Q4 2023 The AES Corp Earnings Call
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I would now like to hand over to Susan <unk>, Vice President of Investor Relations. The floor is yours. Please go ahead.
Thank you operator, good morning, and welcome to our fourth quarter and full year 2023 financial review call.
Our press release presentation and related financial information are available on our website at <unk> Dot com.
We will be making forward looking statements.
There are many factors that may cause future results to differ materially from these statements, which are disclosed 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 on risk risky, 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.
Hello, and welcome to the Aes Corporation fourth quarter and full year 2023 financial review call.
Speaker Change: I think that's not be coordinating your call today.
Speaker Change: If you would like to register a question John Space Glens. Please press star followed by one on your telephone keypad.
Good morning, everyone and thank you for joining our fourth quarter and full year 2023 financial review call.
Speaker Change: I would now like to hand over to Susan <unk>, Vice President of Investor Relations. The floor is yours. Please go ahead.
Today, I will discuss our 2023 strategic and financial performance.
Susan: Thank you operator, good morning, and welcome to our fourth quarter and full year 2023 financial review call.
<unk> <unk>, our CFO will discuss our financial results and outlook in more detail shortly.
Susan: Our press release presentation and related financial information are available on our website at <unk> Dot com.
Beginning on slide three.
2023 was our best year ever as we met or exceeded all of our strategic and financial objectives.
Susan: We will be making forward looking statements.
Susan: There are many factors that may cause future results to differ materially from these statements, which are disclosed 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.
<unk> <unk>.
Signing a record of five six gigawatts of new Ppas.
Putting us well on track to achieve 14 to 17 gigawatts of new signings through 2025.
Completing three five gigawatts of construction exceeding the targets, we laid out and doubling our additions compared to 2022.
Andres: Joining me. This morning are on risk risky, our president and Chief Executive Officer, Steve Kaplan, Our Chief Financial Officer, and other senior members of our management team with that I will turn the call over to Andres.
Delivering adjusted EBITDA of $2 8 billion.
And the top end of our guidance range and adjusted EBITDA with tax attributes of $3 4 billion.
Andres: Good morning, everyone and thank you for joining our fourth quarter and full year 2023 financial review call.
Achieving adjusted EPS of $1 76, and parent free cash flow of just over $1 billion.
Andres: Today, I will discuss our 2023 strategic and financial performance.
Andres: <unk> <unk>, our CFO will discuss our financial results and outlook in more detail shortly.
Both beyond the top end of our guidance ranges.
And realizing asset sales proceeds of $1 1 billion significantly above our target of $400 million to $600 million.
Andres: Beginning on slide three.
Andres: 2023 was our best year ever.
Andres: We met or exceeded all of our strategic and financial objectives.
Turning to slide four.
Despite the backdrop of rising interest rates and supply chain challenges across the sector. We demonstrated that our business model is strong resilient and well positioned.
Andres: <unk> <unk>.
Andres: Signing a record of five six gigawatts of new Ppas.
Putting us well on track to achieve 14 to 17 gigawatts of new signing through 2025.
Demand across the sector has never been stronger and in this context I'm pleased to announce that we are raising our expected annual growth rate for adjusted EBITDA and adjusted EPS.
Andres: Completing three five gigawatts of construction exceeding the targets, we laid out and doubling our additions compared to 2022.
We now expect our adjusted EBITDA to grow at an annual rate of 5% to 7%.
Andres: Delivering adjusted EBITDA of $2 $8 billion.
Andres: The top end of our guidance range and adjusted EBITDA with tax attributes of $3 4 billion.
And adjusted EPS to grow at 7% to 9%.
Through 2027.
Andres: Achieving adjusted EPS of $1 76, and parent free cash flow of just over $1 billion.
We're also reaffirming all of our other existing guidance.
I can definitely say that I have never felt better about the outlook for this business.
Andres: Both beyond the top end of our guidance ranges.
Andres: And realizing asset sales proceeds of $1 1 billion significantly above our target of $400 million to $600 million.
Turning to power purchase agreements signings on slide five.
We signed five six gigawatts of new Ppas in 2023.
More than any other year in our company's 43 year history puts.
Andres: Turning to slide four.
Andres: Despite the backdrop of rising interest rates and supply chain challenges across the sector. We demonstrated that our business model is strong resilient and well positioned.
Putting us well on track to sign 14 to 17 Gigawatts of new renewable contracts from 2023 through 2025.
Today, our backlog of projects with signed Ppas is 12, three gigawatts the vast majority of which will be commissioned over the next three years.
Andres: Demand across the sector has never been stronger and in this context I'm pleased to announce that we are raising our expected annual growth rate for adjusted EBITDA and adjusted EPS.
It is worthwhile to note that all of the projects in our contracted backlog remains on track for timely completion consistent with our historical performance.
Andres: We now expect our adjusted EBITDA to grow at an annual rate of 5% to 7%.
Andres: And adjusted EPS to grow at 7% to 9%.
Moving to slide six.
Like to highlight that the largest segment of our new business is with corporate customers.
Andres: Through 2027.
Andres: We're also reaffirming all of our other existing guidance.
In fact in 2023, nearly 60% of the three five gigawatts of projects. We brought online were to serve corporate customers and large technology companies in particular.
Speaker Change: I can definitely say that I have never felt better about the outlook for this business.
Speaker Change: Turning to power purchase agreement signing on slide five.
Speaker Change: We signed five six gigawatts of new Ppas in 2023.
Bloomberg New energy Finance has consistently named <unk> as one of the top two providers of renewable energy to corporations worldwide and our business continues to expand particularly given our focus on serving the power needs from data centers, which were powering the rapid growth.
Speaker Change: More than any other year in our company's 43 year history puts.
Speaker Change: Putting us well on track to sign 14 to 17 Gigawatts of new renewable contracts from 2023 through 2025.
Speaker Change: Today, our backlog of projects with signed Ppas is 12 three gigawatts.
AI.
We are well positioned to serve this customer segment for a number of reasons.
Speaker Change: The majority of which will be commissioned over the next three years.
First we have been on the forefront of working directly with these technology companies to provide innovative solutions to achieve specific renewable energy profile.
Speaker Change: It is worthwhile to note that all of the projects in our contracted backlog remain on track for timely completion consistent with our historical performance.
Back in 2021, we were the first company to introduce a really matched renewable energy and today. We are working with all of the Hyperscale data center companies to provide solutions that are tailored for their renewable energy and sustainability goals.
Speaker Change: Moving to slide six.
Speaker Change: Like to highlight that the largest segment of our new business with corporate customers.
Speaker Change: In fact in 2023, nearly 60% of the three five gigawatts of projects. We brought online were to serve corporate customers and large technology companies in particular.
Second we have a strong track record of delivering our projects on time on budget, while meeting the unique needs of our customers, which I will cover in more detail momentarily.
Speaker Change: Bloomberg New energy Finance has consistently named <unk> as one of the top two providers of renewable energy to corporations worldwide and our business continues to expand particularly given our focus on serving the power needs from data centers, which were powering the rapid growth.
Our record of reliability is something that is increasingly recognized and valued by our customers.
And third we have the scale and the pipeline to address growing demand from data centers, which is estimated to more than double by 2030.
Speaker Change: AI.
With over 50 Gigawatts of projects in our development pipeline and advanced interconnection queue positions in the most relevant markets in the U S. We are particularly well positioned to meet the energy demand of technology customers.
Speaker Change: We are well positioned to serve this customer segment for a number of reasons.
Speaker Change: First we have been on the forefront of working directly with these technology companies to provide innovative solutions to achieve specific renewable energy profile.
Turning to slide seven our success with corporate customers combined with our improved efficiency in development and construction have increase the returns that we have seen across our renewable portfolio.
Speaker Change: Back in 2021, we were the first company to introduce a really matched renewable energy and today. We are working with all of the Hyperscale data center companies to provide solutions that are tailored for their renewable energy and sustainability goals.
As a result, we're upping our U S return ranges by 200 basis points to 12% to 15% on a levered after tax cash basis.
Speaker Change: Second we have a strong track record of delivering our projects on time on budget, while meeting the unique needs of our customers, which I will cover in more detail momentarily.
We are seeing even higher returns internationally.
Speaker Change: Record reliability is something that is increasingly recognized and valued by our customers.
With strong market demand and Aes is leading position we were able to be increasingly selective about the projects. We built with a focus on those with the best overall financial benefits.
And third we have the scale and the pipeline to address growing demand from data centers, which is estimated to more than double by 2030.
Next turning to construction on slide eight.
With over 50 Gigawatts of projects in our development pipeline and advanced interconnection queue positions in the most relevant markets in the U S. We are particularly well positioned to meet the energy demand technology customers.
Our ability to complete projects on time and on budget has become a major differentiator for us.
Not only is this something that our customers highly value, but it is also a pillar of our business model and ensure that our realized financial returns are on average equal to or better than our projections.
Speaker Change: Turning to slide seven.
Success with corporate customers combined with our improved efficiency in development and construction have increase the returns that we have seen across our renewable portfolio.
At the time of PPA signings, we logging contractual arrangements for all major equipment, EPC and long term financing, which we hedge to ensure no interest rate exposure.
Speaker Change: As a result, we're upping our U S return ranges by 200 basis points to 12% to 15% on a levered after tax cash basis.
At the same time, we systematically embedded flexibility in our supply chain to safeguard against a variety of scenarios.
