Q2 2019 Earnings Call
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I would now like to turn the conference over to Ahmed Pasha. Please go ahead Sir.
Thank you Nancy good morning, and welcome to our second quarter 2019 Financial review call. Our press release presentation and electric financial information are available on our website that she has talked to them.
Today, we will be making forward looking statements during the call.
There are many factors that may cause future results to differ materially from these statements.
These people are to our SEC filings for a discussion of these factors.
Joining me. This morning are undisclosed ski our president and Chief Executive Officer, There's probably meant all our chief financial Officer, and other senior members of our management team.
With that I will turn the call over to Andreas.
Thank you Emily good morning, everyone and thank you for joining our second quarter 2019 financial review call.
I am pleased to report that based on our year to date results.
And our expected growth in the second half of the year. We are on track to achieve our 2019, adjusted EPS guidance with a midpoint of $1.34.
And our parent free cash flow target with a midpoint of $725 million.
We're also confident in our ability to deliver 7% to 9%.
Average annual growth through 2022.
Turning to slide four.
Since our last call. We have continued to make great progress on our three key strategic objectives.
These are first becoming investment grade and enhancing the resilience of our portfolio.
Second.
Positioning the company for sustained growth by increasing our backlog of contracted projects.
And third improving our competitiveness by deploying innovative technologies.
Now allow me to provide some color on each one starting with our first objective of becoming investment grade and enhancing the resilience of our portfolio on slide five.
We have already achieved key investment grade metrics and we are on track to attain investment grade ratings in 2020.
Our improved credit metrics reflect the growth of our free cash flow.
Paying down 43% of our recourse debt.
And an almost 70% decrease in our exposure to foreign currencies commodities and hydrology over the past eight years.
A good example of this last point is bringing LNG to Panama, where the commissioning of the U.S. core long terminal and combined cycle power plant.
This new facility as our reduced our exposure to poor hydrology in Panama by 70%.
By providing far less expensive energy to supply our hydro p. I used in times of drought.
Such as occurred in 2014.
And is occurring again this year.
It is not only good for eight yes.
But it is expected to say, Panama more than $400 million a year in imported fuel expenses.
We are further enhancing the resilience of our portfolio by decreasing our carbon intensity.
This year alone we have announced the sale of 2.4 Gigawatts of thermal generation in Northern Ireland, Jordan in Oklahoma.
As you can see on slide six.
As a result of our actions, we expect to reduce our carbon intensity by 50%.
From 2016 levels by 2022.
By that date, we also expect that coal will represent less than 30% of our total generation.
Megawatt hour.
Now to our second objective positioning the company for sustainable growth.
By increasing our backlog of contracted projects beginning on slide seven.
We now have a backlog of 6.8 gigawatts of mostly renewable projects.
This number encompasses projects under construction or with <unk>.
All of which are expected to be online by 2023.
We are now on track to become one of the five largest renewable developers in the world.
Outside of China.
As we discussed on our last call, we expect to sign two to three gigawatts of renewables per year.
Split roughly 50 50 between wind and solar and likewise between the U.S. and international.
So far this year.
We have signed one gigawatt upper noble P. ace, including about 500 megawatts since our last call.
This new capacity includes the 181 megawatts of renewable energy signed in Chile, as part of our green blend and extend strategy.
Through this win win approach, we preserve the value of our existing contracts, while replacing a portion of thermal energy with long term contracted renewables.
In exchange.
Our customers receive carbon free energy.
Lessened the marginal cost thermal power.
I'll still benefiting from reliable capacity provided by thermal generation.
We expect to see meaningful progress on the green blend and extend opportunity in the coming months.
Now to our projects under construction beginning on slide eight.
Of the 4.5 Gigawatts currently under construction, 43% our renewables.
This percentage will continue to grow as we complete the large conventional thermal plants, we started a number of years ago.
While adding new wind solar and energy storage.
We are particularly pleased with the speed at which we have been able to transition projects from development to construction.
Now on to slide nine.
We are reaching key milestones on our conventional projects under construction.
We have completed the construction of our OPGC two plant in India.
With one unit already online and the second unit in the final commissioning phase.
Oh, Southland Repowering project in California.
Continues to progress well.
And is now approximately 95% complete.
We recently achieved first fire and the project is on track to come online in the first quarter of next year.
Ahead of our original schedule.
