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spk05: Ladies and gentlemen, thank you for standing by. Welcome to the AES Corporation Second Quarter 2022 Financial Review Call. My name is Irene, and I will be coordinating this event. If you would like to ask a question on today's call, please press star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. I would like to turn the conference over to our host, Susan
spk06: Thank you, Operator. Good morning and welcome to our second quarter 2022 financial review call. Our press release presentation and related financial information are available on our website at aes.com. Today, we will be making forward-looking statements. There are many factors that may cause future results to differ materially from these statements, which are discussed in our most recent 10-K and 10-Q filed with the SEC. Reconciliations between GAAP and non-GAAP financial measures can be found on our website, along with the presentation. Joining me this morning are Andres Gluski, our President and Chief Executive Officer, Steve Coughlin, our Chief Financial Officer, and other senior members of our management team. With that, I will turn the call over to Andres.
spk04: Good morning, everyone, and thank you for joining our second quarter 2022 Financial Review Call. As you have seen from our earnings release, we reported second quarter adjusted EPS of 34 cents, which was in line with our expectations and consistent with our historical quarterly earnings profile. Our CFO, Steve Coughlin, will discuss our financial results in more detail. Based on our year-to-date results and outlook for the second half of the year, we are reaffirming our 2022 guidance and our expectation for annualized growth through 2025. I would also note that our guidance and expectations do not include any benefit from proposed U.S. climate legislation, which we see as a meaningful source of potential upside, as it would drive additional demand for renewables and energy storage and accelerate the development of green hydrogen projects in the U.S. This morning, I will discuss our strategy in the context of two broad themes. First, our resilience to macroeconomic volatility, including high inflation, high commodity prices, fluctuations in foreign currency, and ongoing supply chain constraints. And second, continued strong demand for renewables, particularly from corporate and industrial customers. With this backdrop in mind, I will discuss the robustness of our business, and also review our disciplined approach to growth, both of which provide us with full confidence in our ability to hit our financial and strategic goals this year and beyond. Beginning with our resilience on slide four, as a result of the transformation of our portfolio over the last 10 years, our financial results this quarter were insulated from the impacts of rising inflation, depreciating U.S. dollar, and volatile commodity prices. We do not expect any of these factors to have any impact on our full year results. As I had discussed on previous calls, 85% of our adjusted pre-tax contribution is derived from long-term contracts for generation and our regulated utilities. For the 15% of our earnings that is not derived from long-term contracts or utilities, such as our legacy Southland business in California, or the 10% that is not denominated in US dollars, we have largely hedged both exposures. In some cases, our strong contractual arrangements have allowed for additional upside. Throughout 2022, we have signed agreements to redirect excess LNG from Panama to international customers. The benefits of these agreements of the year, and we have the potential to sign similar agreements next year, depending on market conditions. Turning to construction and supply chains on slide five, our strategic sourcing and ability to execute on our commitments are key competitive advantages, and we expect to complete all of the projects in our 10.5 gigawatt backlog with no cancellations or significant changes. We take a proactive approach to working with our suppliers, and as a result, we had all of the solar panels required for our 2022 projects in-country earlier this year. More recently, we worked to quickly resume imports following the Biden administration's June executive order, and none of our suppliers' panels have been stopped by customs this year. We also took decisive steps to further decrease solar panel suppliers by creating a more robust U.S. supply chain. In June, we launched the U.S. Solar Buyer Consortium, along with three other solar developers. to significantly drive the expansion of domestic solar manufacturing. Collectively, we committed to purchasing more than $6 billion of solar panels from manufacturers that can supply up to 7 gigawatts of solar modules per year made in the USA starting from 2024. Therefore, despite industry-wide supply chain challenges, we do not anticipate any major delays to our U.S. renewables backlog 5.9 gigawatts. I would note that only two projects have been shifted from 2022 to 2023, and these were moved as a result of changes requested by customers with no impact on our guidance and expectations for this year or next. In addition, we recently broke ground on the largest utility scale solar plus storage project in the state of Hawaii. Across the state, we have more renewable projects under