Speaker Change: We are seeing even higher returns internationally.
We also have a multi year strategic arrangements with top suppliers, including fluids.
Speaker Change: With strong market demand and Aes is leading position we were able to be increasingly selective about the projects. We built with a focus on those with the best overall financial benefits.
Do we see as having the most competitive product in the industry.
More than half of our solar projects in recent years have co located storage components and our relationship with fluids.
Speaker Change: Next turning to construction on slide eight.
Help us to have the best on time project completion rate in the industry.
Speaker Change: Our ability to complete projects on time and on budget has become a major differentiator for us.
In 2024, we feel very confident in our ability to add three six gigawatts of new projects, including two two gigawatts in the U S.
Speaker Change: Not only is this something that our customers highly value, but it is also a pillar of our business model and ensure that our realized financial returns are on average equal to or better than our projections.
We currently have 100% of the major equipment for these projects contractually secured and nearly 80% already on site.
Speaker Change: At the time of PPA signings, we lock in contractual arrangements for all major equipment.
Now turning to our utilities beginning on slide nine in 2023, we achieved important milestones at our U S utilities that will drive future growth continued de carbonization and improvement in customer service.
Speaker Change: C and long term financing, which we hedge to ensure no interest rate exposure.
Speaker Change: At the same time, we systematically embedded flexibility in our supply chain to safeguard against a variety of scenarios.
It is Ohio, we put in place a new regulatory framework and is a S. Indiana, we reached a unanimous settlement for our first rate case since 2018.
Speaker Change: We also have a multi year strategic arrangements with top suppliers, including fluids.
Speaker Change: Who we see as having the most competitive product in the industry.
Speaker Change: More than half of our solar projects in recent years have co located storage components and our relationship with fluent.
As a result investments are on track for the rate base growth in the high teens at both utilities and we now have close to 70% of our planned investments through 2027 already approved in regulatory orders.
Speaker Change: Does that have the best on time project completion rate in the industry.
Speaker Change: In 2024, we feel very confident in our ability to add three six gigawatts of new projects, including 2.2 gigawatt in the U S.
Turning to slide 10, and a S. Ohio, we are embarking on the largest investment program that this utility has ever seen.
Speaker Change: We currently have 100% of the major equipment for these projects contractually secured and nearly 80% already on site.
Which includes the expansion and enhancement and our transmission assets.
With over 25% rate base growth per year. This is one of the fastest transmission growth rates in the country.
Speaker Change: Now turning to our utilities beginning on slide nine.
We also recently filed for regulatory approval of the second phase of our smart grid plan, which upgrades our grid to improve service quality and customer experience.
Speaker Change: In 2023, we achieved important milestones at our U S utilities that will drive future growth continued decarbonization and improvement in customer service.
Turning to slide 11.
Speaker Change: And then yes, Ohio, we put in place a new regulatory framework and a S. Indiana, we reached a unanimous settlement for our first rate case since 2018.
At a S. Indiana, we continue to invest to improve service quality and green our generation mix.
I'm happy to say that we now have regulatory approval for the Buildout of all named renewable projects at Aes, Indiana, encompassing 106 megawatts of wind 445 megawatts of solar and 245 megawatts of energy storage.
Speaker Change: As a result investments are on track for the rate base growth in the high teens at both utilities and we now have close to 70% of our planned investments through 2027 already approved in regulatory orders.
As we continue to invest in our customer experience service quality and sustainability at both of our U S utilities to core principles have guided our growth plans.
Speaker Change: Turning to slide 10, and a S. Ohio, we're embarking on the largest investment program that this utility has ever seen.
Speaker Change: Which includes the expansion and enhancement in our transmission assets.
First is customer affordability as we address much needed investments.
Speaker Change: With over 25% rate base growth per year. This is one of the fastest transmission growth rates in the country.
We currently have the lowest residential rates in both states, which we expect to maintain throughout this period of growth.
Speaker Change: We also recently filed for regulatory approval of the second phase of our smart grid plan, which upgrades our grid to improve service quality and customer experience.
And second is to prioritize the timely recovery of our investments through existing mechanisms and programs.
Across both utilities, we now anticipate approximately 75% of the growth capital to be deployed under such mechanisms, which substantially reduces regulatory lag.
Speaker Change: Turning to slide 11, and a S. Indiana, we continue to invest to improve service quality and green our generation mix.
Speaker Change: I'm happy to say that we now have regulatory approval for the Buildout of all named renewable projects at Aes, Indiana, encompassing 106 megawatts of wind 445 megawatts of solar and 245 megawatts of energy storage.
Finally, turning to slide 12 last year, we said in asset sale proceeds target of $400 million to $600 million.
We greatly exceeded this range with $1 1 billion of gross proceeds.
These transactions not only put a high valuation marker on our businesses, but also put us well on our way towards achieving our asset sales goal of $2 billion through 2025 and.
Speaker Change: As we continue to invest in our customer experience service quality and sustainability at both of our U S utilities to core principles have guided our growth plans.
And $3 $5 billion through 2027.
Speaker Change: First is customer affordability as we address much needed investments.
Our success. This past year provides us with a cushion and we expect 2024 to be another strong year.
Speaker Change: We currently have the lowest residential rates in both states, which we expect to maintain throughout this period of growth.
With that I would like to turn the call over to our CFO Steve Crawford.
Speaker Change: And second is to prioritize the timely recovery of our investments through existing mechanisms and programs.
Thank you Andres and good morning, everyone. Today, I will discuss our 2023 results and capital allocation, our 2020 for guidance and our updated expectations through 2027.
Speaker Change: Across both utilities, we now anticipate approximately 75% of the growth capital to be deployed under such mechanisms, which substantially reduces regulatory lag.
As Andreas mentioned 2023 was <unk> best year on record as we met or exceeded all of our strategic and financial targets.
Speaker Change: Finally, turning to slide 12 last year, we said in asset sale proceeds target of $400 million to $600 million.
We beat our adjusted EPS guidance range of $1 65 to $1 75, and our parent free cash flow guidance range of $950 million to $1 billion.
Speaker Change: We greatly exceeded this range with $1 1 billion of gross proceeds.
Speaker Change: These transactions not only put a high valuation marker on our businesses, but also put us well on our way towards achieving our asset sales goal of $2 billion through 2025 and.
We also recorded strong adjusted EBITDA, well above the midpoint of our inaugural guidance range of two six to $2 9 billion.
Speaker Change: And $3 $5 billion through 2027.
Turning to slide 14 full year 2023, adjusted EBITDA with tax attribute was $3 4 billion versus $3 2 billion in 2022, driven primarily by contributions from new renewables projects as well as the recovery of prior year's purchase power costs at Aes, Ohio.
Speaker Change: Our success. This past year provides us with a cushion and we expect 2024 to be another strong year.
Speaker Change: With that I would like to turn the call over to our CFO Steve Crawford.
Steve Fleishman: Thank you Andres and good morning, everyone. Today, I will discuss our 2023 results and capital allocation, our 2020 for guidance and our updated expectations through 2027.
<unk> included as part of the ESP for settlement.
Drivers were partially offset by lower contributions from the energy infrastructure SBU.
Turning to slide 15.
Steve Fleishman: As Andreas mentioned 2023 was a S. Its best year on record as we met or exceeded all of our strategic and financial targets.
Adjusted EPS was $1 76 in 2023 versus $1 67 in 2022 drivers were similar to those for adjusted EBITDA with tax attributes.
Steve Fleishman: We beat our adjusted EPS guidance range of $1 65 to $1 75, and our parent free cash flow guidance range of $950 million to $1 billion.
In addition, there was a 6% headwind from parent interest on higher debt balances primarily used to fund new renewables projects.
Steve Fleishman: We also recorded strong adjusted EBITDA, well above the midpoint of our inaugural guidance range of two six to $2 9 billion.
I'll cover our results in more detail over the next four slides beginning with the renewable strategic business unit or SBU on slide 16.
Steve Fleishman: Turning to slide 14 full year 2023, adjusted EBITDA with tax attribute was $3 4 billion versus $3 2 billion in 2022, driven primarily by contributions from new renewables projects as well as the recovery of prior year's purchase power costs at a S. Ohio.
Higher adjusted EBITDA with tax attributes at a renewables SBU was primarily driven by contributions from the three five gigawatts of new projects that came online in 2023 as well as higher margins in Colombia, but partially offset by the sell down of select U S renewable operating assets.
Steve Fleishman: <unk> included as part of the E S P for settlement.
At our utilities SBU higher adjusted PTC was primarily driven by the recovery of prior year's purchase power costs at a S. Ohio included as part of the ESP for settlement as well as rate base growth in the U S.
Steve Fleishman: Drivers were partially offset by lower contributions from the energy infrastructure SBU.
Steve Fleishman: Turning to slide 15.
Adjusted EPS was $1 76 in 2023 versus $1 67 in 2022 drivers were similar to those for adjusted EBITDA with tax attributes.
Lower adjusted EBITDA at our energy infrastructure SBU reflects significant LNG transaction margins in 2022.
Steve Fleishman: In addition, there was a 6% headwind from parent interest on higher debt balances primarily used to fund new renewables projects.
<unk> margins in Chile, and the sale of a minority interest in our Southland combined cycle assets.
Speaker Change: I'll cover our results in more detail over the next four slides beginning with the renewable strategic business unit or SBU on slide 16.