I'm also pleased to announce that just yesterday the storage tank at our age has called on LNG Regasification facility in Panama came online.
Replacing the temporary floating storage unit, we had been using.
Turning to slide 10.
Our Alto Maipo hydroelectric project in Chile is advancing as planned.
And is now approximately 80% complete.
As you May remember.
Tunneling is the most difficult aspect of construction and we now have completed 36 miles with only five miles to go until initial cod.
Additionally, we broke ground on a 10 megawatt energy storage project that will serve as the first virtual reservoir in the world.
This innovative project is for Alfalfa Hydro plant, which is part of the Alto Maipo complex.
It will store five hours of energy during periods of low demand.
And inject that energy into the grid during hours off peak demand.
Providing the run of the river plant with many of the same capabilities as a reservoir.
We have the potential to increase the virtual reservoir by another 240 megawatts, a five hour energy storage at the Alto Maipo complex.
Turning to slide 11.
Another component of our contracted growth strategy is investing an LNG, which we see as complementary to our renewables business.
Not only does LNG displace heavy fuel oil and diesel with less volatile cheaper and cleaner natural gas.
Well the investments are based on long term tolling agreement with no direct commodity risk.
I previously mentioned that once our LNG import terminals and re gasification facilities are built they can be scaled up at a relatively low cost.
As much of the key infrastructure is already in place.
We are working on expanding our LNG storage capacity in the Dominican Republic, I 50 Terabit teams.
We have already signed or are in advanced negotiations for third it's cheap <unk> terribly to you of this additional capacity under long term contracts.
This expansion will require minimal investment for me yes.
And it's expected to be completed by 2022.
Once fully contracted this expansion will provide two cents of incremental yes.
This is up and above the three cents of potential upside at our existing LNG facilities in the region.
We had already discussed.
In Vietnam, we're making excellent progress toward the development of a landmark project with 450 terribly to use of LNG storage and two gigawatts of combined cycle power plants.
We expect to achieve this critical milestone this year.
And once completed this project will be an important contributor to our earnings growth beyond 2000.
Now to our third strategic objective of deploying new technologies to maintain our market leading positions beginning on slide 12.
We are complementing and enhancing our current businesses by incorporating digital capabilities and by growing in adjacent areas.
As we discussed on our last call by applying new digital initiatives and analytics across our $33 billion asset base.
This is the primary driver of our $100 million annual cost savings initiatives.
We are on track to fully achieved these savings by 2022.
One example of our investment in new technologies is our energy storage business.
We are now the undisputed global leader in the sector.
As both an owner of projects and through fluid the energy storage provider that we jointly owned with Siemens.
Hi, Louis has now surpassed one gigawatt of projects either awarded or delivered including more than 400 megawatts of projects awarded in the first half of 2019 alone.
With the current backlog of nearly $700 million and a growing pipeline of activity.
Fluence is cash positive.
Self funding and has the potential to rapidly increase in value as demand for energy storage accelerates.
Now to slide 13.
Another example is our investment in simple energy.
A company that provides utility customers a marketplace.
For energy efficiency products.
There is great demand for digital solutions that enable energy users to be more efficient and simple energy has grown even faster than we anticipated.
Since our last call simple energy has merged with other companies to form a new company called applied.
Okay. What is now the market leader in providing cloud based energy solutions in the United States.
Sure, serving 85 electric and gas utilities with more than 100 million customers.
Through this transaction implied value of our equity and simple energy nearly doubled in a little over a year since our initial investment.
And digital business, such as applied is capital light.
Largely self funding and we expect Applieds annual revenue to grow significantly from its current base of over $100 million.
Finally, turning to slide 14.
Yes, its success as a technology leader was recently recognized when we were awarded our Industrys top honor.
He Edison Award.
We were honored for innovation in advancing round the clock renewables at our low why solar plus storage.
Which is already operational in Hawaii.
We see renewables plus storage.
As an increasingly important for our sector and yes is well position to gain significant market share in this space.
Now I'll turn the call over to style.
To discuss our financial results and capital allocation in more detail.
Thank Andreas.
Today, I will cover our financial results outlook for 2019 and capital allocation.
Overall, we are very encouraged by our performance to date and remain confident in our ability to deliver on our strategic and financial objectives.