development and or under construction than anyone else. As you can see on slide six, we anticipate completing 1.8 gigawatts of new renewable globally this year, 4.6 gigawatts next year, for a total of 6.4 gigawatts by the end of 2023. Turning to slide seven, looking to our future growth, we continue to see strong demand for renewables from our key customer groups. Despite increases in the cost of renewables resulting from inflation and supply chain constraints, a far greater increase in the cost of fossil fuels has made renewable energy even more price competitive. As a result, demand from corporate customers has never been higher. So far this year, we have signed or been awarded 1.6 gigawatts of long-term renewable PPAs, the majority of which have been negotiated on a bilateral basis. For full year 2022, we continue to expect to reach a total of 4.5 to 5.5 gigawatts. As shown on slide 8, we now have a backlog of 10.5 gigawatts, all of which is expected to come online through 2025. Turning to slide 9, I'd like to note that we currently have 13.7 gigawatts of renewables in operation. So this backlog of projects in construction or with signed PPAs represent more than 75% growth in our installed renewable capacity for years. Including additional PPAs we expect to sign by 2025, our portfolio will grow to almost 50 gigawatts. We'll be renewable. We also expect to have completely exited coal at that time. We continue to complement our portfolio with innovative businesses and solutions. which require the best talent in order to deliver on our commitments. Earlier this week, Fast Company recognized AES in their top 10 rankings of best workplaces for innovators and as the winner in the category of best workplaces for early career innovators. We are very proud of receiving innovative teams and their many accomplishments. Additionally, although we don't have any specific announcements to make today, we continue to make good progress on our two large green hydrogen projects in the U.S. and Chile. These projects include the integration of electrolyzers and renewables and have the potential to provide significant new sources of growth. I will provide additional updates in the coming months. In the meantime, we launched a 2.5 megawatt pilot project in Chile. This project will be a hydrogen fueling station and will produce up to one metric ton of green hydrogen per day. Finally, turning to slide 10, growth opportunities at our U.S. utilities represent one of the key drivers of our overall 7% to 9% annual growth in earnings and cash flow. This growth also advances our objective of increasing the proportion of our earnings from the U.S. to 50%. As a reminder, in both Indiana and Ohio, we have the lowest residential rates in each state, providing a great runway for growth and investment, while keeping rates affordable for our customers. Through 2025, we expect to invest a total of $4 billion in new renewables generation, transmission, modernization, and smart grid at our U.S. utilities. These investments will improve our customers' experience, and translate to average annual rate base growth of 9%, which is at the high end of growth projections for U.S. utilities. We expect the earnings from these core businesses to grow in line with the rate base. At AES Ohio, we are currently awaiting the Commission's decision on our distribution rate base. As a reminder, we see significant opportunity to invest to improve reliability and strengthen AES Ohio's balance sheet while remaining cost-competitive. With that, I will now turn the call over to our CFO, Steve Coughlin.
spk09: Thank you, Andres, and good morning, everyone. Today I will discuss our second quarter results, 2022 parent capital allocation, and 2022 guidance. Turning to our financial results for the quarter, beginning on slide 12, I'm pleased to share that we had a good second quarter in line with our expectations. which keeps us well on track for our full-year guidance. Adjusted EPS was $0.34 versus $0.31 last year, driven by growth in our core business segments, higher margins, primarily at AES Andes, and a lower adjusted tax rate. These positive contributions were partially offset by the higher share count as a result of the accounting adjustment we made for our equity units, higher parent interest expense related to growth funding, and one-time outages at select thermal businesses. These outages were primarily driven by turbine manufacturer component defects, and the plants impacted are now all back online. There are two additional points I would like to highlight from the second quarter. First, we successfully closed several non-recourse subsidiary financings, extending tenors at very attractive rates, and expanding facilities that support our renewables growth. And second, our collections and day sales outstanding in all of our businesses remain strong, reflecting our predominantly investment-grade rated customer base. Turning to slide 13, adjusted pre-tax contribution, or PTC, was $304 million for the quarter, which was relatively flat year over year, consistent with the drivers I just discussed. I'll cover the performance of our strategic business units, or SBUs, in more detail over the next four slides, beginning on slide 14. In the U.S. and utilities SBU, lower PTT was driven primarily by outages at Southland and AES Indiana, as well