These drivers were partially offset by the higher revenues recognized from the accelerated monetization of the PPA at or where you run coal plant.
Finally at our new energy technologies SBU.
Speaker Change: Higher adjusted EBITDA with tax attributes at a renewables SBU was primarily driven by contributions from the three five gigawatts of new projects that came online in 2023 as well as higher margins in Colombia, but partially offset by the sell down of select U S renewable operating asset.
Higher adjusted EBITDA reflects improved results at fluids, which achieved positive adjusted EBITDA in their fiscal fourth quarter of 2023.
Fluids also guided to positive adjusted EBITDA for their full fiscal year 2024.
Speaker Change: At our utilities SBU higher adjusted PTC was primarily driven by the recovery of prior year's purchase power costs at a S. Ohio included as part of the E. S. P for settlement as well as rate base growth in the U S.
Now, let's turn to how we allocated our capital last year on slide 20.
Beginning on the left hand side sources reflect 3 billion of total discretionary cash.
This includes parent free cash flow of just over $1 billion, which increased nearly 11% from the prior year to just above the top end of our guidance.
Speaker Change: Lower adjusted EBITDA at our energy infrastructure SBU reflects significant LNG transaction margins in 2022.
We also significantly surpassed our asset sale target with $750 million and net asset sales proceeds to the aes parent after subsidiary level debt repayment reinvestment and taxes.
Speaker Change: Lower margins in Chile, and the sale of a minority interest in our Southland combined cycle assets.
Speaker Change: These drivers were partially offset by the higher revenues recognized from the accelerated monetization of the PPA at or where you run coal plant.
And we issued $900 million of parent debt in may of last year.
Speaker Change: Finally at our new energy technologies SBU higher adjusted EBITDA reflects improved results at fluids, which achieved positive adjusted EBITDA and their fiscal fourth quarter of 2023.
Moving to uses on the right hand side, we invested more than $2 1 billion in growth at our subsidiaries of which approximately two thirds within the U S. We also allocated more than $500 million of discretionary cash to our dividend.
Well, it's also guided to positive adjusted EBITDA for their full fiscal year 2024.
Overall I'm extremely pleased with our financial performance throughout 2023.
Speaker Change: Now, let's turn to how we allocated our capital last year on slide 20.
Now, let's turn to our guidance and expectations beginning on slide 21.
Speaker Change: Beginning on the left hand side sources reflect 3 billion of total discretionary cash.
Today, we are initiating 2024, adjusted EBITDA with tax attributes guidance of three $6 billion to $4 billion.
Speaker Change: This includes parent free cash flow of just over $1 billion, which increased nearly 11% from the prior year to just above the top end of our guidance.
Driven by over $500 million in contributions from new renewables projects and from rate base growth at our U S. Utilities. We have also incorporated a 200 million partially offsetting impact from asset sales, we either closed in 2023, our plan to close this year.
Speaker Change: We also significantly surpassed our asset sale target with $750 million and net asset sales proceeds to aes parent after subsidiary level debt repayment reinvestment and taxes.
Excluding the $1 billion in tax attributes, we expect to recognize in 2024 adjusted EBITDA is expected to be two six to $2 9 billion.
Speaker Change: And we issued $900 million of parent debt in may of last year.
Speaker Change: Moving to uses on the right hand side, we invested more than $2 1 billion in growth at our subsidiary of which approximately two thirds within the U S. We also allocated more than $500 million of discretionary cash to our dividend.
The increase in tax attributes versus the prior year is partially due to our continued use of tax credit transfers, which results in earlier recognition of tax credits than typical tax equity structures.
Speaker Change: Overall I'm extremely pleased with our financial performance throughout 2023.
In addition, last year's increase and new project completions will drive higher tax attribute recognition in 2024.
Speaker Change: Now, let's turn to our guidance and expectations beginning on slide 21.
As a reminder, we will recognize approximately one third of tax attributes generated on 2023 projects in the 2020 for fiscal year.
Speaker Change: Today, we're initiating 2024, adjusted EBITDA with tax attributes guidance of $3 $6 billion to $4 billion drill.
Looking beyond this year, our head start on asset sales gives us greater visibility toward our longer term growth and puts downward pressure on our capital budget we.
Speaker Change: Driven by over 500 million in contributions from new renewables projects and from rate base growth at our U S. Utilities. We have also incorporated a 200 million partially offsetting impact from asset sales, we either closed in 2023, our plan to close this year.
We expect EBITDA to increase each year through the remainder of our long term guidance period.
Turning to slide 22.
We expect 2024, adjusted EPS of $1 87 to $1 97, which represents a 9% increase year over year and puts us on track to achieve our 7% to 9% long term growth target through 2025.
Speaker Change: Excluding the $1 billion in tax attributes, we expect to recognize in 2024 adjusted EBITDA is expected to be 2.6 to $2 9 billion.
Speaker Change: The increase in tax attributes versus the prior year is partially due to our continued use of tax credit transfers, which results in earlier recognition of tax credits than typical tax equity structures.
Growth will be primarily driven by our renewables and utilities businesses and will be partially offset by higher parent interest.
Speaker Change: In addition, last year's increase and new project completions will drive higher tax attribute recognition in 2024.
We also expect an eight point headwind from asset sales.
Our construction program. This year is more evenly spread than in recent years.
Speaker Change: As a reminder, we will recognize approximately one third of tax attributes generated on 2023 projects in the 2020 for fiscal year.
As a result, we expect approximately 40% of our earnings to be recognized in the first half of the year and 60% in the second half.
Speaker Change: Looking beyond this year, our head start on asset sales gives us greater visibility toward our longer term growth and puts downward pressure on our capital budget.
And we will have greater visibility throughout the year into our expected construction completion.
Turning to slide 23.
Speaker Change: We expect EBITDA to increase each year through the remainder of our long term guidance period.
Andres mentioned, a very strong market position and providing tailored solutions to corporate clients, including large data centers has allowed us to realize higher returns on our renewables projects.
Speaker Change: Turning to slide 22.
Speaker Change: We expect 2024, adjusted EPS of $1 87 to $1 97, which represents a 9% increase year over year and puts us on track to achieve our 7% to 9% long term growth target through 2025.
In addition, as our renewables business continues to scale, we anticipate further realization of productivity and scale benefits.
Based on these factors in our 2023 results. We now expect a S. As U S renewables returns to be in the 12% to 15% range.
Speaker Change: Growth will be primarily driven by our renewables and utilities businesses and will be partially offset by higher parent interest.
These higher returns in the U S along with productivity benefits are directly accretive to our earnings and cash flow and as a result, we are increasing our expected long term adjusted EBITDA growth rate to 5% to 7% and our long term adjusted EPS growth rate to 7% to 9% through 2000.
Speaker Change: We also expect an eight point headwind from asset sales.
Speaker Change: Our construction program. This year is more evenly spread than in recent years.
Speaker Change: As a result, we expect approximately 40% of our earnings to be recognized in the first half of the year and 60% in the second half.
Speaker Change: And we will have greater visibility throughout the year into our expected construction completion.
27% off a base of our 2023 guidance midpoint.
Now turning to our 2020 for parent capital allocation plan on slide 24.
Speaker Change: Turning to slide 23.
Speaker Change: Andres mentioned, a very strong market position and providing tailored solutions to corporate clients, including large data centers has allowed us to realize higher returns on our renewables projects.
Beginning with approximately $3 1 billion of sources on the left hand side.
Parent free cash flow for 2024 is expected to be around 1.15 billion to 1.15 billion.
Speaker Change: In addition, as our renewables business continues to scale, we anticipate further realization of productivity and scale benefits.
We expect to generate $900 million to $1 1 billion of net asset sale proceeds this year.
Speaker Change: Based on these factors in our 2023 results. We now expect a S. As U S renewables returns to be in the 12% to 15% range.
By the end of this year, we expect to be more than halfway toward the $3 5 billion gross asset sales target, we announced on our third quarter earnings call.
Speaker Change: These higher returns in the U S along with productivity benefits are directly accretive to our earnings and cash flow and as a result, we are increasing our expected long term adjusted EBITDA growth rate to 5% to 7% and our long term adjusted EPS growth rate to 7% to 9% through 2000.
Although we expect an increase of approximately $1 billion of parent debt. This year, our business is well insulated from changes in interest rates.
Our new projects are funded primarily with fixed rate or long term hedged self amortizing debt with tenors similar to the length of our ppas and more than 80% of our outstanding debt is nonrecourse to Aes Corp.
Speaker Change: 27% off a base of our 2023 guidance midpoint.
Our exposure from floating rates in future issuances is managed with nearly $8 billion and outstanding hedges.
Speaker Change: Now turning to our 2020 for parent capital allocation plan on slide 24.
Speaker Change: Beginning with approximately $3 1 billion of sources on the left hand side.
Looking at the impact of a 100 basis points shift in rates on our future issuances refinancings and outstanding U S floating rate debt, we have only one penny of EPS exposure from interest rates in 2024.
Speaker Change: Parent free cash flow for 'twenty 'twenty four is expected to be around 1.15 billion to 1.15 billion.
Speaker Change: We expect to generate $900 million to $1 1 billion of net asset sale proceeds this year.
Now to the uses on the right hand side.
Speaker Change: By the end of this year, we expect to be more than halfway toward the $3 5 billion gross asset sales target, we announced in our third quarter earnings call.