As shown on slide 16 in the second quarter. Adjusted EPS was 26 cents, primarily reflecting higher contributions from the U.S. and a lower tax rate.
This was partially offset by the impact of asset sales.
As well as planned outages in Panama and Northern Ireland.
In the second half, we expect that you posted strong results as it benefits from the plant in Panama returning to operations.
Our continued cost savings initiatives and two gigawatts of new projects, reaching cod.
Turning to slide 17, adjusted pretax contribution or PTC was $240 million for the quarter.
A decrease of $15 million I'll cover our results in more detail over the next four is lights begin on slide 18.
The U.S. indebtedness SBQ increase BTC reflects the resolution of regulated rate cases last year.
Contributions from new renewable projects and higher energy sales at Sauflon.
These impacts were partially offset by the access of coal fired generation at DPL in shady point.
Regarding DPL DMR extension filing there is not much to report, but we remain on track for an expected rolling into any to any.
And continue to feel confident about the merits of arcades.
In Indiana, IPO recently filed a plan to transform its electric Reid.
While continuing to meet the energy needs of its customers with improved service reliability efficiency and safety.
The plan calls for $1.2 billion of CND investment over 70 years without a tracker mechanism recovering 80% of these costs between rate cases.
Yes equity investment would be roughly $200 million if approved the plan would be a key component of the mid single digit rate base growth, we have discussed it in the past.
A final ruling in that case is expected by early two any to any.
At our South America, SBQ, lower PTC was largely driven by lower generation and energy pricing in Colombia.
As well as lower volumes in Chile.
Lower PTC at our Mexico, Central America, and the Caribbean or M.C.C. SBQ.
Reflects and extend that planet outage for maintenance and repairs at our Shangkun Allah hydro plant in Panama.
Finally in Eurasia low results, primarily reflect blended outages at spirit and the shutdown of 300 megawatts of capacity at bat alone for in Northern Ireland.
In mid June we closed the sale of this business is for total proceeds of $120 million.
In Bulgaria, there has been no significant developments since our last call.
Our plan continues to be dispatch it reinforcing its criticality to the Bulgarian greed and were being paid on time.
Lastly, we recently took advantage of strong market demand for infrastructure projects in Vietnam to refinance $1.1 billion of project that at Mong Duong.
The issuance was four times oversubscribed and enabled us to lower our interest rate, while improving financial flexibility.
This is just another example of our continued liability management effort across our portfolio.
Capitalizing on a low interest rate environment.
Now to slide 22, you just summarize our performance in the first half of the year. We earned adjusted EPS of 53 cents versus 52 cents last year.
Relative to 2018, we expect this strong growth in the second half of 2019.
Primarily driven by contributions from new businesses.
Continued cost savings initiatives and the timing over major outages, particularly in Panama and the Dominican Republic.
As you may have seen in our press release, we are reaffirming the dollar 34 midpoint of our 2019 adjusted EPS guidance.
We're also narrowing the range by four cents to $1.28.
From $1.28, Tchibala 40 to $1.30 to $1.38.
Given our confidence in the outlook for the second half of the year.
I will also highlight that we reach we are reaffirming our 2019 parent free cash flow target of $700 million to $750 million.
Turning to 2019 parent capital allocation on slide 23.
Beginning on the left hand side source reflect a $1.1 billion of total discretionary cash, including $725 million of parent free cash flow.
Sources also consider at $369 million in asset sale proceeds which include Northern Ireland.
And this as power sell down.
Both of which have closed as well as Jordan, which were expected to close by year end.
Now to use on the right hand side, including the 5% dividend increase we announced that in December we'll be returning $361 million to shareholders. This year.
We expect that you allocate another $150 million to parent that pay down largely to strengthen our investment grade metrics.
And we plan to invest $415 million in our subsidiaries, leaving about $200 million of unallocated cash.
Finally, moving to our capital allocation for 2019 through 2020 to begin on slide 24.
We expect our portfolio to generate $4 billion in discretionary cash, which is about 35% of our current market cap.
About 80% of this cash is expected to be generated from parent free cash flow.
The remaining $800 million comes from asset sales proceeds about half of which has been announced or closed this year.
In addition to this we are making very good progress on the third party capital initiative, we have discussed previously.
And expected a formal announcement later this year.
As we have said before the goal is to provide a more systematic and cost effective source of capital that would be incremental to the 4 billion dollar I just mentioned.
