the right hand side, we invested more than $700 million and growth at our subsidiaries of which approximately two thirds were in the U S. We also allocated nearly $500 million of our discretionary cash to our dividend.
Turning to our guidance and expectations beginning on slide 20.
Today, we are initiating 2023, adjusted EPS guidance of $1 65 to $1 75.
This year, we expect to commission approximately three four gigawatts of new renewables, which is the largest year over year increase in <unk> history.
This growth further validates our position as a leader in renewables and highlights the outstanding efforts of our commercial and operations teams in our markets.
Roughly 65% of this new renewable capacity is located in the U S more.
More than half of our total 2023, adjusted PTC will come from the U S. This year as we execute on the transformation of our portfolio.
As I discussed last quarter, our U S renewables projects benefit from both investment tax credits and production tax credits.
Our 2023 guidance includes approximately $500 million of adjusted PTC from tax credits generated and recognized by new U S. Renewable projects coming online this year, which is approximately double the amount from 2022.
Tax credits are an important component of our renewables business earnings and cash flow and we intend to provide updates on our 2023 tax credit expectations throughout the year.
While the midpoint of our 2023 guidance range is below our long term annual growth target, we are reaffirming the 7% to 9% growth rate through 2025.
2023 growth is lower than the long term trend for a few reasons.
First we've taken a conservative approach to modeling renewables projects expected to come online in 2023.
Our renewables construction is typically concentrated in the fourth quarter and this year will be no exception.
As a result construction delays of only a few days could cause the project to shift from 2023 to 2024 and negatively impact this years results.
This is particularly relevant for our U S renewables projects, where we recognized significant earnings from investment tax credits in the year. Our project was placed into service.
Of the two one gigawatts, we planned to complete in 2023, two thirds are expected to come online in the fourth quarter.
Our guidance assumes that an additional 600 megawatts of projects currently scheduled to come online in December slip into 2024.
If some or all of these projects are completed on schedule. This will create up to 10 cents of upside to our 2023 guidance.
It's also important to note that even if there are delays to next year. This is only a timing issue with no material value impact and would support higher growth in 2024 with no impact on our long term growth rate expectation.
Second we expect to see lower contributions from our M. CIC SBU on a year over year basis, primarily driven by more than $200 million of adjusted PTC from LNG sales, we executed in 2022.
Our commercial team was able to leverage the optionality embedded in our LNG supply contracts to capitalize on high international gas prices by redirecting Henry hub linked LNG cargoes to the international market.
Although LNG sales will continue in 2023, we do not expect the same magnitude of opportunity as the spreads between Henry hub and international gas prices have compressed and more of our gas supply. This year is linked to T. T F international prices rather than Henry hub.
Third we expect to see lower margins at our chiller business. This year, particularly in the first half of the year, which is a temporary impact of our green blend and extend strategy to transition our customers from coal power to renewables.
Several coal ppas have or will expire this year as we proceed with our intent to fully exit coal by 2025, and others have been restructured to be priced off renewables that are still under construction.
We view this as a short term cost of Decarbonising, our portfolio and do not expect any impact to our 7% and 9% long term growth rate.
Looking ahead, our teams are working on commercial solutions to mitigate the dilution as the portion of our earnings from coal continues to decline.
Based on the drivers discussed we expect our 2023 earnings to be significantly second half weighted with approximately three quarters recognized in the second half of the year.
While we typically have had about two thirds of our earnings in the second half the increase in seasonality. This year is driven by the significant volume of new U S renewable projects coming online in the fourth quarter.
Now turning to our 2023 parent capital allocation plan on slide 21.
Beginning with approximately $2 2 billion of sources on the left hand side.
Free cash flow for 2023 is expected to be 952 1 billion in line with our annualized growth targets.
In addition to parent free cash flow, we expect to generate $400 million to $600 million in asset sale proceeds this year.
This includes our previously announced sale in Jordan as well as the pending sell down of some of our operating renewables in the U S.
I also want to point out that we intend to relaunch the sale process for our Mong Duong coal plant in Vietnam to better align with the approval requirements that became clear during the initial sale.
