Q3 2025 AES Corp Earnings Call
Speaker #1: Presentation and related financial information are available on our website at AES Corp . 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 filed with the SEC .
Speaker #1: Reconciliations between GAAP and non-GAAP financial measures can be found on our website , along with the presentation . Joining me this morning are Andres Gluski , our President and Chief Executive Officer , Stephen Coughlin , our Chief Financial Officer , Ricardo Falu .
Speaker #1: Our chief operating officer . And other senior members of our management team . With that , I will turn the call over to Andres .
Speaker #2: Good morning , everyone , and thank you for joining our third quarter 2025 Financial Review call . Today , I will address our year to date progress on our financial and strategic objectives and speak to key developments in our renewables and utility businesses .
Speaker #2: Following my remarks , Steve Coughlin , our CFO , will further discuss our financial performance and outlook . First , I am pleased to reaffirm our full year 2025 guidance and long term growth rates , including adjusted EBITDA , adjusted EPs , and free cash flow .
Speaker #2: We are executing according to our plan and we are well positioned . To remain fully on track with our credit ratings and have received credit opinions from all three major agencies confirming our investment grade rating with stable outlook , including from Moody's in September .
Speaker #2: Second , we are confident that we will sign four gigawatts of new PPAs this year as we deliver the energy solutions that our customers need at attractive returns .
Speaker #2: Year to date , we have signed 2.2GW and expect to sign at least an additional 1.8GW before the end of the year . As we are in advanced negotiations on several large projects , similarly , we're on schedule to complete 3.2GW of construction projects this year , with 2.9GW already completed .
Speaker #2: Year to date , an additional 4.8GW of our 11.1GW backlog is under construction and expected to be completed through 2027 . We are also repowering the 1.2GW of natural gas at as Indiana , which is scheduled to be operational next year .
Speaker #2: This significant construction program provides clear line of sight to EBITDA growth through our guidance period and beyond . Turning to slide five . We have seen a 46% increase in our renewables EBITDA year to date driven primarily from the organic growth of new projects coming online and the maturing of our U.S.
Speaker #2: renewables businesses by year end . The installed capacity of our US business will be almost 60% larger than it was just two years ago .
Speaker #2: We are seeing projects with higher returns come online as we benefit from substantial economies of scale . In purchasing , construction and operation .
Speaker #2: These benefits are particularly evident as the average size of our projects has increased by over 50% over the past five years . Turning to slide six .
Speaker #2: We're also benefiting from the completion of projects serving data centers that we have signed over the last few years of 8.2GW , 4.2GW are in operation , and four gigawatts are in our backlog .
Speaker #2: Nearly half of these remaining four gigawatts are under construction and will be added to our fleet in the next 18 months . Additionally , and leveraging on our development capabilities this quarter , we signed a development transfer agreement , or DTA , with a large data center customer to provide them with powered land for a data center site adjacent to two of our power projects .
Speaker #2: In the past , we have signed Dtas with utility customers to develop and transfer power projects , but this is our first involving the transfer of a data center site .
Speaker #2: We will provide more details on this powered land solution in the future as we continue completing milestones and are ready to announce it with the customer.
Speaker #2: Moving to slide seven , we continue to see very strong demand across the sector with our customers overwhelmingly focused on time to power .
Speaker #2: Given the overall scarcity of ready to build projects as is well positioned to meet the urgent need for energy due to our advanced pipeline of development projects , robust domestic supply chain with no fee exposure and secured tax credit position .
Speaker #2: As a reminder , our 7.5GW US backlog is entirely safe . Harbor and in our pipeline , we have an additional four gigawatts with safe harbor protections .
Speaker #2: We also have line of sight to safe harbor . An additional 3 to 4GW before July 4th , 2026 , enabling us to bring online projects with tax credits through 2030 .
Speaker #2: As we move toward the end of the decade , our safe harbor projects that qualify for tax credits will give us a growing competitive advantage .
Speaker #2: This will help us serve our customers with reliable and low cost power . Moving to our US utilities beginning on slide eight , we are focused on our core mission of serving our customers with affordable and reliable power .
Speaker #2: As we address the increased demand that we are seeing in our service territories across Indiana and Ohio, we're among the lowest cost providers in each state.
Speaker #2: A position we expect to maintain following the resolution of our active rate cases . Turning to Indiana . Slide nine . Earlier this year , we filed for a rate review with the Indiana Utility Regulatory Commission .
Speaker #2: This rate case represents our first using a forward looking test year , bringing us in line with the rest of the electric utilities in Indiana .
Speaker #2: We are committed to maintaining bill affordability , and we have been disciplined in holding our operations and maintenance costs flat for the last five years .
