Q2 2024 The AES Corp Earnings Call

Hello everyone and a warm welcome to the AES Corporation Q2 2024 Financial Review Call. My name is Emily and I'll be coordinating your call today. After the presentation you will have the opportunity to ask any questions which you can do so by pressing start followed by the number on your telephone keypad.

Emily: My name is Emily, and I'll be coordinating your call today. After the presentation, you will have the opportunity to ask any questions, which you can do by pressing start followed by the number one on your telephone keypad. I will now hand over to our host, Vice President of Investor Relations, Susan Harcourt, to begin. Susan, please go ahead.

Susan Harcourt: I will now hand over to our host, Vice President of Investor Relations, Susan Harcourt, to begin. Susan, please go ahead. Thank you, operator. Good morning and welcome to our second quarter 2024 financial review call.

Susan Harcourt: ahead. Thank you, operator.

Susan Harcourt: Good morning and welcome to our second quarter 2024 financial review call. Our press release, presentation, and related financial information are available on our website at AF.com. Today we will be making forward-looking statements. There are many factors that may cause future results to differ materially from these statements, which are disclosed in our most recent 10-K and 10-Q filings with the SEC. Reconciliations between GAAP and non-GAAP financial measures can be found on our website along with the present. Joining me this morning are Andres Gluski, our President and Chief Executive Officer, Steve Coughlin, our Chief Financial Officer, and other senior members of our management. With that, I will turn the call over to Andres.

Speaker Change: Our press release, presentation, and related financial information are available on our website at AF.com.

Speaker Change: Today we will be making forward-looking statements.

Speaker Change: 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.

Speaker Change: Joining me this morning are Andres Gluski, our President and Chief Executive Officer, Steve Coughlin, our Chief Financial Officer, and other senior members of our management team.

Andres Gluski: Good morning, everyone, and thank you for joining our second quarter 2024 Financial Review Conference. We are very pleased with our financial performance so far this year. Today, I will discuss our results, the significant advancements we have made with large technology customers, and the work we are doing to incorporate generative AI into our portfolio to develop new competitive advantages. Beginning on slide three with our second quarter results. We had a strong second quarter that was in line with our expectations, with adjusted EBITDA with tax attributes of $843 million, adjusted EBITDA of $652 million, and adjusted EPS of 38 cents.

Speaker Change: With that, I will turn the call over to Andres.

Andres Gluski: Good morning, everyone, and thank you for joining our second quarter 2024 financial review call.

Andres Gluski: We are very pleased with our financial performance so far this year.

Speaker Change: Today, I will discuss our results, the significant advancements we have made with large technology customers, and the work we are doing to incorporate generative AI in our portfolio to develop new competitive advantages.

Speaker Change: Beginning on slide three with our second quarter results.

Speaker Change: We had a strong second quarter that was in line with our expectations.

Speaker Change: with adjusted EBITDA with tax attributes of $843 million.

Speaker Change: Adjusted EBITDA of $652 million and adjusted EPS of $0.38.

Andres Gluski: We're on track to meet our 2024 financial objectives, and we now expect to be in the top half of our ranges for adjusted EBITDA with tax attributes and adjusted EPS. We're also reaffirming our remaining 2024 guidance metrics and growth rate through 2027. Steve Coughlin, our CFO, will give more detail on our financial performance and outlook.

Speaker Change: We're on track to meet our 2024 financial objective, and we now expect to be in the top half of our ranges for adjusted EBITDA with tax attributes and adjusted EPS.

Speaker Change: We're also reaffirming our remaining 2024 guidance metrics and growth rate through 2027.

Speaker Change: Steve Coughlin, our CFO , will give more detail on our financial performance and outlook.

Andres Gluski: I'm also pleased to report that since our last call in May, we have signed 2.5 gigawatts of new agreements in total, including 2.2 gigawatts with hyperscalers across our utilities and renewable business. This includes 1.2 gigawatts of new data center load growth across AS Ohio and AS Indiana, a PTA to provide 727 megawatts of neuro normals in tech, and the 310 megawatt Retail Supply Agreement in Ohio. With these arrangements, we are expanding our work with the major data center providers to new areas of business.

Speaker Change: I'm also pleased to report that since our last call in May, we have signed 2.5 gigawatts of new agreements in total, including 2.2 gigawatts with hyperscalers across our utilities and renewable businesses.

Stephen Coughlin: This includes 1.2 gigawatts of new data center load growth across AS Ohio and AS-Indiana.

Stephen Coughlin: A PPA to provide 727 megawatts of NeuroNormals in Texas.

Stephen Coughlin: and the 310 megawatt retail supply agreement in Ohio.

Speaker Change: With these arrangements, we are expanding our work with the major data center providers to new areas of business.

Andres Gluski: Turning now to data center growth at our U.S. utilities, on slide 4. Since our last call, we have signed agreements to support 1.2 gigawatts of new load across PJM Ohio and PJM Indiana, expected to come online in phases, beginning in 2026. Additionally, we're in advanced negotiations across several sites to support another three gigawatts of new load. These agreements are transformative for both utilities, with the potential to increase the peak load at both AS-Ohio and AS-Indiana by more than 50%. As a result, AS Ohio's rate base will consist predominantly of FERC-regulated transmission assets, although receiving timely recovery through a formula rate.

Stephen Coughlin: Turning now to data center growth at our U.S. utilities on slide 4.

Speaker Change: Since our last call, we have signed agreements to support 1.2 gigawatts of new load across A.S. Ohio and A.S. Indiana, expected to come online in phases, beginning in 2026.

Stephen Coughlin: Additionally, we're in advanced negotiations across several sites to support another 3 gigawatts of new load.

Stephen Coughlin: These agreements are transformative for both utilities, with the potential to increase the peak load at both A.S. Ohio and A.S. Indiana by more than 50 percent.

Stephen Coughlin: As a result, A.S. Ohio's rate base will consist predominantly of FERC-regulated transmission assets.

Andres Gluski: For A.S. Indiana, this growth creates the potential for significant investment in transmission, as well as additional build-out of new generation assets. These opportunities will even further increase our industry-leading U.S. utility rate-based growth plan. Our service territories are particularly well-positioned to serve data centers and other large loads, with available interconnection, lower rates, and land prices. Access to Water Resources and Local Incentives

Stephen Coughlin: Receiving timely recovery through a formula rate.

Stephen Coughlin: For A.S. Indiana, this growth creates the potential for significant investment in transmission as well as additional build-out of new generation assets.

Stephen Coughlin: These opportunities will even further increase our industry-leading U.S. utility rate-based growth plans.

Stephen Coughlin: Our service territories are particularly well positioned to serve data centers and other large loads, with available interconnection, lower rates and land prices, access to water resources, and local incentives.

Andres Gluski: Turning to slide five and the generation build out at AES Indiana, we continue to make progress in upgrading and transforming our generation fleet as we shut down or convert our coal units to gas and Build a Renewable Fleet. I am pleased to announce that we have signed a deal to acquire a 170 megawatt solar plus storage development project that AES Indiana will construct and own. The project will require approximately $350 million in capital, with an expected completion date in late 2027. Once approved by the Indiana Utility Regulatory Commission,

Stephen Coughlin: Turning to slide 5 and the generation build-out at AES-Indiana.

Stephen Coughlin: We continue to make progress in upgrading and transforming our generation fleet as we shut down or convert our coal units to gas.

Stephen Coughlin: and Build a Renewable Fleet.

Stephen Coughlin: I am pleased to announce that we have signed a deal to acquire a 170 megawatt solar plus storage development project that AES Indiana will construct and own.

Stephen Coughlin: The project will require approximately $350 million of CAPEX, with an expected completion date in late 2027.

Stephen Coughlin: Once approved by the Indiana Utility Regulatory Commission,

Andres Gluski: This will be the sixth project supporting AES Indiana's recent generation growth. Now, turning to our renewables business on slide six. Since our last call in May, we have further expanded our partnership with Google, signing a 15-year PPA for 727 megawatts in Texas to power its data center growth. The agreement includes a combination of wind and solar to further Google's 24-7 carbon-free energy goals. These projects are expected to come online in 2026 and 2027.

Stephen Coughlin: This will be the sixth project supporting AES Indiana's recent generation growth.

Stephen Coughlin: Now turning to our renewables business on slide 6.

Stephen Coughlin: Since our last call in May, we have further expanded our partnership with Google.

Stephen Coughlin: Signing a 15-year PPA for 727 megawatts in Texas to power its data center growth. The agreement includes a combination of wind and solar to further Google's 24-7 carbon-free energy goals.

Stephen Coughlin: These projects are expected to come online in 2026 and 2027.

Stephen Coughlin: We also recently signed a retail supply agreement with Google for 310 megawatts to support their Ohio data centers.

Speaker Change: This agreement demonstrates the strong trust and collaboration between our companies, which began with our original 2021 partnership to provide 24-7 renewable power in Virginia.

Stephen Coughlin: We see further opportunities to add renewables to support Google's data center growth in Ohio.

Andres Gluski: We also recently signed a retail supply agreement with Google for 310 megawatts to support their Ohio data center. This agreement demonstrates the strong trust and collaboration between our companies, which began with our original 2021 partnership to provide 24-7 renewable power in Virginia, and we will receive further opportunities to add renewables to support Google's data center growth in Ohio. Turning to slide 7, with these major announcements today on our collaborations with hyperscalers.

Stephen Coughlin: Turning to slide 7. With these major announcements today on our collaborations with hyperscalers, we have now signed a total of 8.1 gigawatts directly with technology companies.

Andres Gluski: We have now signed a total of 8.1 gigawatts directly with technology companies, which is clearly a leading market position. As you can see on slide 8, our backlog of projects under signed long-term contracts now stands at 12.6 gigawatts. Our focus remains on maximizing the quality of megawatts over the quantity, which means delivering high-quality projects with higher returns and long-term power purchase agreements. We have never felt better about our key customer relationships and the long-term market dynamics that are supporting growth and value creation in our portfolio. Turning to slide nine.

Stephen Coughlin: which is clearly a leading market position.

Stephen Coughlin: As you can see on slide 8, our backlog of projects under signed long-term contracts now stands at 12.6 gigawatts.

Stephen Coughlin: Our focus remains on maximizing the quality of megawatts over the quantity, which means delivering high-quality projects with higher returns and long-duration PPAs.

Stephen Coughlin: We have never felt better about our key customer relationships and the long-term market dynamics that are supporting growth and value creation in our portfolio.

Andres Gluski: The demand for power that is coming from the rise in generative AI in data centers represents a significant structural change in the power sector, and no one is better positioned than AES for sustained growth from this opportunity. Regardless of election or policy outcomes, we are confident in our ability to continue signing renewable PPAs with Mid-Teen IRR. Our corporate customers value our unique record of bringing projects online, on time, over the past five years.

Stephen Coughlin: Turning to slide 9, the demand for power that is coming from the rise in generative AI in data centers represents a significant structural change in the power sector.

Stephen Coughlin: And no one is better positioned than AES for sustained growth from this opportunity.

Stephen Coughlin: Regardless of election or policy outcomes, we are confident in our ability to continue signing renewable PPAs with mid-teen IRRs.

Stephen Coughlin: Our corporate customers value our unique record of bringing projects online, on time, over the past five years.

Andres Gluski: Furthermore, looking at the interconnection cues, time to power, and price certainty, we see renewables as the only source of new power that can meet most of the demand over the next decade. AES has a longstanding and deep relationship with hyperscaler customers.