The remaining portion of our 2023 asset sales is expected to come from additional sell downs and sales supporting our de carbonization goals.
Now to uses on the right hand side.
We plan to invest approximately $1 7 billion towards new growth of which about two thirds will be allocated in the U S to renewables and to increase our utility rate base.
We expect to allocate approximately $500 million to our shareholder dividend, which reflects the previously announced 5% increase.
In summary.
We exceeded our financial commitments for 2022 and are confident in this year's guidance and the long term outlook for Aes <unk>.
The energy transition provides tremendous investment and innovation opportunities and I believe no company is better positioned than aes to lead this transition.
As we execute on our strategy, we will continue to deliver on our financial commitments to maximize per share value for our shareholders.
With that I'll turn the call back over to Andreas.
Thank you Steve in summary.
2022 was our best year ever.
Not only did we meet or exceed our targets for adjusted EPS and parent free cash flow, but we signed more ppas and added more renewables to our portfolio than ever before.
Once again, we were recognized by be any F. As the top developers worldwide.
Selling clean energy to corporations through Ppas.
We also launched the first Mega scale Green hydrogen project in the U S and.
And developed a regulatory foundation that will enable us.
To grow our U S utilities by 9% annually through 2025.
Looking forward, we are very well positioned for the future.
Our leadership and corporate Ppas and green hydrogen.
There is a line of sight into our continued success, we remain focused on executing on our construction program and further developing our pipeline of potential future projects and we are on track to exit coal by the end of 2025.
With that I would like to open up the call for questions.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad. If you would like to Australia. A question. Please press star followed by tape as a reminder, if you'll use a speakerphone. Please pick up your handset before asking your question.
So our first question comes from the line of Angie steroids and ski.
Your line is now open. Please go ahead.
Good morning, guys.
So first maybe you guys out that disclosure.
Morning, the disclosures that you guys have in the and annual.
In your presentation I understand that there was an analyst day coming but there are a number of sites that are missing [laughter], especially the <unk>.
Segmental earnings contributions for 'twenty three.
I mean is there any reason for that.
Yes, Andrew Hey, its Steve.
So yes in that.
Because as Andres shared in his remarks, we are intending to update you on our new business segments, and so when we issue that that level of guidance.
Guidance that will come in the Investor day.
Okay I understand okay.
Moving on I guess looking at the year over year bridge.
Bridge between 'twenty, one 'twenty two EPS there is no benefit from lower losses of Aes snacks.
And I'm just wondering I mean, it's not even mentioned as a driver.
Can you comment about your expectations for that business.
Yes. So next in total Angie was roughly a 12 12 cent drag last year.
We have to be careful because fluence is a separate public company and we can't get ahead of their disclosures. They haven't specifically guided to earnings but on their last call. They did guide to a significant improvement in margins. This year. So next is a positive dry.
River this year.
And I would say to a material extent, but I can't say, specifically because I can't get ahead of them on their earnings disclosures.
But we are expecting it to be much better they've made a ton of progress on all of the.
Operational and commercial improvements that they've been outlining and as I've said previously the next portfolio, we expect to be neutral to earnings by 2024, and I still expect that.
Okay, but I'm just so.
Again, not to be picky about which bucket with this be included in I mean on that slide.
Slide 20.
I mean, I understand that its lumpy with some other drivers.
Drivers.
So would it be basically.
The guidance.
No it would be it would be lumped into that second column with the negative it would be an offset in that negative 15 basically.
Okay.
Okay I understand Okay, and then just one other question about 'twenty two so when I'm looking at the actual results versus what you were guiding to the corporate drag as well.
More than $100 million higher than expected and I'm, just wondering I understand some of it is interest expense, but any other driver.
I mean corporate does include Aaas snacks.
Current under our current segments.
So okay, well be talking more in Investor day about the future, but I can say, it's largely pair.
Parent interest on the revolver, where we've had higher balances and of course higher rates going into the revolver as well as the incremental drag from Aes mix.
Okay. Thank you and then.