as lower contributions from AES Clean Energy due to increased investment in renewables development. Contributions from new Clean Energy project commissionings will be more skewed to the second half of the year. Higher PTC at our South America SVU was mostly driven by higher contributions from AES-ANDE, resulting from our increased ownership as well as higher margins, but partially offset by the outages I previously mentioned. Higher PTC at our Mexico, Central America, and Caribbean, or MCHC SVU, primarily reflects favorable market conditions caused by better hydrology in Panama. As Andres discussed, the reduced need for thermal generation in Panama has allowed us to sell our excess LNG on the international market at higher prices, which will serve as a positive driver in the remainder of the year. Finally, in Eurasia, while our business performance has been very strong, the lower PTC reflects higher interest expense coming from additional non-recourse debt at one of our Eurasia holders. Now to slide 18. We are on track to achieve our full year 2022 adjusted EPS guidance range of $1.55 to $1.65. Our typical quarterly earnings profile is more heavily weighted toward Q3 and Q4, with about two-thirds of our earnings occurring in the second half of the year. We continue to expect a similar profile this year as we grow more in the U.S., where earnings are higher in the second half based on solar generation profiles, utility demand seasonality, the commissioning of more new projects in the third and fourth quarters, and higher demand at Southland in the peak cooling months in Southern California. Growth in the year to go will be primarily driven by contributions from new businesses, including 1.4 gigawatts of projects in our backlog coming online over the next six months, as well as further accretion from our increased ownership of AS&E, higher LNG revenues, and growth at our U.S. utilities. We are also reaffirming our expected 7% to 9% through 2025, based on our expected growth in renewables, energy storage, and U.S. utilities. Our guidance also assumes the recycling of capital from many of our thermal businesses into those three growth areas across our portfolio. Now to our 2022 Parent Capital Allocation Plan on slide 19. Sources reflect approximately $1.6 billion of total discretionary cash, including $900 million of parent free cash flow. Due to timing uncertainty around our planned asset sales, we are now expecting to achieve the lower end of our $500 to $700 million asset sales target within the year, with the remaining sales expected to close in 2023. To fund our strong growth expectations until the asset sales are completed, We plan to issue approximately $200 million of new parent debt, which was already included in the long-term capital allocation plan we laid out earlier this year. On the right-hand side, you can see our planned use of capital. We will return nearly $500 million to shareholders this year. This consists of our common share dividend, including the 5% increase we announced last December, and a coupon on the equity units. We plan to invest approximately 1.1 billion in our subsidiaries as we capitalize on attractive opportunities for growth. About half of these investments are in renewables, reflecting our success in securing new long-term contracts during 2021 and our expectations for 2022. Nearly a quarter of these investments are in our U.S. utilities to fund rate-based growth with a continued focus on grid and fleet modernization. In summary, nearly three-quarters of our investments this year are going to grow AES's renewables businesses and our U.S. utilities, reflecting our commitment to continue executing on AES's portfolio transformation. We have made great progress on our growth investments so far this year and remain on track with our annual investment targets. We will continue to allocate our capital in line with our strategy to lead in renewables, grow our utilities by 9 percent annually, and to recycle capital out of thermal assets to decarbonize our portfolio. With that, I'll turn the call back over to Andres.
spk04: Thank you, Steve. In summary, our actions and strategy have put us in a strong position to achieve this year's guidance and a 7% to 9% annualized growth through 2025. Once again, our portfolio of businesses is proving its resilience to any macroeconomic volatility in the U.S. or internationally. We have signed or been awarded 1.6 gigawatts of new renewable PPAs year-to-date, and we're targeting 4.5 to 5.5 gigawatts this year. Our backlog has reached 10.5 gigawatts, and our construction schedule has not been affected by supply chain issues. To further de-risk our supply chain, we have led a consortium to buy up to 7 gigawatts of U.S.-made solar panels annually starting in 2024. Finally, we see significant upside to our growth including green hydrogen in the U.S., should the proposed Inflation Reduction Act be approved. With that, I would like to open up the call for questions.
spk05: Thank you. Gentlemen, if you would like to ask a question, please press star, then 1 on your telephone keypad now. If you wish to withdraw your question, please press star, followed by number 2. When preparing to ask a question, please ensure your phone is unmuted locally. Our next question comes from Inzu Kim from Goldman Sachs. Inzu, your line is open.
