Q2 2023 The AES Corporation Earnings Call
Good morning, everyone and welcome to today's conference call, we talked with the Aes Corporation second quarter financial was equal my name is Ellen and I will be coordinating the call for today.
At the end of todays presentation there'll be an opportunity to ask a question if you'd like to ask a question. Please press star one on your telephone keypad to join the question queue.
It's now my pleasure to turn the call over to Susan how cool Vice President of Investor Relations. Susan. Please go ahead whenever you're ready.
Thank you operator, good morning, and welcome to our second quarter 2023 financial review call.
Our press release presentation and related financial information are available on our website and 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 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.
Thank you for joining our second quarter 2023 financial review call.
Today, I will discuss our second quarter results.
As with the excellent progress, we're making towards our financial and strategic objectives.
Steve Hoffman.
Paul will give some more detail on our financial performance and outlook.
For the second quarter, adjusted EBITDA with tax attributes with $607 million and adjusted earnings per share was 21 cents.
Results for the quarter as well as for the first half of the year are very much in line with our expectations.
Thus, we're reaffirming our 2023 guidance for all metrics and our targeted annualized growth rates through 2027.
As we noted earlier this year approximately 75% of our 2023 earnings will come in the second half of the year.
Now for an update on our strategic priorities at.
At the core of our strategy is to focus on.
First new renewables with a target to triple our installed capacity by 2027.
Second growth at our U S utilities, where we expect to increase the rate base by more than 10% per year through 2027.
And third the transformation of our portfolio as we exit coal by the end of 2025 and.
And invest in the new technologies that will define our industry for years to come.
Today I will provide an update on how we are executing across each of these focus areas beginning with our renewables.
On slide four.
We continue to see significant inbound interest from key customers wanting to do large U S based renewable projects with us.
We believe this reflects both our reputation for consistently delivering on time as.
As well as our best in class ability to tailor projects to the specific needs of our customers.
Year to date, we have now signed two two gigawatts of new Ppas.
Including two one gigawatts since our Investor day in May.
These numbers do not include one gigawatt from Belfield second phase.
Or 1.4, Gigawatts from our Green hydrogen project with air products in Texas.
Both of which.
Could be signed before the year's end.
I feel good about the likelihood that we will sign five to six gigawatts of new Ppas This year.
We continue to be globally, the number one seller of renewable energy to corporate customers.
We also had a leading position in the U S, providing renewable energy to data centers.
What youre seeing explosive growth in.
In part as a result of the generative AI Revolution.
Turning to slide five.
Another area of recent success is how we have been working with technology customers to complete projects initiated by other developers.
Our corporate customers want us to take on these projects because they know we will deliver them on time and can also restructured the original ppas to provide customized solutions.
Two great. Recent examples of this are the 185 megawatt Delta wind project in Mississippi, which has a signed PPA with Amazon and.
The two gigawatt Belfield project in California, one gigawatt of which has a signed PPA with a large technology company that has a repeat customers.
Both of these projects demonstrate the strength of the relationships, we have with our customers.
For us completing other developers project is especially attractive because we can get similar returns to greenfield projects, while preserving our current pipeline for future projects.
61 gigawatt pipeline represents investments in land interconnection and developing which much speed replace once utilized.
Given growing constraints, a new transmission in markets like California, and PJM, having the flexibility to decide when to utilize these resources helps us maximize total returns from our renewables business.
Moving onto slide six.
We now have a backlog of projects with signed long term contracts, a 13.2, gigawatts, which is the largest in <unk> history.
I would like to reiterate once more that our definition of backlog includes only signed contracts for which we have an obligation to deliver.
And our customers have an obligation to take a given amount of renewable energy for a given amount of time.
The average tenor of the contracts in our backlog is 19 years.
Currently 41% of our $13 two backlog is already under construction and 74% is slated to come online within the next three years.
Turning to slide seven.
Since our Investor day in May we have completed a number of landmark projects.
In June we announced the commercial operation of the 238 megawatt phase one of the stand alone wind project in Arizona.
It is one of the first projects in the country to be placed in service to qualify for the 10% additional energy community tax credit bonus under the inflation reduction Act.
And once phase two is completed it will reach 454 megawatts and be the largest wind project in the state.
In addition, we completed the N b to B solar plus storage project in Chile for our copper mining customers.
It's 180 megawatts of solar plus 560 megawatt hours of storage will make it the largest battery storage installation in all of Latin America.
We were also able to use five bees prefabricated solar panels for a portion of the project.
Advances the learning and lowers the cost of future developments.
Turning to slide eight we are on track to complete the three four gigawatts of new renewable projects, we committed to earlier this year, including nearly 800 megawatts, we've already brought online.
In the U S. We expect to commission roughly two one gigawatts, which is roughly double the capacity we installed last year.
I'm very proud of the work our teams have done to ensure that we have had no supply chain are construction delays.