Stephen Coughlin: Furthermore, looking at the interconnection queues, time to power, and price certainty, we see renewables as the only source of new power that can meet most of the demand over the next decade.

Stephen Coughlin: AES has a longstanding and deep relationship with hyperscaler customers.

Andres Gluski: This includes our ability to co-create new offerings and structure innovative clean energy solutions, such as hybrid PPAs, shake products, and 24 7 Renewable. As you can see on slide 10, of the 3.6 gigawatts that we expect to bring online this year, we have already completed the construction of 1.6 gigawatts and expect the remainder to be weighted towards the third quarter. I should note that for the projects coming online this year, we have all of the major equipment already on site, and almost all for 2025.

Stephen Coughlin: This includes our ability to co-create new offerings and structure innovative clean energy solutions such as hybrid PPAs, shaped products, and 24-7 renewables.

Stephen Coughlin: As you can see on slide 10.

Stephen Coughlin: Of the 3.6 gigawatts that we expect to bring online this year, we have already completed the construction of 1.6 gigawatts.

Stephen Coughlin: and expect the remainder to be weighted towards the third quarter. I should note that for the projects coming online this year, we have all of the major equipment already on site, and almost all for 2025.

Andres Gluski: Additionally, we expect a significant portion of our solar panels to be domestically produced beginning in 2026. All of the above, combined with having panels on site for 2025 projects, greatly mitigates our exposure to any potential new tariff. Our diversified and resilient supply chain has been and will continue to be best in class.

Stephen Coughlin: Additionally, we expect a significant portion of our solar panels to be domestically produced beginning in 2026.

Stephen Coughlin: All of the above, combined with having panels onsite for 2025 projects, greatly mitigates our exposure to any potential new tariffs.

Stephen Coughlin: Our diversified and resilient supply chain has been, and will continue to be, best in class.

Andres Gluski: Not only is generative AI shaping the customer landscape, but it is also transforming how we work internally, providing new opportunities for efficiencies, customer service, and innovation that will give us new competitive advantages. As you may have seen, in June, we announced a partnership with AIFUN to accelerate AI-driven energy solutions. Founded by AI leader Andrew Ng, AI Fund is a venture studio that works with entrepreneurs to rapidly build companies.

Stephen Coughlin: Finally, turning to slide 11.

Speaker Change: Not only is generative AI shaping the customer landscape, but it is also transforming how we work internally, providing new opportunities for efficiencies, customer service, and innovation that will give us new competitive advantages.

Stephen Coughlin: As you may have seen, in June , we announced a partnership with AIFUN to accelerate AI-driven energy solutions.

Stephen Coughlin: Founded by AI leader Andrew Ng, AI Fund is a venture studio that works with entrepreneurs to rapidly build companies.

Andres Gluski: We are collaborating with AI Fund on co-building companies that leverage AI to address bottlenecks and improve efficiencies in the energy transition, in areas such as developing and operating renewables and asset management. At the same time, we continue to leverage AI across our portfolio through our culture of innovation and continuous improvement. We are increasingly using proprietary tools across a wide range of our business operations, enabling our people to work faster and smarter.

Speaker Change: We are collaborating with AI Fund on co-building companies that leverage AI to address bottlenecks and improve efficiencies in the energy transition in areas such as developing and operating renewables and asset management.

Speaker Change: At the same time, we continue to leverage AI across our portfolio with our culture of innovation and continuous improvement.

Speaker Change: We are increasingly using proprietary tools across a wide range of our business operations, enabling our people to work faster and smarter.

Andres Gluski: For example, a renewables team has built sophisticated tools that utilize generative AI to accurately predict the speed at which projects will move through interconnection, helping us more efficiently coordinate the various simultaneous development processes. As you can see on slide 12.

Stephen Coughlin: For example, our renewables team has built sophisticated tools that utilize generative AI to accurately predict the speed at which projects will move through interconnection queues, helping us more efficiently coordinate the various simultaneous development processes.

Andres Gluski: Earlier this week, we launched the world's first AI-powered solar installation robot, Maximum, which uses state-of-the-art AI and robotics to complement our construction crews in the installation of solar modules. Maximo enables faster construction times and reduces overall project costs. It can work for three shifts, even in the worst weather conditions, with a more inclusive workforce. Not only does it reduce time to power, which is highly valued by our customers, but it will boost overall project return.

Stephen Coughlin: As you can see on slide 12, earlier this week, we launched the world's first AI-powered solar installation robot, Maximum, which uses state-of-the-art AI and robotics to complement our construction crews in the installation of solar modules.

Stephen Coughlin: Maximum enables faster construction times and reduces overall project costs.

Stephen Coughlin: It can work three shifts, even in the worst weather conditions, with a more inclusive workforce.

Stephen Coughlin: Not only does it reduce time to power, which is highly valued by our customers, but it will boost overall project returns.

Andres Gluski: We plan to ramp up our use of Maximo in 2025 and are already utilizing it to construct a portion of our 2 gigawatt Bellfield project in California, which is the largest solar plus storage project in the U.S. and is contracted to serve Amazon. With that, I would now like to turn the call over to our CFO, Steve Coughlin.

Stephen Coughlin: We plan to ramp up our use of Maximo in 2025 and are already utilizing it to construct a portion of our 2 gigawatt Bellfield project in California, which is the largest solar plus storage project in the U.S. and is contracted to serve Amazon.

Steve Coughlin: With that, I would now like to turn the call over to our CFO , Steve Coughlin.

Steve Coughlin: Thank you, Andres, and good morning, everyone. Today, I will discuss our second quarter results in our 2024 Guidance and Parent Capital Allocation. Turning to slide 14, adjusted EBITDA with tax attributes was $843 million in the second quarter versus $607 million a year ago. This was driven by growth in our renewables SBU, new rates and growth investments in our U.S. utilities, and higher margins in our energy infrastructure SBU. Turning to slide 15.

Steve Coughlin: Thank you, Andres, and good morning, everyone.

Steve Coughlin: Today, I will discuss our second quarter results and our 2024 Guidance and Parent Capital Allocation.

Steve Coughlin: Turning to slide 14.

Steve Coughlin: Adjusted Iwatawa Tax Attributes was $843 million in the second quarter versus $607 million a year ago.

Speaker Change: This was driven by growth in our Renewables SBU, new rates, and growth investments in our U.S. utilities and higher margins in our Energy Infrastructure SBU.

Steve Coughlin: Adjusted EPS for the quarter was $0.38 versus $0.21 last year. Drivers were similar to those of a Justice Dividend-Without-A-Tax, but partially offset by higher depreciation and higher interest expense as a result of our growth. I'll cover the performance of our SBUs, or Strategic Business Units, on the next four slides, beginning with our Renewables SBU on slide 16. Higher Iwodawa tax attributes were driven primarily by contributions from new projects but were partially offset by lower availability from a forced outage event at our one gigawatt Shavor hydro plant in Columbia. The outage was caused by record water inflows in early June, which brought significant sediment into the plant and damaged the unit.

Steve Coughlin: Turn you to slide 15.

Steve Coughlin: Adjusted EPS for the quarter was $0.38 vs. $0.21 last year.

Steve Coughlin: Drivers were similar to those of adjusted Ibizawa tax attributes.

Steve Coughlin: But partially offset by higher depreciation and higher interest expense as a result of our growth.

Steve Coughlin: I'll cover the performance of our SBUs, or Strategic Business Units, on the next four slides.

Steve Coughlin: Beginning with our Renewables SBU on slide 16.

Steve Coughlin: Higher Iwatawa tax attributes was driven primarily by contributions from new projects.

Steve Coughlin: but was partially offset by lower availability from a forced outage event at our one gigawatt Chevor hydro plant in Columbia. The outage was caused by record water inflows in early June , which brought significant sediment into the plant and damaged the units.

Steve Coughlin: Repairs to the plant were completed quickly, and all units resumed operations by mid-July. Higher adjusted PTC at our utilities SPU was mostly driven by higher revenues from the $1.6 billion we've invested in our rate base in the past year. New rates implemented in Indiana in May, year-over-year low growth of 3.1%, as well as favorable weather. Higher EBITDA at our energy infrastructure SBU primarily reflects higher revenues recognized from the accelerated monetization of the PPA at our Warrior Run plant and higher margins in Chile, partially offset by lower margins in the Dominican Republic and the sell-down of our gas and LNG businesses in Panama and the Dominican Republic. Finally, relatively flat EBITDA at our New Energy Technologies SBU reflects our continued development of early-stage technology businesses, although partially offset by continued margin increases at Fluence.

Steve Coughlin: Repairs to the plant were completed quickly, and all units resumed operations by mid-July.

Steve Coughlin: Higher adjusted PTC at our Utilities SPU was mostly driven by higher revenues from the $1.6 billion we've invested in our rate base in the past year.

Steve Coughlin: New rates implemented in Indiana in May, year-over-year low growth of 3.1%, as well as favorable weather.

Steve Coughlin: Higher EBITDA at our energy infrastructure SBU primarily reflects higher revenues recognized from the accelerated monetization of the PPA at our Warrior Run plant and higher margins in Chile.

Steve Coughlin: Partially offset by lower margins in the Dominican Republic and the sell-down of our gas and LNG businesses in Panama and the Dominican Republic.

Steve Coughlin: Finally, relatively flat EBITDA at our New Energy Technologies SBU reflects our continued development of early-stage technology businesses, partially offset by continued margin increases at Fluence.

Steve Coughlin: Now turning to our expectations on slide 20. As a result of our strong first half performance and high confidence in a strong second half, I'm very happy to share that we now expect adjusted EBITDA with tax attributes to be in the top half of our 2024 expected range of $3.6 to $4 billion. Drivers of adjusted EBITDA with tax attributes in the year to go include higher contributions from new renewable commissionings, contributions from growth investments, and expected higher load at our U.S. utilities, partially offset by expected closings in our asset sale program.

Steve Coughlin: Now turning to our expectations on slide 20.

Steve Coughlin: As a result of our strong first half performance and high confidence in a strong second half, I'm very happy to share that we now expect Adjusted EBITDA with tax attributes to be in the top half of our 2024 expected range of $3.6 to $4 billion.

Steve Coughlin: Drivers of adjusted EBITDA with tax attributes in the year to go include higher contributions from new renewable commissionings.

Steve Coughlin: Contributions from growth investments and expected higher load at our US utilities, partially offset by expected closings in our asset sale program.

Steve Coughlin: Turning to slide 21, I am also very glad to share that we now expect our 2024 adjusted EPS to be in the upper half of our guidance range of $1.87 to $1.96. Additionally, we increased our share of earnings in the first half of the year from 25% in 2023 to nearly half in 2024. Growth in the year to go will have similar drivers as adjusted EBITDA with tax attributes, partially offset by higher interest expense from growth capital.

Steve Coughlin: Turning to slide 21, I am also very glad to share that we now expect our 2024 adjusted EPS to be in the upper half of our guidance range of $1.87 to $1.97.

Steve Coughlin: We increased our share of earnings in the first half of the year from 25% in 2023 to nearly half in 2024.

Steve Coughlin: Growth, in the year to go, will have similar drivers as adjusted EBITDA with tax attributes, partially offset by higher interest expense from growth capital.