We plan to invest approximately $2 6 billion in new growth of which about 85% will be allocated to growing our renewables portfolio and utility rate base.
Speaker Change: Although we expect an increase of approximately 1 billion of parent debt. This year, our business is well insulated from changes in interest rates.
More than 90% of this will be directed into the U S with the remainder going to growth projects in Chile and Panama.
Speaker Change: Our new projects are funded primarily with fixed rate or long term hedged self amortizing debt with tenors similar to the length of our ppas and more than 80% of our outstanding debt is now.
We expect to allocate approximately $500 million to our shareholder dividend, which reflects the previously announced 4% increase.
Turning to slide 25.
Non recourse to Aes Corp.
Our long term sources of parent capital through 2027 reflect the accelerated asset sales target, we introduced on our third quarter call.
Speaker Change: Our exposure from floating rates in future issuances is managed with nearly 8 billion in outstanding hedges.
Speaker Change: Looking at the impact of a 100 basis point shift in rates on our future issuances.
We also expect higher organic cash generation as a result of our increased long term growth rates.
Speaker Change: The financings and outstanding U S floating rate debt, we have only one penny of EPS exposure from interest rates in 2024.
As a reminder, we will not issue any new equity until 2026 at the earliest and we will only do so in a way that creates value on a per share basis.
Speaker Change: Now to the uses on the right hand side.
Now to slide 26 uses through 2027 reflect more than $7 billion of investment in our subsidiaries primarily to grow our renewables and utilities businesses.
Speaker Change: We plan to invest approximately $2 6 billion in new growth of which about 85% will be allocated to growing our renewables portfolio and utility rate base.
Speaker Change: More than 90% of this will be directed into the U S with the remainder going to growth projects in Chile and Panama.
We also expect to allocate more than $2 billion to our dividend.
Given our surplus of attractive investment opportunities and our desire to minimize equity issuance as a source of capital. We now expect to grow our dividend at 2% to 3% annually beyond 2024.
Speaker Change: We expect to allocate approximately $500 million to our shareholder dividend, which reflects the previously announced 4% increase.
Speaker Change: Turning to slide 25.
We believe this provides an optimal balance between an already attractive dividend yield and strong earnings and cash flow growth throughout our planned period.
Speaker Change: Our long term sources of parent capital through 2027 reflect the accelerated asset sales target, we introduced on our third quarter call.
In summary, 2023 was an extraordinary year for Aes, we demonstrated our ability to adapt to the current market and execute on our growth commitments, while we further advanced our competitive position.
Speaker Change: We also expect higher organic cash generation as a result of our increased long term growth rates.
Speaker Change: As a reminder, we will not issue any new equity until 2026 at the earliest and we will only do so in a way that creates value on a per share basis.
As we continue to perfect and scale, our renewables machine, we expect to have another record year in 2024 and to deliver on our now higher long term growth target.
Speaker Change: Now to slide 26 uses through 2027 reflect more than $7 billion of investment in our subsidiaries primarily to grow our renewables and utilities businesses.
We have positioned <unk> to achieve our strategic priorities and grow our business in a way that's highly value accretive to our shareholders.
Speaker Change: We also expect to allocate more than $2 billion to our dividend.
With that I'll turn the call back over to Andres.
Speaker Change: Given our surplus of attractive investment opportunities and our desire to minimize equity issuance as a source of capital. We now expect to grow our dividend at 2% to 3% annually beyond 2024.
Thank you Steve in summary, 2023 was our best year ever as we met or exceeded all of our strategic and financial objectives across our guidance metrics PPA, signing construction completions and asset sales.
Speaker Change: We believe this provides an optimal balance between an already attractive dividend yield and strong earnings and cash flow growth throughout our planned period.
We are seeing strong demand for renewables across the sector, particularly due to the unprecedented demand from data centers.
Speaker Change: In summary, 2023 was an extraordinary year for Aes, we demonstrated our ability to adapt to the current market and execute on our growth commitments, while we further advanced our competitive position.
As a result, we are not only upping our U S project return regions, but increasing our expected average annual growth rate for adjusted EBITDA and adjusted earnings per share through 2027.
Speaker Change: As we continue to perfect and scale, our renewables machine, we expect to have another record year in 2024 and to deliver on our now higher long term growth target.
Finally, our significant success with asset sales to date as well as the outlook for the near future gives us great comfort in our long term funding plan.
Speaker Change: We have positioned <unk> to achieve our strategic priorities and grow our business in a way that's highly value accretive to our shareholders.
With that I would now.
Like to open the call for questions.
With that I'll turn the call back over to Andres.
Thank you.
Andres: Thank you Steve in summary, 2023 was our best year ever as we met or exceeded all of our strategic and financial objectives across our guidance metrics PPA signings construction completions and asset sales.
Like to ask a question. Please press star followed by one on your telephone keypad. If you would like to withdraw your question. Please press star followed by two one.
When <unk> ask a question. Please ensure your device is on mute locally.
Our first question comes from Nick Campanella with Barclays. Your line is open. Please go ahead.
Andres: We are seeing strong demand for renewables across the sector, particularly due to the unprecedented demand from data centers.
Hey, good morning, Thanks for taking my questions today and I appreciate all the update.
So I guess, you originally had a 3% to 5% EBIT target.
Andres: As a result, we are not only upping our U S project return rages, but increasing our expected average annual growth rate for adjusted EBITDA and adjusted earnings per share through 2027.
When you kind of put out that analyst day range, and then I guess the EBITDA guidance that you gave today for fiscal 'twenty four it does seem to just be a bit flat versus that growth outlook is that just from the timing of of asset sales could you just help kind of clarify what's driving that.
Andres: Finally, our significant success with asset sales to date as well as the outlook for the near future. It gives us great comfort in our long term funding plan.
Yeah, Hey, Nick it's Steve.
Speaker Change: With that I would.
That's right I mean, it's primarily because we're ahead on the asset sale target significantly from 2023, we had the $1 1 billion versus the 400 to 600 guidance. So that's why the asset sale drag as Theres a lag when we took when we redeploy the capital and its yielding.
Speaker Change: Like to open the call for questions.
Speaker Change: Thank you.
Speaker Change: Like to ask a question. Please press star followed by one on your telephone keypad. If you would like to withdraw your question. Please press star followed by two one.
Speaker Change: When you ask a question. Please ensure your device is underneath it locally.
<unk> is about 200 this year, so a little higher than what we would've anticipated.
Speaker Change: Our first question comes from Nick Campanella with Barclays. Your line is open. Please go ahead.
Year ago, So overall good news.
Nick Campanella: Hey, good morning, Thanks for taking my questions today and I appreciate all the update.
Yeah.
But it is offsetting the growth that's coming from the rate base in utilities and.
Nick Campanella: So I guess you originally had a 3% to 5% EBIT target when you kind of put out that analyst day range, and then I guess to the EBITDA guidance that you gave today for fiscal 'twenty four it does seem to just be a bit flat versus that growth outlook is that just from the timing of of asset sales.
In the renewables projects that's right.
That's helpful and then just on asset sales.
So to the extent that you're continuing to be successful here.
And doing more versus what you kind of have in this in this plan just is there a room to kind of offset that $1 billion of parent debt issuance does that change at all where we're where exactly is there flexibility in as planned today from your perspective, and then could you just also kind of update us on what your leverage targets are and your minimums and this new plan. Thanks.
Nick Campanella: Just help kind of clarify what's driving that.
Nick Campanella: Yeah, Hey, Nick it's Steve.
Steve: That's right I mean, it's primarily because we're ahead on the asset sale target significantly from 2023, we had the $1 1 billion versus the 400 to 600 guidance. So that's why the asset sale drag as Theres a lag when we took when we redeploy the capital and its yielding.
Yeah, Yeah, no. So so definitely so we have.
The investment grade is a top priority. So we are.
Steve: <unk> is about 200 this year, so a little higher than what we would've anticipated a year ago. So overall good news for.
We designed the plan to meet the investment grade targets that we have and keep in mind and we build cushing into the metrics themselves, but also keep in mind that the quality and the duration of the cash flows in the business is transitioning dramatically. So we're going to.
Steve: Terrific.
Steve: But it is offsetting the growth that's coming from the rate base and the utilities and.
Steve: In the renewables projects that's right.
To a much longer duration average duration of contracts.
Speaker Change: That's helpful and then just on asset sales.
Okay.
Speaker Change: So to the extent that you're continuing to be successful here.
One of your contract contracts. This is clean energy no carbon risk. These are U S dollar contracts with large corporates many of which are data center customers Big Tech companies very high quality credits. So it's both the solid credit metrics as well as the quality and profile.
Speaker Change: And doing more versus what you kind of have in this in this plan just is there a room to kind of offset that $1 billion of parent debt issuance does that change at all where we're at where exactly is there flexibility in as planned today from your perspective, and then could you just also kind of update us on what your leverage targets are and your minimums and this new plan. Thanks.
Of the cash flows that's evolving.
We don't count on that when sizing the new debt, we Kevin just the metrics, but the quality is improving as well. So in terms of levers look I mean, the asset sale target.
Speaker Change: Yeah, Yeah, no. So so definitely so we have the investment grade is a top priority. So we are.
Speaker Change: We designed the plant to meet the investment grade targets that we had and keep in mind and we built cushing into the metrics themselves, but also keep in mind that the quality and the duration of the cash flows in the business is transitioning dramatically. So we're going to.