Speaker #2: As such , our rate increase request is less than the cumulative impact of inflation since our last rate adjustment . I am pleased to report that in October we filed a partial settlement agreement , which included parties such as the City of Indianapolis .
Speaker #2: We expect the final order in Q2 of next year. We still expect our residential rates to be at least 15% lower than the average rates in the state.
Speaker #2: Furthermore, we're making excellent progress on our generation program at AES Indiana, which includes the construction of new facilities to replace aging infrastructure and improved system reliability.
Speaker #2: Earlier this year , we brought online the 200 megawatt Pike County project . The largest energy storage facility in Mesa . And we're on track to complete an additional 295MW of new capacity by the end of this year .
Speaker #2: Moving to slide ten . Last week , we filed our integrated Resource plan with the laying out a 20 year outlook and short term action plan for our generation portfolio .
Speaker #2: Our IRP submission evaluated scenarios with and without new data center load . As we see the potential for significant new demand in our service territory .
Speaker #2: With new load coming online towards the end of the decade, as we work with data center customers, we are committed to ensuring that new load will lower costs for all existing customers.
Speaker #2: As we spread fixed costs across a larger customer base . We will announce these arrangements with more specificity in due course . Turning to As Ohio on slide 11 , where we have 2.1GW of signed data center agreements and expect more to come .
Speaker #2: I should note that in Ohio , our data center related investments are for transmission and are supported by Ferc formula rates with no regulatory lag .
Speaker #2: By 2027 , we expect transmission to represent 40% of our total rate , base . We are now also in the final stages of our distribution rate review .
Speaker #2: Since our last call , we filed a unanimous settlement , including all customer classes and Puco staff . The settlement includes an annual revenue increase of approximately $168 million , and a ROE of nearly 10% .
Speaker #2: We expect to have our final order in the very near future, with rates effective as early as this month. Looking ahead, we plan to file our next rate review next week.
Speaker #2: As we work towards the transition in Ohio's regulatory framework away from the existing ESB model , in this filing , we will be using forward looking test years from 2027 to 2029 .
Speaker #2: As we seek to further optimize our current rate structure and reduce regulatory lag . With that , I would now like to turn the call over to our CFO , Steve Coughlin .
Speaker #3: Thank you , Andres , and good morning , everyone . Today I will discuss our third quarter results and our 2025 guidance and parent capital allocation .
Speaker #3: First , turning to adjusted EBITDA on slide 13 . Third quarter adjusted EBITDA was 830 million versus 698 million a year ago . This was driven by significant growth from new renewables projects , rate base investment at our U.S.
Speaker #3: Utilities and continued progress on our cost savings program announced on the fourth quarter call. We have already realized the majority of the $150 million in cost savings for this year, and we are on track to achieve a $300 million annual run rate in 2026.
Speaker #3: These drivers were partially offset by the sale of as Brazil and the sell downs of As Ohio and our global insurance business . Turning to slide 14 .
Speaker #3: Adjusted EPs increased to $0.75 per share , versus $0.71 in the prior year . Drivers were similar to adjusted EBITDA , partially offset by higher depreciation and interest expense and lower renewable tax attribute recognition , mainly due to timing .
Speaker #3: We also benefited from a slightly lower adjusted tax rate . Next , I'll cover the performance within each of our strategic business units , beginning with our renewables SBU on slide 15 .
Speaker #3: Our strong growth was primarily driven by the three gigawatts of new capacity brought online since Q3 2020. Our results were also driven by the continued benefit from cost reductions and scaling down of development spending.
Speaker #3: As our pipeline has continued to mature . Lastly , the net effect of moving Chile renewables to the renewables SBU this year was more than offset by the sale of our five gigawatt as Brazil business .
Speaker #3: Turning to slide 16 , we've made excellent progress so far this year toward achieving our full year renewables EBITDA guidance and have already exceeded our full year 2024 EBITDA in just the first three quarters of 2025 .
Speaker #3: We expect to continue this momentum in the year to go driven by our expanded operating fleet and full realization of our cost savings objectives .
Speaker #3: As the size of our operating portfolio increases , while our development spending and overhead declined , our drivers margins are significantly improving . In addition , hydro conditions in Colombia have normalized compared to last year , and we expect to realize the largest benefit in our fourth quarter results .
Speaker #3: Turning back to our third quarter results on slide 17 . In the utilities SBU , higher adjusted pre-tax contribution or PTC , in the quarter , was mostly driven by the 1.3 billion of rate based investments we've made over the previous four quarters to improve reliability and customer experience .