Steve Coughlin: Now to our 2024 Parent Capital Allocation on slide 22. Sources reflect approximately $3 billion of total discretionary cash, including $1.1 billion of parent-free cash flow, $900 million to $1.1 billion of proceeds from asset sales, and $950 million of hybrid debt that we issued since our last earnings call in May. On the right-hand side, you can see our planned use of capital. We will return approximately $500 million to shareholders this year, reflecting the previously announced 4% dividend increase.

Steve Coughlin: Now to our 2024 Parent Capital Allocation on slide 22.

Steve Coughlin: Sources reflect approximately $3 billion of total discretionary cash, including $1.1 billion of parent-free cash flow.

Steve Coughlin: 900 million to 1.1 billion of proceeds from asset sales and 950 million of hybrid debt that we issued since our last earnings call in May.

Steve Coughlin: On the right-hand side, you can see our planned use of capital. We will return approximately $500 million to shareholders this year, reflecting the previously announced 4% dividend increase.

Steve Coughlin: We also plan to invest $2.4 billion to $2.7 billion toward new growth, of which 85% will go to renewables and utilities. Turning to slide 23, we're well on our way to achieving our long-term asset sale target of $3.5 billion from 2023 through 2027. We've signed or closed more than $2.2 billion in asset sales since the beginning of last year, and we are now nearly two-thirds of the way to reaching our target, even though we're only one and a half years into our five-year guidance period.

Steve Coughlin: We also plan to invest $2.4 billion to $2.7 billion toward new growth, of which 85% will go to renewables and utilities.

Steve Coughlin: Turning to slide 23, we're well on our way towards achieving our long-term asset sale target of $3.5 billion from 2023 through 2027.

Steve Coughlin: We've signed or closed more than $2.2 billion of asset sales since the beginning of last year, and we are now nearly two-thirds of the way to reaching our target, even though we're only one and a half years into our five-year guidance period.

Steve Coughlin: We do not announce specific asset sales in advance, but the remaining proceeds could come from sell-downs of renewables projects, our intended coal exit, monetization of our new energy technologies businesses, and sales or sell-downs of other non-core assets.

Steve Coughlin: We do not announce specific asset sales in advance, but the remaining proceeds could come from sell-downs of renewables projects, our intended coal exit, monetization of our new energy technologies businesses, and sales or sell-downs of other non-core assets.

Andres Gluski: In summary, we've made excellent progress this quarter toward all of our strategic and financial targets. We have a clear line of sight toward achieving the key drivers of our year-to-go earnings growth, and we are well positioned to continue delivering on our financial goals beyond this year. We've also made significant headway on our long-term funding plan, which allows us to continue simplifying and focusing our portfolio while we scale our leading renewables and utilities business.

Steve Coughlin: In summary, we've made excellent progress this quarter toward all of our strategic and financial targets.

Steve Coughlin: We have clear line of sight toward achieving the key drivers of our year-to-go earnings growth, and we are well positioned to continue delivering on our financial goals beyond this year.

Steve Coughlin: We've also made significant headway on our long-term funding plan, which allows us to continue simplifying and focusing our portfolio while we scale our leading renewables and utilities businesses.

Andres Gluski: Our strategy to serve high-value corporate customers, including a rapidly growing base of data center providers across our renewables and utilities businesses, is highly resilient and will continue to yield financial success for AES and our shareholders. With that, I'll turn the call back over to Andres.

Steve Coughlin: Our strategy to serve high-value corporate customers.

Steve Coughlin: including a rapidly growing base of data center providers across our renewables and utilities businesses is highly resilient and will continue to yield financial success for AES and our shareholders.

Steve Coughlin: With that, I'll turn the call back over to Andres.

Andres Gluski: Before opening up the call for Q&A, I would like to summarize the highlights from today's call, with more than 8 gigawatts of agreements already signed directly with large technology customers, including 2.2 gigawatts signed since our last call. We continue to be an industry leader in the sector. At the same time, we continue to deliver our projects on time and on budget. With 1.6 gigawatts completed so far this year, we are fully on track to add a total of 3.6 gigawatts by the end of 2024.

Andres Gluski: Thank you, Steve. Before opening up the call for Q&A, I would like to summarize the highlights from today's call.

Steve Coughlin: With more than 8 gigawatts of agreements already signed directly with large technology customers.

Steve Coughlin: including 2.2 gigawatts sighing since our last call. We continue to be the industry leader in this segment.

Steve Coughlin: At the same time, we continue to deliver our projects on time and on budget, with 1.6 gigawatts completed so far this year. We are fully on track to add a total of 3.6 gigawatts by the end of 2024.

Andres Gluski: We see demand for power from data centers in the US growing around 22% a year, and we could not be better positioned to serve these customers, from our Renewable Business to our Utilities. I would like to reiterate that with strong demand for the projects in our 66 gigawatt development pipeline and our existing 12.6 gigawatt backlog of signed long-term PPAs. We are very confident in our ability to continue to meet or exceed our long-term objectives. Please open up the line for questions.

Andres Gluski: We see demand for power from data centers in the U.S. growing around 22% a year, and we could not be better positioned to serve these customers, from our renewable business to our utilities. I would like to reiterate that with strong demand for the projects in our 66 gigawatt development pipeline,

Andres Gluski: and our existing 12.6 gigawatt backlog of signed long-term PPAs. We are very confident in our ability to continue to meet or exceed our long-term objectives.

Emily: Thank you. As a reminder, if you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind and you would like to remove yourself from the queue, you can do so by pressing star and then two. Our first question today comes from Durgesh Chopra with Evercore ISI. Durgesh, please go ahead.

Steve Coughlin: Operator.

Speaker Change: Please open up the line for questions.

Speaker Change: Thank you. As a reminder, if you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind and you would like to remove yourself from the queue, you can do so by pressing star and then two.

Speaker Change: Our first question today comes from Durgesh Chopra with Evercore ISI. Durgesh, please go ahead.

Durgesh Chopra: Hey, team, good morning. First off, congratulations on a solid quarter. And, first off, it's too bad the market is whisked off today. Maybe just I have one question on the numbers. And I have just one high-level macro question. First, just Steve, could you update us on credit metrics? Where did you end up as of Q2, and then where do you expect to be at the end of 2024 on FFO?

Durgesh Chopra: Hey team, good morning. First off, congrats.

Durgesh Chopra: on a solid quarter and forced to have too bad.

Speaker Change: The market is whisked off today.

Durgesh Chopra: Maybe just, I have one question on the numbers and then I have just one.

Speaker Change: a high-level macro question. First, Steve, could you update us on credit metrics? Where did you end up as of Q2? And then where do you expect to be at the end of 2024 on FFO debt?

Steve Coughlin: Yeah, sure. Hi Durgesh.

Steve Coughlin: Yeah, sure. Hi, Durgesh. Good to hear your voice. So, credit's looking very, very strong. So we continue to be on a path.

Steve Coughlin: It's good to hear your voice. So credit's looking very, very strong. So we continue to be on a path of improving credit at the parent level, which I expect will be even higher than at last year's year end. Uh, and so it looks very good. There's obviously, you know, interim movement in quarters as we have, uh, cash flow, some cash flow lumpiness coming up, uh, but it, but it continues very strong. I think we'll see the year end be even better than last year.

Speaker Change: of Improving Credit at the parent level, I expect will be even higher than last year's year end.

Speaker Change: And so it looks very good. There's obviously, you know, interim movement in quarters, as we have cash flow, some cash flow lumpiness coming up. But it but it continues very strong. I think we'll see the year end be even better than than last year.

Steve Coughlin: So just to be clear though, Steve, I think the target last year was 22%. If I have those numbers right on a photo-debt basis, using this S&P methodology. You know, is that still kind of a good goalpost?

Speaker Change: So, just to be clear though, Steve, I think the target last year was 22%, if I have those numbers right, on a photo dead basis, this S&P methodology, you know, is that still kind of a good goalpost?

Steve Coughlin: Yeah, so we have a threshold of 20%. So you're referring more to where we ended, which had plenty of cushion above that. And I think we'll likely see ourselves even higher than that at the end of this.

Steve Coughlin: Yeah, so we have a threshold of 20%, so you're referring more to I think where we ended, which had plenty of cushion above that, and I think we'll likely see ourselves even higher than that at the end of this year.

Andres Gluski: Okay, perfect. A lot of questions on the balance sheet. Okay, then maybe just one election question.

Speaker Change: Okay, perfect. A lot of questions on the balance sheet. Okay, then maybe just one election question. Andres, appreciate the commentary and your prepared remarks. But I'm just wondering, obviously, a great quarter here, you added to the utilities, you added on the renewable side, but I'm just wondering if all the noise around repeal of tax credits,

Andres Gluski: Andres, I appreciate the commentary and your prepared remarks. But I'm just wondering, obviously, a great quarter here; you added to the utilities, you added on the renewable side, but I'm just wondering if all the noise around repealing tax credits and other policy chatter hurts your ability to sign new contracts? Does that come up in your contract negotiations? Is that a risk? Maybe just help us work through that. Thank you.

Speaker Change: and other policy chatter. Does that hurt your ability to sign new contracts? Does that come up in your contract negotiation? Is that a risk? Maybe just help us work through that. Thank you.

Andres Gluski: No, it's not slowing down our signing of contracts. What we really have is a situation that we had. So what's the biggest concern of our clients is actually time to power. Can you get me the power on time to power data centers?

Speaker Change: No, it's not slowing down our signing of contracts.

Speaker Change: to some extent foreseen a couple years ago, where it's really, there's a shortage of renewable power for data centers in many markets.

Speaker Change: So what's the biggest concern of our clients is actually time to power. Can you get me the power on time to power data centers? And that's that's their main constraint.

Andres Gluski: And that's their main constraint. So no, that hasn't been anything holding us down or, quite frankly, a major issue in our conversation with them. I do think we have to step back and say, look. You know, ITC, investment tax credits, production tax credits, they've been around for 32 years. Second, there's been a tremendous amount of investment related to the Inflation Reduction Act, and 85% of that investment has gone into renewable energy. Today, there are 8 million people working directly or indirectly in renewables in the U.S.

Speaker Change: So, no, that hasn't been anything holding us down or, quite frankly, a major issue of conversation with them. You know, I do think we have to step back and say, look,

Speaker Change: ITC, Investment Tax Credits, Production Tax Credits, they've been around for 32 years.

Speaker Change: Second, there's been a tremendous amount of investment related to the Inflation Reduction Act and 85% of that investment has gotten into Republican districts.

Speaker Change: Today there are 8 million people working directly or indirectly in renewables in the U.S.

Andres Gluski: So, you know, a total dismantling is highly unlikely in any scenario, you know, whether there are some changes around the margin, sure. But, you know, thinking about the sector, you know, quite frankly, we operate in markets where there are no subsidies. We actually make more money on those subsidies. So it would change the structure of the contracts somewhat. But, you know, we see a wholesale revision of this, very, very unlikely. Something more likely would happen to NASA, where it became the USMCA. And actually, it was, quite frankly, updated and improved in some areas. So, that's where we see the market right now. We've got an aerial napkin.

Speaker Change: So, you know, a total dismantling is highly unlikely in any scenario, you know, whether there's some changes around the margin, sure. But you know, thinking about the sector, you know, quite frankly, we operate in markets where there's

Speaker Change: are no subsidies. We actually make more money in those subsidies. So it would change somewhat, you know, the structure of the contracts. But, you know, we see a wholesale revision of this, you know, very, very unlikely. You know, something more likely would happen to NAFTA.