spk11: Hey, thank you. First question, starting off with the IRA bill, thank you for the comments on, you know, the potential upside and all that stuff. I guess, are you inferring that if this bill does pass as proposed, that you could potentially see upside to your 79% EPS growth over the next few years, kind of on a Tabor basis?
spk04: Yes, good morning, Insu. Look, what we're saying is that there's a number of very good opportunities which would be certainly made more likely by the IRO bill. And one of them, for example, is green hydrogen in the U.S. We'd also expect greater demand from utilities and corporate customers as well. So it's generally. So rather than say we're going to exceed that, it certainly would push us towards the higher end if these come true. So that's how I would think about it.
spk11: Okay. And you think that higher end, there's enough visibility of that if the components of the bill does pass?
spk04: Yes. I mean, I think there'll be discrete projects, you know, potentially in green hydrogen. And also you would see it in the number of renewables that we sign in the U.S.,
spk11: got it my second question on that consortium for domestic panel manufacturing on solar uh how should we think about what that does for the projects that get those um those panels domestically on from a cost perspective and just um any changes uh to the return profile for those projects that we should be uh considering well this starts in 2024. uh i would say that the the major component is the security of supply
spk04: As we've seen just this week, having a domestic manufacturing is very beneficial. You'll also see that Fluence came out with an announcement that they're going to manufacture their modules in Utah, here in the States. So I'd say, look, it's large enough that it should be cost competitive, and so this would be incorporated. We have to see what is the market clearing prices here in the U.S. for solar projects. Now, as we've talked about in the past, you know, most of our projects in the U.S. are bilateral, negotiated with corporate clients. We're not just adding a generic clean kilowatt hours. We're, you know, also adding other features and more value for our customers. So, you know, I think this will help us be more cost competitive. But the most important factor is that customers, it will insulate us from any sort of trade restrictions in the future on imports of solar panels from Asia. So that is, I think, the main benefit.
spk11: Understood. Thank you so much.
spk08: Thank you.
spk05: Thank you, Andrew. Our next question comes from David Arcaro from Morgan Stanley. David, you may ask your question.
spk02: Well, hi. Good morning. Thanks so much for taking my question. I was wondering on the pace of PPA signings here, what's the pace we should expect for the rest of the year? We've seen, I guess, a bit of a slowdown in the second quarter with the uncertainty around the tariff. But what's your confidence level right now in still achieving that 4.5 to 5.5 gigawatt level by the end of the year?
spk04: Yeah. Good morning, David. Great question. As I had said on the prior call, that we expected this to be more weighted to the second half of the year because of uncertainties, you know, that we continue to negotiate it with key clients. But there was a certain amount of price uncertainty that we had to have cleared, and that has occurred. So, you know, just as we speak right now, you know, we expect to sign another 500 megawatts roughly today. And that would bring us up to 2.1. So, you know, as of, again, we expect, you know, sort of breaking news, we expect them to be signing as we speak. And if that occurs, then we would be at 2.1, which is, you know, close to the half of the bottom range. But we do expect activity to pick up in the second half. So we feel confident that we'll be in the range of 4.5 to 5.5. These are lumpy. So, you know, you notice that this It's not like we're signing them in 50 megawatt increments. Had this occurred one day earlier, you know, the information on the press release and our disclosure would have been different. So, you know, we expect to sign, you know, this morning. And with that, you know, we'd be at 2.1.
spk02: Got it. Okay. No, that's great to hear. Sounds like active dialogue going on, obviously. And I just wanted to touch on foreign exchange. You know, we've seen some sizable moves in the foreign exchange rates. Are you seeing or any way you can quantify the potential kind of drag or some impact on future years? And if efforts are kind of underway to look for offsets and to manage that, any downside exposure there?
spk09: Yeah. Hey, this is Steve. So we are, I think you're asking for the longer term, but we are very well hedged through 2023, even a little bit beyond. So actually, we actually see some net upside, frankly, this year based on our hedge positions. The other thing to keep in mind is that we're, you know, about 90% of our business is U.S. dollar denominated. So where we're exposed is a limited set of businesses. It's Argentina. It's Brazil and, you know, Colombia. So it's basically a fairly small exposure. You know, I think, in fact, in Brazil, we've seen the way I appreciate this year. She's had some favorability there. So, you know, I would say really it's just we have to keep our eye on Argentina. We have ways to mitigate that. We have, you know, expenses in the country of local debt in the country. So it's... It's manageable within the guidance is how I would look at it.