All of the necessary equipment has been contracted for our 2023 through 2025 backlog.
There remains the potential for completion of up to an additional 600 megawatts. This year in the U S. Given the strong performance of our construction program.
We see a record of completing projects on time is a key competitive advantage that is highly valued by our customers.
We were one of the only major developers, but did not abandoned or meaningfully delay construction projects over the last two years due to supply chain issues.
Furthermore, due to our emphasis on long term planning and strong contractual agreements. We have maintained our project margins, despite inflationary pressures and rising interest rates.
Now moving to our second priority of utility growth on slide nine.
We remain on track to grow our U S pre tax contribution at an annualized rate of 17% to 20% through 2027.
At Aes, Ohio, we expect to receive commission approval for our new electric security plan or ESP for by the end of August .
At which point, our new distribution rates would go into immediate effect.
As a reminder, ESP four includes our approval of timely recovery of $500 million in grid modernization over the next three years carrying a 10% return on equity.
This will allow us to accelerate investments to continue to improve the quality of service, while maintaining the most competitive rates in Ohio.
Hey, Yes, Indiana, we filed for a new rate case in June .
The first rate case since 2018.
The proposed new rates are designed to recover inflationary impacts since the last case.
As well as investments in reliability resiliency improvements and system upgrades.
We expect commission approval by the Middle of next year.
Even after this proposed increase we still expect our residential rates to be among the lowest in the state.
It is Indiana, we continue to advance our low carbon generation growth plan.
We recently filed for approval to build a 200 megawatt or 800 megawatt hour storage facility at the site of the retiring Petersburg coal plant.
This project is expected to come online by the end of next year.
At which point it will be the largest battery storage project in the Midwest.
Now turning to slide 10, and our third priority of transforming our portfolio by exiting coal generation by the end of 2025.
Since our Investor day in May we have significantly advanced our de carbonization objected by assuring the retirement of an additional 900 megawatts of coal generation.
In June we retired 415 megawatts of coal as we shut down units two of the Petersburg plant at Aes, Indiana.
We also announced the retirement of the 276 megawatt northern Air plant in Chile by 2025.
Additionally, we received final approval, allowing for the termination of the PPA at our 205 megawatt warrior run plant in Maryland for proceeds of $357 million.
Now turning to slide 11.
We have expanded our leadership in the development and application of new technologies in our sector.
We see this as another important competitive advantage.
A new example is the use of embedded artificial intelligence, including generative AI across our operations.
This year, we already expect more than 200 million of our adjusted EBITDA to be enabled by AI through both cost reductions and revenue enhancements.
We have incorporated AI and data analytics across our operations from areas such as wind production forecasting to vegetation management to identification of isolated solar panel failures.
As part of this program. We also continue to pioneer and advance the use of robotics to install and maintain solar panels.
Through our solar Robotics program, we are developing proprietary AI based computer vision to install a wide variety of solar module.
Including the largest and heaviest models.
With this technology, we plan to install projects significantly faster and across a wide range of working conditions, including extreme heat.
In the coming months, we will be validating this technology for the installation of tens of megawatts.
And expect to move to use it for full scale solar projects in 2024.
Finally, we're consolidating our lead in advance green hydrogen projects with committed off takers.
We're currently developing the largest announced green hydrogen project in the U S jointly with air products in Texas.
It features 1.4 gigawatts of inside the fence hourly match renewables.
200 metric tons of hydrogen per day, and a 30 year take or pay contract.
It is expected to come online in 2027.
Our pipeline of advanced Green hydrogen projects is equivalent to more than six gigawatts of renewables and 800 metric tons of hydrogen per day with that I would like to turn the call over to our CFO Steve Coffman.
Thank you Andres and good morning, everyone. Today, I will discuss our second quarter results 2023 parent capital allocation in 2023 guidance.
Turning to our financial results for the quarter beginning on slide 13, I'm pleased to share that the second quarter was fully in line with our expectations keeping us well on track to achieve our full year guidance.
Adjusted EBITDA with tax attributes was $607 million versus $722 million last year.
Driven primarily by lower margins at a S Andes and higher costs at our renewables SBU due to an accelerated growth plan.
But partially offset by new renewables coming online and higher availability at select thermal businesses.
Tax attributes earned by our U S. Renewables projects were relatively flat at $38 million in the second quarter of this year in line with our expectations.
Turning to slide 14, adjusted EPS was <unk> 21 versus <unk> 34 cents last year.
In addition to the drivers of adjusted EBITDA, we saw higher parent interest expense this quarter.
As a reminder, our year to date EPS is fully in line with the breakdown that we outlined earlier this year and which we noted that roughly 25% of our earnings would come in the first half of the year and 75% in the second half.
I'll cover the performance of our strategic business units or SP use in more detail over the next four slides beginning on slide 15.
In the renewables SBU, we continue to execute on our strategic priority to triple our portfolio by 2027.
