The AES Corporation Q1 2023 Earnings Call
Good morning. Thank you for attending today's the AE is corporation first quarter 2023 Financial review My name is Alicia and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportune.
For questions and answers at the end if you would like to ask a question. Please press star one on your telephone keypad I would now like to pass the conference over to your host Susan Harcourt, Vice President of Investor Relations with Aes Corporation you May now proceed.
Thank you operator, good morning, and welcome to our first quarter 2023 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, 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 first quarter 2023 financial review call.
We are very pleased with our progress so far this year.
And today I will discuss our first quarter results and provide key business updates.
Steve Kaufman, our CFO will give some more detail on our financial performance and outlook.
Beginning on slide three.
As you may have seen in our press release, we introduced new strategic business units.
Which better reflects the greatly simplified company that Aes has today and the pillars of our future growth.
We will be getting a broader strategic review at our Investor day on Monday, including an update on our portfolio transformation.
And an overview of our strong growth expectations for our renewable utility businesses.
Our first quarter 2023 adjusted earnings per share was 22.
Compared with 21 cents in 2022.
Which is in line with our expectations.
With these results and the underlying performance, we are seeing across our business.
We are reaffirming our 2023 adjusted earnings per share guidance of $1 65 to $1 75.
Our 7% to 9% annualized growth rate target through 2025.
Now turning to slide four.
We continue to see strong demand for renewables.
In the U S and internationally.
Including from U S corporate customers with operations in international markets.
So far this year, we have signed Ppas for 309 megawatts of new renewables.
Including 154 megawatts of wind with a U S technology customer in Brazil.
We're in advanced negotiations for several large additional projects.
And remain on track to meet our PPA signing target of 14 to 17 Gigawatts over the next three years.
In the U S.
Key elements of the inflation reduction act or IRI are being clarified.
This past month, the department of Treasury, and the IRS released detailed guidance on how clean energy projects located in energy communities can qualify for an additional 10% bonus tax credit.
We estimate that approximately one third of our 51 gigawatt pipeline of projects in the U S would qualify which directly translates into a combination of higher potential returns.
An increased competitiveness for the projects we are developing.
We are currently awaiting Treasury department guidance on certain provisions of the eye or a.
Including requirement for the clean hydrogen production tax credit.
As a reminder, at our Green hydrogen project in Texas.
Just advance Green hydrogen project in the U S, which we are developing jointly with air products.
We plan to co locate one four gigawatts of new renewables with Electra lasers.
This means that the projects would have the lowest possible carbon emissions of any known project in the U S. A.
Additionally, the project is located adjacent to the site of a decommissioned coal plant, which will provide significant existing infrastructure.
All of these attributes and the fact that the energy will include hourly matching.
Indicate that the project should qualify for the highest possible tax credit in any scenario.
Turning to slide five our backlog of projects with signed long term contracts is now around 12 gigawatts.
Of which roughly half are already under construction.
We continue to maintain a robust supply chain and we continue to hit our construction milestones without delay.
We expect to bring online more than three gigawatts of new wind solar and battery storage this year.
As we bring projects currently in the backlog online in coming years, we will nearly double our installed renewables capacity, making us one of the fastest growing renewable companies in the world.
Turning to slide six we're also happy to report a positive development at Aes, Ohio, which puts us on track for unprecedented growth in the business.
In April a S, Ohio signed a comprehensive settlement agreement for its electric security plan or ESP for which received broad support from residential commercial industrial and low income customers. This settlement included the commission staff as a signatory.
And we expect to receive final approval by the end of the third quarter.
With E S before in place along with our existing investment programs, we expect to more than double our rate base by the end of 2027.
Which would make a S. Ohio, one of the fastest growing utility businesses in the country, while still having the lowest tariffs in the state.
Turning to slide seven we also reached a major milestone towards exiting coal by the end of 2025, we agreed to terminate the PPA at the war you run plant in Maryland for which we will receive total payments of $357 million.
We will retain control of the site and are exploring new uses that capitalize on its valuable location and existing infrastructure.