spk04: Yeah, I would also that part of that's Bulgaria, which is euros. So if you look at between dollars and euros, you're probably getting to about 95%. So, you know, we're very much in strong currency. This is, you know, again, a decade of work and the great job that the finance team has done, you know, in shaping our portfolio, but also making sure that the new contracts we sign are primarily in dollars.
spk02: Got it. That's helpful. Thanks so much. Thank you.
spk05: Thank you, David. Our next question comes from Durgesh Chopra from Evercore. Durgesh, your line is open.
spk03: Hey, good morning, team. I'm just breaking news in the 500 megawatts. Can you, is that with one, is that with one customer? Congrats, by the way. Is that with one customer or is that multiple customers?
spk04: That is one transaction.
spk03: That is one transaction. Okay. Excellent. Congrats on that. Okay. So I wanted to kind of dig in a little bit on the alternative minimum tax and how do you think that impacts you and your business? I mean, I think the last time we talked about it, the headwind was offset by credits. Maybe just talk to that. And then, Andres, I'd love to get your views on this transferability concept that is introduced in the bill. How do you think that works?
spk09: Okay. So I'll take on the tax side, I guess. So, look, it is still somewhat early. The situation is still fluid and moving around. But based on what we know at this point, we don't see any material impact from the 15%. global min tax in the near term. So we'll continue to look into the details and monitor it, and we'll make a final assessment once the bill is finalized. If anything, it would be several years into the future, and I would expect that we would have offsets in planning activities by that time. So basically, it's a parallel methodology. We already are subject to the GILTI tax regime. This is just another way of of calculating to ensure you reach a minimum? Again, I don't expect and our taxing doesn't expect it to impact us over the next few years.
spk04: Yes. You know, regarding your question on transferability, you know, this is the being able to sell tax credits. you know, to third parties, we don't see, like, a major impact, but, you know, we see it as an additional tool in our cash management practices. So that's favorable.
spk09: Yeah, I mean, it could impact the way tax equity partnerships are structured. It could make it simpler, perhaps. So we've got to see what all the rules are around the transferability first. But if anything, it looks that it may make the financing structures simpler to manage and account for.
spk03: Got it. Okay. And I appreciate it, certainly. So thank you for the discussion. Maybe just a really quick follow-up. Steve, when you say several years out on the alternative minimum tax, is that because of your U.S. businesses are not at that billion-dollar threshold? Is that why it is? Or when you say several years out, what does that mean?
spk09: Yeah, so, you know, there is a billion-dollar test that he referred to, so I don't expect that we would meet that. And there's like a three-year, I think, averaging of that. I don't expect we would meet that for several years to come.
spk03: Got it. Thanks for the time, guys. Thank you.
spk05: Thank you. Our next question comes from Richard Sunderland from JP Morgan. Richard, your line is open.
spk08: Hi, good morning. Thanks for the time today. I started with the 2H walk. I see $0.08 from new renewables. I'm curious, is that pretty locked in, getting your commentary around only two projects shifting into 2023? I guess similarly on that front, the $0.08 of LNG, U.S. utilities, and other, can you break that down to the component pieces and relative line of sight to the U.S. utilities portion, given Ohio remains outstanding?
spk09: Yeah, so the $0.08 of renewables, yeah, I feel very good about both of these buckets, frankly. So the renewables is both the growth in new projects, as well as we do have some a higher generation out of our hydro portfolio. As you recall, last year was a poor hydro year, so that's in that bucket as well. And then on the utilities and LNG side, as Andres mentioned, you know, we've been really on the right side of things with the commodities this year. So, you know, LNG international prices are quite high. We have LNG position, of course, in our MCAC unit, specifically in Panama, where we've had quite a wet year. We've been able to, you know, not use that gas in Panama and redirect those cargos and sell them on the international market. So while that's not in the year to date, it is a year to go favorability. So, you know, that's a A little over half, I would say, of that $0.08. We've got some additional utility growth baked in for the second half of the year. Those are the two primary components of that $0.08. And frankly, I see potential for even more upside. So that's – and then I think you asked about Ohio as well. So, you know, with Ohio, you know, we're – as Andre said in his comments, we don't yet have a decision – It's not something that we had a material contribution assumed from the new rates this year. So, you know, certainly we look forward to a decision, continue to expect a constructive outcome, but it's not going to be a driver one way or the other for this year.