For the second quarter as expected, we saw higher adjusted EBITDA with tax attributes driven primarily by higher wind generation and new projects coming online.
We offset by higher business development and fixed costs due to our accelerated growth plan.
At our utilities SBU, we saw higher adjusted PTC, driven by lower maintenance expenses, but partially offset by higher interest expense from new debt.
We continue to expect strong utilities earnings for the second half of the year driven by typical second half demand seasonality and the pending August decision on E. S. P for at a S. Ohio.
With this pending decision and made great progress in renewables growth at a S. Indiana, we are continuing to pursue our strategic priority to increase rate base by an average of 10% annually through 2027.
Lower adjusted EBITDA at our energy infrastructure SBU, primarily reflects lower margins at a S. Andes inline with our phase out of coal, partially offset by higher availability at select thermal units.
As we execute our third strategic priority to exit coal and complete the transformation of our portfolio, although not every quarter. We generally expect to see annual year over year declines in energy infrastructure as we discussed at Investor day in May.
Finally at our new energy technologies SBU higher adjusted EBITDA reflects continued improved profit margins at fluids.
Fluent has shown year over year improvement for three straight quarters, and we are very pleased with the strong results. They are delivering this year.
Now to slide 19, we are on track to achieve our full year 2023, adjusted EBITDA guidance range of $2 6 billion to $2 9 billion.
Growth in the year ago will be primarily driven by contributions from new businesses, including growth at our U S utilities and contributions from new renewables projects coming online.
As a reminder, the three four gigawatts of new renewables, we expect to add this year represents an increase of over 75% compared to the one nine gigawatts, we added to our portfolio last year.
This amount also represents a doubling of new renewables in the U S versus 2022.
This growth will be offset by approximately $200 million of LNG sales. We've recorded primarily in the third quarter last year, which we do not expect to recur this year.
In addition to our adjusted EBITDA, we expect to realize $500 million to $560 million of tax attributes in 2023, bringing our total adjusted EBITDA plus tax attributes to $3 1 billion to $3 5 billion for the year.
Turning to slide 20, we are also reaffirming our full year 2023, adjusted EPS guidance range of $1 65 to $1 75.
As a reminder, we expect our adjusted EPS to be heavily fourth quarter weighted due to the late year seasonality of our U S renewable project commissioning.
Now to our 2023 parent capital allocation plan on slide 21.
Sources reflect approximately $2 4 billion of total discretionary cash, including $1 billion of parent free cash flow $400 million to $600 million of asset sales and a 900 million parent debt issuance, we completed in Q2.
For more information on our debt issuances at the parent company and our subsidiaries. Please refer to the appendix of the presentation.
On the right hand side, you can see our planned use of capital remains largely in line with guidance with higher parent investment, reflecting our recent acquisition of the two gigawatt Belfield project in the U S.
At our Investor day in May we outlined our capital allocation plan through 2027, including asset sales, along with debt and potential future equity issuances.
We appreciate all of the feedback we've received and I want to take a moment to clarify that we will only raise and invest capital in a way that is value accretive to our shareholders.
Any potential future equity issuances would have to yield accretive value to shareholders for us to pursue equity as a source of capital.
We are also committed to improving our credit profile over time and further bolstering our investment grade rating.
We have a number of other levers to pull to support our growth such as increased capital recycling through asset sales and sell downs.
Given our strong asset sales track record and recent success. It is possible that any future equity issuances could be materially lower than the five year figure we previously shared.
As always our Investor Relations team is happy to take additional feedback and to follow up on additional questions or data requests.
In summary, we're continuing to make progress on transforming a S as portfolio, while delivering strong growth and adjusted EBITDA earnings and parent free cash flow.
Our businesses are executing successfully and delivering on their commitments, we will continue to allocate our capital towards our high growth renewables and utilities to maximize shareholder value.
With that I'll turn the call back over to Andres.
Thank you Steve in summary, we're reaffirming our 2023 guidance for all metrics and our targeted annualized growth rates through 2027.
We continue to make substantial progress on our strategic priorities, including.
Tripling our installed renewables capacity by 2027.
Increasing the rate base at our U S utilities by more than 10% per year through 2027.
And transforming our portfolio by exiting coal by the end of 2025 well.
While investing in new technologies.
We are delivering on all the commitments we made on our Q4 2022 earnings call and at our Investor Day presentation.
With that I would like to open up the call for questions.
Thank you we will now enter all Q&A session, if you'd like to ask a question. Please press star followed by one when you kind of think he pack.
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We will take a question from Doug as Chuck Kraft from Evercore ISI. Your line is now open. Please proceed.
A team good morning, and thank you for giving me time.
Andreas just you know if I heard you correctly.
Remarks are targeting five to six gigawatt of new Ppas first.
Can you confirm whether that is accurate because that's higher than what kind of you might have logged out in previous years, and then whats driving that that higher range.
Sure good to talk to you.
Look.
We signed five two gigawatts of new Ppas last year.