We see this transaction is very beneficial for all parties involved.
Moving to slide eight we signed agreements to extend the operations of one four gigawatts of gas generation at our legacy Southland units in California for three more years.
These plants were previously scheduled to retire at the end of this year.
The extensions will lock in additional upside and will help meet the state of California's grid liability needs, while supporting its efforts to transition overtime to low carbon source of electricity.
The monetization of the contract that warrior run and the extension of the legacy Southland units are both good examples of how we are creating value from our existing infrastructure assets during the energy transition.
Finally, as I mentioned earlier, we will be holding an investor day on Monday, where we will be sharing our strategic long term view of the company discussing our new business segments, and providing long term growth rates through 2027 for adjusted earnings per share adjusted EBITDA and <unk>.
And free cash flow.
With that I would like to turn the call over to our CFO Steve Cutler.
Thank you Andres and good morning, everyone.
Today, I will discuss our first quarter results 2023 guidance and 2023 parent capital allocation.
Turning to slide 10, as Andres mentioned in the first quarter, we launched our new strategic business units or SP use.
This new organizational structure reflects a S very focused and simplified portfolio.
It also aligns our management teams by business line to maximize our operational synergies and to continue delivering excellent customer experiences across all our markets.
Our new SBU reporting segments highlight our rapidly growing renewables and utility businesses and facilitate simplified modeling a bit, yes, which will benefit current and new potential shareholders and analysts.
Our new SP use include renewables, which includes our solar wind energy storage and hydro businesses, Utah.
Utilities, which includes Aes, Indiana, Aes, Ohio, and a S El Salvador.
Energy infrastructure composed of burst thermal generation and LNG infrastructure businesses.
And new energy technologies, which includes our investments in energy technology businesses, such as fluids, and our plate as well as our green hydrogen business fine and future new business innovations, which support our mission.
In addition to the SP use we also have a corporate reporting segment, which includes our corporate G&A, our parent level debt and associated interest expense and our captive insurance program called <unk>.
Turning to slide 11.
Adjusted EPS for the quarter was 22 or 21 cents last year are.
Our business was favorable year over year, which I will discuss in more detail shortly.
Our results were also impacted by higher parent interest expense and a lower adjusted tax rate.
Now to slide 12.
We are fully on track to achieve our full year 2023, adjusted EPS guidance range of $1 65 to $1 75.
We expect a significant contribution from new renewables of at least 27 this year.
This was partially offset by lower contributions from LNG sales as we have previously mentioned higher parent interest expense from incremental debt and higher rates on our revolving credit facility and a marginally higher tax rate this year.
As is typically the case our earnings are heavily weighted towards the second half of the year.
This year, we expect approximately three quarters of our earnings to occur in the second half.
Growth in the year to go will be primarily driven by contributions from new businesses, including over three gigawatts of projects in our backlog coming online, which remained solidly on track for completion.
We are also reaffirming our expected 7% to 9% average annual growth target through 2025.
Turning to slide 13 as.
As you may have seen in our press release, while we continue to report adjusted EPS. Today. We are also introducing adjusted EBITDA as a new reporting metric.
The renewables portion of our business grows at an extremely high rate. We believe adjusted EBITDA is a very informative metric and understanding our business results.
First it aligns well with the performance of our underlying business and operating cash generation.
And second adjusted EBITDA as reported before the impact of U S. Renewables tax attributes so that investors and analysts can separate renewable operating earnings from the very valuable tax incentives for U S renewables.
Beginning this quarter I will discuss our new SBU financial results using adjusted EBITDA with the exception of our utilities, SBU, which will be measured using adjusted pretax contribution or PTC to facilitate comparisons with other utilities.
We will provide full year guidance by SBU during our Investor day on Monday.
Adjusted EBITDA was $628 million this quarter versus $621 million in the prior year.
This was driven by higher first quarter, LNG sales and growth in renewables, but was partially offset by the impact of warmer than normal weather at our U S utilities.