Is as it's always been has multiple ways that it can be achieved.
There is some conservatism built in.
Over the total.
We have fully anticipated any.
Temporal dilutive impact in the numbers that we've given as I said.
But there is some flex there as.
To a much longer duration average duration of contracts.
As needed, but but on the debt side the investment grade is a top priority.
Speaker Change: Okay.
Speaker Change: One of your contract contracts you know this is clean energy no carbon risk. These are U S dollar contracts with large corporates many of which are data center customers Big Tech companies very high quality credits. So it's both the solid credit metrics as well as the quality and profile.
Alright, I'll leave it there I really appreciate it thank you.
We now turn to David Arcaro with Morgan Stanley. Your line is open. Please go ahead.
Oh, great. Good morning, Thanks, so much for taking my questions.
Speaker Change: Of the of the cash flows that's evolving.
Wanted to dig in a little bit on the high return levels that you're projecting.
Speaker Change: We don't count on that when sizing the new debt, we cannot just the metrics, but the quality is improving as well. So in terms of levers look I mean, the asset sale target.
Hey, and then on the high return levels that you are projecting here was there something that sparked at any kind of catalyst that has pushed you up.
So the higher return levels in the renewables business, it's been in a higher interest rate environment for obviously for a while high higher PPA price environment for a while is it more of a mix of end customers that you're selling to now.
Speaker Change: Is as it's always been has multiple ways that it can be achieved.
Speaker Change: There is some conservatism built in.
Speaker Change: Over the total.
Speaker Change: We have fully anticipated.
Speaker Change: Temporal dilutive impact in the numbers that we've given as I said.
David I'd say, it's a combination of things so first and foremost is the returns that we are.
Speaker Change: But there is some flex there as as needed, but but on the debt side.
<unk>.
Prior Ppas that we saw it so that's the first we are seeing that we're getting higher returns.
Speaker Change: The investment grade.
Speaker Change: The top priority.
Speaker Change: Alright, I'll leave it there I really appreciate it thank you.
What is driving these higher returns.
You may recall for some time, maybe like three years ago, starting three four years ago I started to say that in select markets there would be.
Speaker Change: Yeah, we're not sensitive David all Colorado with Morgan Stanley. Your line is open. Please go ahead.
Really a shortage of good renewable projects.
Colorado: Oh, great. Good morning, Thanks, so much for taking my questions.
These are markets like California like PJM.
Wanted to dig in a little bit on the high return levels that you're projecting.
New York, So what we started to do is position ourselves and actually.
David: Hey, and then on the <unk>.
David: I return levels that you are projecting here was there something that sparked at any kind of catalyst that has pushed you up.
Enter the queue.
The land rights et cetera to have projects will be able to fulfill this so I think that part of it is in these select markets you are starting to see the shortage of renewables that we had been say see and I think this is something that will spread sort of market to market, it's not going to be true for all markets out west there's a lot of land.
David: In terms of the higher return levels in the renewables business, it's been in a higher interest rate environment for obviously for a while high higher PPA price environment for a while is it more of a mix of end customers that you're selling to now.
It's not that much demand, but in select markets you will be seeing that so I think that's also part of the result is that.
David: David I'd say, it's a combination of things so first and foremost is the returns that we are.
We are positioned in the right markets.
David: Based on prior Ppas that we saw it. So that's the first you know we are seeing that we're getting higher returns.
The third thing I would say is that we are.
<unk>, becoming more efficient in our construction and out of the development process and stay tuned I think that will continue to improve.
David: Second what is driving these higher returns.
David: You may recall for some time, maybe like three years ago, starting three or four years ago.
Realize that 2021 you had a lot of supply chain disruptions you know those are well past us and were really getting to optimize that.
David: Sorry to say that in select markets there would be.
David: Really a shortage of good renewable projects.
So based on our greater efficiency, what we're seeing is that yes, we are getting higher returns and we've also positioned ourselves you know this is all while our fourth year fifth year of really positioning ourselves with large corporate customers and those corporate customers have very strong demand growing very quickly. So if you.
David: These are markets like California like PJM.
David: New York, So what we started to do is position ourselves and actually.
David: Enter the queue by land rights et cetera to have projects will be able to fulfill this so I think that part of it is at least select markets. You are starting to see the shortage of renewables that we had been say see and I think this is something that will spread sort of market to market, it's not going to be true for all markets West there's a lot of land.
You asked me from a sector point of view I think the real question is can we meet the demand that they have for clean energy in all of these markets and by the way I would add Chile has a similar market to California, where there's a real shortage of projects. This is a very strong demand from our customers and that we're very well placed so.
David: It's not that much demand, but in select markets you will be seeing that so I think that's also part of the result is that.
David: You know we are positioned in the right markets.
This is not like a catalyst. This is we had several thesis which are played out.
David: The third thing I would say is that we're becoming more efficient.
David: <unk> in our construction and then the development process and stay tuned I think that will continue to improve.
As we expected them to play out.
Yeah, and the only thing I would add David is that looking at 2023, what we signed up was well within to that new updated range right.
David: You know realize that 'twenty 'twenty. One you know you had a lot of supply chain disruptions. You know those are well past us and were really getting to optimize that so.
Okay. Thanks, that's good to hear.
David: Based on our greater efficiency, what we're seeing is that yes, we are getting higher returns and we've also positioned ourselves you know this is all while our fourth year fifth year of really positioning ourselves with large corporate customers and you know those corporate customers have very strong demand growing very quickly. So if you ask me.
And then.
In terms of the higher growth rates that you've outlined today wondering if we could just unpack that a little bit is that all coming from the renewable segment in terms of the higher returns that youre seeing or is some of the is the utilities business or energy infrastructure.
Also experiencing tire.
David: From a sector point of view I think the real question is can we meet the demand that they have for clean energy in all of these markets and by the way I would add Chile has a similar market to California, where there's a real shortage of projects. This is a very strong demand from our customers and that we're very well placed so.
EBITDA growth outlook here.
Well what you have is both I think are two key segments. One is the utilities, we have some of the fastest growing utilities in the U S. A.
And second yes, we are also seeing better returns in the renewable sector. So the combination of those two.
David: This is not like a catalyst. This is we had several thesis which are played out.
Is the resulting in a faster growth rate.
David: As we expected them to play out.
Speaker Change: Yeah, and the only thing I would add David is that looking at 2023, what we signed up was well within to that new updated range right.
Okay, great. Thanks, so much.
Yeah.
Thank you. Our next question comes from Julien Dumoulin Smith with Bank of America. Your line is open. Please go ahead.
David: Okay. Thanks, Yeah, that's good to hear.
Hi, there hey, thanks for taking my questions. This is actually Cameron lochridge on for Julien.
David: And then.
In terms of the higher growth rates that you've outlined today wondering if we could just unpack that a little bit is that all coming from the renewable segment in terms of the higher returns that youre seeing or is some of the is the utilities business or energy infrastructure.
I wanted to start just on the the raised.
Growth expectations.
And kind of piggybacking off the last question if I look at what you had planned for your EBITDA contributions across the different businesses, 45% renewables, 32% utilities, 23% energy infrastructure in 2027.
How has that mix shifted.
As a reflection of this but you know these raised expectations for for growth.
Yeah. So I would say I think the mix roughly be maybe a little bit more on the renewable side, we're seeing the higher returns so.
You know maybe that's above the 45 to 50 ish. So it's going to be higher on the renewables I think the utilities is under so it'll be a little bit more of a share.
On the energy infrastructure.
We did.
[noise] communicate that that was going to shrink as we.
Execute on the coal exit plan, although for just a handful of assets to be extended out to 2027, so that.
Dilution from those coal exit because it was the smaller portion will be spread out over over more time, which overall I think is a good thing in terms of the in the financials as well so a little more renewables a little more utilities.
Then the energy infrastructure.
Is shrinking a little bit less.
But it's still in that same same range.
Yeah.
Got it. Thank you and then just digging in on the renewables.
Just.
B the cumulative capacity additions you guys have communicated tripling the debate.
Five to 30 gigawatts of cumulative additions.
Is that still the case through 'twenty seven or is that bumped higher or is this purely.
Just a function of returns improving and then one that returns improving piece how.
How do we think about the bifurcation between perhaps.
More.
Our ability to capitalize in Ohio rate credits.
Versus just true economic.
Improvement.
Vis vis ppas pricing increasing.
Just kind of help us unpack that a little bit.
Okay.
So let me sort of give a big picture and then I'll pass it off to Steve.
Look what we're going after it really is as I said in my script is.
Yes.
Really going after those projects, which provide the best financial benefits.
You've known me for a while I've never gone for growth for Growth's sake.
So really what we want to do is maximize shareholder value on a per share basis.
So really this is an upgrading of the quality of the growth more than a greater numeric growth.
Now I do think the.
It's very important to us.
Understand sort of what market segments. We're in we're in the corporate segment, but we're also very heavily into the datacenter segment.
And this is something again, we've been working on for many years, we have really a very good relationships with key clients and that is the demand is growing very quickly.
And certainly that we don't mentioned in his speech quite frankly, because it's very early times, but we're really going to go after artificial intelligence as a efficiency improvement in the company.
But let me sort of give a big picture and then I'll pass it off to Steve.
Look what we're going after it really is as I said in my script is.
And we have a big kickoff meeting that we're going to have.
And in the next couple of months.
Sure.