So what we're seeing this year as you know we already have 2.2 side.
We have visibility into just two projects, which would be another about 2.4 Reits would put US 4.4 and of course, we have other projects in the pipeline. So we're not really setting out an official target, but I'm, saying that we believe that we should be.
Similar to last year, and we do have a couple of as what I call. These whales is one gigawatt plus targets, but we feel very good because we see a lot of demand for our products, we have people coming to us with products. So it's really looking at how do we best allocate our.
Our.
Our money, where we get the highest returns.
And best allocate our teams.
Got it.
Thank you for that and then maybe when could we get clarity on the potential 600 megawatts in terms of timing is that really sort of a Q3 call event. When we would know more how should we think about that I'm just thinking about the the projects that got pushed into 2024.
Sure look I would say that.
We feel very good about our construction program.
So you know versus this was the big challenge of this year to grow our construction program in the U S. By a 100% we feel very good about it. Unfortunately, a lot of these are.
Slated to be commissioned towards the latter part of the year. So we should have a good view and in the on the Q3 call of where we stand.
And you know, whether we're going to do more of these projects this year, but in general we're very pleased with.
With the supply chain with our construction teams are the team has really stepped up to the task and I'm very proud of them.
Excellent and then just one last one for me, Steve you mentioned that the equity needs could be materially reduced its nice to hear that in your prepared remarks, maybe you just can you give us more color.
When could we get an update on timing.
What are you thinking it.
The current equity needs when in the plant are those scheduled to hit and when could we get an update.
Yeah look I mean as I said in my remarks, I guess this is just a function of multiple levers.
And we're seeing a lot of great progress on our asset sale program at a $3 billion that we put out at Investor day was well below the total universe of opportunities. So what I wanted to point out is that we're only going to issue equity in.
In the future and that could be far in the future to the point that it's value accretive to shareholders and we have it also.
Other sources that we intend to tap, which is our asset recycling program.
So as you saw with where you run.
As we've seen as we've executed on that renewable sell downs as we exit further coal assets, we have a lot of upside in that asset sale number. So at this point, it's indefinitely into the future and our share price would need to be substantially higher than where it is today and it would have to be valued.
Accretive to shareholders on a per share basis.
I guess another point.
I'd like to make is that we've been very effective at bringing in partners.
To fund our projects so.
That's obviously another lever that we have so we laid out what could be a possible path, we were very conservative on the numbers, but.
If we don't feel that.
We want to some point in the future issue equity, we can always invite partners into our project of course, we're giving them part of the upside as well.
Got it guys I appreciate that a detailed commentary thank you very much.
Thank you.
Thank you Chris.
<unk> comes from David I'll call right from Morgan Stanley David Your line is now open. Please go ahead.
Hi, good morning, Thanks, so much for taking my questions.
Hey, Good morning, I was wondering just what.
What's your latest thinking on just the the hydrogen P. T C timing in terms of Treasury guidance here and what the rules around matching.
Matching and additionality it might be.
And it kind of it just in coordination with that what are your what's your current like project pipeline and discussions with potential partners on that side of the business as it stands currently.
Sure Great question well of course, you know the final rules haven't come out.
What I would like to say is that our Felix project our project in Texas.
Is really would meet the very strictest criteria. So it is additional.
It is oh really matched.
It is regional.
So it has the very lowest carbon footprint technically feasible in the U S.
So I'd like to.
What that right out there that our project is.
Not dependent in any way about how the rules come out.
Now, having said that I.
I do believe that additionality is important I also believe that we have to move to early matching.
In part because we need green hydrogen projects to be tradable goods. So these are the rules are in are in Europe .
Also think regionally is important so we don't add further congestion so really what we want is that the new rules come out help us create a market, but they also help lower total carbon footprint. So we don't want just be squeezing the balloon taking off renewable energy from the grid to produce green hydrogen as well.
We can get into more specifics there so.
I do expect that the.
Rules will come out will incorporate some of these factors, but I wanted to say that our projects are a.
Very solid we have a committed off takers, which I think is the key.
You know what is cause this market for green hydrogen is developing so they have early on projects I think the key is not only have a great project.
With a very low carbon footprint. So you get all of the benefits of the I R E, but to have a committed off taker.
Okay, Great that's helpful color.
And then I was curious if you could speak speak to the transmission challenges just related to transmission interconnection in the renewable industry.
You alluded to it in your commentary, but I was wondering if you could speak to what your kind of current pipeline of maybe transmission queue positions and also with regard to like early stage development.
Land positions things like that how how soon could have transmission constraint potentially impact your business and how are you positioned now to kind of avoid that in the foreseeable future.
Yeah.
Well look I think transmission constraints or affecting the market already so.
So we got out early we started getting a filing for interconnections on a big way three years ago in key markets like PJM queso.
Uh huh.
So.
I think we're in a good position there I think right now we have a new industry here and so I think we have to come to terms with the new definitions you know what is pipeline.