Turning to the uses of discretionary cash on slide 25.
Roughly 40% of this cash will be allocated to shareholder dividends looking forward subject to annual review by the board, we expect the dividend to grow 4% to 6% per year.
In line with the industry average.
We plan to use $300 million for debt reduction.
Half of which we expect that you complete in 2019.
The other half will be use it to maintain credit neutrality as we pursue the remain Atlanta asset sales.
We're also expecting to use $1.5 billion for our equity investments in our backlog and projected b piece.
And an additional $200 million to fund TNT investments at IPO was completed I love. This projects will contribute to our growth through to any 22 and beyond.
The remaining $470 million of unallocated cash will be used it in accordance with our capital allocation framework to achieve our financial objectives with that I'll turn the call back over to address.
Thanks, good so.
Before we take your questions, let me summarize todays call.
In the first half of the year, we made very good progress on our strategic objectives and expect to accomplish significant milestones in the remainder of the year.
We are enhancing the resilience of our portfolio and we are on track to attain investment grade ratings in 2020.
We are increasing our backlog of long term contracted projects to sustain profitable growth.
Including advancing renewables and LNG infrastructure.
And we are deploying innovative technologies to maintain our competitive edge.
And market leading positions.
Accordingly.
We are confident in our ability to achieve our 2019 guidance.
We're also confident that we will deliver 7% to 9% growth in cash flow and adjusted earnings per share through 2022.
Therefore, we believe a S offers a compelling investment thesis yielding double digit total returns that will serve our investors well for years to come.
Operator.
We're now ready to take questions.
Thank you.
We will now begin our question and answer session.
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Tom will momentarily.
Hi.
Roster.
And the first question comes from Angie.
From.
Mcclary. Please go ahead.
Thank you.
So first on Ohio.
The DMR for PPL.
So the challenge challenge at the court.
And secondly.
Given the successful challenge first energy DMR, just wondering if there is a way to either adjust the car and lighter but that.
It is collecting and I'd also have some improvements to the one that you are requesting to have extended so that does.
Susceptible to future legal challenges.
Hi, Angie Gustavo here.
So just to provide a little bit of.
Detail here right. So what it's been challenged in the port is not the legality of the DMR. So we have a very specific and narrow.
Claim there.
The discussion is around if the DMR should be included or not in the seat test right. So from our perspective and there are precedents in Ohio into each.
Charge similar to the DMR should not be including the C. Test. So we feel we feel good about that in any case. We don't think this is a binary outcome right. So we'll have to run this through the seat that at the end just see what is the final impact he back and you know.
Our view is that decision would probably be becoming towards year end, but again, it's it's not a challenge you regarding the legality of the DMR and that's a very important clarification next station is a separate discussion right. So we've got a the initial three years under the assumption that we would be very specific in terms of the uses of the proceeds so weve done weve using 100% of the proceeds for debt pay down.
We brought we brought the complex back to investment grade and from our perspective.
It is necessary to secure an extension for the complex to maintain the investment grade and position the PL for grid modernization and May recall, we filed last year and investment on his Margaret.
And for Us to continue with those investments its fundamental that we secured an extension. So we feel we have a good case.
But that will have to run its due process.
Okay and moving on to.
To your cash available for allocation. So just wanted to make sure that the 395 million.
Proceeds from asset sales.
Independent of the pending.
A process, where you're trying to raise third party capital and.
And on the ladder given the other low and falling interest rate environment. If you could comment if that is actually.
Somewhat beneficial to.
The process that you're seeing actually more demand for.
Partial sell down of equity LCR operating assets and teacher assets.
Yeah, Hi, Angie this is andreas.
Yes, as we said this this initiative is additional.
It in no way affects the $395 million.
It's progressing well as Gustavsson and you know stay tune for developments in the in the latter half of the year.
I would add that this is not like.
If we don't do this we've already raised $3 billion of partner capital at very good rates. So what we're trying to do here is do it in a more systematic and predictable way.
But either case, we have additional upside from incorporating partners into our businesses.
Thank you.
Yes.
Our next question comes from Lee Jagoda from Sun Trust. Please go ahead.
Thank you good morning.
Good morning.
Moving on to his first question I did want to come back to Ohio, If I could.
I hear the points you made that Hey, you know what the Supreme Court Challenge for you is specific to the C test.