The core question so based on the IRA I mean, there's this discussion about shifting from solar ITC to sell our PTC Theres, obviously, the bonus ITC and I'm. Just wondering how are you positioned to benefit from those additional tax credits in the U S and also.
I mean it.
It's a very competitive market as I understand so can you actually retain some of this benefit I E booster profitability of future solar projects in the U S or is it more a function of basically securing more contract by.
Trading away that benefit.
Sure. So so look first of all we're very happy to have the optionality from the IRA on choosing ITC or PTC newly for solar as well as having the ITC for storage. So typically we are going to choose the tax credit structure that yields the highest return and the projects. So it's great to.
Have that optionality.
I would say going forward the ITC.
There is a difference in the earnings profile, there's an upfront recognition of the ITC versus the PTC is spread out over 10 years, but other than that.
You'd expected lifetime earnings roughly to be to be the same.
If the credit structure yielded roughly the same returns.
So so.
In this case, we have about an.
In <unk> case about one third of our pipeline, we believe will qualify for the energy community Adder.
So we feel that we're going to be very competitively positioned.
To get at least the 40% level for about one third of our pipeline. So that's a good thing I would say in terms of where the credit our crews I think it is going to be a mix of things certainly there's there's been higher costs at the industry has absorbed on the order of 30%.
I think part of it goes to absorbing that impact of higher costs in renewables.
I would say some will go to competitiveness in terms of bidding for the Ppas.
And largely as Andres just talked about before we see this theyre being more of a constraint on the supply side and the renewals renewables market. So we do see that.
<unk> strong demand.
But that theres going to be constraints on the supply side of projects being ready to meet that demand and that will have some upward pressure on returns.
Angie the way I'd put it is at the.
Cost increases.
Largely been absorbed by the market.
So we're seeing constant margins.
What you saw the last year, there was less commissioning of new projects in renewables.
And then was expected by a big factor.
40%.
So what a lot of the clients have done is postpone.
Some of their renewable goals, but eventually youre going to see is a shortage in the market.
So we feel confident about that and that's why we're continuing to invest to build that pipeline to be able to respond to that demand. So those are the dynamics. This is a market that yes, while it's very competitive.
Dynamics are positive.
And then we're also selling.
Lot of our projects are differentiated projects, so theyre structured projects they bring something to the table. Other just then.
Your plain Vanilla bus bar PPA.
Great. Thank you.
Thank you.
Yeah.
Our next question comes from the line of Nick Campanella of Credit Suisse. Your line is now open. Please go ahead.
Hi, good morning, Thanks for taking my questions and stay furnished today.
First a quick question on the on the Analyst day can we just give some colors on your thoughts on.
The timing I know you mentioned spring, but what are some of the specific drivers to determine the timing of the analyst day.
Yes, so first of all Andres mentioned, we will be discussing new business segments. So we are closing out 2022 under our current segments.
We will then move over to new segments, very shortly and so part of the timing as to fully make that transition internally.
And then to be able to come out.
In the in the spring timeframe with that look at the new segments, the new way of looking at Aes going forward as well as discussion about.
Guidance beyond 2025.
Okay.
Okay. That's helpful. Thanks.
And just maybe.
Just on the asset sales proceeds I know you're feeling some of the asset sales proceeds with parent debt issuance.
But as we think about the 79.
CAGR currently can you just.
Are you able to continue to flourish this growth rate without.
Any additional common equity just wanted to check in on that.
Yes look we feel confident in terms of what we've said in the past.
But to grow through 2025, we don't need additional equity.
For that period of time so.
We also feel confident in our ability to raise $1 billion.
Through asset sales.
Yes.
Okay.
Yes.
With regard to that it's really just it's somewhat fungible, we look at both our sales program as well as our debt capacity always holding to our investment grade metrics plus a cushion as a minimum but it's really just timing. So theres just flex between when we determined to issue.
Within our within our expectations and when those asset sales come in so it's just executing somewhat of a flexibility on the timing of the asset sales and the debt kind of flex back and forth.
Great great. Thanks for the colors.
Appreciate it I'll jump back in the queue. Thanks.
Thank you.
Our next question comes from the cash.
Your line is now open. Please go ahead.
Yeah.