So for US pipeline is projects that we already have either land rights.
Of interconnection rights, you know real prospects to make a project.
And then of course, there are different phases. Some projects are far more advanced shovel ready and some are more at the beginning of the Q I think you know having looked at a lot of.
Let's say proposals from other developers they count pipeline things that are we would call prospects.
And I think we have to move towards a common definition, I mean, a little bit perhaps like the oil sector, which has possible reserves.
As probable reserves and has proven reserves right.
And I think what's very important is that to get a pipeline you have to invest and you'd have to have money.
So some of the new changes for example on the interconnections will make it a little bit more costly just.
Spurious floods.
Let the zone.
<unk>.
Request for interconnections, So maybe Steve can give you some comments on how that is progressing which would be favorable to us. We don't see any sort of short run effect of it but in the long run it's favorable to us because I think we've been the most.
I would say stringent about what we consider pipeline and what we're very interested in doing is.
Maximizing the conversion rate.
But I do also want to emphasize that if somebody comes to us.
And asked us to complete an advance stage.
Development project that that's the best of all worlds, because we get to conserve the pipeline.
We werent investing money when it was at the highest risk page and can bring it online more quickly and satisfy that client.
And I would just add to that look I mean, we're very pleased with the final rules coming out of the FERC order 2023.
But although as Andre said this has been our strategy to lead <unk>.
<unk> development for many years, so we put ourselves in an advantaged position I think many years ago getting into these queues. Nonetheless, it is important for the industry overall for these skus to be move along faster and in the process to be more and more efficient so having the higher financial thresholds to get into the Qs.
Stay in the Qs, having a demonstrate project maturity in terms of permits.
And financing behind them, having cluster studies.
So this isn't just a one by one review process and then having the penalties and the teeth behind the deadlines that have to be met to do the studies is also important so theres a number of angles at which this issue is being approach through the order. The order is due to be published I think very very soon and will go into effect 60 days late.
So I think it's a great thing for the industry, we have already felt great about our position but of course over the longer term to have these cues cleaned up and moving faster is.
It's very important that I think will further accelerate growth throughout the rest of the decade.
And I'd say look we're also taking sort of technological.
A look at how we can improve our transmission for our projects and so this is like using the <unk>.
Grid stack you know.
To be able to baseload transmission lines, which are really <unk>. This means dynamic line rating.
This means using our prefab solar which takes about half the space to be able to put higher loads, where we have a good interconnection.
You'll also notice that we're putting up large battery projects, where we have interconnections Fort Myers decommission coal plants.
So we're looking at this problem, rather holistically and.
Again, I think we're in a very good position to take advantage of what's going to be an increasingly congested grid.
Okay got it understood. Thanks, so much I appreciate it.
Yeah.
Thank you. Thank you.
Thank you. Our next question comes from Richard Sunderland from J P. Morgan Richard Your line is now open. Please proceed.
Hi, good morning am I coming through clearly.
Yes sure.
Okay, great. Thank you. Thank you for the time today.
Circling back to the data center commentary from your script curious how much of a near term change in C&I demand, you're seeing from the sub sector, specifically and any indications of upside just on that ramp over the next one to two years relative to what you were seeing maybe six months or a year ago.
I would say, yes, I mean there.
Theres some definitions that they are waiting for and in various markets.
But.
You know about about rules of where you can locate data centers.
But no we're definitely seeing increased interest in increasing demand and where are the largest provider to a U S data centers and so on.
I think we can uniquely provide data centers with the same quality of service for example in certain markets abroad. B. It you know, Mexico, Chile, Brazil, which is another advantage for us. So yeah, we are seeing increased demand from that sector.
Got it very helpful. And then just wanted to parse the kind of backlog pipeline conversation a little bit more finally for the hydrogen it sounds like the one four gigawatts for Texas.
Come in this year could you just speak a little bit more to your confidence level there for 'twenty, three specifically and what you're focused on there and then thinking about the balance of the hydrogen opportunities when when could those come in over the next few years.
Well again, I think with the most advanced in terms of real green hydrogen projects. So in the U S. You know we have.
No committed off takers for that project in Texas.
We have several other projects, including two of the hubs one in Los Angeles also one in Houston.
I would say that yeah, we could sign.
The first project this year it'll be for coming online for 2027 outside our guidance range.
And the subsequent ones would be somewhat further out you know 27 28.
But what we're seeing is a strong demand and basically we are.
C N as a preferred partner, but by several people and we also have a very good projects for example, in Chile, which is to green the mining sector.
Uh huh.
Either they're heavy equipment, we've already green their electricity use.
And a possible ammonia export project in the northeast of Brazil.
So again stay tuned, but I feel quite confident in saying, where we're the most advanced and.
Projects with committed off takers, and we think we will hit these numbers as it's really a question of.
You know as they come online because.
You know you have to have the equipment that can use it.