Nevertheless, you know that is a Supreme court decision in the state that basically went against the validity of the F. E. DMR. So there is a possibility that eventually something like that.
Challenge happens to your the amount as well if it's not happening today. So can you just simply summarize for US why you think youre BMR will be different and should be treated differently than the way feeds dmone is being treated.
Yeah, I think I mean, it's very objective here weve, but that's not the discussion in our case right. So discussion again in our case.
Regarding the the C test and not the legality so that is not in scope today I got that.
At that point I think we'll start with potential implications would be for potential discussion on the extension of the DMR.
Which I think it's a more fundamental discussion if the DMR should exist or not and again, we do believe we have a very good case.
When we got the first very clearly if you read the outcome there.
One of the discussion is if the proceeds there clearly defined in terms of the use in the case of the P.R. This was very clearly defined we used 100% for that pay down so a lot of the fundamentals that words best in the other case.
In our press perspective, our solid friend Dipiazza standpoint, and again, we need that from our perspective to maintain investment grade and position.
The appeal for grid month.
Yeah look I think what's very important is also for you know.
For Dayton to heavy grid equal to the other grids.
In Ohio.
It needs an investment grade company and that is all wrapped together in this request.
For an extension of the DMR.
Okay.
Separately Andreas.
Can you also give us an update on what you're seeing in Puerto Rico right now.
With the political turmoil that any impact at all on your plan to your project out there.
Yes in Puerto Rico has been through you know removal of the governor and they're in the process of appointing a new governor.
Look whatever occurs we'll continue to be very important for Puerto Rico, we have the most reliable and by far the cheapest energy on the island.
To replace our coal plant in Puerto Rico by burning heavy fuel oil.
Which is what the other plants, mainly burn besides some gas.
Would cost about an additional $300 million to $400 million a year in imported fuel bills. So prep I would have to pay an additional $300 million to $400 million per year, which will be passed on to consumers.
I think what's also very important is of the large plants. There are only two which are EPA compliant.
Most of the plants in Puerto Rico, because they're burning heavy fuel oil have.
Excess emissions of Sox, so they're not EPA compliant and for that reason, the air and San Juan and sponsored the two main cities is not compliant.
So while there has been some you know noise of about our coal ash on the island.
Really this this plant is very necessary.
We're working with the proper.
To see about green blend and extend.
As a way of reducing.
Total emissions emissions on the island.
And we'll continue to work with them so stay tuned and.
You know this plant is important.
It is producing the most reliable and the cheapest energy on the island.
Okay last question Andreas you know the $395 million of remaining asset sales.
Is that all they're still to exit out of non core assets as part of the process or is that more driven by partial sell downs of existing assets to recur and recycle. The capital are you thinking about the remaining asset sale process.
Well, we have a number of objectives. So clearly we have an objective.
Reaching less than 30% of our total generation by megawatt hour.
Coming from coal so that's something that we will keep in mind.
We'll also keep in mind.
You know those markets, which we think are growing most quickly.
And of course, we've also been I think very successful in improving our returns for example, even on renewables by incorporating partner. So there's a combination of factors, but yes, obviously.
Reducing our carbon footprint will be one consideration.
In our additional sell downs.
Got it thank you.
Our next question comes from Greg Gordon from Evercore. Please go ahead.
Thanks, guys good morning.
Good morning, Greg.
Sorry to beat a dead horse on that.
The DMR.
I already understood the nuances.
Situation, but can you just tell us.
Even though.
In all rights you need this money.
Fulfill the capital needs.
Distribution utility in Ohio.
Should get the approval.
Is your 7% to 9% expected earnings growth rate resilient.
A negative outcome in that case.
No the answer is yes.
Thank you just to complement what I've just to compliment I think you may recall first Q.
We've announced that the additional $100 million of potential cost savings from digital which was not in the seven to nine so you see.
That.
No forecast has really have resilience to manage some of the negative outcome, having said that we expected.
To get the Dms station.
Right.
And then my second question was.
With regard to Vietnam, you talked about how.
Your.
You are pleased with the movement towards potential realization of commercial opportunity there.
I think you know some of your investors are a bit skittish.
As it pertains to you know really large that's.
Highly concentrated investments.
And in Asia, So if it does come to a.
Become a really viable commercial opportunity.