Speaker Change: where it became the USMCA and actually was quite frankly updated and improved in some areas. So that's where we see the market right now.

Durgesh Chopra: Got it, Ariel Napta. Thanks so much for the for the time. I appreciate it.

Speaker Change: Got it, Ariel Napta. Thanks so much for the time, I appreciate it.

Ariel Napta: You're welcome. Thank you.

Richard Sunderland: The next question comes from Richard Sunderland with J.T. Morgan. Please go ahead.

Ariel Napta: The next question comes from Richard Sunderland with J.T. Morgan. Please go ahead.

Richard Sunderland: Hi, good morning, and thank you for your time today. Good morning, Rich. Starting on the utility announcements, can you outline the utility load opportunity in terms of the breakdown of that three gigawatt in advance negotiations between Indiana and Ohio, plus how much of that capital could fall into the transmission and generation buckets relative to what's in the plan today?

Richard Sunderland: Hi, good morning, and thank you for the time today.

Speaker Change: Good morning Rich. Hi Rich.

Richard Sunderland: Starting on the utility announcements...

Richard Sunderland: Can you outline the utility load opportunity in terms of the breakdown of that three gigawatt in advanced negotiations?

Speaker Change: Between Indiana and Ohio, plus how much of that capital could fall into the transmission and generation buckets relative to what's in the plan today?

Andres Gluski: Okay, look, that's a great question. But, you know, we will give you more color on that as time passes, you know, because these are multiple agreements with multiple clients. And we'd really like to see how it shakes out, you know. We're certain that there's going to be a lot of load added, a lot of transmission assets added. But you know, this is between two utilities and multiple clients. So right now, it's a little bit too early for us to give too much color in terms of exact load growth by business. Yeah, I'm just a guy.

Speaker Change: Okay, look, that's a great question. But, you know, we will give you more color on that as time passes, you know, because these are these are multiple agreements with multiple clients.

Richard Sunderland: And we'd really like to see how it's...

Richard Sunderland: out. We're certain that there's going to be a lot of load added, a lot of transmission

Speaker Change: at it. But, you know, this is between two utilities, between multiple clients. So right now, it's a little bit too early for us to give too much color in terms of exact load growth by business.

Steve Coughlin: Yeah, just to add to that, Rich. You know, we have previously guided to around 10% For the utilities combined, this is definitely upside. There's a significant acceleration of discussion.

Richard Sunderland: Yeah, just to add to that, Rich, you know, we have previously guided to around 10%.

Rich: For the utilities combined, this is definitely upside. There's significant

Steve Coughlin: You know, definitely upside to the plans that we've given in the past. Timing matters here, though, so we'll see some within our long-term guidance period and some beyond that. But we do see a lot more growth than we saw even at the start of this year.

Speaker Change: Acceleration of Discussions

Rich: You know, so definitely upside to the plans that we've given in the past.

Speaker Change: Timing matters here, though, so we'll see some within our long-term guidance period and some beyond that.

Richard Sunderland: But we do see a lot more growth than we saw even at the start of this year.

Richard Sunderland: Understood. Thanks for the color there.

Speaker Change: Understood. Thanks for the color there.

Speaker Change: And then your language in the slides on maximizing megawatt quality over quantity.

Speaker Change: That message has certainly been clear, but I'm curious if this is consistent with your raised return assumptions. I think that was back in 4Q.

Speaker Change: Or do you see further upside potential to returns given the supply and demand dynamics currently?

Andres Gluski: And then your language in the slides on maximizing megawatt quality over quantity. That message has certainly been clear. But I'm curious if this is consistent with your raised return assumptions. I think that was back in 4Q. Or do you see further upside potential for returns given the supply and demand dynamics currently?

Speaker Change: Okay, basically, I think several things. One, you know, when we talk about pipeline, that means we have something in the interconnection queue.

Andres Gluski: Okay, basically, I think several things. One, you know, when we talk about the pipeline, that means we have something in the interconnection. And we have some degree of land control. So I would say, you know, not all pipelines were created equal. And when we talk about backlog, that's actually contracts that are signed, uh, and that we have to deliver, and people have to buy that energy. So we've never taken anything material out of our backlog, even during COVID.

Speaker Change: And we have some degree of land control. So I would say, you know, not all pipelines were created equal. And when we talk about backlog, that's actually contracts that are signed.

Speaker Change: and that we have to deliver and people have to buy that energy. So we've never taken anything material out of our backlog, even during COVID.

Andres Gluski: So what we're saying here with the basic message is one, yes, we increased our average rate of returns on these projects. But we're not talking about mid-teens. Uh, the other thing is that rather than sign like one umbrella agreement with one particular client, we're optimizing the value of this resource among, you know, various clients and opportunities. So we see this as, um, something where we invest in, we create this real pipeline, uh, and then we want to optimize the value.

Speaker Change: So, what we're saying here with the basic message is one, yes, we increased our average rate of returns.

Speaker Change: On these projects, we're not talking about mid-teams.

Speaker Change: The other thing is that rather than sign like one umbrella agreement with one particular client, you know, we're optimizing the value of this resource among, you know, various clients and among opportunities. So we see this as.

Speaker Change: Something where, you know, we invest in, we create this real pipeline, and then we want to optimize the value from it.

Andres Gluski: Will the average returns go up further? Well, I think it would depend market by market and on the opportunities, but you know right now we feel very good about the mid-teen returns that we talked about. We're making the best use of that pipeline to create value for our shareholders.

Speaker Change: Will the average returns go up further? Well, I think it would depend market by market and the opportunities.

Speaker Change: But, you know, right now we feel very good about the mid-teen returns that we talked about. And we also feel very good about that we're making the best use of that pipeline to create value for our shareholders.

Richard Sunderland: Great. Thank you for the color there. I'll leave it there.

Speaker Change: Great, thank you for the color there. I'll leave it there.

Rich: Okay, thanks, Rich.

Antoine Aramond: The next question comes from Antoine Aramond with Jeffreys. Please go ahead.

Speaker Change: The next question comes from Antoine Aramond with Jeffreys. Please go ahead.

Antoine Aramond: Hey guys, hope you're well. Thank you for taking my question. Morning. Morning. I guess to follow up on Durgesh, on the credit side... How do you frame the prospects of going towards a mid-triple B rating, and what would be the timeline that would be contemplated?

Antoine Aramond: Hey guys, hope you're well. Thank you for taking my question.

Speaker Change: Good morning.

Antoine Aramond: Good morning. I guess to follow up on Durgesh, on the credit side,

Antoine Aramond: How do you frame the prospects of going towards a mid-triple B rating, and what would be the timeline we would be contemplating?

Steve Coughlin: Yeah, so, you know, as I said, credit metrics are definitely continuing to improve. And so I see that as a possibility in the, you know, in a matter of years, you know, not this year, that will have those metrics. You know, so we don't have a specific target to share with you at this point.

Speaker Change: Yeah, so, so, you know, as I said, credit metrics are definitely continuing to improve.

Speaker Change: And so I see that as a possibility in the, you know, in a matter of years, you know, not this year, that we'll be have those have those metrics, you know, so we don't have a specific target to share with you at this point.

Steve Coughlin: But I expect it to be higher than last year, and I expect it to continue to improve as the installed base of our growth continues to grow and add cash. Today we do carry construction debt that's not yet yielding. But relative to the base, the base is increasing every year significantly in this moment that we are in. So, yeah, I think that's very possible, but I don't have a specific... date to share with you at this point.

Speaker Change: But I expect to be higher than last year.

Speaker Change: And I expect it to continue to improve as the installed base of our growth continues to grow and add cash. Today we do carry construction debt that's not yet yielding, but relative to the base,

Speaker Change: The base is increasing every year, significantly, in this moment that we are in. So, yeah, I think that's very possible, but I don't have a specific...

Andres Gluski: One thing I'd like to add, you know, as we exit countries and as we're investing primarily in long-term contracts with investment grade offtakers in renewables or our U.S. utilities, which, with this transformation, are also moving more towards a transmission rate base. The quality of our cash flow continues to improve. So it's not only a question of the metrics, which, as Steve said, are improving. But the quality of that cash flow, and how it's seen by credit rating agencies, is improving as well. So on both sides, we feel very good about it. Yeah,

Speaker Change: Date to share with you at this point.

Speaker Change: One thing I'd like to add, you know, as we exit countries,

Speaker Change: And as we are investing primarily in long-term contracted with investment-grade offtakers in renewables, or our U.S. utilities, which also, with this transformation, are moving more towards a transmission-rate based.

Speaker Change: the quality of our cash flow continues to improve.

Speaker Change: But you know the quality of that cash flow or how it's seen by credit rating agencies is improving as well

Steve Coughlin: And actually, I guess we'll keep going here because that reminds me of another topic. Really, keep in mind that 80 percent of our debt is non-recourse to the parent, and nearly all of that is amortizing investment grade rated subsidiary debt. So it's a very high-quality structure, and you know, the agencies are seeing that. So I think this both the quantified metrics, as I've mentioned, as well as what Andres said, and the quality and looking at the debt structures, amortizing investment grade. It's a very, very robust, healthy structure.

Speaker Change: So on both sides, we feel very good about it. Yeah, and actually, I guess we'll keep going here because I have just that reminds me of another topic really here is, you know, keep in mind that

Speaker Change: 80% of our debt is non-recourse to the parent.

Speaker Change: And nearly all of that is amortizing investment-graded subsidiary debt.

Speaker Change: So it's a very high quality structure.

Speaker Change: And the agencies are seeing that. So I think this, both the quantified metrics, as I've mentioned, as well as what Andres said, and the quality, and looking at the debt structures, amortizing, investment grade.

Andres Gluski: You know, it's a very, very robust, healthy structure.

Antoine Aramond: Got it. Yeah, that makes sense, guys. I guess on that note, you know, with 85% of the CapEx going towards US-based businesses, where do you see the geographical mix trending towards the end of the planning period?

Speaker Change: Got it. Yeah, that makes sense, guys. I guess on that note, you know, with 85% of the CapEx going towards U.S.-based businesses, where do you see the geographical mix trending towards the end of the planning period?

Andres Gluski: Oh, at the end of the time period, like 2027, you're speaking? Yeah, yeah. Okay.

Speaker Change: End of the time period, like 2027, you're speaking?

Speaker Change: Yeah, yeah.

Andres Gluski: Look, I'd say we can. I think there's a transformation in terms of, you know, we're moving more towards US dollar-based investment grade offtakers. So yes, there's going to be heavier weighting towards the US. You know, we do have opportunities to serve the same type of clients outside the US, which are investment grade dollar contracts, many times with the same client. So, you know, if we serve hyperscalers in the US, and they want the same services, say in Chile or in Mexico, then we can serve them, and that is a competitive advantage we have.

Speaker Change: Okay.

Speaker Change: Look, I'd say we can, I think there's a transformation in terms of, you know, we're moving more towards

Speaker Change: U.S. dollar-based investment-grade uptakers. So, yes, there's going to be heavier weighting towards the U.S.

Speaker Change: You know, we do have opportunities to serve the same type of clients outside the U.S.

Speaker Change: You know, which are investment grade dollar contracts, many times with the same, with the same client. So, you know, if we serve hyperscalers in the US and they want the same services, say in Chile or in Mexico, then we can service, and that is a competitive advantage we have.