Speaker #3: This was partially offset by the 30% selldown of As Ohio that closed in April . At our energy Infrastructure SBU , higher EBITDA primarily reflects our acquisition of the remaining ownership in the Cochrane coal plant .
Speaker #3: Cost savings and the commencement of operations at our Gatun gas plant last year . This was partially offset by the Chile Renewable assets moving to our renewables segment in 2025 .
Speaker #3: Finally, EBITDA at our New Energy Technologies SBU was relatively flat versus a year ago, with no material drivers. Turning to our 2025 EBITDA guidance on slide 20.
Speaker #3: We have already achieved more than three quarters of the midpoint of our guidance in the year to date , and I am highly confident in our full year range of 2.65 to 2.85 billion growth in the year to go will be primarily driven by the continued strong increase in contributions from new renewables projects , rate based investment in our US utilities , normalized results at our Colombian hydro assets and the full realization of our 150 million cost savings target .
Speaker #3: Looking at the right-hand side, we are also reaffirming our adjusted EPS guidance of $2.10 to $2.26. In addition to the drivers of adjusted EBITDA.
Speaker #3: We expect slightly higher tax credit recognition on new renewables projects , partially offset by higher interest expense . As a result of new debt for our growth investments and a slightly higher adjusted tax rate .
Speaker #3: Looking beyond this year , on slide 21 , we're also reaffirming our 5 to 7% long term growth rate for adjusted EBITDA through 2027 from the midpoint of guidance we gave at our Investor Day in 2023 .
Speaker #3: Notably , we expect a strong step up over the next two years with our growth rate increasing to the low teens next year .
Speaker #3: We expect to have significantly less drag from asset sales and coal retirements going forward , and instead our overall results will be driven by new EBITDA contributions from our 11.1GW renewables backlog and 11% utility rate base growth .
Speaker #3: It is important to highlight that our long term guidance through 2027 understates the actual run rate earnings power of our portfolio . Looking beyond 2027 , we expect to earn an incremental $400 million of run rate EBITDA .
Speaker #3: This is from projects that we expect to be either still under construction at the end of 2027 , or that will come online during 2027 and will contribute a full year of EBITDA in 2028 .
Speaker #3: This $400 million does not require any additional project development or PPA signings, but represents the full realization of investments we will have already made by the end of our guidance period.
Speaker #3: Now let's turn to our 2025 capital allocation plan on slide 22 . Sources reflect approximately 2.7 billion of total discretionary cash , including achieving the upper half of our 1.15 to 1.25 billion free cash flow target .
Speaker #3: We achieved our asset sale target with the sell down of our global insurance business in the second quarter , and we expect to borrow an additional 500 million at the parent to continue funding growth .
Speaker #3: On the right hand side , you can see our planned use of capital . We will return more than 500 million of dividends to shareholders this year .
Speaker #3: While investing approximately 1.8 billion toward new growth , primarily in the renewables and utilities businesses . We have also repaid approximately 400 million of subsidiary debt .
Speaker #3: Our balance sheet and cash flow generation remains strong , consistent with our investment grade credit ratings . Our consolidated Moody's FFO to net debt metric is tracking ahead of the agreed path of 10% to 11% in 2025 , and we are confident in achieving the 12% target by the end of 2026 .
Speaker #3: In summary , we have demonstrated the high growth of our renewables and utilities businesses and our excellent track record of completing projects on time and on budget .
Speaker #3: Since we initiated our long term plan in 2023 , we brought ten gigawatts of projects online and signed another 12GW while investing nearly 4 billion in the rate base at our US utilities .
Speaker #3: We are extremely well positioned to achieve our 2025 guidance and long term growth rates through 2027 , and our plan remains largely de-risked .
Speaker #3: I look forward to meeting with many of you next week at the EEI Financial Conference . With that , I'll turn the call back over to Andres .
Speaker #2: Thank you Steve . Before we open the call for questions , I want to reiterate how pleased I am with our execution this year .
Speaker #2: We remain firmly on track to achieve all of our strategic and financial objectives , and we have made significant progress in growing our renewables business , as evidenced by the 46% increase in renewables EBITDA year to date .
Speaker #2: The primary driver of this EBITDA growth is the three gigawatts of new capacity completed over the last 12 months . Our construction program provides clear line of sight to continued EBITDA growth through our guidance period and beyond .
Speaker #2: These results demonstrate the strength and resilience of our strategy and our ability to bring new projects online , efficiently and at scale . As a diversified power company , we are well positioned to deliver the technology and solutions our customers need , whether through renewables , our utilities or our energy infrastructure business .
Speaker #2: Our safe harbor pipeline , a robust domestic supply chain and deep customer relationships give us a competitive advantage as we meet the growing demand for reliable , low cost power .