Hey, good morning team. Thank you for taking my questions.
Just kind of I want to focus on the plans for this year, when you're going through that as well.
What's the level of confidence I mean, maybe you can share some details with us in terms of what you already have.
In terms of materials secured etcetera, etcetera, and getting the sort of the three four gigawatts online and getting the 27 cents.
Earnings accretion year over year.
Okay.
Listen we feel good.
About the numbers that we're giving out there we have all the equipment basically secured.
And.
I would say about what we have about five five gigawatts under construction as we speak.
Okay, not all of them are going to come in line in 'twenty, three but just to give you an idea.
We feel very good about it now.
600 megawatts, we said might slip into 2024, what are the issue as well.
For some of that there could be equipment delivery.
There could be interconnect timing.
Easement issues final final permits the usual stuff that when youre doing construction. So we're going to try very hard to get it done this year.
But we feel it's prudent to say that these are going to slip most likely slip into 2024.
What I would like to reiterate is that this really isn't a business issue.
This is just an accounting issue from my perspective because.
All of those 600 megawatts I feel very confident would get done for example by certainly by March So there aren't any penalties involved and there isn't any significant change to the return of those projects. So Unfortunately, you really have is given that we run on a calendar year, we have so much happening in the last quarter.
But I want to really emphasize this is not a.
We have of all the renewable developers, we have not abandoned any project.
Because of equipment delays of permit delays, we have delivered on all of them. So we feel very good but there is a timing issue and we thought it prudent to say look these 600 megawatts we.
We think are most likely to fall into next year, but.
It's a matter of it could be weeks.
<unk>.
We will nonetheless try very hard to get them done this year.
Thank you Andreas.
It's very helpful and just in terms of milestones for us to watch.
As to whether you can get them done this year or are they going to push next year. When are you going to have that clarity is that sort of.
Kind of a similar type of event or will you have more clarity by your Investor day.
I really don't think we would have it honestly by Investor day to be Frank I think it would be more by the summer.
Yeah.
That we would have more indications on.
Particularly at the project list gets quite granular ex.
Six projects Scott.
Permit or something that was missing.
But I don't really don't see that before that.
Yes, sorry, Mary Lynne is though on fraud.
Just on each call, we will give updates to the extent we have updates on the construction program as well as the tax credit expectations.
The year on the calls as well.
Got it and then thanks, Thanks, Steve and just one last one.
I noticed the 23 to 25.
PPA signings again, very healthy 14 to 17, gigawatts, but youre not youre not sort of giving us an annual number. This year like you did in 2022, which was four five to five five Gigawatts and you came in right in that range are you expecting that 'twenty two.
225 signings to be lumpy or should we still expect right.
The new Ppas in the five and a handle range each year.
I would expect honestly them to be.
No.
Right around that $4 five five and a half range every year.
But we decided that gave a multiyear range because there is some lumpiness I mean, we do have some projects, which are like one gigawatt and it's the same thing deciding could happen in January instead of December . So we wanted to give us basically.
Think of it more as sort of a rolling number.
But again, we feel we feel good about being able to reach that range.
Got it thanks, guys and congrats on the VNS recognition again this year I appreciate the time.
Yeah, Thanks, a lot.
Yeah.
Our next question comes from the line of Julien Dumoulin Smith of Bank of America. Your line is now open. Please go ahead.
Hi, there. Good morning. This is actually Cameron lochridge on for Julian Thanks for taking my questions I wanted to maybe come back real quick to the.
The idea of us to do a deal with backlog and how maybe that influences the seven 9% growth CAGR.
You guys have laid out I appreciate that.
We reaffirm that through 'twenty.
Given where the backlog is and where the growth is expected to come from over the next several years is there any reason we should not be perhaps.
Rolling that forward out beyond 2025, and continuing to underwrite to that or is there something else that may be driving that.
Either higher or lower beyond 25.
Yes, I mean look.
Let's say, we have a $12 two gigawatt backlog.
Which about five five under construction now.
And a good portion of that is going to come online between.
Now in 2025.
So there's no reason to think of a change if anything the market continues to grow and we see a shortage I don't know if <unk>.
