The AES Corporation held a conference call to discuss their second quarter 2023 financial review. Susan Harcourt, Vice President of Investor Relations, welcomed everyone to the call and gave an overview of the financial information. Andres Gluski, President and CEO, discussed the second quarter results and the progress they are making towards their financial and strategic objectives. Steve Coughlin, CFO, gave more detail on their financial performance and outlook. The company reaffirmed their 2023 guidance for all metrics and their targeted annualized growth rate through 2027.

The company is focusing on three main areas of strategic priority: new renewables, growth at US utilities, and transformation of their portfolio. They have signed 2.2 gigawatts of new PPAs year-to-date and are expecting to sign 5-6 gigawatts by the end of the year. They are also the number one provider of renewable energy to corporate customers and data centers, and have been successful in completing projects initiated by other developers.

AES has a 61 gigawatt pipeline of projects with signed long-term contracts, the largest in their history. The average tenure of these contracts is 19 years and 41% of them are already under construction. Recently, they announced the completion of the 238 megawatt Phase 1 of the Chevelon Butte Wind project in Arizona. Corporate customers choose AES for their projects because they can deliver on time and restructure the original PPAs to provide customized solutions.

This paragraph discusses the progress of the company in its renewable projects. It has completed the Andes 2B solar-plus storage project in Chile, which is the largest battery storage installation in Latin America. The company is on track to complete 3.4 gigawatts of new renewable projects and expects to commission roughly 2.1 watts in the U.S. this year. Additionally, the company has maintained its project margins and has not abandoned or delayed any construction projects due to supply chain issues. Finally, the company is expecting to grow its U.S. pretax contribution at an annualized rate of 17-20% through 2027.

AES Ohio is expecting to receive commission approval for their new electric security plan by the end of August, which will allow them to make investments to improve the quality of service while keeping competitive rates. Meanwhile, AES Indiana has filed for a new rate case in June and is expecting commission approval by the middle of next year. They are also advancing their low carbon generation growth plan by building a 200-megawatt or 800-megawatt hour storage facility at the site of the retiring Petersburg coal plant. AES has also significantly advanced their decarbonization objective by assuring the retirement of an additional 900 megawatts of coal generation, and have received final approval to terminate the PPA at their Warrior Run Plant in Maryland.

The company is expanding its use of new technologies, such as embedded artificial intelligence and robotics, to reduce costs and increase revenue. They are also consolidating their lead in advanced green hydrogen projects, with their largest project in Texas expected to come online in 2027. The CFO will then discuss the company's second quarter results, 2023 capital allocation, and 2023 guidance.

The second quarter of this year was in line with expectations, with adjusted EBITDA with tax attributes being $607 million versus $722 million last year. Adjusted EPS was $0.21 versus $0.34 last year. Renewables SBU saw higher adjusted EBITDA with tax attributes due to higher wind generation and new projects coming online, while Utilities SBU saw higher adjusted PTC due to lower maintenance expenses. The company is expecting strong earnings for the second half of the year due to seasonality and a pending decision on AES, Ohio.

AES Indiana is continuing to pursue its goal of increasing its rate base by 10% annually through 2027, and the Energy Infrastructure SBU is seeing lower adjusted EBITDA due to the phasing out of coal. The New Energy Technologies SBU is seeing higher adjusted EBITDA due to improved profit margins at Fluence. AES is on track to achieve its 2023 adjusted EBITDA guidance range of $2.6 to $2.9 billion, and is expecting to add 3.4 gigawatts of new renewables in the U.S. this year, which is double the amount added in 2022. They also expect to realize $500 million to $560 million of tax attributes in 2023.

This paragraph outlines the company's 2023 capital allocation plan, which includes $2.4 billion in discretionary cash, $1 billion in parent free cash flow, $400-600 million in asset sales, and a $900 million parent debt issuance. The company will only pursue equity as a source of capital if it yields accretive value to shareholders, and they are committed to improving their credit profile over time. Asset sales and sell-downs are other levers they can pull to support growth, and any future equity issuances could be lower than previously anticipated. The Investor Relations team is available to answer additional questions or data requests.

AES is reaffirming their 2023 guidance, and are targeting to triple their installed renewables capacity by 2027. They have already signed 2.2 gigawatts of new PPAs this year, and have visibility into another 2.4, which would put them at 4.4. They believe that they should be similar to last year's 5.2 gigawatts of new PPAs.

Durgesh Chopra asked about when they could get clarity on the potential 600 megawatts and when they could get an update on the equity needs. Steve Coughlin responded that the equity needs could be materially reduced and that the progress on their asset sale program was below their total universe of opportunities. Andres Gluski added that they feel good about their construction program and that they should have a good view of where they stand in Q3.