spk08: Understood. Appreciate the color there. And then thinking broadly about the U.S. green hydrogen opportunity, how do you think this ties in with the existing renewables platform? How could it expand, I guess, both the demand for new renewables and tie in with some of the more complex structured products opportunities you've capitalized on in the past two years?
spk04: Well, you know, as we've said in the past, you know, we are looking at partnerships with companies producers of hydrogen to actually, you know, get more integrated in the whole production chain. So, you know, what's very interesting is that the problem of producing cheap green hydrogen is very much like supplying 24-7, you know, 100% green energy or, you know, carbon-free energy to data centers. So, you know, we think we have a leg up here. We're working on this. If the legislation passes, then it's very likely to move forward. That's what we've been waiting for. In the meantime, in Chile, we have a different project, which obviously does not depend on this. That would be much more to supply the local market. We have done a very good job of decarbonizing the Chilean system and the mining sector in particular. you know, we feel good about both of these, and these would be significant projects. So they would, you know, accelerate the growth of renewables because of the additional demand.
spk08: Understood. Very helpful. Just one final cleanup for me. The Southland outage, what led to that and any 2H impacts there?
spk09: Yeah, so it was actually Southland. Also, it was the same root cause at Indiana. So There were veins on the turbine compressor unit, I understand. Don't ask me to go into too much detail on it, but there was a failure of a component related to a manufacturing defect, and so those units both have replacements in Eagle Valley in Indiana and at our Southland, the New Southland combined cycles in the gas turbines. So those have been replaced. They are both back online at this point.
spk08: Understood. Thank you for the time today. Thank you.
spk05: Thank you. Our next question comes from Angie Storozinski from Seaport. Angie, your line is open.
spk01: Thank you. So I wanted to go back to the Ohio rate case. I understand that it has no impact or the timing of the decision has no impact on 22, but it will have on 23. I mean, by all accounts, sounds like you will have to file an ESP. So it might take time, right, for the final resolution. So there should be an impact on 23. And so in that context, I mean, you mentioned that there is additional optionality around the LNG cargoes that could impact 23. So is it fair to assume that any impact from that Ohio rate case delay could be mitigated by the shifting of the LNG cargoes also in 23?
spk09: I mean, it certainly could be. We're not necessarily attributing one as an offset to the other, Angie. The issue, the staff had already come out and supported a rate increase. The issue at hand was whether, because we've historically had this rate stability charge in place, it's been in place for about 20 years now, whether any new rates could be implemented while that charge is still in place. And so that's, I think, the fundamental issue being evaluated by the commissioners. If, in fact, the rates are frozen, we'll move quickly to file a new ESP, and that will have new riders associated with it. And so it would be more of a delay than anything. So at that point, the current rate stability charge would stay in place. we would file a new ESP, and the new rates would be implemented once that ESP is then approved. So that would take key into the middle of next year to some delay. We're still optimistic based on our belief of our legal position here that the rate freeze is not necessary or should not be required, that the outcome will be in our favor on that. But regardless, you know, we see a path to what we included in our guidance just could be a delay if we have to go down the path of the rate freeze, as I described, to get that ESP filed.
spk04: And, Angie, maybe to describe a little bit the opportunity in Panama. You know, we have hydros, but we also have the LNG regasification terminal, you know, being at Henry Hub prices. Of course, 10 rehab prices plus transportation, liquefaction, regasification. But nonetheless, it's kind of a one-sided bet because we have enough gas to fulfill our contracts, but we have the opportunity, if there is a lot of water, a lot of water in the reservoirs, to not burn and therefore ship those cargos to international customers at obviously the international rate. So there's a very interesting arbitrage opportunity there. So it's a one-sided bet. If it stops raining or the reservoir levels fall, then we'll just consume the gas and fulfill our contracts.
spk01: And how soon are you going to know that? So in a sense, I mean, it's hard to predict hydro conditions, but I mean, is it like a rainy season by some month, you know?