Steve you want to.
The backlog is at 12 point too.
And we are delivering three for this year plus potentially some of that upside from the 600, so that leaves still about eight and a half.
To be to be delivered over the next few years. So we feel really good.
The commissioning is coming through 'twenty five to support the growth.
And then as Andrew has covered the pipeline in the U S is 51, Gigawatts and it is continuing to mature. So we'll talk more on Investor day about beyond 2025, but I feel really good about about the the growth expectation.
This is not a market that.
It's not growing very rapidly and we do see pent up demand, but we do see is that because a lot of people did not deliver in 2022, we see pent up demand so.
What we have to do is really make sure that we're getting.
The returns that we want and really going after the value add on those projects, but it's not for a dearth of projects by any means.
Understood understood. Thank you both.
Maybe just going back to 2023 and looking at.
Guidance I know Youre looking at 2007 cents a share from the new renewables in 2023, I kind of wanted to unpack that a little bit.
In terms of how much if you could quantify how much of that 27 cents is.
But we will call it a roll forward from projects that were placed in service in <unk> 'twenty two.
And is there any reason that was meaningfully different it will be meaningfully different this year thinking.
Thinking about the 10 cents a share that could potentially.
Q2 2024.
Yes, so the primary portion of that relates to the.
The increase in the tax credit so a portion of the 27 is related to just that base of projects from 'twenty two coming into 2023.
So that's part of it but I would say the largest component is the increase in the tax credit to the range of about $500 million recognized this year, which is a little more than double what we recognize that last year. So.
The largest component of the 2007.
Okay got it.
I'm really trying to get is just.
Yes.
No go ahead I'm sorry.
Yes, I would just also just going to say and that's partly why we're calling out this additional 600 megawatts.
Because it's largely in fact, it's all investment tax credit based projects. So as Andre described even in the most extreme even if he just had a project that was commissioned on January one instead of December 31.
And you would move that tax recognition over a calendar year. So that's why we're calling out that as potential upside.
And the sensitivity to the tax credit.
It's just timing is all it is.
The thing I'd point out is when we sell the tax credits. We also get the cash exactly. So there is lumpiness in the cash as a result of this so that the cash and the earnings go together.
Yes.
Got it got it okay.
That'll do it for us. Thank you guys both.
Alright. Thanks.
Thank you.
Our next question comes from the line of what Kids Sunderland of J P. Morgan. Your line is now open. Please go ahead.
Hi, good morning, and thanks for the time today, just one last one on this 23 versus 24.
600 megawatts it sounds like if the 10 cents flips to 'twenty four this clearly should be additive to the prior growth outlook meeting attitude to the 7% percent CAGR is that the right frame of reference for whether the 600 megawatts in 'twenty three and brings you kind of back to the original <unk>.
<unk> or 'twenty four pushes you above.
Exactly so that's exactly right it doesn't change the seven to nine through 25, but all else being equal 20 forward go well above the seven to nine as a result of these projects moving into next year, that's exactly right.
Okay got it very clear thank you.
The Ohio ESP for any sense on the backdrop of conversations there after all the time and engagement around the <unk> rate case.
Yes, so at this point as Andres said in his remarks.
The ESP four we're expecting to be decided this summer.
So that was filed last fall.
The PUC did issue the order on the distribution rate case back in December which was very favorable to us and so really those rates or just.
Pending the.
Approval and Finalization of the ESP for.
No.
And keep in mind, the ESP for US a couple of things that are very additive. So one is that it will catch up.
The investment that's occurred between the last rate case filing in 2020.
Up close to the point.
The ESP for was filed last year. So there's a catch up there theres also a new framework for investment going forward, including a distribution investment rider.
As well as some additional riders that will result in faster recognition of investment going forward. So our expectation is that we will see the new structure in place that's Ohio on the course for new investment for the second half of this year and then.
It becomes.
Our growth driver.
Going forward into the next several years, we see in total our net rate base, increasing close to $1 5 billion across both utilities.
From now until 2025.
Understood understood. Thank you and then you referenced.