Andres Gluski explains that the company has a project in Texas that would meet the strictest criteria for the hydrogen production tax credit, and that the project is additional, hourly matched, and has the lowest carbon footprint technically feasible in the U.S. He also mentions that the company has been effective in bringing in partners to fund their projects, and that if they don't want to issue equity in the future, they can invite partners into their projects and give them part of the upside.

Andres Gluski explains that the success of their project is not dependent on the rules that come out, but that additionality and early matching are important. He believes that the rules should help create a market and lower the total carbon footprint. To ensure success, they have committed off-takers and have a very low carbon footprint. Gluski also mentions that transmission constraints are already impacting the market, so they have been filing for interconnections in key markets for the past 3 years in order to avoid any potential issues in the foreseeable future.

Andre believes that a new industry is emerging in the renewable energy sector and a common definition of pipeline should be established, similar to the oil sector. He believes that investing in projects and having stringent standards for what is considered pipeline is important to maximize conversion rates and complete advanced stage development projects quickly and efficiently. Steve Coughlin adds that they are pleased with the rules that have come out in the third quarter of 2023, and that this has been their strategy to lead renewables development for many years.

Andres Gluski is discussing how AES is taking a technological approach to improve transmission for their projects. This includes using the grid stack to baseload transmission lines, dynamic line rating, using prefab solar which takes up less space, and putting large battery projects where they have interconnections from decommissioned coal plants. Gluski believes AES is in a good position to take advantage of the increasingly congested grid.

Andres Gluski is confident in the increased demand for C&I services, as they are the largest provider to U.S. data centers. He believes that they will sign the first project this year, coming online in 2027, and subsequent wins will be further out in 2027 and 2028. They are seen as a preferred partner by several people and have good projects in Chile to green the mining sector.

Management departures from the core businesses of U.S. utilities and U.S. renewables since the Analyst Day have led to concerns about the execution of the company's growth plans. In response, Andres Gluski reassures that the company is well-positioned and that the vacancies will be filled. He believes that the company is a victim of its own success and that the departures are not indicative of any change in the execution of their growth plans.

Andres Gluski states that AES does not have any third-party projects in their backlog, unlike some other public renewable power developers. He emphasizes that this kind of behavior is not transparent and should not be done. He also notes that the strength of AES's management team is evident in the fact that people are being made offers, but that this will not have any impact on the business. He is confident in the team's ability to identify and prepare talent and execute on the plans that have been laid out.

Steve Coughlin explains that the company has seen a small uptick in return requirements when selling their renewable projects, but this is within the expected range of their plan. He also states that the demand for these low-risk assets is strong and that they don't expect any impact to their plan from current market rates.

Andres Gluski and Steve Coughlin discussed the investment-grade quality of their offtake products, as well as the energy community adder for their new project, which will help offset the cost of financing. Julien Dumoulin-Smith asked about the net impact of renewables and LNG year-over-year in the back half of the year, and the assumptions that have been made for renewables to reach their guidance.

Steve Coughlin and Andres Gluski explain that the renewable energy contribution is higher than initially expected, with 1 gigawatt of commissioning last year and 2.1 gigawatts this year. The increase in renewable energy is a major driver of the company's EBITDA, which has been relatively flat in the first half of the year, but will pick up substantially in the second half. Other drivers include increased demand in Ohio and Indiana, peak cooling season in Southland, and higher hydro volumes in Latin America due to the wet season and snow melt. The LNG offset is only about $0.20, and the company is executing exactly what they laid out at the beginning of the year, with 25% EPS year-to-date.

Andres Gluski explains that the company does not have to sell down its interest in the new renewables projects to raise money, as money is fungible. He further clarifies that the company will move away from equity-ish levels as they have partnerships in all of their businesses and could bring in partners to raise money.

The company has been successful in financing a major change without issuing equity and will continue to use whatever levers create the most value for shareholders. The company is not committing to selling down partners or issuing equity at current levels. The process underway is still status quo.

Steve Coughlin confirms that Fluence is part of the company's portfolio, holding 34% of the company, and is included in their adjusted EBITDA definition. He states that it is an important part of their strategy to lead in energy storage and has been involved in co-innovation and co-development. However, they are not in the business indefinitely and may look to monetize part of their positions in the future.

AES Ohio is on track to have its DPO rate case decided on August 9th, which is in line with the company's guidance. The decision will put in place new rates that were decided upon last year and also include riders and quarterly recoveries on distribution investments. AES is also working on greening the energy grid in Puerto Rico, with the goal of phasing out coal by 2025.

Ohio is making a pivot to growth and is expecting 10% rate base growth in the future. This is good news for Dayton, which has been lagging in economic recovery, as it will be receiving investment from a new Honda EV plant and battery plant. This is an exciting time for Dayton and Ohio, and the decision will be made next week.

This summary was generated with AI and may contain some inaccuracies.