Certainly in the shorter term you know you can substitute green hydrogen in thermal processes and in a lot of petrochemicals or.
Steel plants other things like that so we have to see as this market develops but again I think we're very well positioned as a very exciting opportunity for us.
Understood very helpful. And then just one final one for me.
Belfield projects, you've been very clear in a lot of the messaging around how that came together I'm just curious in terms of considerations around phase two versus phase one gist.
Phase one meet your return thresholds on a standalone basis, how to think about the progress to signing phase two anything you can offer there would be helpful.
I think we're well advanced on phase two is what I'm going to say it and it's a.
It would be a similar project to phase one.
So that is the largest solar plus storage project in the U S.
In California, So it's a.
Yes.
Very unique offerings that we can bring together.
Yeah.
Great. Thank you very much for the time today.
Thank you.
Thank you. Our next question comes from Antti <unk> from Seaport Angie. Your line is now let me go ahead.
Good morning, guys. So I wanted to start with.
Some of the high profile management departures, we've seen since the analyst day.
And basically from your core business outside of the U S utilities and renewables.
I mean, you might be as victims of your own success in a sense, but just how you can reassure us that says theres no change in the ER.
Execution of our growth plans, especially in these two businesses.
The deep bench that you have.
To fill those vacancies.
Oh, Hi, Andrea and thanks for that question.
I think you got it spot on.
This is a quite frankly, a symptom of strength.
In our case, we have the hottest.
The management team in the market.
And so of course people are going to be.
Being made offers.
And if.
People are or obviously.
If they wanted to go to private equity and debt on a longer term I feel that that's the right, but this in no way affects our business whatsoever, and I think the best proof of that as you know after the departure in clean.
Clean energy, we've signed more ppas. So we're doing very well I don't expect it to have any impact on the business.
And I expect the same in our U S utilities I don't expect this will have any impact whatsoever, but it is a sign of the yeah. We have a strong team we have a deep bench.
And we will continue to identify talent and prepare it and move it up.
You know if again, let's say, where a S was let's say in 2012 or something our teams weren't it wasn't the highest in the business people wouldn't be trying to poach. It so.
It is what it is.
But I feel very good about where we are and it doesn't change our plans whatsoever and I think the teams are very motivated on executing on the plans that we laid out.
Okay.
Okay.
And moving on I mean, you you talked a lot about your backlog of renewable projects and so and then potential monetization of assets in the world of equity So first on the backlog.
I mean, we've heard stories about.
Some public when you what kind of developers.
Basically showing in their backlogs third party projects, where they don't have exclusivity for these projects. So again I know this is just anecdotal evidence, but I'm just wondering if you've heard of tariff concerns and if any of this could be true for you guys.
Okay, Okay, well I can say categorically, okay, absolutely under no uncertain terms, we have no such projects in our backlog I want to make very clear because.
Maybe some other people are doing that I think that's a not transparent I would not recommend anybody do it in our case whatever we have in the backlog. We are we have the project we are committed to delivering it on a certain date for a certain amount of time and our clients have an obligation to take that energy.
So there's a lot of energy for a certain amount of time. So this is finding for both sides and the fact that 43% of our backlog is currently being built.
We have ordered all of the equipment for our 23 through 25 backlog and about three quarters of them will come online by 2025.
No.
I want to make very clear that's a good question.
Wouldn't recommend anybody to do that.
And I.
Again say categorically, we would never do something like that.
Okay, and then on the monetization of assets. So so I understand that there was a very big difference between the assets that recently transacted in the ones that you are developing if only because of the duration of the ppas. So basically that basically that the duration of the cash levels, but on the flip side right you have.
Higher discount rates for the DCF value of those cash flow. So I'm just thinking I'm you know if you were to monetize some of these assets again I guess, it all depends where the stock is but but again, how how would that you know from your perspective that demonstrate the value of the portfolio that you currently have.
Yeah. Andrew This is Steve So look we have as you know been selling down our renewable.
Ah projects after they've come online.
And we package them together in portfolio. So we have seen some I would say relatively small uptick in return requirements, there, but nothing outside the range of what we expected within our plan in terms of.
This is these are very low risk assets they are solar coupon essentially.
No fuel costs very low maintenance. So these are very predictable and the demand for these assets continues to be very strong.
So.
We don't see any any impact to the plan for how we sell down from sort of where rates are in the market today.
Does that address your question there.
So I mean, the other thing is that these are.
All investment grade quality off takers, the very highest quality off takers that that you can have sofia.
We are selling down.
Premium product in the market. So I think it's important to say that look people have talked about inflation people talked about rising interest rates, we are not seeing a degradation of our margins.
And also the margin of our money into these projects, we're not seeing any squeeze whatsoever.
Yeah.
And on top of that.
Incentive sweep.
Just so it's just as Andrea pointed out with the Chevron view project, where you have the energy community.
Adder for that project is actually most all of our wind projects going forward, we expect to qualify for the domestic.