Speaker #2: I am confident that our continued focus on execution will drive value for our shareholders as we move into 2026 and beyond. With that, I'd like to ask the operator to open up the call for questions.
Speaker #4: Thank you . To ask a question , please press star , followed by one on your telephone keypad . Now , if you change your mind , please press star followed by two .
Speaker #4: When preparing to ask your question , please ensure your device is unmuted locally . Our first question comes from Nick Campanella from Barclays .
Speaker #4: Your line is now open . Please go ahead .
Speaker #5: Hey . Good morning . Thanks for taking my question for all the updates .
Speaker #6: Good morning .
Speaker #5: You know , maybe . Hey . Morning . Just , you know , I heard your comments on the 5 to 7 long term growth on EBITDA .
Speaker #5: Very confident in that through 27 as well as this disclosure about the 400 million of EBITDA beyond 27 , you know , maybe just with the asset sales progressing , are you trying to communicate that , you know , you're going to be above this , this range ?
Speaker #5: As we look out to 27 and then more within the range as we look to 26 or maybe can you just walk through some of the moving pieces that we should kind of consider there ?
Speaker #7: Yeah . Hey , Nick , it's Steve . So , no , we're reaffirming the 5 to 7% through 2027 when we referenced the 400 million in our remarks .
Speaker #7: We're talking about the fact that we expect to have projects coming on in 27 and projects that are still in construction at the end of 27 .
Speaker #7: You know , and this is primarily from things that are already in the backlog that will be yielding an incremental 400 million of EBITDA beyond 2027 .
Speaker #7: So in 28 and in 29 on an annualized basis . So the capital that we have provided includes the , you know , investment and the debt for that .
Speaker #7: But obviously not the EBITDA , since these are projects that would not be completed , or at least not full year contributing in 2027 .
Speaker #7: So that was the point . There . You know , we're really confident in our 5 to 7% guidance through the period . You know , as you know , you know , we have a really de-risked the the the business .
Speaker #7: We have the long term contracted generation is where it's coming from as well . Tractive returns in the utilities , you know , so we we over the long term , you know , see this as a very solid plan to achieve that target .
Speaker #7: Note that we have 11.1GW of projects in our backlog , which is roughly 3 to 4 years of built in growth already . And the other driver is utility rate base growth , which at , you know , roughly 11% , as we've guided to .
Speaker #7: And there's upside to that with the new data center load that's in advanced negotiations that we've been talking about , you know , so we feel really good about the 5 to 7 , the other thing to note is that , you know , the energy infrastructure where we've had more of the , you know , coal retirements , more of the , you know , asset sales , that's really starting to level off .
Speaker #7: So when you look at the overall growth of AES , it's no longer somewhat offset by that , that decline in energy infrastructure to that same degree .
Speaker #7: So we see a very , you know , favorable path here to the 5 to 7 . And then even beyond that .
Speaker #5: Okay . That's helpful . And then , you know , maybe just a comment on parent funding going forward . Just as you look towards accelerating growth in renewables further , just what's balance sheet capacity ?
Speaker #5: Look at this point . Look at like at this point , how should we think about the need for additional equity in any new plan ?
Speaker #5: Or, if you plan to just fully mitigate that and there shouldn't be any equity, maybe you can just comment on how you're thinking about it. I think there's a...
Speaker #5: January parent maturity for for next year . Thanks .
Speaker #7: Yeah . Thanks , Nick . So look , our top priority is continuing continuing to strengthen our balance sheet and keeping our investment grade ratings strong .
Speaker #7: So that's the focus throughout our planning and our decision making. It's not about gigawatt growth, but rather profitable growth with attractive returns that helps us achieve our balance sheet and our financial objectives.
Speaker #7: So , you know , keep in mind we've already done a lot here to support the balance sheet . We've removed $2 billion of cash through the actions we took in in earlier this year , reducing overhead , resizing our development efforts , driving efficiencies throughout the organization .
Speaker #7: We've also successfully executed sell downs that have helped deliver the business . For example , in As Ohio , the sell downs TBC was largely used to reduce debt in the Ohio Holdco .
Speaker #7: So and then in renewables , we're focused on pursuing , you know , fewer . But larger new projects with returns . You know , in the upper half of our 12 to 15% guidance range , on top of all that , our EBITDA has reached an inflection point .
Speaker #7: As you can see with the renewables segment , which has already grown 46% this year , it'll likely be around 50% by the end of the year .
Speaker #7: So we see the strong EBITDA , strong growth in FFO , and so we see ourselves on a path to , you know , keep the balance sheet healthy .
