The AES Corporation held their Q1 2024 Financial Review Call, where they discussed their first quarter results and provided key business updates. They had a strong first quarter, with adjusted EBITDA of $863 million and adjusted EPS of $0.50. They reaffirmed their 2024 guidance for all metrics and growth rates through 2027. The call was led by Susan Harcourt, Vice President of Investor Relations, and included CEO Andres Gluski and CFO Steve Coughlin. They also reminded listeners that there may be factors that could cause future results to differ from their statements.

The company has achieved success with technology companies and data centers, signing a 15-year contract with Amazon for a 2 gigawatt solar plus storage project. They now have nearly 6 gigawatts of long-term contracts with technology companies and are supporting their commitment to procure carbon-free energy. The company sees a significant market opportunity for renewable growth in the foreseeable future, especially with the forecasted increase in power demand driven by data center growth, onshoring of manufacturing, and electrification of mobility. Wind and solar, combined with energy storage, are seen as the best technology to meet this demand.

Slide seven shows that renewables have the lowest LCOE and are the best option for new energy sources. They are also expected to dominate the interconnection queue and make up 95% of capacity additions in the U.S. by 2024. Energy storage, which AES played a major role in commercializing, is expected to double by the end of the year and is already a significant source of power in California and Texas. On Slide nine, AES is highlighted as the best renewable developer to address corporate load growth due to their scale, experience, and track record. They have a pipeline of 66 gigawatts of projects.

The company has a strong pipeline of projects with land control and interconnection filing in place. They focus on markets with high demand and have increased their project return expectations. They have a backlog of signed contracts and have added new projects to their operating portfolio. They are on track to add 3.6 gigawatts of new capacity this year and have a strong supply chain in place.

In mid-April, AES Indiana achieved a critical milestone with the approval of its rate case by the Indiana Utility Regulatory Commission. This will allow for investments in reliability, resiliency, and customer experience, and includes an ROE of 9.9%. The recent acquisition of the Hoosier wind project will provide long-term savings for customers and add to AES Indiana's renewable portfolio. AES Ohio is also executing on its growth plan, with approved investments in transmission and smart grid programs. The company has a clear line of sight to $4 billion of its total utility capital program through 2027 and may see further upside from data center providers interested in the service territory.

The CFO, Steve Coughlin, discusses the company's first quarter results and 2024 guidance and parent capital allocation. Adjusted EBITDA and EPS have both increased, driven by new renewable projects. The company has also transitioned to a more U.S.-oriented holding company structure, resulting in tax benefits. The CFO covers the performance of the company's strategic business units, with the renewables SBU seeing higher EBITDA but lower renewable resources in Panama and Brazil.

The paragraph discusses the financial performance and guidance for the utilities, energy infrastructure, and new energy technologies SBUs. It mentions that higher adjusted TTC at the utilities SBU was driven by favorable weather and increased revenues from investments in the rate base, but was partially offset by interest expenses. The energy infrastructure SBU had relatively flat EBITDA due to prior year margins and sell down of businesses, but higher revenues were recognized from the accelerated monetization of the PPA at the Warrior Run plant. The new energy technologies SBU saw higher EBITDA due to margin improvement at Fluence. The company reaffirms its 2024 adjusted EBITDA, adjusted EPS, and parent capital allocation guidance, with expected growth in renewables and utilities partially offset by asset sales. Sources for the parent capital allocation plan include discretionary cash, proceeds from asset sales, and planned parent debt issuance, with a limit to maintain investment grade credit metrics.

The company is pleased with the progress made in their $3.5 billion asset sale program, which will limit or eliminate the need for future equity issuance. They plan to return $500 million to shareholders and invest $2.6 billion in new growth, with a focus on renewables and utilities. The company also manages their balance sheet by using non-recourse debt for growth, insulating themselves from interest rate movements, and repaying construction debt with cash generated from tax attributes. As a result, only 18% of their leverage is recourse debt to the parent company.

The company has a capital-efficient model for their solar plus battery projects, where they pay down 40% of the capital cost with tax equity partnerships and tax credit transfers. The remaining 40% is funded through fixed-rate, amortizing, non-recourse debt that is pre-hedged to protect against interest rate changes. The company also has a development partner that contributes 25% of equity capital needs. Once a project is completed, they sell a large minority stake to recover most, if not all, of the upfront parent equity investment. This model allows for rapid growth while maintaining an investment-grade credit rating and minimizing risk to the balance sheet. The company had a successful first quarter and expects to continue this momentum in the future.

Andres Gluski, the CEO of AES, summarizes the highlights of the first quarter, which met expectations. The company's financial results are not affected by higher interest rates, and their financial model is resilient with ample supply of project finance debt and demand for tax attributes and project equity. The asset sales program is on track and may eliminate the need for issuing corporate equity in the future. AES is in a leading position in the growing market for renewables, particularly in data centers. They are executing well on their construction program and have most of the equipment needed for 2024 and 2025 already on site. The company is well-positioned to be a winner in the energy transition.