Really going after those projects, which provide the best financial benefits.
But this is something I think we've taken a very sort of strategic.
Strategic.
You've known me for a while I've never gone for growth for Growth's sake.
<unk>.
In there Paul Bhandari, who was the global Chief data Officer for IBM until 2023 has just joined our board and as somebody who is very knowledgeable in the area.
So really what we want to do is maximize shareholder value on a per share basis.
So really this is an upgrading of the quality of the growth more than a greater numeric growth.
We also have the agenda Davis, who is also a ph D in computer science.
Now I do think the.
It's very important.
It's interesting I mean, right now with and therefore, we have five phds on our board, which is got to be one of the highest percentages and things that run from your computer science to finance to economics of the business. So that's what I wanted to put it is we're pursuing as returns were pursuing a value for sure.
Understand sort of what market segments. We're in we're in the corporate segment, but we're also very heavily into the datacenter segment.
And this is something again, we've been working on for many years, we have really a very good relationships with key clients and that is the demand is growing very quickly.
And I think we've been very systematic.
It's something that we don't mention <unk>.
Now for many years.
<unk> quite frankly, because it's very early times, but we're really going to go after artificial intelligence as a efficiency improvement in the company.
<unk> ourselves in a given sector and learning about and preparing ourselves for the new technologies, which are coming so you know there's a lot of buzzwords of AI well, what's behind this is five six years of getting ourselves in a position to really utilize the data.
And we have a big kickoff meeting that we're going to have.
In the next couple of months.
But this is something I think we've taken a very sort of strategic line.
And have the understanding of the company so with that I'll pass it off to Steve to answer the other parts of your question, Yes no.
In there Paul Bhandari, who was the global Chief data Officer for IBM until 2023 has just joined our board and as somebody who is very knowledgeable in the area. We also have the agenda Davis, who is also a ph D in computer science.
I agree wholeheartedly that we're focused on cash returns and that's primarily where the higher growth is coming from you'll notice that it was really the the EBITDA growth rate got ticked up.
The most and so not really from tax credits I mean, we had already talked about that about 40% of our pipeline was in energy communities that continues to be.
It's interesting I mean, right now with <unk>, we have five phds on our board, we've just got to be one of the highest percentages.
Roughly the case.
Things that run from your computer science to finance to economics of business. So that's what I wanted to put it and we are pursuing as returns we're pursuing value per share.
So it's really from the cash generation of the assets that the.
Increase in rates is coming up.
And we're less focused on megawatt so it's roughly a similar amount of cap, maybe maybe even a little bit lower.
And I think we've been very systematic.
Now for many years and.
Positioning ourselves in a given sector and learning about and preparing ourselves for the new technologies, which are coming so you know there's a lot of buzzwords of AI well, what's behind this is <unk>.
But.
If that if that means less megawatts, that's okay, where we are.
Focused on what are the the best.
Best returns that we can get for our capital that's deployed.
Six years of getting ourselves in a position to really utilize the data and have the understanding of the company. So with that I'll pass it off to Steve who answer the other parts of your question yes.
And that's cash base and not based on the credits.
Okay.
Got it awesome well look guys. Thank you very much I'll turn it back.
I agree wholeheartedly that we're focused on cash returns and that's primarily where the higher growth is coming from you'll notice that it was really to the EBITDA growth rate that ticked up.
Alright, thank you.
Our next question comes from Doug <unk> with Evercore ISI. Your line is open. Please go ahead.
Most and so not really from tax credits I mean, we had already talked about that about 40% of our pipeline was in energy communities that continues to be.
Hey, good morning team, Thanks for giving me time.
Hey, I just.
Wanted to ask you more about that.
Hey, good morning, Andreas I wanted to ask you about the new projects. The three six gigawatts to be added in 2024, I mean, obviously, you've done pretty well versus your state your own stated five gigawatt target.
Roughly the case, so it's really from the cash generation of the assets that the.
The increase in rates is coming up.
And we're less focused on megawatts. So it's roughly a similar amount of cap, maybe maybe even a little bit lower.
The renewables funding you're doing five six materially higher than five gigawatts, but why only like the level of Gigawatts actually entering commercial operation is kind of flattish going into 'twenty three.
But.
If that if that means less megawatts that's okay.
On what are the.
So just wondering if that's just ready to project timing, because I would've expected a materially tick up just a new projects going here.
Speaker Change: The best returns that we can get for our capital that's deployed.
Speaker Change: And that's cash base and not based on the credits.
Speaker Change: Right.
Susan: Got it awesome work guys. Thank you very much I'll turn it back.
Yes, no that's a good question look.
2023, it was a dramatic here, where we increased construction, 100% and we've been saying look I mean, we're not going to cross the 100 per cent per year now we've been signing over five gigawatts a year of new Ppas. So eventually these two have to somewhat converge I mean at some point, we have to be something we have to be cutting the ribbon on around five gigawatts.
Susan: Alright, thank you.
Susan: Our next question comes from Doug <unk>.
Doug: <unk> with Evercore ISI. Your line is open. Please go ahead.
Doug: Hey, good morning, Keith Forgive me time.
Doug: Hey, I just.
Speaker Change: Wanted to ask you more about that.
Speaker Change: Hey, good morning, Andreas I wanted to ask you about the new projects. The three six gigawatts to be added in 2024, I mean, obviously, you've done pretty well versus your own stated five gigawatt target.
That's not going to happen likely next year, just because of the timing.
Some of the projects we also have a.
Develop and transfer project as well.
That's not part of our backlog, but it's part of the signing so that also is part of the reason for.
Andreas: The renewables, finding you're doing five six materially higher than five gigawatts.
Andres: Why only like the level of gigawatt actually entering commercial operation is kind of flat to 2023.
This is not a signal of anything it just has to be the particular timing of the projects that we have.
And again, we feel you know.
Andres: So I'm just wondering if thats just related to project timing, because I would have expected a materially tick up just a new projects going here.
This year very good.
Okay.
Commissioning them all on time and on budget, we have a 100% of the.
Speaker Change: Yes, no that's a good question look.
Equip major equipment.
<unk> already secured and 80% of it is on on site, which is we've never been that good. This early in the process and I think another thing important that.
Speaker Change: <unk> 23 was a dramatic here, where we increased construction, 100% and we've been saying look I mean, we're not going to grow to 100 per cent per year now we've been signing over five gigawatts a year of new Ppas. So eventually these two have to somewhat converge I mean at some point, we have to be something we have to be cutting the ribbon on around five gigawatts.
Steve said this is going to be reflected.
In our earnings profile, whereas you know we were very backend loaded.
Last year because of this very rapid growth as growth enters a more steady state.
CFO: That's not going to happen likely next year, just because of the timing of some of the projects. We also have a.
Going to have 40% of our earnings in the first half and at least 60% in the second half. So this is something we've also worked very hard to achieve.
Andres: Develop and transfer project as well.
We feel here's 'twenty four 'twenty five youre going to have a catch up to the amount of ppas that we're signing.
Andres: That's not part of our backlog, but it's part of the signing so that also is part of the reason for that so.
Got it. Thank you for that Andreas and then maybe Steve can I just go back to Nick's question earlier on credit metrics can you remind us where you're ending F. A photo that in 2023, and then what where are you projecting 2020 for it to be worse than your credit downgrade thresholds. Thank you.
Andres: This is not a signal of anything it just has to be the particular timing of the projects that we have.
Andres: And again, we feel.
Andres: This year very good about.
Andres: Commissioning them all on time and on budget, we have 100% of the.
Yeah, Yeah, no problem, so I guess yeah.
Andres: Equip major equipment.
Andres: <unk> already secured and 80% of it is on on.
So.
We had a solid year and on the credit metrics. So our thresholds are at 20% <unk> to debt and we were roughly at 22% approximately.
Andres: On site, which is <unk>.
Andres: We've never been that good this early in the process and I think another thing important that.
Andres: Steve said this is going to be reflected.
Andres: In our earnings profile, whereas we were very backend loaded.
We do keep at least a very strong cushion, that's very healthy and going forward that ratio is actually improving.
Andres: Last year because of this very rapid growth as growth enters a more steady state we're going to have 40% of our earnings in the first half and only 60% in the second half. So this is something we've also worked very hard to achieve.
In our plan so for the end of 2024, I would expect it to be at least 22, if not a little bit higher than that.
So the leverage of the company overall.
Andres: <unk> we feel.
We did get a lot of questions about it but it is important to keep in mind, we have the recourse nonrecourse structure and particularly in the nonrecourse debt.
Andres: Here's 24, 25% youre going to have a catch up to the amount of ppas that we're signing.
This is amortizing debt I think.
Speaker Change: Got it. Thank you for that Andreas and then maybe Steve can I just go back to Nick's question earlier on credit metrics can you just help us with where you ended 23 on <unk> at the photos that are worthy of downgrade thresholds and where you're expecting 2024 to be thank you.
Not everyone is doing it that way and so our project debt is really.
Amortizing and it's it's served by the cash flows from from the projects the parent debt level.
It's actually going to be it'll come up a little bit over the planned period, but not a lot. So it's it's a $4 5 billion now.
And as I said in my comments on the slides, maybe another one to one and a half over the four year period, but.
It's it's going to be pretty stable.
I appreciate that thank you very much.
Speaker Change: And that ratio is actually <unk>.
Thank you.
Speaker Change: Proving overtime in the plan period, so I would expect it to be at least at that level for the year.