Speaker #7: We are self-funded through 2027 . We see an ability to extend that self-funding even beyond that point . And we do not have any plans to issue equity in this in this horizon .
Speaker #5: Thank you .
Speaker #6: Thank you . Nick .
Speaker #4: Thank you . Our next question comes from David Okaro from Morgan Stanley . Your line is now open . Please go ahead .
Speaker #8: Hey . Thank you . Good morning . I was wondering if you could comment on . Good morning . I was wondering if you could comment on whether you've seen an acceleration in demand following the Treasury guidance a couple of months ago .
Speaker #8: And generally , what you're seeing from both the data center , data center industry . And their interest level in renewables , and would be curious if you could just maybe put that in context of the slower bookings and contracting activity that it looks like you experienced this past quarter ?
Speaker #6: Sure . Look , we see very strong interest from our data centers and our corporate customers . I would say that , you know , in our case , two things .
Speaker #6: One is we've always said this is lumpy . And so we're doing fewer projects , larger projects . So there's , you know , no reason to expect that these are going to be evenly distributed among four quarters .
Speaker #6: So, we feel confident we'll hit our four gigawatts. Now, having said that, I think not all gigawatts are made the same or equal.
Speaker #6: So we're more than focusing on a number of gigawatts . What we're focusing on is the quality of those gigawatts . You know , we have a pipeline of safe Harvard projects , and we want to make the most value from those projects .
Speaker #6: So what really counts is how profitable are the projects you're doing ? So , as we've said , our projects are on average 50% larger than they were five years ago .
Speaker #6: So we're going for bigger projects , more profitable projects . We're hitting . We're trending towards the upper end of our IRR guidance .
Speaker #6: We feel very comfortable about that . So , you know , the demand is there . And the question is how do you optimize that asset .
Speaker #6: You have what I would call a safe harbor projects . And look there's interest beyond that . That horizon as well . So very strong demand for renewables because look , that's what can get built in this window .
Speaker #6: You know , there can be talk about nuclear or other technologies . Those take years to build . So what is going to meet the majority of the demand ?
Speaker #6: This year? It's probably going to be 90% renewable energy and batteries. And it very likely will be next year as well.
Speaker #6: So , you know , very strong demand from our clients . And we're working very well with them .
Speaker #8: Excellent . Yeah , that makes sense . Appreciate that extra color there . And separately . So I guess we're seeing indications that storage battery storage is being incorporated into more data center plans .
Speaker #8: You know I'm curious , what are you seeing on the ground in terms of storage demand ? How big an opportunity could that be for on site storage development on your end ?
Speaker #8: And potentially at data centers ?
Speaker #6: Well , look , energy storage is really critical to meet the growing demand that we're seeing . So it's like a hammer . It has many , many uses .
Speaker #6: So definitely there's a behind the meter use in the data centers themselves to smooth out their demand . And also to have very fast reaction should there be any interruption , if they're being fed by the grid , that's number one .
Speaker #6: Number two is , quite frankly , using renewables to provide , you know , dispatchable energy for a longer period of time and transmission as well .
Speaker #6: So already more than half of our solar projects come are coming with batteries . And , you know , I would expect more demand for standalone batteries .
Speaker #6: You know , for for grid services into the future . So , you know , batteries demand for batteries will be very strong .
Speaker #6: You know , even gas plants , if you have a peaking gas plant , you can dispatch it more efficiently . If you put batteries on it .
Speaker #6: One of the first applications we actually had with battery was on a fossil plant in Chile . So again , many , many uses we see strong demand and we do see demand for , you know , the meter as well .
Speaker #6: At the data center itself .
Speaker #8: Okay . Great . Thank you so much . Appreciate it .
Speaker #6: Thanks .
Speaker #4: Thank you . Our next question comes from Julien Dumoulin-smith from Jefferies . Your line is now open . Please go ahead .
Speaker #9: Hey good morning , team . Thank you guys for the time . As always . Look , I wanted to focus first on the utility opportunity .
Speaker #9: And I raised this inasmuch as obviously you had the IR , the IRP update here to Palco the other day . Can you give us a little bit of a sense of how far things are advanced there ?
Speaker #9: I mean , we obviously take note of what happened with NiSource here recently , and then separately , we saw the revisions of PJM at DPL here recently .
Speaker #9: You guys cite two gigawatts of potential advanced negotiations . I think the pipeline is up to six gigawatts . How would you set expectations at both in terms of near-term opportunities ?
Speaker #9: And how does that compare against the guidance that you guys gave previously ? I know the 11% rate base growth . How would you help frame and sensitize that out ?
Speaker #10: Thank you . Julien . Good morning . This this Ricardo . So I would say in terms of as Indiana , we are in advanced negotiations .