I'll cover the performance of our new S for use in the next four slides.
Beginning with our renewables SBU on slide 14, higher EBITDA was driven primarily by a higher level of generation at our facilities in Panama.
Wind generation and contributions from new businesses.
This was partially offset by higher spend as we continue to ramp up our renewables development and lower power prices impacting or Bulgaria wind facility.
Lower PTC at our utilities, SBU was mostly driven by warmer than normal winter weather and higher interest expense, but partially offset by higher revenues as a result of our continued investment in the rate base.
Higher EBITDA at our energy infrastructure SBU, primarily reflects higher LNG sales, partially offset by lower margins from coal Ppas. The retirement of our coal plant in Hawaii last year and lower availability at Southland energy.
Finally, higher EBITDA at our new energy technologies SBU reflects a significant improvement in operations and gross margins at fluids.
Now to our 2023 parent capital allocation plan on slide 18.
Sources reflect approximately $2 one to $2 6 billion of total discretionary cash, including $950 million to $1 billion of parent free cash flow.
$400 million to $600 million of proceeds from asset sales.
And $700 million, two 1 billion of planned parent debt issuance.
On the right hand side, you can see our planned use of capital.
We will return nearly 500 millions of shareholders this year.
This consists of our common share dividend, including the previously announced 5% increase as well as the coupon on the equity units.
We plan to invest approximately $1 7 billion towards new growth of which the majority will go to renewables and utilities.
In summary, we've made great progress on our financial commitments for the year.
At our Investor day on Monday, we will provide detail on the strategy and future of Aes overall and for each of our new SP use.
He will also provide long term growth rates through 2027 for adjusted EPS adjusted.
EBITDA and parent free cash flow.
I look forward to talking with many of you been.
With that I'll turn the call back over to Andreas.
Thank you Steve in summary, we are pleased with our progress to date and remain on track to hit our 2023 adjusted earnings per share guidance of $1 65 to $1 75, and our 7% to 9% annualized growth rate target through 2025.
We continue to see strong demand for renewables and especially from our corporate customers. Our supply chain is robust and our construction projects are progressing as planned.
We're also encouraged by the settlement agreement at a S, Ohio, which paves the way for final approval of our New Electric Security plan later this year and creates the framework for significant investments in the utility.
Finally, we see our successful negotiations determinate the warrior run contract.
And extend the operations of the one four gigawatts of our legacy Southland units as indicative of the success, we're having in maximizing shareholder value from our existing assets as we transformed the portfolio.
We look forward to providing a broader strategic update our investor day on Monday, including more details around our growth plan and guidance through 2027.
With that I would like to open up the call for questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question press Star one.
As a reminder, if youre using a speakerphone. Please remember to pick up your handset before asking your question.
Pause here briefly ask questions are registered.
The first question comes from the line of David Arcaro with Morgan Stanley You May now proceed.
Oh, Hey, good morning, Thanks for taking my question.
One thing I wanted to check on would there be any risk to your renewables growth outlook. If the a D. C V. D tariffs were to come back into effect just after we've seen the house and Senate passed some legislation. There just curious how you view that risk and also just longer term how you mitigate that.
80, CVD tariff risk.
Yeah.
Honestly, we don't see any risk whatsoever.
First it.
Past I believe you said it was 56 votes.
That was.
You know the president will veto it.
We have all of the panels that we need for this year and expect to have for next year by June of next year when the.
Tariff.
Let's say tariff holiday rolls off so we're in very good shape for 'twenty, three and 'twenty four.
After that we expect to have supply coming in from the U S. A we're.
We're having no problems from our suppliers.
Getting through under the U F L. P. A.
I think we're in the best shape of anybody we have not delay a single project due to solar panel supply issues to date and I think that's.
Something I don't know if anybody else can say that.
Yeah.
Excellent. Thanks, that's helpful. And then I was just curious any updates into the visibility for the 600 megawatts of projects that are potentially getting completed this year that could get pushed to next year any increased visibility there at this point in the year.
Yes.