See bringing in partners, how would you like to size that investment needs to be your overall capital commitments.
Yes.
Well you know of course, we have a portfolio view of our capital and we don't want excessive concentration in any one particular market outside of the U.S. So.
I would say that you know to look at what we did with our among Jong facility in Vietnam, where we you know we have been very successful were paid on time, it's a dollar contract.
We're viewed as the.
Say premier operator, and developer and builder of projects in Vietnam. So in that case, you know we didn't have an over concentration of capital. So in the case of Vietnam. You know we may have Vietnamese partners from the from the get go. So you know we'll be conscious of that but I think it's moving very well and as you know Vietnam is a place where it takes time to develop projects.
Because you require government consensus from many entities.
But you know we're well on our way so we feel very confident about this project.
And you know, we'll obviously up.
We'll be conscious about.
Over concentration in one country.
Great. My last question is.
I think that there was an incident.
The technology had some issues in Arizona.
For months ago.
Was that an isolated event.
I've never been improvements or modification.
And if you're.
Youre offering.
Yeah. This occurred at a two megawatt facility in Arizona, you know, we've been working with the battery manufacturer.
And the utility in that case.
Really investigating.
All the root causes and looking at all our facilities.
I would say that we've taken a prudent steps based on that.
Realize that.
We're now coming out with our fifth generation of energy storage.
Which will be a cube and it has.
All the latest safety requirements for example, the state of New York, which is its 95 of 48.
And then I'd say in addition to that realize that you know we continue to see very strong demand.
For fluids, even the operator of the one unit that did have that incident.
We continue to go forward. So looking at that you know we think this is something that there was some learning we're working again with the.
Battery supplier to really look at what was the root cause.
And we're incorporating all learnings and.
No. We we will have what we have you know quite frankly, you know the safest and most up to date units out in in operation.
And in construction.
Thank you guys have a good morning.
Thank you.
Your next question comes from Julien.
Please go ahead.
Hey, good morning, Kim Good morning Julien.
Hey, So I just wanted to follow up a little bit different from from other here first just with respect to Vietnam and then just whats the latest progress on LNG contract in there what should we be expecting going into the fourth quarter here or anything in particular, and then separately you mentioned IPO there have been some issues in Indiana around these RFP processes of late can you comment about what kind of generation shifts are reflected in that 1.2 billion would there be potentially incremental are you thinking about anything I know that some of the modeling scenarios that have been released by people have talked about this a little bit. So just if you can on those two big capital budgeting items here and then separately as a second question I'll just ask it now.
Can you comment a little bit on the PTC contributions and the year over year increase constant year over year increase.
This is from the renewable segment and how you're thinking about that scaling through the course of the year. So I'll leave it there.
Okay, let's take this a multifaceted question part by part I think regarding Vietnam, you know as you know when President Trump visited Vietnam, you know there was a.
Letters of intent signed up for this project and it was you know I'll say.
One of the marquee projects that the two companies countries had agreed to so energy demand in Vietnam is growing around 10%.
Quite frankly, Vietnam is one of the beneficiaries of some of the trade dispute between the U.S. in China.
So expect demand to grow even faster.
Vietnam does not have sufficient domestic LNG doesnt, even have sufficient coal and so it's not as moving towards LNG and renewables as well.
So.
This is a very necessary project, it's going to start.
Supplying not only the new combined cycle gas plants, which are part of this initiative, but existing ones, which are running out of offshore gas as well. So again I think it's very necessary. It's also a project it's very important for both countries for the U.S.
And for Us.
No.
So the next things as you know expect a further progress in terms of.
You know announcements in say between the two countries and US that this is going to be moving forward with the.
And you know what Vietnamese partners are involved Vietnam is a country of consensus as I said, so you know.
It takes time, but they move and they move in a very steady, but very certain fashion. So that's what I would say sort of stay too.
And it will of course, we have to.
We are part of the Vietnamese government Master electricity plant and that will also involve you know how much LNG is important and you know the phasing in of the combined cycle plants.
On the second I will pass this to Gustavo what I would say is a big part of the $1.2 billion at IPO its actually Andy.
So its smart grid infrastructure, so I'll pass it to style that that's right. So drilling Gustavo here, yes. The 1.2 is all TNT.
So yes. The team is looking for opportunities on the on the generation side, but it's not in this number yet so.
This is it still in the works.