Speaker #10: I think the IRP that we filed last week represents sort of the potential scenarios and the opportunity that we are currently pursuing . We expect to be in a position to announce , you know , the deals in the next couple of months .
Speaker #10: But but , you know , I think in the IRP , you see that we run scenarios ranging from , you know , 500MW to 2.5GW .
Speaker #10: I think we we believe , you know , these deals will be more in the 1.5 , 2.5GW range . But again , that's something we will be announcing soon .
Speaker #10: Of course, that will include, you know, building the transmission as well as the generation capacity needed to support that massive load.
Speaker #10: I think in the case of Ohio , we have 2.1GW already signed . And I would say between the two utilities we have more opportunities that we are , you know , discussing with the hyperscalers that of course we will communicate and share more details as the deals materialize .
Speaker #9: Got it . Excellent . Then if you can elaborate a little bit on the power land opportunity , you made some tantalizing comments here in the remarks here .
Speaker #9: What exactly does this specific partnership with the data center look like? Is this co-located with a gas plant versus renewables? What exact permutation are you thinking about here?
Speaker #9: And how do you think about extracting value ? Is this about using existing assets or they're allowed to co-locate and have to build or bring new generation as well .
Speaker #9: As part of this arrangement , I just love to hear the parameters as best you see this coming together . As an example and and how much further you see .
Speaker #9: See , for this , the extent to which it's a co-located thermal opportunity .
Speaker #6: Okay . No , this is is a co-located opportunity . And it's interconnected . You know , really with the grid but also with renewables .
Speaker #6: So it's a co-located opportunity . We , you know , helped develop the site . And we're monetizing this . And , you know , we will provide more color as as this project progresses .
Speaker #6: And we can announce it jointly with our client .
Speaker #9: Okay . All right . Fair sounds sounds like we got to stay tuned . And then on anything to say there . I just noticed that in the queue here .
Speaker #6: Well , you know , Uplight you know , it was our JV with with Schneider Electric and , you know , it's added more capacity to it .
Speaker #6: Things like auto grid where we're taking in . So it has a bigger offering , but you know that market was a bit tough .
Speaker #6: You know , in the sense that with the uncertainty that they were in the markets , you know , the sales of new services were lower .
Speaker #6: We're seeing that market pick up now . But yeah , there definitely was a slowdown . And the ability to absorb , you know , new lines of business .
Speaker #6: In that in that JV .
Speaker #9: Yeah . No I was struck by the virtual power plant business being down . All right . Excellent . Thank you guys . Appreciate it .
Speaker #9: Take care . Talk to you soon .
Speaker #6: Thank you Julian .
Speaker #9: Thank you .
Speaker #4: Thank you . Our next question comes from Dimple Gosei from Bank of America . Your line is now open . Please go ahead .
Speaker #11: Good morning . Thanks for taking my question . Your slides kind of reaffirm strong data center PPA traction with , you know , 1.6GW , kind of signed year to date .
Speaker #11: Can you quantify how contracted Royco Unlevered returns on recent data center PPA compared to your legacy book , and how pricing has moved in the last 6 to 12 months ?
Speaker #11: And then I have a follow up , please .
Speaker #12: Steve .
Speaker #7: On the data center deals . Yeah . You know , so , you know , these are we've made good progress . We've signed a total of 2.2GW to date of of PPA .
Speaker #7: We feel very comfortable hitting the minimum of four gigawatts that we signed , set out to achieve to get to the 14 to 17 gigawatt total .
Speaker #7: The 1.6 is the portion of that that is with data centers . Notably , I think you saw a slide where we have , you know , we're already doing we already have in operation 4.2GW .
Speaker #7: Another total of four gigawatts of of in construction or backlog with data centers , including the 1.6 , for a total of 8.2 that also does not include our utility business with data center .
Speaker #7: So that's just around just around power powering data centers through directly through PPA . The returns on these tend to be at the , you know , higher end of our 12 to 15% .
Speaker #7: They are , you know , these are projects that are in high demand . The time to power is extremely important . And so because we have a developing a pipeline for many years now , you know , we have projects that are ready .
Speaker #7: We're not just coming to this, you know, to put projects together at the last minute. We've been developing a 50 gigawatt pipeline for many years.
Speaker #7: So we have projects that can meet the time to power needs that are in the locations where our partnerships with data center hyperscalers have identified , where they need power .
Speaker #7: And so we prioritize our development efforts in that regard . And so again , the given the high demand , the need for , for for near term projects and our ability to structure the solutions creatively that these folks need , you know , we're seeing returns in the in the upper part of our 12 to 15% return rate .