Look as I said in my script, we are progressing well you know we have the supply chain.
Everything is in place, but look we won't know until the.
The fourth quarter of this year, if they're going to fall in this year theyre going to fall and next but I would remind everybody that.
Value issue you know if they come in a couple of weeks later.
It doesn't affect the profitability of the project at all.
It is an accounting issue, but as of now.
We're doing well, but we can't say give you any particular update.
Greater clarity and probably until the fourth quarter of this year.
Yeah understood that makes sense and just wanted a quick question I was curious if with the war you run.
Jack is there any level of EBITDA or earnings contribution that you would point to for that as that rolls off.
Then curious how you think about the use of proceeds there. If there is that specifically on the project that would that would be paid down or or if it gets used more broadly at the corporate level.
Yeah, Hey, this is Steve.
There is definitely a earnings from this.
So effectively we're.
<unk> the remaining <unk>.
Roughly <unk> of the PPA.
This year and so we'll recognize earnings this year and we expect to have an obligation for capacity through the middle of next year. So that the earnings over this termination agreement will be recognized over roughly 11 to 12 months. Following when the commission approval comes in so say it.
If it comes in and in June probably about half this year and.
Next year.
And there's very little debt to pay down here. So this is these proceeds will likely cause of the seven year payment stream, but will likely monetize that this year and then that's captured in our asset sale.
In terms of our capital sources this year.
If you saw on that slide so that will be used to fund the growth of the business.
Okay.
Okay perfect great. Thanks, so much.
Thank you David Arcaro.
The next question comes from the line of Angie stores dusky with Seaport Global you May now proceed.
Good morning, So I know, we're going to talk about it on Monday, this transition from EPS or EBITDA.
And if I understand correctly at least that's how I see it it's about avenue of those being more leverage and high out and having a higher depreciation rates then.
You know that thermal assets for example.
However, if.
There's only one issue.
You know as we're looking at the first quarter results might be.
Traditions renewable seems very small right to the total EBITDA.
So that's one and also as you are aware there are different ways, how your peers show adjusted EBITDA and I mean in your case, you're adjusting it for minority interest and there is no.
There's no inclusion of the tax benefits, which are again might understates, the EBITDA versus what your peers report so anyway, and they know that we're going to talk about it on Monday, but just just ease us into this EBIT that transmission.
Okay.
Sure. Thanks for the question look first I'd say look we're going we continue to provide.
Justice earnings per share guidance and as we said we will be providing adjusted earnings per share guidance through 2027 on Monday, So I wanted to make that perfectly clear, but we're adding as an additional indicator.
Which is adjusted EBITDA that were going to be giving and partly to give greater greater clarity into our.
Performance of our.
Renewables and partly it has to do with sort of the lumpiness of the projects. So that's the real reason that we're giving an additional one it also help people to do so for example, a sum of the parts of our different businesses renewables utilities.
Infrastructure, so I want to make very clear that we are providing adjusted earnings per share through 2027.
Regarding the other questions that you have I'm going to go ahead and pass that to Steve Yeah, Thanks, Andreas and thanks Angie.
So definitely we'll be talking some more about this on Monday, but our goal here is to really give the clarity that we think is important to understand and model. The business. So as Andre said, we'll give the adjusted EPS will also give the EBITDA, which is more closely aligned to the underlying business performance and cash.
Generation from the Ppas and then we'll also give the attacks attributes and then the some of the adjusted EBITDA plus the tax attribute so I think it's going to be.
Very complete view and package that helps people truly understand.
How the how the business is earning and generating cash from the different components.
Of the Ppas and the tax attributes.
Okay. Okay.
Then you can also help us how to allocate the corporate leverage across so you know I mean again, if we are trying to move some of that type of valuation. So I need to keep that EBIT that perspective, you know we need to figure out how to allocate the corporate that right among D.
These subsidiaries.
Yeah.
Yeah, I mean, certainly in our Reportings now will be able to separate the debt here for it for the business and then as we look ahead.