Antoine Aramond: You got it. Okay. And then I guess, you know, you said more and more quality of megawatts versus this is just volume, um, you know, we're gonna do what 3.6 gigawatts uh this year about that number, evolving. I mean, it's still going to increase, but I guess, you know, you mentioned more and more quality, right? So what's it sort of like the, That number, you know, fast forward a couple of years. Yeah. Look.

Speaker Change: Got it. Okay. And then I guess, you know, you so you mentioned, you know, more, more sort of quality of megawatt versus this is just volume.

Speaker Change: You know, we're going to do, what, 3.6 gigs this year.

Speaker Change: How should we think about that number, you know, evolving? Assuming it's still going to increase, but I guess, you know, you mentioned more and more quality, right? So what's sort of like the

Andres Gluski: Look, when I put it this way, we have a backlog of more than 12 gigawatts of signed PPAs we have to deliver, and the majority of that will be, you know, within the period of my 2027. So, you know, that gives you, that's a guaranteed buildup that we have to do over the next three years. So over time, assuming we're signing somewhere about four and a half, five and a half gigawatts of new PPAs, those numbers have to change.

Speaker Change: That number, you know, fast forward a couple of years.

Speaker Change: Look, when I put it this way, we have a backlog of more than 12 gigawatts of signed PPAs we have to deliver. The majority of that will be, you know, within the period of, by 2027.

Speaker Change: So, you know, that gives you, that's a guaranteed build-up that we have to do over the next three years.

Speaker Change: So over time, assuming we're signing somewhere about four and a half, five and a half gigawatts of new PPAs, those numbers have to converge.

Andres Gluski: Unless, you know, we grow the number of megawatt PPAs that we're signing, then it'll take a little bit more time to converge. But, you know, given that gives you sort of the run rate, yes, we'll be, you know, four plus in the coming years, just from the backlog we have today, and expect that to grow over time past that period of time of 2027.

Speaker Change: Unless, you know, we grow the number of megawatt PPAs that we're signing, and then it'll take a little bit more time to converge.

Speaker Change: But you know, given that gives you sort of the run rate, yes, we'll be, you know, four plus, you know, in coming years, just, just from the backlog we have today, and expect that to grow over time past that period of time of 2027.

Antoine Aramond: Yep, that makes sense. Okay, great. Well, Andres and Steve, thank you so much. Thank you.

Speaker Change: Yep, that makes sense. Okay, great. Well, Andres, thank you so much.

Andres Gluski: Thank you.

David Arcaro: The next question comes from David Arcaro of Morgan Stanley. Please go ahead.

Andres Gluski: The next question comes from David Arcaro with Morgan Stanley . Please go ahead.

David Arcaro: Um, maybe back on the side of things. It's, it's, it's great to see all that load growth opportunity coming. When do you think you'll have an opportunity to relook at the capex outlook? And then, at a high level, how do you think about financing upsides in the utility capex trajectory?

David Arcaro: Hey, good morning. Thank you.

David Arcaro: Maybe back on the utility side of things, it's great to see all that load growth opportunity coming. When do you think you'd have an opportunity to re-look at the CapEx outlook? And then at a high level, how do you think about financing?

Speaker Change: Upsides in the utility CAPEX trajectory.

Steve Coughlin: Yeah, David, good morning. As we are looking through the details of the timing of what we've recently signed, we'll flesh that out in our planning process for the second half of this year and bake that into our, you know, update of guidance for the beginning of next year. So definitely, you know, I would see in the long-term horizon that we have out there through 27, this will start to come into play in the capital plan, but our funding plan, I don't expect to change at all. We have a profile. So I see it becoming material, but I see it within the funding plan that we've already released through 27.

David Arcaro: Yeah, hey, David, good morning.

Speaker Change: So, you know, as we are looking through the details of the timing of what we've recently signed, we'll flesh that out in our planning process.

Speaker Change: In the second half of this year and bake that into our, you know, update of guidance.

Speaker Change: For the beginning of next year. So definitely, you know, I would see in the long term horizon that we have out there through 27, this will start to

Speaker Change: are going to come into play in the capital plan. But our funding plan, I don't expect to change at all. We have

Speaker Change: Really done well on our asset sale plan. We are two-thirds of the way through after only 18 months on a five-year plan. We've got

Speaker Change: You know, a lot of flexibility there. We have partnership capital, so there is no shortage of capital to invest in the utility growth here. It's a very attractive profile.

Speaker Change: And, you know, so I see it becoming material, but I see it within the funding plan that we've already released through 27th.

David Arcaro: Oh, I got it. That's really helpful. Thanks for that.

Speaker Change: Oh, got it. That's really helpful. Thanks for that. And then just appreciate the comments on the supply chain outlook on the renewable side. I was just...

Speaker Change: Curious if I could get your sense, like how much line of sight do you have right now for that domestic supply in 2026? Just as we think about navigating some of the tariffs on solar panels and battery storage, how are you feeling right now in terms of the line of sight for both of those supply chains?

Andres Gluski: And then just appreciate the comments on the supply chain outlook on the renewable side. I was just curious if I could get your sense of, like, how much line of sight do you have right now for that domestic supply in 2026? Just as we think about navigating some of the, you know, tariffs on solar panels and battery storage, how are you feeling right now in terms of the line of sight for both of those supply chains?

Speaker Change: Well, we're feeling very good. And what I would say is, as we've mentioned, we have everything we need for this year, for 2024, and most of, you know, vast majority of what we want for 2025.

Speaker Change: And then we have signed an agreement with domestic suppliers for starting in 2026.

Speaker Change: So we feel very good about our ability to execute, deliver on our backlog in the U.S. And, you know, I would say that, again, to date, we have not had to

Speaker Change: Andres Weilert, Stephen Coughlin, Susan Harcourt

Andres Gluski: Well, we're feeling very good. And what I would say is, as we've mentioned, we have everything we need for this year and for 2024. And most, you know, the vast majority of what we want for 2025.

Speaker Change: And, you know, basically we're, again, going to make that switch to domestic supply, you know, starting in 2026.

Andres Gluski: And then we have signed an agreement with domestic suppliers starting in 2026. So, we feel very good about our ability to execute and deliver on our backlog in the U.S. And, you know, I would say that, again, today, we have not had to.

Andres Gluski: Any, you know, material project in our pipeline over the last five years. So, you know, compared to what happened to the supply chains with COVID, this is, you know, much more predictable. So we feel very good about it. And, you know, basically, we're again going to make that switch to domestic supply, you know, starting in 2026.

David Arcaro: Okay, great. Understood. Thanks so much.

Speaker Change: Okay, great. Understood. Thanks so much.

Speaker Change: Thank you. Thank you.

Faye Shea: The next question comes from Faye Shea with Barclays. Please go ahead.

Speaker Change: The next question comes from Faye Shea with Barclays. Please go ahead.

Faye Shea: Hi, good morning. Thanks very much for taking my question. So I guess just quickly on renewable execution. It's really great to see the guidance update in terms of EBDA with tax attributes. I guess, could you maybe just talk about, given the backlog, the PPA signing cadence, the ability to bring projects online, how your EBDA excluding tax attribute would trend. I guess, given where it is now, year to date, seems a little light, but just wanted to see how we think about it going deeper into the year.

Faye Shea: Hi, good morning. Thanks very much for taking my question. So I guess just first quickly on renewable execution, really great to see the guidance update in terms of EBDA with tax attributes. I guess, could you maybe just talk about, given the backlog, the PPA signing cadence,

Speaker Change: The ability to bring projects online. How does your EBITDA excluding text attribute would trend, I guess, given where it is now, year-to-date? Seems a little light, but just wanted to see how should we think about it going deeper into the year. Thanks.

Steve Coughlin: Yeah, hey, good morning. So we do have significant upside in our tax credits. You know, as I mentioned in my remarks, primarily that's driven by us qualifying for more energy communities than originally anticipated. And we also have seen the valuation of our tax attributes, particularly through transfers, devalued at a higher level. What's important, you know, as I've always emphasized, is that these are cash. It's a very attractive

Speaker Change: Yeah, hey, good morning, thanks. So we do have...

Speaker Change: A significant upside in our tax credits, you know, as I mentioned in my remarks.

Speaker Change: Primarily that's driven by we're qualifying for more energy communities than originally anticipated.

Speaker Change: And we also...

Speaker Change: have seen the valuation of our tax attributes, particularly through transfers, devalued at a higher level. What's important, you know, as I've always emphasized, is that these are cash. It's a very attractive profile. This is not just earnings, but it's cash.

Steve Coughlin: This is not just earnings, but it's cash coming in, which is a very early return of a significant amount of capital, you know, 30 to 50%. So we're really, really pleased with this upside. There are a few other upsides in EBITDA as well. For example, we have had higher margins and higher dispatch in our gas business in the Dominican Republic. We've also continued to drive efficiency and productivity in our renewables and utilities businesses, where we're very focused on growth.

Speaker Change: coming in, which is a very early return of a significant amount of capital, you know, 30 up to 50%. So we're really, really pleased with this upside.

Speaker Change: There are a few other upsides in EBITDA as well.

Speaker Change: So, we have had higher margins.

Speaker Change: and Higher Dispatch in our gas business in the Dominican Republic.

Speaker Change: We've also continued to drive efficiency and productivity.

Speaker Change: In our renewables and utilities businesses, where we're very focused on growth.

Speaker Change: And in fact, growing those businesses is actually costing less than we anticipated, so we see favorability.

Steve Coughlin: And in fact, growing those businesses is actually costing less than we anticipated. So we see favorability in costs going through EBITDA this year. So as you have guessed, and it's what I mentioned in my remarks, which is primarily the Columbia outage. It was a record amount of flooding and inflow that took the units out for all of the month of June and the first part of July.

Speaker Change: in costs going through EBITDA this year.

Speaker Change: So, as you caught on, there has been an offset to that, and it's what I mentioned in my remarks, which is primarily the Columbia outage. It was a record.

Mark: , and Mark . The first part of July . That did offset as a negative driver to EBITDA this year. The other, I think we mentioned this, we did have a number of

Steve Coughlin: So that unfortunately did offset and is a negative driver of EBITDA this year. And then the other, and I think we mentioned this, we did have a very low wind resource in Brazil, more so in the first quarter, but that also impacted our EBITDA this year. So we have some offsets, but overall, we are really pleased with the growth, the cash-driven growth, and that we continue to be even more efficient in our renewables and utilities growth.

Mark: A very low wind resource in Brazil.

Speaker Change: More so in the first quarter, but that also had impacted our EBITDA this year. So we have some offsets, but overall really pleased with the growth, the cash-driven growth, and that we continue to be even more efficient in our renewables and utilities growth machines.

Faye Shea: Got it. No, that's very helpful.

Speaker Change: Got it. No, that's very helpful. I guess second, we noticed a comment on being able to bring the majority of the backlog online by 2027. I guess with this year, 2024, a targeted 3.6 gigawatts of new projects online,

Andres Gluski: I guess second, we noticed the comment on being able to bring the majority of the backlog online by 2027. I guess with this year 2024, a targeted 3.6 gigawatts of new projects online. Could you talk about the cadence of bringing new projects online, just on this front, from this year through 2027, and what kind of lumpiness should we expect coming out of it?

Speaker Change: Could you talk about the cadence on bring new projects online, just on this front, from this year through 2027, and what kind of lumpiness should we expect coming out of it?