Speaker #12: Yeah ,
Speaker #6: I would also add that a key factor here is the supply chain . So as we've said in the past , you know , we basically had on site or in-country everything that we needed for this year .
Speaker #6: And next . So this , you know , has been very favorable since we haven't been affected by any tariffs . And , you know , starting in 2026 , we will be relying on , you know , domestically produced key key inputs .
Speaker #6: So I think an important element in terms of looking at the returns of these projects is how we have such a secure supply chain in place .
Speaker #6: We also have very favorable arrangements with our our contractors for construction with , you know , we basically give them a series of constructions and they roll from one to the other .
Speaker #6: So all of these efficiencies are being reflected in the returns.
Speaker #11: Okay . And then the the natural follow up is that , you know , with , with hyperscalers increasingly exploring , you know , on site and hybrid procurement strategies and the shift towards behind the meter or co-located structures , how does that actually change your development ?
Speaker #11: Return or risk mix ? How do we kind of think of that going forward ?
Speaker #6: Look , we see so much demand for the products that that we are selling that we don't think that's going to affect us .
Speaker #6: And really , when you talk to the hyperscalers , you know , first it's time to power . So any new announcements are , you know , years in the future .
Speaker #6: But in addition , you elected to the grid . So I think as Steve said , it's having the created the opportunities in the right locations , in the right markets is what they're really looking for .
Speaker #6: So look , the demand is so large . It's I don't see sort of cannibalization from sort of behind the meter from the , the hyperscalers .
Speaker #4: Thank you . Our next question comes from Steve Fleishman from Wolfe Research . Your line is now open . Please go ahead .
Speaker #13: Hey , good morning . How are you guys doing ?
Speaker #12: Very good .
Speaker #13: Okay . Good . So just maybe a high level question . Just as you're getting into this next period of the of the plan soon , you know , back a few years ago when you did the Analyst Day , you shifted to the EBITDA framework along with the earnings and part of the earnings was just that .
Speaker #13: They were lumpy and , and , and , you know , you know , they hit one year . How are you thinking about that as you get into this next period ?
Speaker #13: Are you going to really focus more on the EBITDA guide or still try and target like an earnings growth ?
Speaker #7: Hey , Steve . So look , we continue to see EBITDA being the best way to measure the portfolio today and going forward .
Speaker #7: You know , the the part of of moving to it was to give a , you know the the underlying recurring earnings from our contracted businesses related to the PPAs more related to the ongoing cash flow versus the EPs .
Speaker #7: That is obviously very highly influenced by the lumpiness of tax credits . And when projects get brought online , you know , given that now with the new new law in the obpa and the new guidance , we still see a extended track for tax credits .
Speaker #7: And so we believe they'll continue to be a significant influencer of the EPs and causing that lumpiness. Therefore, we think EBITDA continues to be the best way to look at the portfolio and also the EBITDA.
Speaker #7: You know , is reaching that inflection . As Andrew said , I discussed in our prepared remarks , you know , what's driving it forward now is both , you know , the fact that we've really scaled up the operating portfolio .
Speaker #7: So we've installed, just over the past two years, 6.9 GW of new capacity in 2024 and 2025. And we've grown the utility rate base by $1.3 billion in the past year.
Speaker #7: In investment . So we're seeing , you know , roughly going into 2026 from new projects , about 250 million of EBITDA from utilities , about 100 million of new EBITDA from cost savings going from the 150 this year to the full annualized 300 million .
Speaker #7: And so, we really see just a significant inflection here. And again, without the stepping down in the energy infrastructure that we've seen to the same degree, those positives that I just mentioned are largely going to flow all the way through to the total AES.
Speaker #7: Of course, there will still be some things that fall off. For example, the PPA does expire next year and has a partial offset, but not nearly to the same degree that things have been offsetting as we had been improving the quality of the portfolio.
Speaker #7: You are exiting markets where we were not seeing an attractive future for AOS. It's been a quality story, but now it's both quality and a significant increase in the growth rate.
Speaker #7: At the same time .
Speaker #13: Great . Okay . And just a couple other tie up questions that when we think about this DTA type transaction is there is there something related to this that would be an ongoing PPA or is this more of a build own transfer type thing or kind of a mix of both ?
Speaker #12: But it's .
Speaker #6: A mix of both. It does have an ongoing PPA.
Speaker #13: Okay , good . And then lastly , just on Indiana , you know , your points very valid on the on the rate levels and kind of maybe just a little bit of bad timing in the rate case .
Speaker #13: And can't control just the politics . So just how important is it going to be to get , do you think the , the consumer groups , or at least one of them on board in this settlement , do you think , or how should we just think about that aspect ?