Most all of our growth is in renewables and utilities about 80% of the growth is in renewables and utilities and about close to three quarters, 80% and in the U S market. So I think you'll have.
A lot of good detail to help understand how to do that allocation.
Okay. Okay. So you guys on Monday, Thank you.
Right. So your LNG.
Thank you Ms stores and ski.
The next question comes from the line of Richard.
Sunderland with J P. Morgan you May now proceed.
Yeah.
Hi, good morning, and thanks for the time today, and maybe I'll pick it up.
Left off on the new Sbu's, turning to the new energy technologies SBU could you speak more to the green hydrogen side I'm curious if this represents a shift in thinking of where you'd like to be involved in hydrogen or you're just specifically calling out the breakout there relative to the renewables feed again.
Yes. Thanks for the question look what I'd say is that we have a very interesting pipeline, which we will be discussing on.
On Monday of Green hydrogen projects, we really think we were a leader here, we have the most advance and lowest carbon emitting project in Texas here in the U S. But we also have projects in Los Angeles, we have projects in Houston.
We have projects in Brazil for export and we have projects in Chile.
For the for our corporate clients or the mining sector. So we will be providing more color. There now in the specific case of for example, Texas we.
We do a co own the electric <unk> as well as the renewables with our joint venture partner of Air products and the reason for that is to really maximize the value of the project.
Even though the project will be basically.
Co locating all the renewables with the Electrolyze. It is interconnected with the grid. So there could be occasions, just give you a hypothetical the polar vortex in Texas, where the most profitable use.
Use of our renewables is to inject them into the grid and actually not run the Elektra license and so we wanted to have all of our interests aligned so there'll be some projects like that where we also own the electro lasers as well.
In the case of Texas, it's a take or pay with air products, but there are other ones in which we would be selling possibly selling green hydrogen to our corporate customers.
To whom we're already selling renewables. So that's the reason for calling it out.
Also as you know a S next looks at what's next in terms of technologies. So we're also I would say.
How did there so that we can look at what new technologies help us produce green hydrogen cheaper and better for our clients. So that's the reason for calling it out there.
Got it that's very clear.
Sticking with the SBU seem energy infrastructure are you able to disclose how much of that is cold today.
Yeah, So we have.
Roughly a little bit shy of seven gigawatts of coal today.
And that includes some of the assets that we've already announced sales and retirement solve including for example, Mong Duong in Vietnam. Some of the retirements in Chile and Ventana US for example, so you know.
That number is coming down rapidly, but that's roughly what's in the in the base of energy infrastructure today.
Yeah, I would've thought it if.
Oh, sorry.
Just this on a car.
Contribution basis, or a percentage of of SBU basis.
Yeah, so on a on a percentage so what we've talked about is it's about.
30 cents of EPS is coming from coal.
Now what's important is that is there.
That's not all necessarily going away for example, we are converting the Petersburg three or four units in Indiana.
Under the integrated utility in Indiana. So this will leave this will actually be new investment to do the gas conversion and so they'll be earnings from the rate base in an increasing rate base from that asset.
And then in other cases, we are looking at some additional conversion opportunities are.
And then of course, where there is sales.
Proceeds from those sales to then recycle capital into the renewable in utility gross segments.
Got it very helpful. And then just one more for me and consideration of the worry you run termination relative to the $400 million to $600 million asset sale target.
Are you currently with we've announced and closed transactions relative to that range.
Yeah. So we I mean, we initially.
<unk> announced.
Announced this exit a year ago.
And people got really prior to that we had already been significantly reducing our coal portfolio. So our coal portfolio at one point was around 22, Gigawatts and we're already down to seven so the reality is we've already executed on two thirds of this of this program over the many years and as we have you.
[noise] ago saw.
The pathway to meet our financial commitments and to fully exit coal, which we think is going to attract new investors to the aes that have some bright line thresholds here are we.
That path. So I think we've made tremendous progress already.
You know we have visibility into how we're going to exit the remaining assets either through sales that we've announced additional sales that we have not yet announced.