Andres Gluski: I think we've very much smoothed out the cadence of bringing projects online. You know, at the beginning, we were ramping up very fast. In fact, last year, we grew 100% the number of projects we're bringing online. So this year, we're able to manage it much better in the sense that it's almost, almost about half, you know, is being done in the first half. And the third quarter is going to be quite, quite heavy as well.

Mark: Yeah.

Speaker Change: Well, I think we've very much smoothed out the cadence of bringing projects online.

Speaker Change: You know, at the beginning, we were ramping up very fast. In fact, last year, we grew 100%.

Speaker Change: That's the number of projects we're bringing online.

Speaker Change: So this year we're able to manage it much better in the sense that it's almost almost about half, you know is

Speaker Change: being done in the first half, and the third quarter is going to be quite heavy as well.

Andres Gluski: So the cadence is going to be much more even throughout the year as, again, the growth rate is not 100% in one year. And obviously, it will increase because, again, we have to deliver 12.6 over the next three years. And so, you know, most of that is. You know, again, it gets your numbers closer to four. So we feel very good about the cadence. You know, the biggest challenge was to ramp it up 100 percent. And we did that, and we actually did all of our projects that we needed to get done last year on time.

Speaker Change: So the cadence is going to be much more even throughout the year, as again, the growth rate is not 100% in one year. And obviously, it will increase because, again, we have to deliver 12.6 over the next three years. And so, you know, most of that is...

Speaker Change: It gets your numbers closer to four. So we feel very good about the cadence. The biggest challenge was to ramp up 100%. And we did that. And we actually did all of our projects that we needed to get done last year on time.

Faye Shea: That's great. I really appreciate the colors from both. Thanks.

Speaker Change: That's great. Really appreciate the colors from both. Thanks.

Faye Shea: Thank you. Thank you

Speaker Change: Thank you. Thank you.

Michael Sullivan: The next question comes from Michael Sullivan with Wolf Research. Please go ahead.

Speaker Change: The next question comes from Michael Sullivan with Wolf Research. Please go ahead.

Michael Sullivan: Morning, Michael. Um, yeah, yeah. Um, a couple questions. I know there's been some on utility growth, but, um, you know, 50% plus load growth seems pretty eye-popping, and I'm just curious, like, how you feel about the supply side and ability to serve that, like, for example, if I just look at We have an A.S. Indiana. I don't know. I mean, there's a planned conversion and then a handful of renewables and a lot of low growth coming that, obviously, in Ohio, you have less control over the supply. And we got a data point on that earlier this week. I guess, yeah, just how explosive low growth are you feeling about the ability for generation to serve that in those two states?

Michael Sullivan: Hey, good morning.

Speaker Change: Morning, Michael. Yeah, hey, Andres. A couple questions. I know there's been some on the utility growth, but, you know, 50% plus load growth seems pretty

Michael Sullivan: Eye popping and I'm just curious like how you're feeling about the supply side and ability to serve that like for example if I just look at you have an AES, Indiana.

Speaker Change: I don't know. I mean, there's like a planned conversion and then a handful of renewables.

Speaker Change: And a lot of low growth companies. And obviously in Ohio, you have less control over the supply. And we got a data point on that earlier this week. I guess, yeah, just how explosive low growth, how are you feeling about the ability for generation to serve that in those two states?

Andres Gluski: Yeah, look, that's a great question. This is going to be timed over the year, so it's not like all at once we have to deliver this in the next two years. So it represents opportunities definitely for additional generations. And as I've been saying in my remarks, a good part of that is going to come from renewable energy. Some of that increased demand may come from gas in some locations. So definitely, you know, all of this is, you know, we feel it will get done.

Speaker Change: Yeah. Look, that's a great question. This is going to be timed over the years, so it's not like all at once we have to deliver this in the next two years.

Speaker Change: So it represents opportunities definitely for additional generation.

Speaker Change: And as I've been saying in my remarks, you know, a good part of that's going to come from renewables. Some of that increased demand may come from gas in some locations. So definitely, you know, all of this is...

Andres Gluski: And, you know, the solution will be different in MISO or PJM; there will be differences. And it'll be different between the two utilities in terms of one of them being more direct in terms of, you know, securing the generation itself. So this will pan out. But it's a very good question because, yes, it is quite a high number of growth. It represents a great opportunity, but we wouldn't have said it if we didn't know how it could be used. Yeah,

Speaker Change: You know, we feel it will get done, and you know, the solution will be different in MISO or PJM. There will be differences, and it'll be different between the two utilities in terms of one of them will involve more direct

Speaker Change: you know, securing the generation itself. So this will pan out, but it's a very good question because yes, it is quite a high number of growth. It represents a great opportunity, but we wouldn't have said it if we didn't know how this could be served.

Steve Coughlin: Yeah, and I would just add, you know, to Andres' point, you know, in Indiana, where generation will be part of the solution, keep in mind, we have multiple existing gas sites. So we have the conversion of Petersburg, but we also have space for additional gas at Eagle Valley, at Harding Street, and at the Georgetown site.

Speaker Change: Yeah, and I would just add, you know, to Andres point, you know, in Indiana, where generation will be part of the

Speaker Change: The solution, you know, keep in mind we have multiple existing gas sites, so we have the conversion at Petersburg, but we also have space for additional gas at Eagle Valley, at Harding Street, and at the Georgetown site.

Steve Coughlin: So we are seeing the whole package being able to support data center growth there. Ohio, of course, you mentioned that, you know, that's a distribution transmission. We have a very attractive area for data centers. Our service territory is quite large. A lot of available cheap land, very centrally located to fiber networks and data traffic, and accessible water, so it is a very appealing area. You can see from the, I think you're referring to the PJM capacity option was quite high, demonstrating how significant demand has increased. But within PJM, I think, you know, our territory in Western Ohio is one of the most attractive areas, if not the most.

Speaker Change: So we are seeing the whole package being able to support data center growth there. In Ohio, of course, you mentioned that, you know, that's a distribution transmission.

Speaker Change: We have a very attractive area for data centers. Our service territory is quite large, a lot of available cheap land.

Speaker Change: Very centrally located to fiber networks and data load.

Speaker Change: Accessible Water. So it is a very appealing area. You can see from the, I think you're referring to the PJM capacity auction was quite high, demonstrating how significant demand has increased. But within PJM, I think, you know, our territory in Western Ohio is

Speaker Change: One of the most attractive areas, if not the most.

Andres Gluski: Yeah, appreciate all that color. Just just to follow up on that last point, you know, this came up on some of your peers' calls, but any appetite from your standpoint to own regulated generation in Ohio? And what could that look like if it turns out that this can't be done through competitive markets?

Speaker Change: Yeah, I appreciate all that color. Just to follow up on that last point, you know, this came up on some of your peers calls, but

Speaker Change: Any appetite from your standpoint to own regulated generation in Ohio and what could that look like if it turns out that this can't be done through competitive markets?

Andres Gluski: Look, right now, we have no appetite for for generation in Ohio directly. But again, this represents opportunities for renewables, team.

Speaker Change: Yeah, look, right now we have no appetite for a generation in Ohio directly.

Speaker Change: But, again, this represents opportunities for our renewables.

Michael Sullivan: So I'd say stay tuned. But certainly, you know, we have, we feel that these targets can be met. But again, you know, realize this is going to happen over time, as Steve said in his comments.

Speaker Change: team. So I'd say stay tuned but certainly you know we have we feel that these targets can be met but again you know realize this is going to happen over time as Steve had said in his comments.

Michael Sullivan: Okay, great. And then, on the renewable side, I think since the last call, we had the Brazil asset sale announcement. Should we just think about that as fully embedded in your longer-term guidance? Or is there, like, more additions than expected that are going to kind of backfill that in terms of the longer-term growth?

Speaker Change: Okay, great. And then just one more over to like the renewable side. I think since the last call, we had the Brazil asset sale announcement. Should we just think about that as...

Speaker Change: Fully embedded in your longer-term guidance or is there like more additions than expected that are going to kind of backfill that in terms of a longer-term growth?

Steve Coughlin: No, that's already embedded in our guidance. Yeah, both this year and, obviously, the long term. Brazil's exit is included in our numbers.

Speaker Change: No, that's already embedded in our guidance. Yeah, both this year and obviously the long term Brazil exit is included in our numbers.

Speaker Change: Great, thank you.

Speaker Change: Thank you.

Michael Sullivan: Great. Thank you. The next question comes from Willard Granger with Mizuho. Please go ahead.

Speaker Change: The next question comes from Willard Granger with Mizuho. Please go ahead.

Willard Granger: Hi, good morning, everybody. Can you hear me? Yes.

Willard Granger: Hi, good morning, everybody. Can you hear me?

Speaker Change: Yes, good morning.

Willard Granger: Thanks for taking my question. This may be one. With the results of the PJM capacity auction coming out this week and just directionally higher power prices and projects coming out of the queue for next year, just how are you thinking about the cadence of your development pipeline?

Speaker Change: And any color on that would be super helpful. Thank you.

Andres Gluski: Look, we have been saying for several years that we were seeing shortages developing, corporate demand, especially for renewables, and the ability of suppliers to ramp up to meet that. So, to some extent, what is happening in the market is what we expected. This is not going to make any difference to our plants. Again, we have contracts, we have sites, we've already locked in financing, et cetera.

Speaker Change: [inaudible]

Speaker Change: Look, we have been saying, again, for several years, that we were seeing shortages developing.

Speaker Change: Just looking at the corporate demand, especially for renewables, and the ability of suppliers to ramp up to meet that demand.

Speaker Change: So, to some extent, what is happening in the market is what we expected.

Speaker Change: This is not going to make any difference to our plants.

Speaker Change: We have contracts, we have sites, we've already locked in financing, etc. So equipment prices, so it doesn't make any change to our plans. What it does, I think, signal is the value of our existing assets.

Andres Gluski: So equipment prices, so it doesn't make any change to our plants. What it does, I think, signal is the value of our existing assets is going to go up as these shortages materialize. So, you know, no effect in the short term, but in the longer term, it means that our assets are more valuable. And to some extent, that's what we've been planning for. So it's not, you know, of course, a specific option. We don't intend to be clairvoyants, but the general direction of the market that's unfolding is what we expect.

Speaker Change: are going to go up as this shortage is materialized. So, you know, no effect in the...

Speaker Change: Generally, in the shorter term, but in the longer term, it means that our assets are more valuable. And to some extent, it's what we've been planning for. So it's not, of course, a specific option. We don't intend to be clairvoyant, but the general direction of the market that's unfolding is what we expected.

Speaker Change: I appreciate the color there. Most of my questions have been answered. Thank you. I'll get back in queue.

Speaker Change: Okay, thank you.

Andrzej Storozynski: The next question comes from Andrzej Storozynski with Seaport. Please go ahead.

Speaker Change: The next question comes from Andrzej Storozynski with Seaport. Please go ahead.

Andrzej Storozynski: Thank you. I have lots of questions.

Andrzej Storozynski: Thank you. So I have lots of questions. So first, maybe in this low interest rate environment, I'm just, I'm actually wondering, so first, again, so does that actually help further boost the profitability of the projects that are yet to be built?

Speaker Change: I mean, you have embedded certain assumptions about interest rates for, like, construction financing, for cost of debt, et cetera. So do I get actually an incremental benefit now that we're seemingly in a lower interest rate environment?