Our next question comes from Andrew <unk> with Seaport Research Partners. Your line is open. Please go ahead.
Thank you. So I was just wondering are you guys seeing any degradation and.
Either EBITDA or cash flow generation of our existing assets.
We're seeing examples of especially on the wind side.
Wind assets are having some issues with both Opex and Capex.
Hence, we power rings, but just wondering if.
Theres, obviously this positive momentum on the Newbuild side, but is there any offset from existing assets.
Speaker Change: Hey, Jay just transfer my weight loss connection with our speaker. Thank you for your patience as we reconnect them.
Oh, no no none whatsoever in fact.
As I said, we continue to operate better.
And.
We are seeing that are older projects are giving the returns that we.
Actually giving better returns than we had forecast so we're not seeing that I mean the.
Speaker Change: [music].
We don't have made perhaps that many older. When we do have Buffalo gap, but we have not seen any.
Degradation in performance.
Okay and then the second question. So you remember in the past you were mentioning that the.
Slightly delayed that coal plant retirements could be a lever them for actually both earnings and cash flow. So is there an update there.
Well, yeah, so so Andrea as I was mentioning.
The.
So there's just a handful of assets that we've extended through 2027, primarily due to the short remaining duration of the contracts.
Speaker Change: Yes Hello.
Speaker Change: Ladies and gentlemen, we now have our speakers reconnected.
Speaker Change: Joe cash if you could regime with your question.
Is it making both operational.
As well as financial sense for us to remain the owner through sort of the end of end of life.
Joe Cash: Thank you I'm not sure if they show was the mine or yours, but Steve what I wanted to go back to was and Andreas We heard the response to my first question on the on the addition, so thank you for that Steve.
So there is some upside to that two upsides really it smooths out the 750 million of EBITDA reduction from the coal exit plans throughout the $25 $6 728 period, So theres no real cliff.
Speaker Change: In terms of credit metrics I wanted to follow up on Nick's question earlier can you remind us where you're ending F. A photo that in 2023, and then what where you're projecting 2024 to be worse than your credit downgrade thresholds. Thank you.
And then if it does add to the EBITDA over the timeframe, but it's one of the it's a smaller driver the biggest driver of the EBITDA uplift is the higher returns for realizing on the renewable projects given the market dynamics that Andres discussed as well as.
Speaker Change: Yeah, Yeah, no problem to guests and sorry, everyone about the disconnection. So hopefully everyone can hear us well now.
Speaker Change: Yes so.
Speaker Change: We had a solid year and on the credit metrics. So our thresholds are at 20% <unk> to debt and we were roughly at 22% approximately.
The productivity and scale benefits, we've realized in the portfolio and expect to continue to realize as we scale up and I'd like to add that we still plan to be out of coal by the end of 2027 and that we.
Speaker Change: We do keep at least a very strong cushion, that's very healthy and going forward that ratio is actually improving.
After 2025, we'll have somewhere about it.
Speaker Change: And our plan so for the end of 2024, I would expect it to be at least 22, if not a little bit higher than that.
One gigawatt plants and part of this is driven by the fact that these plants are still needed twos for stability of the system. So we are not allowed to shut them down in part just wanted to clarify.
Speaker Change: So that the leverage of the company overall we.
Speaker Change: We did get a lot of questions about it but it is important to keep in mind, we have the recourse nonrecourse structure and particularly in the nonrecourse debt. This is amortizing debt I think.
Strategic objective remains the same it's just slightly delayed in time.
Okay, and then lastly, and again, it's a bigger picture question I E.
Speaker Change: Not everyone's doing it that way and so our project debt is really.
It's very topical for today, given a lot of discussion about nuclear power. So.
Speaker Change: Amortizing and it's it served by the cash flows from from the projects the parent debt level.
You know, we're all getting excited about the co location of data centers and nuclear plants.
Argument about.
Speaker Change: Is actually going to be it'll come up a little bit over the planned period, but not a lot. So it's a it's a $4 5 billion now and.
Facial limitations for renewable power it given how much land it actually needs to offer similar amounts of computing capacity and especially in Virginia, where was.
Speaker Change: As I said in my comments on the slides, maybe another one to one and a half over the four year period, but Tom hits.
That's don't those land shortages.
It's a it's going to be pretty stable.
Pronounced so do you actually see that there is some disadvantage too.
Speaker Change: I appreciate that thank you very much.
Or a pursuit of claims if that nuclear angle, where two well wanted to take off.
Speaker Change: Thank you.
Speaker Change: Sure.
Speaker Change: Our next question comes from Andrew <unk> with Seaport Research Partners. Your line is open. Please go ahead.
Well I think look a rising tide lifts all boats.
Andrew: Thank you. So I was just wondering are you guys seeing any degradation in.
I think this is a.
The situation, where there's just going to be like one technology that solves all the needs.
Andrew: Either EBITDA or cash flow generation.
Speaker Change: Existing assets anywhere it we're seeing it.
So I don't see that any future.
Speaker Change: <unk>, especially on the wind side.
Where there's not quite frankly, a shortage of renewable projects in the key markets.
Speaker Change: Wind assets are having some issues with both Opex and Capex.
You know I know it takes a long time to permit nuclear plant.
Speaker Change: Hence we power rings, but just wondering if you know.
To my knowledge excuse me.
Speaker Change: There is obviously this positive momentum on the Newbuild side, but is there any offset from existing assets.
No new nuclear plants are built been built maybe.
Maybe even in the last decade anywhere near budget.
Speaker Change: Oh, no no none whatsoever in fact.
So.
On the one hand, I do think nuclear as part of the long run solution.
Speaker Change: As I said, we continue to operate better.
Speaker Change: And.
Because I do agree there's only so much land so much interconnections.
Speaker Change: We are seeing that are older projects are giving the returns that we.
On the other hand, I think that the nuclear Renaissance has yet to prove itself.
Speaker Change: Are actually getting better returns than we had forecast so we're not seeing that I mean.
And yet has yet to build out so the demand from these clients is so strong I mean, they are taking second best.
Speaker Change: We do we don't have made perhaps that many older. When we do have Buffalo gap, but we have not seen any degradation.
They can't get.
<unk>.
Want to require additionality, because they really want to be part of the solution.
Speaker Change: Degradation in Pittsburgh performance.
Climate change.
Speaker Change: Okay and then the second question. So you remember in the past you were mentioning that.
There are circumstances, where they will take no additionality and basically re contracts nuclear power today at least.
Speaker Change: Slightly delay that coal plant retirements could be a lever.
Aero carbon, but the truth is that squeezing of the balloon that's taking zero carbon energy off the grid. So.
Speaker Change: For actually both earnings and cash flow. So is there an update there.
I don't think.
Go ahead, yes, so sorry, Randy as I was mentioning.
I'll put it this way I feel it is extraordinarily unlikely [laughter].
Speaker Change: The.
<unk>.
Growth in renewables will stop and be replaced with nuclear power.
Speaker Change: So there's just a handful of assets that we've extended through 2027, primarily due to the short remaining duration of the contracts.
Okay.
Certainly in the next five years I don't see it and I see it very difficult in the next 10 years.
Speaker Change: And at making both operational as well as financial sense for us to remain the owner through the through the end of end of life.
Okay. Thank you.
Thank you.
Speaker Change: There is some upside to that two upsides really it smooths out the 750 million of EBITDA reduction from the coal exit plans throughout the 25 26, 27 28 period, So theres no real cliff.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.
We now turn to Ryan Levine with Citi. Your line is open. Please go ahead.
Good morning.
Given the scarcity of data center projects, how are returns for these projects compared to projects for other customers.
Speaker Change: And then it.
Speaker Change: It does add to the EBITDA over the timeframe, but it's one of the it's a smaller driver the biggest driver of the EBITDA uplift is.
The scarcity look we don't talk about individual projects, but we do talk about our averages and so the return on the project will depend.
Speaker Change: Higher returns were realizing on the renewable projects given the market dynamics that Andres discussed as well as the productivity and scale benefits.
If you have the suitable location, if it's providing something other than a plain vanilla so.
So all put together what I can say is again on average we're seeing.
Speaker Change: We've realized in the portfolio and expect to continue to realize as we scale up and I'd like to add that we still plan to be out of coal by the end of 2027.
An increase in our returns.
Looking backwards and looking forwards.
And corporate customers are our most important segment, but yes, we will not comment on sort of specific.
Speaker Change: And that we.
Speaker Change: After 2025, we will have somewhere about it.
Client areas.
Speaker Change: One gigawatt plant and part of this is driven by the fact that these plants are still needed to for stability of the system. So we are not allowed to shut them down in part I just wanted to clarify so the strategic objective remains the same it's just slightly delayed in time.
Okay.
And then how did you arrive at the 2% to 3% long term dividend growth is the right growth rate from a financial policy standpoint, and what are factors that could cause that policy to continue to evolve.
Speaker Change: Okay, and then lastly, and again, it's a bigger picture question Ivy.
Yeah, Hey, Brian So look I mean <unk>.
Establishing itself as a dividend payer a long time ago, we've been consistently growing the dividend at that.
Speaker Change: It's very topical for today, given a lot of discussion about nuclear power. So we're all getting excited about the co location of data centers a nuclear plant.
Four to six range for quite a long time, obviously the company's success.
Speaker Change: Argument about.