And then some of these conversions and in retirement.
We will continue so we feel very good about the program and very good about the earnings trajectory even post call.
But just what I would add on the numbers, so oh, sorry, sorry Andre.
Just what I would add is that just like we have simplified our portfolio getting out of different markets over time, I think we've done it in a way that maximizes shareholder value I think we're doing the same with coal.
We could've, perhaps accelerated this faster, but I think where you run.
For example, the monetization some years ago, the BHP contract in Chile shows that we were really able to make money from the transition and time. This in a way that we can provide renewables to meet the energy demands of our clients.
In some cases batteries or hydro to meet the capacity or dispatch of a need.
I just mentioned that we feel very good about the program.
And we think we're executing very well on it.
Got it thank you, but just on the Savoye you run a 357 million $400 million is the low range of the 'twenty three targets that that gets you most of the way there and then did you did you receive any proceeds on the quarter as the rest either I guess, Jordan or future announcements.
We had also included in that number is the asset of ours.
The renewable business recycling.
So we had the closure of that operating portfolio of renewable assets that you.
You know that capital into recycle recycling into new growth in renewables. So that's an important part of the program here. It's not just exits of coal, but also the way we recycle capital once we've derisked projects, we've brought them online we'd recognize tax credits, we sell them down to relatively.
Low risk type capital.
And improve both our returns as well as that has helped us support a higher growth rate in the renewables business. So that's part of the asset sale program.
Then we have the Jordan sale.
Not yet been closed but its been announced and then there are some additional possible.
Sales and sell downs in the works this year that could come into that number but as you point out we've already made significant progress towards the target. This year. So we feel very good about the target that we've laid out.
Perfect well. Thank you for the time today to you on Monday.
See you on Monday.
Thank you Mr. Sunderland.
The next question comes from the line of Douglas Chopra with Evercore ISI you May now proceed.
Okay.
Hey, good morning team thanks for taking my questions.
Just.
Can you comment on the the new Ppas signed year to date.
You know when I compare this to first quarter of last year.
That is 2022 had signed over a gig how're.
Or are you only signed 309 megawatts I think in your commentary you mentioned a couple of large contracts.
Maybe a little bit more color there and are you confident that you know the four to four and four five to $5 five gigs or your signage is that is that does that are you still tracking well against that.
All right well. Thanks. Thanks for the question. It's a great question look we feel very good and the one thing is if you recall from last year.
I believe we had a lot of signings in the last quarter.
And so what.
What we're seeing here these things are lumpy.
So we have been ranked two years running as the.
Largest developer of.
Renewable projects for corporations, and so when you're dealing with these corporations. These are big projects. So one project can easily be a giga.
For example, the.
Just another case, our green hydrogen project in Texas, That's one four giga. So so these are lumpy.
So I'm not the least bit concerned about meeting our growth targets, we're seeing a lot of interests. We're in advanced negotiations, but if they.
They don't count until you sign them. So we feel good about them.
No cause for concern.
And that's one of the issues, we have that they're lumpy, but when you're going for.
Big contracts.
As an example.
Project, the Green hydrogen project in Texas that one four gigawatts just in one and we have others that are in that range. So it's going to be lumpy, but we're not concerned because.
We will land enough of these to keep us on track.
Understood that's very clear and then maybe is there a cost update on the on your joint venture the hydrogen project with a P. D. I know their project and I'm not I'm going to mispronounce, this but anyway.
They had some increases early in the year when they when they reported I believe so any any update the cost there in terms of the overall project cost or cost allocated to you for that project.
Look we have no update for cost, it's still going to be in the range of around $4 billion of the whole.
Project, we think it's again, it's going to be the lowest carbon project in the states as you know you have a $3.
Per kilogram.
[noise] subsidy.
If you have a below a certain threshold of carbon intensity. So we feel we're well within that.
You have lessened that if for example, if youre taking energy from the grid.
<unk> to $1. So we feel very good about that.
In terms of the costs.
What I'd say is what they announced on their neon project and I get it.