spk04: Yeah, so look, it's been raining a lot, you know, so the rainy season has started. The reservoirs are full, and that's why we're able to make these sell gas to international customers and get that arbitrage. You know, what I'm referring to more really would be 23. Do these conditions persist, or does, say, 23 have a start off being a very dry year? So, you know, for 22, we're locked in. It's really a question of will this opportunity repeat in 23?
spk01: Okay. Okay. So moving on to the inflation bill. So I understand the comments you made about green hydrogen and energy storage. But when you actually listen to smaller developers, they are also talking about maybe installing, you know, adding solar PV to existing sites of conventional power assets, retrofitting existing assets with storage facilities, I mean – some changes and repowering of wind farms. I mean, there are some, I would say, secondary benefits from that bill, which could also benefit your portfolio. I guess it depends on the age of your contracts, you know, and how much, how heavily they are in the money. But could you talk about, again, benefits or additional benefits that this bill could add to your existing portfolio? Yeah.
spk04: Well, you know, of course, I think it helps repowering and add-ons. What we'd have to see is that, you know, we already have contracts in these places. And so the question is, you know, do we negotiate an additional contract from that location based on... You know, we've done repowering already. We're starting to... You know, we've been repowering units in California at Mountain View, and also we've... plan to do some in Maryland, you know, at Laurel Mountain. So, you know, this helps those to happen, and you're right. You know, one does have to look at what you have existing and what additional opportunities there are. But, you know, since we are on the renewable side pretty much fully contracted, then the question would be, you know, that additional energy, you know, is there an adder that you could add to the same client to keep it simple? or, you know, what are the opportunities there. But you're right, this is an upside that's smaller, so we haven't talked that much about it.
spk01: Okay, and lastly, I mean, we saw these media reports about Vietnam and offshore wind. I mean, I don't think that I've ever imagined seeing AES and offshore wind in the same sentence. So could you talk about that opportunity?
spk04: Sure. Well, you notice it was at our press release first. So I'd say, look, this is a – We're in Vietnam. We're helping the Vietnamese come up with a plan to decarbonize their grid. So, you know, we do have the LNG terminal project there. And we have been, you know, talking about, you know, bringing in energy storage and other renewables. So to eliminate the need for additional coal plants. So at this point, I'd say this was, you know, more sort of an exploratory issue. You know, we will... be very disciplined and committed to all the goals that we've given, you know, 50% U.S., 50% renewables. Now, whenever we get into a new technology, we obviously have to partner with somebody. So, you know, we haven't done any offshore wind because it didn't make sense economically. You know, the markets we're in, like the U.S., there's still plenty of land, and it just really wasn't cost competitive. But we have nothing against the technology itself. But, of course, we would have to partner with somebody who has a long experience. So we're not going to get into a new technology in a large scale, you know, on our own at this time. And so this was, again, this is not an announcement from us. And what we guarantee is we're going to stick to the exact goals that we have given you.
spk01: Great. Thank you.
spk07: Thank you.
spk05: Thank you, Angie. Thank you. Our next question comes from Julian Domolin Smith from Bank of America. Julian, your line is open.
spk12: Hi, good morning. It's Paul Zimbardo-Pinch sitting on the busy morning. Thanks a lot.
spk07: I believe the last long term guidance you gave for AES Next was break even net income by Could that evolve under the inflation reduction act? Yeah, actually, it was 2024, Paul, that I said that.
spk09: So, you know, look, you know, Fluence is the largest component of NET, so I can't go into detail. They'll have their call soon, and, you know, we'll talk about their performance. But, you know, they've been executing on a number of things lately. As Andres talked about, they're launching their Utah manufacturing facility. They're diversifying their battery supply chain, supply base. So, you know, we fully expect, based on what they've guided to, which is that they'll be very consistent with what we've included in our guidance as well. as well as the levers that AES has, regardless of what happens with Fluence, that that portfolio will be neutral and then growing from there.
spk04: And, you know, maybe you speak a little bit about the other components, like Uplight. As you know, they did the deal with Schneider Electric. So they now have a much, I'd say, wider product offering and, you know, B, you know, which is the produce of Maverick, the prefab solar. We're seeing a lot of interest in Maverick.
spk07: We have the first large-scale project. And, you know, we've already done a small project in panel. This product is that it's hurricanes. wind resistant.