Andrzej Storozynski: So first, maybe in this lower interest rate environment, I'm just, I'm actually wondering, so first of all, does that actually help further boost the profitability of the projects that are yet to be built? Meaning, I mean, you have embedded certain assumptions about interest rates for like construction, financing, for the cost of debt, etc. So so do I actually get an incremental benefit now that we're seeing, seemingly, in a lower interest rate environment?

Andrzej Storozynski: So, Andy, yeah, this is Steve. Good morning. So, look,

Steve Coughlin: So, Andy, yeah, this is Steve. Good morning.

Steve Coughlin: So, look. We can't have it both ways. So we have, as I've often talked about, a very low-risk way of executing, which means we lock in almost all of our costs when we sign our PPAs, including hedging the long-term finance. So, for anything that we've signed, we're pretty much, we've baked in the price of that financing. But on a go-forward basis, look, lower interest rates are a good thing.

Andy: We can't have it both ways. So we have, we have, as I've often talked about, a very low risk way of executing, which means we lock in almost all of our costs when we sign our PPAs, including hedging the long term financing.

Andrzej Storozynski: So, for anything that we've signed, we're pretty much, we've baked in the price of that financing, but on a go-forward basis, look, lower interest rates are a good thing. They reduce the cost.

Steve Coughlin: They reduce the cost of new infrastructure and so reduce the cost to the customer. So, overall, I think it's a further catalyst for demand and will help the whole sector. But we maintain a low risk structure in the way we execute. See, we are highly contracted for future cash flows. So lower interest rates mean a lower discount rate, which means those cash flows are worth more. But you know, the benefits on a sort of new contract basis will be for new contracts being signed but not for the backlog.

Andrzej Storozynski: of New Infrastructure, and so reduce the cost to the customer. So, overall, I think it's a further catalyst to demand and will help the whole sector. But we maintain a low-risk structure in the way we execute.

Speaker Change: Thank you.

Andrzej Storozynski: Obviously, we are highly contracted for future cash flows. So lower interest rates means a lower discount rate. It means those cash flows are worth more. But, you know, the benefits on a sort of new contract basis will be for new contracts being signed, but not for the backlog.

Andrzej Storozynski: Okay, so changing topics. So those, you know, emission reduction targets or renewable power targets for hyperscalers. So, I obviously hear those points that they're making, but I also see a number of these data centers being developed on very coal-heavy grids, like Kentucky and Mississippi. I mean, and then the utilities that are on the other side of those transactions are basically saying that hyperscalers have eventual targets for emission reductions or carbon goals, but they're happy with just absorbing coal-heavy power early on and then dealing with that carbon footprint later.

Andrzej Storozynski: Okay.

Speaker Change: So then changing topics, so the, those, you know, emission reduction targets or renewable power targets for hyperscalers. So, obviously, here are those points that they're making, but I also see a number of these, you know, data centers being developed on very coal-heavy grids like

Andrzej Storozynski: So how does that tie into this pitch that, you know, that in a sense, they have to just procure renewable power when, again, we have these instances where they're just going for large quantities of available power, largely regardless of the carbon footprint?

Speaker Change: and Kentucky and Mississippi. I mean, and then the utilities that are on the other side of those transactions are basically saying that hyperscalers have eventual targets for emission reductions or carbon goals.

Speaker Change: But they're happy with just absorbing carbon-heavy power early on and then dealing with that carbon footprint later. So how does that tie into this pitch that, in a sense, they have to just procure renewable power when, again, when we have these instances where they're just going for large quantities of available power, largely regardless of the carbon footprint?

Andres Gluski: And that's a great question, but the way I would put it is that their preference is renewable power. Right, so basically, you're talking about situations where they have no other alternative. So they're not happy to, you know, suck up coal power from the grid. They basically will either have offsets, you know, with a VPP or RECs or, and quite frankly, in most cases, will require that renewables come online in the future. So you have to put it like this is the, you know, the last alternative.

Speaker Change: That's a great question. The way I would put it is their preference is renewable power.

Speaker Change: Right, so basically you're talking about situations where they have no other alternatives.

Andrzej Storozynski: So they're not happy to, you know, suck up coal power from the grid. They basically will either have offset, you know, with a VPP or buy RECs, or, and quite frankly, in most cases will require that renewables come online in the future.

Speaker Change: So, you have to put it like this is the, you know, the last alternative. And so, obviously, if you have a data center, the most important thing is to have power. So if you have no other alternative, you will not go for renewables. But they do have the renewables goals. And they do want that power to be as low carbon as possible.

Andres Gluski: And so obviously, if you have a data center, the most important thing is to have power. So if you have no other alternative, you will not go for renewables. But they do have renewable energy goals, and they do want that power to be as low carbon as possible. So that's in terms of the demand. Now let's look at the supply. If you look at what's in the interconnection queue, almost all of it is renewable, if you include batteries.

Andrzej Storozynski: So that's on terms of the demand. Now, let's look at the supply. If you look at what's in the interconnection queue, you know, almost all of it is renewables.

Andres Gluski: So the fact is, what can get built, let's say over the next five years, is gonna be very heavily weighted towards renewables. As Steve mentioned, you have to combine these in the lowest carbon way possible.

Speaker Change: If you include batteries.

Andrzej Storozynski: So the fact is, what can get built, let's say, over the next...

Steve Coughlin: You know five years for sure is going to be very heavily weighted towards renewables You know as Steve mentioned you know you you have to combine these the lowest carbon way possible And if that means you know adding some some gas plants that will be done

Andres Gluski: And if that means adding some gas plants, that will be done. But I think that the direction is clear because I remember you saying on one call that it's all gonna be nuclear. And I kind of laughed. We both laughed and said, "Tell me what the price of an SMR is."

Speaker Change: But I think that, you know, the direction is clear because, you know, I remember you on one call said that it's all going to be nuclear and I kind of laughed, you know, we both laughed and said, you know, tell me what the price of an SMR is.

Andres Gluski: You know, how can we sign a PPA, you know, with embedding nuclear energy? Second of all, the regulatory hurdles to bringing on nuclear energy are still very significant. And we really don't have price certainty. So, you know, renewables are going to be the bulk of that add-on. That's what they want. You know, again, yes, they will make deals for the short run if that's the only alternative, but it's not their preferred route.

Andrzej Storozynski: you know, how can we sign a PPA, you know, with embedding nuclear? Second of all, the, you know, regulatory, uh,

Speaker Change: hurdles to bringing on nuclear are still very significant. And we really don't have price certainty. So, you know, renewables are going to be the bulk of that add-on. That's what they want.

Andrzej Storozynski: Again, yes, they will make deals for the short run if that's the only alternative, but it's not their preferred route.

Andrzej Storozynski: No, I understand. But again, I obviously hear your point.

Speaker Change: No, I understand. But again, I obviously hear your point. Yes. It's just that I'm wondering, if renewable power is more, you know, like a source of basically carbon free credits, or is it the source of energy?

Andrzej Storozynski: Because, again, one could argue that, you know, that the data centers are basically using, you know, traditional thermal power for, like, you know, the supply of energy and then renewables, again, just offset the carbon footprint.

Andres Gluski: Yes. It's just that I'm wondering if renewable power is more of, you know, like a source of basically carbon-free credits. Or is it the source of energy? Because, again, one could argue that the data center is basically using, you know, traditional thermal power for the supply of energy, and then renewables, again, just offset the carbon footprint. I'm not sure if that's actually bad or good; I'm debating it myself, but I'm just, again.

Speaker Change: I'm not sure if that's actually bad or good, I'm debating it myself, but I'm just, again...

Andres Gluski: Yeah, I think it depends on the client, quite frankly. Some clients are much more stringent. Some clients actually want hourly-matched renewables. Some clients require additionality. Most of them require additionality. So it's not just one-size-fits-all. I think the renewable standards will differ among them. But the direction is very clear. So I don't see anybody sort of walking away from it at this point.

Speaker Change: Yeah, I think it depends on the client, quite frankly.

Speaker Change: Some clients are much more stringent.

Speaker Change: Some clients actually want hourly-matched renewables.

Andrzej Storozynski: Some clients require additionality. Most of them require additionality. So it's not just one-size-fits-all. I think the renewable standards will differ among them, but the direction is very clear.

Andres Gluski: And quite to the contrary, they're under pressure a lot because as they ramp up very significantly their data centers and they take some power that is not renewable, their total carbon footprint goes up. And that's something that they've had to address. So I would say that, yes, they're being pragmatic. But in terms of their goals and desires, those remain unchanged. And it's not uniform across all of them. It's not one-size-

Speaker Change: So I don't see anybody sort of walking away from it at this point.

Speaker Change: And quite to the contrary, you know, they're under a pressure a lot because

Speaker Change: As they ramp up very significantly their data centers, and they're taking some power which is not renewable, their total carbon footprint goes up.

Speaker Change: And that's something that they've had to address. So...

Speaker Change: I would say that, you know, yes, they're being pragmatic, but in terms of their goals and desires, those remain unchanged. And you know, it's not uniform across all of them. It's not one size fits all.

Andres Gluski: And then lastly, when you have this page where you mention all of these additional transactions you've entered into with hyperscalers, is this co-location? Is it that this is sort of a set of assets located at least in the same sort of zone, like say in PJM, or again, I'm not trying to be facetious here, but I'm just wondering, so is this power really directly feeding into these hyperscalers, or is it just like being commingled with other power, and it's again, this sort of a carbon attribute as opposed to energy?

Speaker Change: And then lastly, when you have this page where you mention all of these additional transactions you've entered into with hyperscalers, so...

Speaker Change: So is this co-location? Is it?

Speaker Change: that this is sort of a set of assets located at least in the same sort of zone, like, say, in PJM or

Speaker Change: Again, I'm just, I'm not trying to be facetious here, but I'm just wondering, so is this power really directly feeding into these hyperscalers, or is it just like being commingled with other power and it's, again, this sort of a carbon, carbon attribute as opposed to the energy?

Steve Coughlin: Yeah, so I'll just add on to what Andres said. So in almost all these cases, even you're talking about, Angie, not to say yes, these are resulting in renewable PPAs. Some cases, in the same location or nearby locations, and others where they're focused on time to power, going to the grid, but then also contracting for renewables, perhaps further away. Most of what we are doing is, I would say, you would call more of a co-location regionally, where we're supplying energy, including most of what we signed recently, on the same grid and relatively close to the data.

Speaker Change: Yeah, so I'll just add on to what Andres said. So in almost all these cases, even you're talking about, Angie, not to say, yes, these are resulting in renewable PPAs.

Speaker Change: Some cases in the same location or nearby locations, and others where they're focused on time-to-power, going to the grid, but then also contracting for renewables perhaps further away.

Speaker Change: Most of what we are doing is, I would say, you would call more of a co-location regionally where we're supplying energy, including most of what we signed recently in the same grid and relatively close to the data center.

Steve Coughlin: So that is. That is, by and large, what we've seen most customers looking for. But, you know, when time to power is, of course, a priority, they're looking for alternatives. But the great thing is that, in all cases, the additionality of renewables, whether it's direct or through RECs, is a top demand from these customers.

Speaker Change: So that that is

Speaker Change: That is, by and large, what we've seen.

Speaker Change: most looking for. But you know, when time to power is, is, of course, a priority, they're looking for alternatives. But the great thing is that in all cases, the additionality of renewables, whether it's direct or through RECs is a top demand from these customers.