Adder as well Angie so theres, some significant offsets to the cost of financing that.
That we've been achieving too.
Very good thank you guys.
Thank you Ajay.
Thank you. Our next question comes from Julien Dumoulin Smith from <unk>.
America, Chile and your line is now late them. Please go ahead.
Hey, good morning team. Thank you very much for the time I appreciate it.
<unk> sat here already but let me follow up on some details here just on the year over year comparisons here as we go to the back half of the year, if I if I may.
Look I'd love to talk about I think you have in your slides here 24 cents of positive net impacts in the back half of the year from renewables and year over year comps analogy, but if I rewind here I think you said in the back half of the year that I mean last year. It was like 30 <unk> contribution from LNG.
Just as I think about that that seems like a pretty big step up year over year renewables can you talk about what renewables assumptions, you're baking in as sort of a discrete item in especially in the back half of the year to sort of make up for what you need to get to your guidance and then if I think about the start of the year right in terms of what you talked about renewable contribute.
I think we talked about 27 for the full year. So it seems like what's implied here again I'm curious that renewables is actually contributing more than what we thought at the start of the year and maybe what that says for future years as well, but please by all means.
Respond accordingly.
Okay.
So yes. This is Steve Julian so the 31st it doesn't sound correct or actually more like 'twenty is the LNG year over year Delta to be offset and then of course ware.
More than doubling the renewable commissioning this year. So if you recall it was just around one gigawatt last year. Its two one gigawatts this year.
Most all of which is in the second half of the year. So what we're carrying in the first half.
It's sort of more of the cost in renewables. The EBITDA has been relatively flat through the first half in the second half then we're going to see that renewable number pick up substantially and that's why we have the 75% loading on the second half of the year earnings that's a major driver.
The other is of course utility demand in Ohio, and Indiana, peaking in Q3, you've got Southland, where we have the peak cooling season in the third quarter.
And then we have hydro in Latin America typically the volumes are much higher as we come out of the wet season in the summer and the winter and you have the snow melt into the into the fall. So those are really the primary drivers is the clean energy Southland utilities, and then some of the hydro assets in Latin America, having much more volume.
And in the second half of the year, but the LNG offset is really only about 20 sites for the and mostly in the third quarter.
Yes.
So you said youre not confused on that Oh, sorry go for it.
I would just say, we're executing exactly what we laid out at the beginning of the year. So there's been no change I want to make that clear yeah. Yeah. This is I think were right at 28% on the Etfs Julien year to date. So this is.
What we're seeing.
Although the year over year in the quarter is lower.
That's primarily due to coal retirements in Chile.
We've done the green blend and extend some of the coal that is still there the margins have come down which was all expected.
So we're exactly on track and also to your point there is some potential upside to as Andreas noted show really good about being on track with the construction program and.
There still remains the upside on the 600 megawatts to potential.
Alright, but the point is the plan for 'twenty seven cents of renewables contribution in 'twenty three unchanged from the start of the year. So.
Yeah, let us get back to you on the exact number.
Just because I don't have that math.
But the renewables contribution is is looking at least on track is what I would say.
Okay wonderful. Thank you if I can David slight different direction here trying to follow up on a few earlier questions just on the on the asset sale dynamics versus equity can you comment a little bit further about what else youre seeing out there or what else could be monetize just as you think about deemphasizing equity it sounds like.
The principal lever unless you were alluding to is that you would just sell down your interest in the renew the new renewables even more so is that is that fair to say in terms of like the alternative lever here versus the corporate level equity and also just to clarify the point you made earlier on just very very.
Nicely.
At these levels today, you would definitively move away from the equity levels that you are equity issuance levels you defined earlier in lieu of these alternatives.
So on the first point no its not fair characterization is not fair.
So what it look alright, we have.
Partnerships in all of our businesses.
So we don't necessarily have to do it on the new projects.
So we can bring in partners to money is fungible. So if we monetize a different business that means we have more money available for renewables, we will as we have in the past they can choose to optimize the return on invested capital.
And I think that we were doing a very good job of how we exit cool I think the war you run monetization.
It is probably better than people's expectations, and so we continue to manage that so all I'm, saying is that we never see it.
As Steve said in his script, we did we put this out as a five year plan.
And then the five year plan, we had a certain amount of asset sales a conservative number.
And we had a sort of a range for potential equity issuance as well so the two somewhat offset each other so if we do better on the asset sales, we will need less equity and if we do better in terms of bringing in partnerships. So what we're saying at these levels, we do not feel comfortable issuing equity, but I think it.
<unk> been very clear from our presentation that we had a tremendous demand for what we're doing and.
And that is a once in a lifetime market opportunity. So we want to create the most value for our shareholders from that opportunity.
So obviously if.
If we don't have a problem.
But we feel is correctly.
Correctly valued equity will have to use other levers.
And this should be nothing new to you guys. We have financed a remarkable change in this company without issuing equity we did it by selling down assets, we got into wind by bringing in partners.