The speaker thanks the commenter for their input on the asset sale programs and asks for clarification on their statement about eliminating future planned equity issuance. The speaker explains that historically, the company has overachieved on asset sale targets and already has a large sale pending government approval. They also mention their frugal approach to issuing new equity and their goal to avoid it if possible. The speaker gives a general timeline for potential equity issuance and states that it would not happen at current valuations.

The speaker discusses the company's focus on renewable energy and their early identification of data centers and technology companies as potential clients. They have already completed six gigawatts of projects and have a close relationship with these clients. The company has been building up a pipeline to meet their needs and considers signed contracts as part of their backlog.

The speaker discusses the company's ability to meet the needs of their clients and their international presence. They are not concerned about potential anti-dumping tariffs as they already have what they need for the next few years and expect to have domestically made solar modules by 2026. They cite their track record as evidence of their ability to handle any potential tariffs.

AES has not abandoned or delayed any solar projects due to uncertainty about tariffs in 2020. They will monitor the situation and believe the impact on the sector will be smaller than previous cases. They are focused on having clarity for signing PPAs and are not concerned about the potential tariffs affecting their projects. They have strategic relationships with suppliers and have all the necessary materials for this year and next. When it comes to asset sales, they have a track record of both large and small deals and will continue to pursue them to generate additional financing. They do not comment on specific deals until they are closed.

The speakers express confidence in their company's ability to achieve its goals and secure the best value for its assets. They mention various strategies for achieving this, such as exiting the coal industry, simplifying their international portfolio, and monetizing technology businesses. They also discuss the pace of deployment in the renewable industry and the demand for renewable power in the data center market. They believe that renewables will be the fastest and cheapest way to meet this demand and reduce carbon emissions.

The speaker believes that while nuclear energy is important in the long run, renewables will play a key role in powering data centers in the next three years. They also believe that pipelines for renewable projects are undervalued and that developers with advanced pipelines will be in a good position. They acknowledge that there is a lot of pipeline and interconnection in the US, but the question is whether developers can bring them online in time for data centers. The speaker also mentions the accelerated growth of data centers and the potential for unlocking more value through transmission.

Andres Gluski explains that his company has been working on using dynamic line rating and grid booster technology to place a 400-megawatt hour battery project in Indianapolis. This technology allows for the utilization of excess capacity on transmission lines, which can save billions in costs and decades of permitting. However, the main obstacle is determining ownership, dispatch, and remuneration for the batteries, as some business models may prioritize profit over cost-saving measures. Gluski also mentions a similar project in Chile and notes that this issue is primarily a regulatory one in the United States.

The speaker discusses various ways in which their company is working to address the issue of transmission bottlenecks, including interconnections and investments in technology. They also mention their focus on hydrogen, specifically a project in Texas that is waiting for final regulations.

David Arcaro of Morgan Stanley asks about the trends in renewables origination and mentions a smaller addition this quarter compared to previous quarters. Steve Coughlin responds by stating that they had a very good quarter with 1.2 gigawatts signed and mentions their recent partnership with Amazon for a total of 2 gigawatts. He also mentions their strong demand and recent agreement with Microsoft for 10 gigawatts. Coughlin expresses confidence in their pipeline and signing progress for the rest of the year.

The cost of developing renewables and the expected returns are being discussed. The analyst is questioning whether the returns will be enough to justify the investment.

Gluski disagrees with the idea that renewable energy projects do not generate enough EBITDA or free cash flow. He explains that the tax attributes in the U.S. allow for immediate cash returns and the ability to sell down to minority partners for lower returns. Additionally, the company's fast growth and increasing efficiency will lead to higher returns. He also mentions that returns are even better internationally without tax attributes.

The executives discuss the competitiveness of renewables and the cash profile of the business, noting that solar panels in the US cost more than internationally but the cost of megawatt hours with energy storage is much cheaper. They also mention strong EBITDA growth in the US and the efficiency of their development process. The projects for hyperscalers are virtual PPAs and do not directly feed into data centers.

The speaker discusses the importance of proximity and co-location of data centers and renewable energy sources in order to meet the demands of hyperscalers for reliable and carbon-free power. They mention the use of battery storage and the need for foresight and advanced technology in developing these resources. They also note the expansion of data center locations towards the middle of the country.

The company is expanding its data center locations into regions with more land availability for solar and wind energy, such as MISO and ERCOT. This allows for closer proximity to generation sites and less latency for the new AI technology. The company also believes that green hydrogen projects should be regional and co-located to minimize transmission. There is interest from hyperscalers in the company's utilities for potential data center locations, which would be additional demand outside of the IRP.

Andres Gluski, CEO of AES Corporation, stated that they have nothing specific to announce at the moment, but wanted to mention the megawatts they are providing for data centers and their potential for growth in industrial development, particularly in Ohio. Steve Coughlin, CFO, added that this growth in corporate demand, not just for data centers, but also for EVs, battery manufacturing, and other industries, is contributing to the increase in load. Gluski emphasized their focus on long-term, dollar-denominated contracts with investment-grade offtakers, and expressed optimism for the sector.

Andres Gluski declines to comment on using Fluence as a funding source and states that Fluence will have its own call later in the week or next week. The IR team will be available for any follow-up questions.

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