Speaker #10: Yeah . Good morning Steve . Thank you . This this Ricardo . So I think , you know , the partial settlement that we reached , I think strikes for the right balance between affordability and also the investments that are needed to have a reliable and resilient grid as part of the agreement , as Indiana agreed to reduce the original revenue increase by $105 million , which is 53% .
Speaker #10: And if you look at, you know, and also, we are committing not to have another rate base increase until 2030.
Speaker #10: So, all in all, it's a 2% annual increase through 2029, which is significantly lower than the cumulative inflation since 2022, which was the last rate.
Speaker #10: You know , increase . So we are confident on this settlement going through the different steps in the regulatory process . But more importantly , as I mentioned , you know , strike the right balance between affordability and the investments that are needed to have a reliable , reliable grid .
Speaker #10: Of course , we will always welcome the Office of Utility Consumer Counselor to join the settlement . They can do it at any time of this process .
Speaker #10: But in any in any case , we expect a positive outcome as the commission , you know , is we need to rule for something that makes sense from an affordability as well .
Speaker #10: Reliability perspective .
Speaker #13: Okay . No , that makes sense . Thank you very much .
Speaker #12: Thank you Steve .
Speaker #4: Thank you . Next question is from Anthony Crowdell from Mizuho . Your line is now open . Please go ahead .
Speaker #14: Hey . Good morning . If I could follow up on Steve's first question when I think on the fourth quarter , when you give us a roll forward , any thought to going out five years or does the company still plan to keep the outlook limited to three years ?
Speaker #7: Hey , Anthony , it's Steve . I would expect to go to three years again . I think that is , you know , sufficiently long term accounting , you know , for for things that will change naturally or in the world around us .
Speaker #7: But I think we'll go out to 20 , 28 is what I , what I would want you to expect .
Speaker #14: And then lastly , if I follow up on Julian's question and I apologize , I didn't follow the difference on the power powered land solution .
Speaker #14: I'm just wondering , what's it between that program and also just maybe a PPA with a customer . And if it's easier offline , I could follow up at EEI .
Speaker #6: We can give you more . You know , color , lets say off offline . But you know , basically one is a power land where you develop the data center and it has an associated PPA with it .
Speaker #6: So there it's a different product that you're selling . One is , you know , energy over x number of years . And the other one is actually providing the site on which you can provide .
Speaker #6: You can build the data center .
Speaker #14: Got it . So it would be a yes . Would actually own the land , build the data center . And there's a PPA attached in a .
Speaker #14: Whatever hyperscale . Someone would come in there and a one stop shop , all from AAS .
Speaker #6: That's a way of thinking .
Speaker #12: Of it .
Speaker #14: Great . Thank you . That's all I had . Thanks so much .
Speaker #12: Thank you .
Speaker #4: Thank you . We have a follow up question from dimple from Bank of America . Your line is now open . Please go ahead .
Speaker #4: Okay .
Speaker #11: Thank you . More of a housekeeping question . To be fair , I think you mentioned around 50% growth for the year and the renewables segment is the expectation here .
Speaker #11: But it looks like you need closer to 57% for the low end for renewables , Ebit , EBITDA guidance based on the full Q 24 comp .
Speaker #11: So maybe can you comment on the key levers in considerations there that we need to consider to hit 2025 EBITDA guidance ? Thank you .
Speaker #7: Hey , temple . It's Steve . So you're right that it actually is higher when you look at the prior year unadjusted for the Chile Renewables , which moved into the segment this year .
Speaker #7: So the 50% includes when we adjust into 2024 on a proforma basis to Chile renewables that we were able to segregate . From the thermal segment last year .
Speaker #7: And so that's the 50% that I'm referring to . But it is even higher growth rate when you don't take that Chile into account at all .
Speaker #7: For for 2024 .
Speaker #15: Thank you .
Speaker #4: Thank you . As a reminder to ask a question , please press star followed by one on your telephone keypad . Now . We currently have no further questions .
Speaker #4: Apologies . We have a question from Aidan Kelly from JP Morgan . Your line is now open . Please go ahead .
Speaker #16: Hey , guys . Good morning . Can you hear me ?
Speaker #6: Now I can't hear .
Speaker #12: You .
Speaker #16: Apologies .
Speaker #4: We have lost .
Speaker #16: Okay .
Speaker #4: Apologies . We have lost connection with Aidan Kelly . As a reminder to ask a question , please press star followed by one on your telephone keypad .
Speaker #4: We currently have no further questions , so I'll hand back to Susan Harcourt for closing remarks .
Speaker #17: 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 .
Speaker #17: Thank you and have a nice day .