Changes around the Vietnam requirements for sale and re launching that transaction could you just parse that a little bit more in terms of what you're expecting there now do you see a quicker path to divestment under a second go anything else would be helpful. Here.
Yes, well, we hope so.
Second time around.
Basically the.
What happened here is that the government wanted more of an operator.
The financial investors, they're very happy with us.
And they want somebody equally good so.
We feel there is a number of people interested in the asset because they actually canceled a number of.
New coal.
Plants that we're going to be built so theres, an appetite, especially from Asian operators for this asset so hopefully it will be faster.
It was somewhat of a surprise but.
Our intentions remain the same so to be out of <unk> by the end of 2025.
Yeah.
Got it thank you for the time today.
Thank you.
Yeah.
Our next question comes from the life line of Steve Fleishman of Wolfe Research. Your line is now open. Please go ahead.
Yes. Thank you.
Andreas maybe could you just give us just some overall color on.
How things are proceeding on panel supplies and particularly your flipper.
Implementation issues and.
Is that kind of a key variable and the timing of these projects or is it.
Is it more other tissues.
Let's see we feel pretty we feel good about the panel issue as you know again.
We got all the panels, we could use in 2022.
So in 2023, we have all the orders in our suppliers had been getting through so we feel good about that.
In terms of what would determine that was that last sort of 600 megawatts. It's really a combination of issues not just solar panels. It runs the gamut from wind turbines deliveries et cetera.
Permits easing.
Also the interconnection time is the client ready to take that.
That was one of the biggest issues we had in 2020 until we were ready, but the client was wasn't ready. So it's just.
A bag of different issues.
I'd say unimportant issue going forward as you know we are heading.
Solar panel buyers consortium.
We wanted to have solar panels.
Starting to be delivered.
Late 'twenty four 'twenty five made in the USA.
And what we're seeing now is really what are the regulations will be issued by treasury of what constitutes domestic content.
To get those additional credits.
I'd say, that's an item that we're watching very closely but.
But generally we feel good about and there are certainly people interested in locating that.
Here to supply that contract.
Okay.
And then just I know this was discussed on the last call, but just.
How are you, making the decision between.
On U S projects ITC versus PTC.
So PTC.
Talked about still having a lot of value in the car.
<unk> equity and the depreciation but just.
Do you see that starting to shift at some point in the.
As you execute on future projects.
Yes, I do.
Now that we have the optionality for production tax credits on solar I.
I would see that option being exercised primarily in the Sunniest places in the U S. So in the southwest U S projects, where the production based incentives it's going to yield.
Higher value than necessarily the capex based or the capital investment based incentives.
So we.
We are modeling more production tax credit.
Our into our longer term for this year, it's not.
I wouldn't say, it's impacted us really at all this year.
Because for the most part were locked into a tax credit structure election in a tax equity partnership that we have already agreed to.
But going forward, we will start to see more production based incentives.
Come into come into the come into the mix and Thats something again for Investor Day is we talk about beyond 2025 kind of how do we look at the business. How do you look at the metrics of the business. How do you look at tax credits just fix from earnings that don't include tax credits and things like that that we will be giving.
More guidance on to help people understand what that looks like going forward.
Okay. Thank you.
Thanks, Steve.
Our next question comes from the line of Gregg <unk> of UBS. Your line is now open. Please go ahead.
Hi, Thanks for taking my question.
Yes.
I just wanted to.
Sort of.
Confirm where the where the credit goals are.
Sort of what.
But the guidance update in the EMS segment.
The new segments that you're thinking about.
Sorry, if I'm getting ahead of myself are you referring to.
No no no no problem are you referring to the tax credit.
I think the quarterly rate.
Credit rating okay.
We have been talking so much about the extra day.
So yes, the credit rating.
Certainly the triple B minus.
It is a constant constraint and then we see.
Likely improvement going forward, particularly as our business mix evolves to more long term contracted renewables and more investment in the U S. Utilities. So I would say that's going to be a driver of improvement to the overall profile and view on the.
Source of where our cash is coming from going forward.
This segments.
There's not I can't say too much about that right now as we have been operating under the current segments will be moving to the to the new one soon and then and then talking about that.