spk04: So we're seeing a lot of interest in the whole sort of hurricane built of the Caribbean for this product.
spk07: And there's also been a change of government sort of hometown champion. So, you know, we feel good about that as well.
spk04: So overall, you know, we feel that AS Next is fulfilling its mission of really giving us the leading edge technologies and giving us
spk07: the opportunity to be the first to roll them out.
spk12: Okay, great. Thank you. And then just separately, how that would impact either extending, increasing, or both the cash flows from the gas assets you have there?
spk09: We feel very optimistic. So we have, as I've talked about previously, we've only included
spk07: uh, Southland legacy, uh, businesses. Alamitos, Huntington Beach and Redondo through 2023.
spk09: So, you know, it may not be all three, uh, uh, plants, but I would say probably at least two, uh, that we would expect to be extended, uh, possibly for several years. You know, so the formal process, I would expect, in terms of permitting, the ones through cooling, permits that are needed, et cetera, will likely kick off here in the next one.
spk07: We look to do or we've executed contingent capacity contracts.
spk09: permitting and all that coming forward. So we'll start looking at commercial opportunities as the formal process gets underway in the state. And so we'll have more certainty next year, but I would say we're all very optimistic.
spk07: You know, the droughts of the southwest of the U.S., but that additional peak,
spk09: capacity is going to be needed for several years to come, and so we feel we're in a good position to provide that, and that will provide some upside to our plan.
spk12: Great. Thank you both. Thank you all.
spk05: Thank you. Our next question comes from David Peters from Welfare Research. David, your line is open.
spk10: Yeah, hey, good morning, everyone. Andres, I was just wondering if you could comment specifically with respect to the UFLPA. We've heard from some companies here recently that they're seeing issues with panels being stopped recently at the border. Just wondering if you all are seeing this at all, and if not, kind of what you're doing differently, I guess.
spk04: Yeah, the Uyghur forced labor policy Prevention Act, I guess it's called. We stopped by causes of thumbs. Excuse me. You know, as you know, we've been on top of this matter for a while.
spk07: You know, first, the panels that we import to the U.S.
spk04: come from Southeast Asia, ASEAN countries. And, you know, we have asked the manufacturers, you know, to make sure that there's nothing that comes from Western China. that could be allegedly using forced labor. Polysilicon, the plan is that we're starting to use polysilicon coming from Korea and the allegations of forced labor. But as you know, the making of the wafers themselves, 95% of that today is still occurring in China. So we have to move that supply chain out of China, but it's going to take some time. But, you know, the short answer is no, we haven't seen anything, and we believe our suppliers are the best place not to have any issues and documentations. And, you know, we've been working with them for a long time now. So this is nothing new. But, you know, we have to, you know, just see how this develops. But we don't expect any major issues.
spk10: Great. Then just one other one on the asset sale.
spk07: Target being at the low end, and I guess you're expecting a little... Vietnam and Jordan, and just when are those expected to close, I guess?
spk04: Yeah, look, what's basically happening, these have to do with government approvals. So, you know, we've agreed with our counterpart. It's not a question of price. It's just a question that the government... Well, in the case of Vietnam, it's been the government's approval. of the new operator of the plant. So that's taken some time for them to get comfortable with it. That's why it's dragged on. But we do expect resolution by the end of this year. And the other case I think you mentioned is Jordan, and that really has to do with some of the lenders, including the U.S. government, signing off on the loans to the new buyers.
spk07: So these have been really just bureaucratic issues, but the sale price, the buy, the conditions have all been agreed to.
spk04: It has taken longer than we expected.
spk09: Yeah, so that's the majority of the $500 million. So we feel good, as Andre said, we'll get there on those by the end of this year. And then we have been working on additional, so as we work towards those and the timing around those, some variability, It looks like some of that may happen in, say, the first half of why we, you know, said let's focus on $500 million this year. The remaining of the $500 to $700 will come in through next year. We have the full billion-dollar target we feel well on track for. So it's just a matter of some timing expectations around what we're doing in the next, say, 12 months or so.
spk07: Okay. Thank you, guys.
spk05: Thank you.
spk00: Thank you. We have no further questions. Therefore, I would like to hand back. Thank everybody for joining us on today's webinar. Our team will be available to answer any follow-up questions you may have. Thank you, and have a nice day.
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