On your third question regarding the renewable contribution in this quarter was not that material around the scent.
And as we bring new projects online towards your hand, then we will have an additional contribution.
I would just to clarify quickly.
Just on the PTC contribution for renewables should we expect a material tax credit benefit and for Q here to be kind of a big year over year uptick or.
Sure, Okay, not material, but some contribution but not mature yet.
So just just remind you that remember that we were split 50 50 between solar and wind and were split 50 50 between us and international.
So you know something like FHLB is not as important for us as it is for other people.
And just finally to read between the lines. It was IPO, we shouldn't expect anything to differ from that 1.2 for the RFP process for the time being.
No. The teams we are still working on that one so that this 1.2 was exclusively on TNT and we are looking for.
Opportunities on the IP and we will come back to you as we as we get this put this to bed.
Okay, Alright state here. Thank you.
Thank you.
Our next question comes from Charles Fishman from Morningstar. Please go ahead.
Hi, good morning.
Fluids.
It's certainly an emerging technology that we're still going down the cost curve Andre So would you say that your.
Margins are holding I per megawatt or however, you measure it as this technology.
Progress is down the cost curve.
Well go to say that the sales margin.
Certainly are holding their different margins for different businesses.
You know obviously.
We're in 20 countries today.
We are selling you know for example in the Philippines, you know where you have many isolated.
Positions you have different applications, such as community solar.
You had.
Quite frankly, some flex which is slightly different project product then.
Our advance in product.
So you know the margins will differ depending on the market depending on the exact product.
But basically we see the cost curve coming down because as we come up with our next generation product here, it's going to be more product ties, it's going to be more prefab.
And it's going to be less customized you know as we've learned more about.
What is optimal for our customers in different situations. So more customization will be on the software and less will be on the hardware. So I would say expect margins to continue to improve not not actually go down even though you know we're seeing some.
In some cases, you know people are bidding very low prices for and the integration of energy storage.
Basically to say that they have an approved product up and operating.
In many of those cases, we don't we don't compete because you know we do require margin from our projects.
Sure and then one last quick question.
The virtual reservoir at Autohome IPO, how is that different from pump storage and doesn't involve any of the fluids technology.
Good question, it's absolutely fluids technology.
So basically it changes it differs from pump storage will pump storage you need a reservoir.
You've got to put that water somewhere.
And you have to build pipelines and you have to use electricity get an upturn. So there's friction just just the physics of storing electrons is superior to that of storing molecule.
So the virtual dam is basically the idea to combine a run of the river facility such as you know the whole Alto Maipo complexes about 750 megawatts and then you have a.
Associated energy storage now if you have a five hour storage, what I would remind people that means it's five hours at a 100% discharge.
If you discharge it at 50% you actually had energy storage capabilities for 10 hours.
So what this will allow is your run of the river is constant.
And what we will do doing is injecting energy into the grid when the prices are best.
That's basically it and really providing capacity.
I mean, the one big issue with.
Renewables is that they don't really provide you round the clock capacity. So this will provide us.
Our run of the river does have actually run off.
Perclot capacity, but this will allow us to.
Injected energy when it's most needed. So this is a very exciting technology and it will be I'm sure copied.
And if we end up with a 250 megawatt five hour facility.
At the Alto Maipo complex that makes the economics much more attractive.
Let us fascinating I would think that in the us with the hydro with all the hydro we have but the limited opportunity to expand that might be.
Potential market or if you can drive the fluids cost down is that correct.
Yes, so that's up to the correct I mean, we are actually.
Or have people looking at the virtual hydro in places like India, because realize that now a days getting the environmental permits to console construct reservoir, you know and that often means.
Forest clearance that means or relocating people.
Is very difficult. These you can install.
Within 12 months.
So really the only barrier is getting the.
Regulations in place.
As many on getting the proper capacity payments.
For the steel work and then of course.
Still works best in situations, where you have a big penetration of solar for example, so you had that really that duck curve that you can take advantage of.
Okay. Thanks, Sandra as I can see why you are so excited about the launch thank you.
I do.
This concludes our question and answer session.
I would like to turn the conference back over to Mr. Ahmed Pasha for any closing remarks.
Thanks, everybody for joining us on todays call as always the IR team will be available to answer any questions you may have.
Thanks, again and have a nice day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect enjoy the rest of your day.