So.
What we're saying is nothing like a promise for the future is just more of the same so we will use whatever the levers creates the most value for our shareholders and we will continue to do so.
Got it right so but your point ultimately is.
Im not committing to selling down our partners per se a variety of different sources here incrementally just not issuing any equity at current levels.
And if I can also add to clarify this that merits a process under way I know that was it was listed in the queue here as well is that still.
Status quo anyway, no Theres no yes, no there's no specific merits a process under way Julien at this point, so still evaluating different pathways for MRSA.
Yeah.
Okay, Alright fair enough alright, guys. Thank you very much I appreciate it.
Youre welcome.
Thank you. Our next question comes from Ryan Levine from Citi. Brian . Your line is now open. Please go ahead.
Good morning.
A couple of specific follow on questions is is your fluid state core to your portfolio and I guess secondly on the financing side are you still are still open to considering the convert market to help offset equity issuances.
Hey, Joe This is Steve so, yes fluent as part of the portfolio, we own roughly a third 34% of fluids.
It is not consolidated but it does come in through equity method and we do in our adjusted EBITDA definition include a adjustment to include fluids EBITDA. So that does show up and it's in our new energy technologies.
SBU influence margins.
Is that core is that core.
Is that sort of is it a corporate did you say or is it core is core to our business core so look I mean I would say.
Core yeah. So you know.
Florida, given that it's an outside business.
I don't think I would parse this out is like core or noncore, it's been a really important.
Our strategy for us to be able to lead in energy storage, both in development as well as in the technology and as well as sort of advancing the way that storage gets used to create the innovative solutions. We've done like 24, seven carbon free energy to make those products work, we've got a lot of co.
Innovation co development with fluids around that so that's I would say definitely core to our strategy is what we've been able to do with storage, but as Andre said. Many times. These are technology businesses have their own right. They are separated.
We are not in them indefinitely.
And we continue to grow new opportunities and as we do.
We may look to monetize part of our positions down the road in no time soon and we see a lot of value upside. We're very pleased with how the new management team has driven value already that's been.
Recognized but we still see a lot of upside and there's a lot of partnership that we continue to work on new solutions around so yeah. It is core from that perspective that I laid out.
Okay, and then on the convert option.
So no nothing that we're contemplating at this point I mean look we.
We did a $900 million.
That deal just in the second quarter.
Nothing no specific convert.
For us contemplated at this point.
Okay, and then last question in terms of Puerto Rico, What's your strategy, there from our existing assets and future development perspective.
Well in Puerto Rico, where.
Screening the.
Island's energy grid.
So we do have a renewable projects, we were bringing in batteries as well.
And it's our plan to.
Phase out cool, but by 2025.
So we're.
We're assisting the island and its energy transition and I think we've been very clear where.
What our objectives are.
I appreciate it thank you.
Thank you.
Thank you our final question comes from Greg <unk> from.
Greg Your line is now open.
My feet.
Yeah. Thank you.
Probably quick.
On.
Aes, Ohio is the D. P. L rate case, how does that timing compare with what you were assuming in <unk>.
<unk> or any other differences with how thats proceeding versus the 'twenty three guidance.
Yes, Hi, Greg it's right on track with what we assumed in our guidance so.
The decision has been put on the agenda for next week on August 9th that was just published I believe yesterday, so right on track in terms of when we assume the decisions to be made and we still feel really good about.
Where that is likely to come out.
As a reminder, once the decision is made ESP for put in place and the new rates that were decided upon last year immediately go into effect and as we've laid out the the riders would go into effect.
And then the frequent quarterly recovery on our distribution investments going forward, which start to.
We put in place and so this is a business really pivoting to a very different space from where we've been delevering.
So setting that business up for a more normalized structure. This is an important pivot point for Ohio to really pivot to growth and there's a lot of room for growth is there is the lowest rates in the state they're in all customer classes and even with the ESP for the new rates, we expect it to continue to be the lowest rates in the state.
For the foreseeable future and we have it.
As Andreas noted, 10% plus rate base growth expected going forward. So we're very excited about this and look forward to the decision next week.
And I'm also very excited about that.
<unk> finally getting incoming investment.
So you have a new Honda E V plan to have the battery plant.
Coming into our service area, so you're starting to see an economic recovery has sort of been a not participating in the expansion that we had seen in eastern Ohio. So it's very exciting time, and we're very happy that.
We could invest to continue to improve the quality of service and continue to attract new investments into the Dayton area. So it's not only a rate based story I think theres, an economic recovery story happening in date for the first time in decades. So it's a very exciting time to be in Dayton.
Good thanks.
Yeah.
Thanks, Craig.
Yeah.
I'll now hand, it back to Keith and Hong Kong.
Knox.
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.
This concludes today conference call everybody. Thank you very much for joining you may now disconnect. Your lines have a great. That's a good day.
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