Just repeating what they put on there that they were going to make some more capital intense investments to lower operating costs. So it's the neon project in Saudi Arabia.
Which is very good for us because they are using a very similar project to this one.
But it's that more advent. So we can learn from that project jointly learn from that project, but no. We have no updates, but we have no reason to think that there'd be any additional cost overruns at this point in time.
But that's that's very helpful color. Thank you address you on Monday.
See you on Monday.
Thank you Mr Chopra.
The next question comes from the line of Julien Dumoulin Smith with Bank of America, You May now proceed.
Hey, good morning team. Thank you guys. So the question here look I just wanted to follow up on the ITC PTC conversation, we've been having of late I'm. Just curious do you guys still pretty committed to using Itc's I know some of your peers has been evolving towards P. T fees you guys focused on the eastern U S. Can you talk about the thought process and philosophy.
They're all sort of fall back on Andrew's question to the extent to which that you are using Itc's 70, 30 split there's still good I know that you know.
For instance, here in the quarter for tax credits fairly low. So I just wanted to make sure that that ITC heuristic of 70 30 in year, one year two still applies.
Yes, Hey, Julien.
So definitely we have.
The lion's share of our tax attributes.
Our from investment tax credits and we will continue to be so.
I'd say when we look at the investment tax credit.
The profile of when projects are coming online. It is roughly fair to say about two thirds of the investment tax credit gets recognized in the year of the commissioning and then about a third 30%.
In the in the second year following commissioning so so that holds.
The total volume of tax credits will grow.
Annually and we expect as the portfolio grows. So you know we were targeting the commissioning of about two one gigawatts this year of U S renewables.
That doubles next year I would expect the volume of tax attributes to roughly follow that same growth rate. So a doubling of the tax credit.
From this year to next year, just as it doubled from last year to this year and we went from what gigawatt to two gigawatts.
The production tax credit is a good incentive in some for a better incentive in some projects typically it has been in wind but.
But in some cases now where we see.
Energy community Adder now that we have some clarity on that and we see the potential for domestic content adders.
With the investment tax credit keep in mind, those adders are actually richer on the investment tax credit than they are on the production tax credit basis, the way the IRA whats written.
So.
There's a bit of an offset there and that some projects, where we have a very healthy pipeline good opportunity to get these bonuses the investment tax credit.
It may still be the best best option, but we'll we'll look at that project by project and look at what yields the best returns.
But I see very strong growth in our tax attribute number year over year going forward.
Right, but the point is you're ITC, you're still vastly weighted towards ITC versus P. T. C. Right. As you have been and you don't tend to change that necessarily especially given your commentary here I just want to make sure there's been some concern otherwise yes.
Lastly, in the vastness of that will be clear on Monday, when I show you the tax credit breakdown between ITC and PTC and then also keep in mind that you know for.
For our backlog we've.
Essentially locked in already that election.
And you know who that tax equity partner is going to be so for the next couple of years, it's it's pretty well decided.
The only thing I would add on the gym to be doing more wind in the states.
Julian So we'll be doing more wind in the states, which will be PTC. So for example, the project in Texas is 900 megawatts of wind. So yes, we'd been more towards the ITC, partly because we've been very heavily in solar we're very strong in solar over time, we expect more of a balance.
Yeah.
Right and then just the backlog adds I know you said, it's lumpy, but it's domestic content is one of the reasons why customers are moving because they don't have a guidance from treasury, yet and so therefore, it's holding folks back.
You've heard this from some folks.
Yeah.
Yes, I mean in our case are not really I don't I think I would point to that it's just you know we're in some negotiations for some whales.
You know when we land them it will come through what what did happen you know last year because of the auction.
Circumvention case that did delay projects digitally projects and.
Set them off into let's say a longer time horizon than than would otherwise be.
But again since we do a lot of bilateral negotiations.
We haven't we haven't had any problems with our supply chain.
That that that is not what's driving it where the domestic content issue does come in is in terms of the $6 billion contract. We have four domestic manufacturer of solar panels here in the states and so obviously.