Andrzej Storozynski: Okay, and then lastly, So what happens, for example, with AES Ohio. Now that we have this, you know, pickup in capacity prices, most likely energy prices will follow. I mean, this is a wires-only business. Are you concerned about, like, the impact on electric bills and affordability and how that might suppress any sort of T&D investment?

Speaker Change: So what happens, for example, with AES-Ohio now that we have this, you know, pickup in...

Speaker Change: Capacity prices

Speaker Change: Most of the key energy prices will follow. I mean, this is a wires only business.

Speaker Change: Are you concerned about, like, you know, the impact on electric bills and affordability and how that might suppress any sort of a T&D investment?

Andres Gluski: Look, first, you know, we have the lowest rates in the state. So, you know, we're starting off from the best position of anybody. Second, realize that, you know, our new growth. These are people who, again, the most important thing is to find a good location and to have the power and the other services that they need.

Speaker Change: I would say, look, first, you know, we have the lowest rates in the state.

Speaker Change: So, you know, we're starting off from the best position of anybody.

Speaker Change: Second, realize that, you know, our new, you know,

Speaker Change: Additional growth. These are people who, again, the most important thing is to find a good location and to have the power and the other services that they need.

Andres Gluski: So that does not concern me in terms of, you know, let's say, saying, well, this growth will not happen because the capacity prices went up. And as I've said before, to some extent, not this particular auction, not the extent of this one-time jump. But, you know, we had been expecting this. So this is not something that's like out of left field, and we have to scramble. We have been talking about this, and you can hear on all our earnings calls, and we've been saying, look, there's going to be a shortage, and returns are going to improve, you know, over time. And so, directionally, this is very much what we expect. Okay, thank you. All right. Thanks, Angie.

Speaker Change: So that does not concern me in terms of, you know, let's say saying, well, this growth will not happen because the capacity prices went up. And as I've said before, to some extent, you know, not this particular option, not the

Speaker Change: extent of this one-time jump. But you know, we had been expecting this. So this is not something that's like out of left field and we have to scramble. We have been talking about, and you can hear from all our earnings calls, and we've been saying, look, there's going to be a shortage.

Speaker Change: And returns are going to improve over time. And so directionally, this is very much what we expected.

Speaker Change: Okay, thank you. Thanks.

Andrzej Storozynski: The next question comes from Biju Piranushil with SIG. Please go ahead.

Speaker Change: The next question comes from Biju Piranushil with SIG. Please go ahead.

Biju Piranushil: Yeah, thanks for taking my question on the domestic content bonus. Can you talk about when your projects might be when you're targeting your projects to be eligible for that, and maybe the implications for your returns? And if you could talk about the solar and storage projects separately, that would be great.

Biju Piranushil: Yeah, thanks for taking my question.

Biju Piranushil: A question on domestic content bonus.

Biju Piranushil: Can you talk about when your projects might, when you're targeting your projects to be eligible for that, and maybe the implications for your returns? And if you could talk to separately the solar and storage projects, that would be great. And then I have a follow up.

Andres Gluski: Okay, so first, I said in terms of domestic content, in terms of our wind project, those already meet the criteria. Remember, it's a criterion based on, you know, the total cost of the project, the different components. In terms of solar panels, again, we expect to be beating that by, you know, 2026. Um, in terms of batteries, our main supplier is Fluence, and they should be meeting that, quite frankly, starting in 2025.

Speaker Change: Okay, so first I'd say in terms of domestic content, in terms of our WIND project, those already meet the criteria. Remember it's a criteria based on

Speaker Change: You know, the total cost of the project, the different components.

Speaker Change: In terms of solar panels, again, we expect to be beating that by, you know, 2026.

Biju Piranushil: In terms of batteries, you know, our main supplier is Fluence, and they should be meeting that, quite frankly, starting in 2025.

Steve Coughlin: So altogether, you know, we feel very good about meeting domestic content requirements. You know, then there are other things like trackers, inverters, etc., that we've been working on as well. So I think the team did a very good job combining the various assets such that they do meet the domestic content criteria. So it's not, you know, one size fits all. It's like what's available. And, you know, if you have wind, it may be greater. If you have, say, solar panels, it may be less, but you put them together, and the total meets it. So we feel very good about that, meeting the domestic content criteria.

Speaker Change: So I think the team's done a very good job to, you know, combine, you know, the various assets such that they do meet the domestic content criteria.

Biju Piranushil: So it's not, you know, one size fits all, it's like what's available and, you know, if you have wind, it may be greater. If you have, say, solar panels, it may be lesser, but you put it together and the total meets it. So we feel very good about that, meeting the domestic content criteria.

Andres Gluski: And I would just add, you know, keep in mind that the adder is across the entire capital cost of the project once you meet the threshold for certain components that have to be domestically sourced. So it's, you know, it's a 10% across not just those components, but the whole thing, which is really attractive. Yeah. And, you know, we have no...

Speaker Change: And I would just add, you know, keep in mind that the adder is across the entire capital cost of the project.

Biju Piranushil: Once you meet the threshold for the certain, you know, components that have to

Speaker Change: be the domestically sourced. So it's a 10% across not just those components, but the whole thing, which is really attractive. Yeah, and we have no trouble meeting things like prevailing wage, et cetera. So again, the team's been working very hard on this, and we feel that we're very well positioned.

Steve Coughlin: Yeah, and you know, we have no trouble meeting things like prevailing wage, etc. So, you know, again, the team's been working very hard on this, and we feel that we're very well positioned.

Biju Piranushil: And is your expectation that she would be able to retain most of that? Or would you have to pass along that in terms of PPA pricing?

Speaker Change: And is your expectation that you would be able to retain most of that or you would have to pass along that in terms of PPA pricing? I'm just trying to understand the impact to your returns.

Andres Gluski: Again, I think it's on a case by case basis. It depends on the demand and supply in the particular market. So, you know, I think the best answer would be shared, you know, and then the vision of Spoilers.

Speaker Change: Again, I think it's on a case-by-case basis. It depends on the demand supply in the particular market.

Speaker Change: So, you know, I think the best answer would be shared, you know, and then the division of spoils will depend on the particular circumstance.

Biju Piranushil: Got it. My follow-up was, we talked a lot about sort of time to power. So for the renewables project, can you talk about sort of the advantages or what you bring to the table, you know, specifically from a technology perspective? I think last quarter, you talked about DLR and batteries and that, or there are other solutions that you could bring to the table in terms of adjusting that consent for your end customers. Yes, we really look at this so

Speaker Change: Got it. My follow-up was, and we talked about a lot about sort of time to power.

Speaker Change: So, for renewables project.

Speaker Change: Can you talk about...

Speaker Change: So, I think the advantages or what you bring to the table, you know, specifically from a technology perspective, I think last quarter you sort of talked about DLR and batteries and that or there are other solutions that

Speaker Change: You could bring to the table in terms of addressing that concern for your end customers.

Andres Gluski: Yes, no, we really look at this sort of holistically. And we tend to co-create with the client, say, look, what do you want? We will bring the technologies to bear. We don't come and say, look, we have this really neat widget. This is what you should buy.

Speaker Change: Yes, no, we really look at this sort of holistically.

Speaker Change: And we tend to co-create with the client, say, look, what do you want?

Speaker Change: And then we'll bring the technologies to bear. You know, we don't come and say, look, we have this really neat widget. This is what you should buy.

Andres Gluski: Now, given the new technologies, I really do feel that we've been a leader in this. So in everything from, we did invent the use of lithium ion batteries for grid stability. We started that 14 years ago.

Speaker Change: Now, given the new technologies, you know, I really do feel that we've been a leader in this.

Speaker Change: So in everything from, you know, we did invent the use of lithium ion batteries for grid stability. We started that 14 years ago. We do have the biggest dynamic line rating project in the country.

Andres Gluski: We do have the biggest dynamic line rating project in the country. Um, we, Fluence is doing a number of very innovative things to use batteries to, you know, be able to get more use out of existing transmission lines. We also were the first to do hourly matched 24-7 long-term contracts for hyperscaler clients, and so we continue to do that. And, you know, with Uplight, there are a number of... VPP facilities as well as energy management. And finally, I think Maxim was a great example of how we're thinking about the future.

Biju Piranushil: We, you know, Fluence is doing a number of very innovative things to use batteries to, you know, be able to get more use out of existing transmission lines.

Speaker Change: We also were the first to do hourly matched 24-7 long-term contracts for hyperscaler clients.

Speaker Change: So we continue to do that and you know with Uplight, you know, there's a number of

Speaker Change: VPP facilities as well, energy management, and finally, I think Maxim was a great example of how we're thinking about the future. One of the constraints, and I'm sure you've heard it, was like labor force.

Andres Gluski: One of the constraints, and I'm sure you've heard it, was the labor force for Building Solar Projects. And the fact is, you have to lift 65 pound solar panels today. In heavy heat, you know, there are restrictions.

Speaker Change: for building solar projects and the fact is you have to lift 65 pound today solar panels.

Andres Gluski: Crews can only work for six hours, for example, and, you know, it takes a very strong individual to be able to do this task at all. So with Maximo, this really allows us to do it first much more quickly. You can work three shifts, even in terrible weather and hot weather conditions. And in addition to that, you don't have to be particularly physically strong to do it. You just have to be able to supervise the robot.

Speaker Change: In heavy heat, you know, there are restrictions. Crews can only work six hours, for example. And you know, it takes a very strong individual to be able to do this task at all.

Speaker Change: So with Maximo, this really allows us first to do it much more quickly.

Speaker Change: You can work three shifts even in terrible weather and hot weather conditions. And in addition to that, you know, you don't have to be particularly physically strong to do it. You have to be able to supervise the robot. So Maxim was an example of how we would bring projects online faster.

Andres Gluski: So Maximo is an example of how we would bring projects online faster, and you know, also with cost advantages as well. So, you know, this is a first step; we're starting to use it. Next year, we'll be ramping it up.

Speaker Change: and, you know, also with cost advantages as well.

Andres Gluski: But after that, we could see a fleet of Maximo out there, which would give us a competitive advantage. In other words, that we could bring, you know, we wouldn't face labor shortages because we could hire a much broader universe of individuals. We can work in pre-shifts and in all weather conditions. And it can, quite frankly, do it faster and better. So that's another example. So again, you know, I think our ASNEX and our views on technology have been, you know, really industry leading.

Speaker Change: So, you know, this is a first step, you know, we're starting to use it. Next year we'll be ramping up. But after that, we could see a fleet of Maximo out there, which would give us a competitive advantage. In other words, that we could bring, you know, we wouldn't face labor shortages because we can hire a much broader universe of individuals.

Speaker Change: We can work at pre-shifts in all weather conditions.

Speaker Change: And it can, quite frankly, do it faster and better. So that's another example. So again, I think our...

Speaker Change: You know, AES Next and our views on technology have been, you know, really industry leading.

Speaker Change: That's great. Thank you.

Susan Harcourt: Those are all the questions we have time for today, and so I'll turn the call back to Susan for any closing remarks.

Speaker Change: Those are all the questions we have time for today and so I'll turn the call back to Susan for any closing remarks.

Susan Harcourt: 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.

Susan Harcourt: 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.

Emily: Thank you everyone for joining us today. This concludes our call, and you may now disconnect your lines.

Susan Harcourt: Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.