Speaker Change: <unk> limitations for renewable power given how much landed action needs to offer similar amounts of computing capacity and especially in Virginia, where was that.
In the renewable space and now our utilities' position for significant growth.
As you know.
Put us in front of a huge amount of growth opportunity and we want to manage our capital sources appropriately and so we are committed to our dividend.
That still does land shortages.
Speaker Change: Pronounced so do you actually see that there is.
Speaker Change: Disadvantage too.
Speaker Change: Or a pursuit of tech clients, if that nuclear angle where to Walter to take off.
We want to continue to grow but we felt on balance given the capital opportunities in front of us and the higher returns that growing the dividend at a little bit of a lower rate made sense at this point, particularly as we've seen higher returns coming from our growth investments.
Speaker Change: Well I think look a rising tide lifts all boats. So I don't think this is.
Steve Fleishman: The situation, where there's just going to be like one technology that solves all the needs.
Speaker Change: I don't see that any future.
Okay, and why start that in 'twenty five as opposed to another year from now.
Speaker Change: Where there's not quite frankly, a shortage of renewable projects in the key markets.
Steve Fleishman: You know I know it takes a long time to permit nuclear plant.
Okay.
Well.
We look at this so so I'm not sure as Youre pointing out so we did grow at 4% this year.
Steve Fleishman: To my knowledge excuse me no new nuclear plants are built been built maybe.
As a policy that we take very seriously and thoughtfully.
Steve Fleishman: Maybe even in the last decade anywhere near budget.
Steve Fleishman: So.
And so we werent prepared we've made that decision for this year.
Steve Fleishman: On the one hand, I do think nuclear as part of the long run solution.
Towards the end of last year, we werent prepared to make this decision until we had thoroughly analyzed it and recently made made that decision as we locked down our final plan here and we think therefore it makes sense once you've made the decision to go ahead and implement it as soon as we're able which will be 2025.
Steve Fleishman: Because I do agree there's only so much land so much interconnections.
Steve Fleishman: On the other hand, I think that the nuclear Renaissance has yet to prove itself.
Steve Fleishman: And you has yet to build out so the demand from these clients is so strong I mean, they are taking second best.
Steve Fleishman: They can't get.
<unk>.
Steve Fleishman: Want to require additionality, because they really want to be part of the solution.
Okay. Thank you.
Thank you.
Steve Fleishman: Climate change.
Yeah.
Steve Fleishman: There are circumstances, where they will take no additionality and basically re contract nuclear power today at least.
Our final question today comes from Gregg <unk> with UBS. Your line is open. Please go ahead.
Yes. Thank you congratulations.
Steve Fleishman: Aero carbon, but the truth is that squeezing of the balloon that's taking zero carbon energy off the grid. So.
Hey, Greg just a detail oriented.
He'll oriented question, the 24 tax credit guidance of a of a $1 billion is there anything in there that that is.
Steve Fleishman: I don't think.
Speaker Change: I'll put it this way I feel it's extraordinarily unlikely.
Steve Fleishman: Net.
Steve Fleishman: Growth in renewables will stop and be replaced with nuclear power.
You know timing related or or you might describe as is.
Steve Fleishman: Okay.
Certain certainly in the next five years I don't see it and I see it very difficult in the next 10 years.
You know more onetime in nature or is that would you grow that.
Speaker Change: Okay. Thank you.
You know.
Speaker Change: Thank you.
From that level.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.
As you add renewables projects.
Yes, so it will it will grow and it's not timing. So much of it is just the success of the business as Andres said, we doubled our construction last year.
Speaker Change: We now turn to Ryan Levine with Citi. Your line is open. Please go ahead.
Ryan Levine: Good morning.
Ryan Levine: Given the scarcity of data center projects, our returns for these projects compared to <unk>.
And keep in mind that not all of the credits are recognized in year, one and tax equity structures, it's roughly a third of it for <unk>.
Projects for other customers.
Ryan Levine: The scarcity.
Speaker Change: Look we don't talk about individual projects, but we do talk about our averages and so the return on the project will depend.
And the second year, so that's boosting the credit this year as well as all of the projects that will come online this year that the new projects on top of that.
Speaker Change: Obviously, if you have the suitable location, if it's providing something other than a plain vanilla.
The other thing that's driving it is the transfer of credit.
Speaker Change: So all put together what I can say is again on average we're seeing.
Speaker Change: An increase in our returns.
It does get recognized earlier.
Speaker Change: Looking backwards and looking forwards.
Essentially almost all in the first year and so there is a greater mix of credits transferred in this vintage this year.
And the corporate customers are our most important segment, but yes, we will not comment on you know sort of specific.
As we that grows as a component of how we we monetize the credits.
Speaker Change: Client areas.
Speaker Change: Okay.
Speaker Change: And then how did you arrive at the 2% to 3% long term dividend growth is the right growth rate from a financial policy standpoint, and what are factors that could cause that.
So that's driving it higher but I don't expect this to have depth, but I think it will continue to rise.
As we head into the years ahead.
As the growth program continues.
Speaker Change: For you to continue to evolve.
Speaker Change: Yeah, Hey, Brian so.
And then keep in mind that we are benefiting from the energy community at or at a significant portion.
Brian: Look I mean, we establish.
Brian: Establishing itself as a dividend payer a longtime ago, we've been consistently growing the dividend at that.
Which increases the credit and our wind projects.
Speaker Change: For a fixed range for quite a long time, obviously the company's success in in the renewable space and now our utilities' position for significant growth has.
Our all qualifying for domestic content also going forward. So that's.
All else being equal is driving the credit value up.
And what's important for everyone to understand is the credit is cash and earnings.
Speaker Change: Put us in front of a huge amount of growth opportunity.
And the great thing about these particularly the investment credits, which is the lion's share of our mix of tax tax attributes is upfront. So you're getting a return on your capital investment of a significant portion at least 30% in some cases up to 50%.
Speaker Change: We want to manage our capital sources appropriately and so we are committed to our dividend.
Speaker Change: We want to continue to grow but we felt on balance given the capital opportunities in front of us and the higher returns that growing the dividend at a little bit of a lower rate made sense at this point, particularly as we've seen higher returns coming from our growth investments.
Right away, which is a fantastic cash profile as well as an earnings profile.
Okay. Thanks.
Thank you.
This concludes our Q&A I'll now hand back decision Hong Kong, Vice President of Investor Relations for final remarks.
Speaker Change: Okay, why start better in 'twenty five as opposed to another year from now.
Speaker Change: Okay.
We thank everybody for joining us on today's call.
Speaker Change: Well.
Speaker Change: We we look at this so so.
As always the IR team will be available to answer any follow up questions. You may have thank you and have a nice day.
Speaker Change: I'm not sure if as you're pointing out so we did grow at 4%. This year. This is a policy that we take very seriously and thoughtfully and so we werent prepared we've made that decision for this year.
Ladies and gentlemen, today's call is now concluded. Thank you for your participation you may now disconnect your lines.
Okay.
Towards the end of last year, we werent prepared to make this decision until we had thoroughly analyzed it and recently made made that decision as we locked down our final plan here and we think therefore it makes sense once you've made the decision to go ahead and implement it.
Speaker Change: Soon as were able which will be 2025.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Our final question today comes from Gregg <unk> with UBS. Your line is open. Please go ahead.
Gregg: Yes. Thank you congratulations.
Gregg: Hi, Gregg just a detail oriented.
Gregg: Detail oriented question, the 24 tax credit guidance of a of a $1 billion is there anything in.
Speaker Change: In there that that is.
Timing related or.
Speaker Change: You might describe as is.
You know more onetime in nature or is that would you grow that.
Speaker Change:
Speaker Change: No.
Speaker Change: From that level.
Speaker Change: As you add renewables projects.
Speaker Change: Yes, so it will it will grow.
Speaker Change: And it's not timing so much of it is just the success of the business as Andre said, we doubled.
Speaker Change: Our construction last year.
Speaker Change: And keep in mind that not all of the credits are recognized in year, one and tax equity structures. It's roughly a third gets recognized in the second year. So that's boosting the credit this year as well as all of the projects that will come online this year that the new projects on top of that.
Speaker Change: The other thing that's driving it is the transfer of credit does get recognized earlier.
Speaker Change: Essentially almost all in the first year and so there is a greater mix of credits transferred in this vintage this year.
Speaker Change: As we that grows as a component of how we we monetize the credits.
Speaker Change: So that's driving it higher but I don't expect this to to have that but I think it will continue to rise as as we head into the years ahead.
Speaker Change: As the growth program continues.
And then keep in mind that we are benefiting from.
Speaker Change: Energy community Adder, and a significant portion which.
Which increases the credit and our wind projects.
Speaker Change: Our all qualifying for domestic content also going forward. So that's.
Speaker Change: All else being equal is driving the credit value up.
Speaker Change: And what's important for everyone to understand is the credit is cash and earnings.
Speaker Change: And the great thing about these particularly the investment credits, which is the lion's share of our mix of taxes tax attributes is upfront so you're getting a return on your capital investment of a significant portion at least 30% in some cases up to 50%.
Speaker Change: Right away, which is a fantastic cash profile as well as an earnings profile.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you.
Speaker Change: This concludes our Q&A I'll now hand back decision Hongkong, Vice President of Investor Relations for final remarks.
Hongkong: 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.
Speaker Change: Ladies and gentlemen, today's call is now concluded. Thank you for your participation you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