What's key there before sort of signing on the dotted line is what is domestic content and that the main difference is how granular it's defined because.
If it's more similar to what has been done for example for wind and then it's much easier to.
To comply with initially.
But our plan is to move up the supply chain didn't have more and more of the inputs made it in the states and including some of the.
More basic minerals et cetera coming in.
We already have with our suppliers.
The way for Ing is moving out of China, which was the last sort of complained component we're already buying panels that were made outside of China.
Of course, all the wafer and et cetera. It was done in eastern China, not western China. So we feel very good about that and we've had no issues thus far.
Okay.
Got it.
Last question here just on 23 earnings just when you look at some of the items in the quarter, whether it was the gain on the asset sale or whether it was LNG was that upside relative to the plan are you trending better than you would've expected or was that gain kind of contemplated in your 23 guide earlier.
When you think about your positioning on the ear here.
Yeah, I would say some of these are definitely upsides Julien so all else being equal, yes, there's upside on <unk>.
Fortunately It was also the case I think with most utilities.
[noise] warmer winter weather was somewhat of an offset to those upsides for the first quarter. So we still see the potential for upside above even the midpoint of our guidance, but that's.
That's not.
It remains to be seen how the rest of the year guys.
Right puts and takes as you say alright excellent guys say Monday. Thank you very much all the best.
Thank you Matt.
The next question comes from the line of Greg oral with UBS you May now proceed.
Yeah.
Yeah, Hi, thanks for the question.
I was wondering if you could hey.
So I was wondering if you could touch on the financing plan just sort of the levers that.
Do you feel are available to you for equity or equity like and.
Would you need that to execute.
At least the plan through 25, I just to sort of reaffirm your thoughts there.
Thank you.
Yeah.
Steve So sure. So we'll talk we'll definitely talk some more about the longer term financing plan through 2027, So I think that will give additional color so well hold for that.
This year I think as I laid out on the on the slide we will raise additional parent debt capital largely to fund growth in the in the renewable segment.
And then we have the asset sale program. In addition to the you know close to $1 billion.
Parent free cash flow.
Coming out from the existing business. So there's no there's no plans for equity this year.
Looking ahead, we'll talk some more about that in the plan for for a Monday.
What I would say there is certainly we have we're well positioned for growth or in a.
Leadership position.
And.
We want to drill.
Beyond 2025, but certainly through 2025.
We would not need equity to meet our 2025 commitments. However.
However, we would expect to start investing in growth, including things like the Green hydrogen project, which would get started before 2025.
To support the second half of the decade, but well share more detail on that on Monday.
Okay.
Thank you.
Yeah.
Yeah.
Yeah.
Thank you Mr Earl.
The next question comes from the line of Ryan Levine with Citi. You May now proceed.
Hi.
Hoping to get a better understanding of how you arrived at the new disclosure, you're using EBITDA with additional tax disclosure.
Any insight on that versus maybe Kathy or free cash flow <unk> metrics that some other peers.
Or you can go ahead.
I would say look part of it is that that's what the most of our peers are using.
And what we felt was most transparent as to provide EBITDA and also then the tax attributes and so if for comparison purposes, you need to add the two you can do so.
But it was really tried to make it easier on everyone by using what's most used in the market.
And then in terms of the new developments in extending contract in California.
Are you anticipating that that could extend this further beyond the initial expansion that was recently recently announced.
I think the longer we have we've got a three year extension.
It's those assets those locations extremely valuable for the grid. So we'll see what developments there are but right now three years going forward. So that's pretty good.
Okay. Thank you.
Thank you.
Thank you Mr Levine.
There are no additional questions waiting at this time, so I'll pass the conference back over to Suzanne Park.
Harcourt for closing remarks.
We thank everybody for joining us on today's call. We look forward to seeing many of you at our Investor day on Monday.
Always the IR team will be available to answer any follow up questions. You may have thank you and have a nice day.
That concludes today's conference call. Thank you for your participation you may now disconnect your line.