On the call going forward, but the segments will make it very clear as to the sources of earnings and cash going forward and where the business is growing frankly, much much higher than 7% to 9% and where the business is shrinking largely consistent with our de carbonization goals, So it'll peel apart where that 7% to nine <unk>.
<unk> has come from 225 as well as go beyond 25.
So Greg in terms of the credit rating, we're already more than 50% of our earnings are coming from the U S.
And a higher and higher percentage is coming from renewables. So we already have.
If we're growing 7% to 9% that includes the dilution from getting out of coal.
So actually our renewables are growing at a much higher rate more like 10% to 12%.
So to put that in context, all of those things point to an improvement as Steve was saying in terms of the quality of the numbers beyond the metrics. So again, we feel very confident in what we've said this is a red line, we're not going to drop below investment grade and we're going to continue to strengthen it.
Thank you.
Thank you.
Thank you.
Our next question comes from Ryan Levine of Citi. Your line is now open. Please go ahead.
Good morning.
I'm going to follow up on whatever that changing.
<unk>.
In terms of the change in segmentation.
Maybe just to take a step back what's prompting the re review of how you're looking to disclose information and is there anything that any re review would signal strategically for the company.
No I mean, we really think this is the culmination of what we've been doing in terms of moving into renewables.
And our business is long term contracted.
And what we're seeing is a lot of.
This would make our business, we feel more transfer and more comparable to other people's businesses. So.
That's all I can say at this point, but it's something that I think.
You guys would welcome because it gives greater transparency and I think it makes us more and more sense as we transition more to renewables.
Okay and in your guidance you disclose a step down from the LNG contribution for this calendar year, what are you assuming for.
Like TTS, Henry hub spreads or upside or contribution from that portion of your contract portfolio.
But I'd say, there's two elements one is that we have less gas available.
To take advantage of that opportunity because we had a step down in our Henry.
Henry hub based.
Gas contracts.
Second it has to do with the spread between Henry hub plus N.
And Tcf, so those spreads have narrowed but it's been a very warm winter, especially in Europe .
So we'll see so that's an opportunity that exists there, but we're not it would be smaller smaller quantity.
And.
We're not counting on it this year because right now the spreads are not.
Such that between all the transportation and the sharing of the upside with oil traders et cetera look, particularly attractive but the option is there should the situation change yes.
Yes, so I mean.
It is largely based on current outlook for the year on on the commodities, but to the extent that spread were to increase that would be an upside to the guidance we've given here.
Great and then last question for me in terms of the asset sale process.
We extended some of these deals don't happen or get delayed.
What tools do you have to alter your financing plan in light of what looks like choppy M&A market.
Well first we have many assets that we can sell and its not only sell out sell down.
So we have.
I think a lot of levers there.
And.
We don't like to talk a lot about any specific asset until we have a deal done.
It doesn't help us, but we always also sell down for example, some of our renewables because that increases our returns sell down a portion of it we continue to operate them.
So.
If.
You have.
Movements in time specific asset sale gets delayed and youre not ready to do another one.
That's where other kinds of financing has come in and we will do the one that makes the most sense, but again as I said before.
<unk>, our credit metrics and our investment grade that's the Red line in the sand.
Great. Thank you.
Thank you.
Our final question is a follow up question from Angie <unk>.
<unk> from Seaport. Your line is now open. Please go ahead.
Thank you just one thing so the 600 megawatts that might slip into 'twenty four that's the gross number right.
Would it be adjusted by our ownership.
I mean, we.
Normally sell down left after the commissioning.
So we do have aimed so this is the U S. So we have our partnership with Alberta investment management, and so I would say for the most part it's about 75%.
S is that number and the tense up to 10 centers that I mentioned to Angie.
Aaas's share so that's that's not the growth.
Okay. That's all I need thank you.
Uh huh.
Thank you Sarah.
No additional questions waiting at this time I'd like to pass the conference back over to Susan <unk> for closing remarks.
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.
Ladies and gentlemen. This concludes today's call have a great day you may now disconnect.
[music].
Yeah.