The AES Corporation

Good morning everyone and welcome to today's conference call titled the AES Corporation Second Quarter Financial Review Call. My name is Ellen and I'll be coordinating the call for today. At the end of today's presentation, there'll be an opportunity to ask a question. If you would like to ask a question, please press star followed by one on your telephone keypad to join the question queue. It's now my pleasure to turn the call over to Susan Harcourt, Vice President of Investor Relations. Susan, please go ahead whenever you're ready.

Thank you, Operator. Good morning and welcome to our second quarter 2023 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.

Good morning, everyone, and thank you for joining our second quarter 2023 financial review call. I will discuss our second quarter results as well as the excellent progress we're making towards our financial and strategic objectives. Steve Coughlin, our CFO, will give some more detail on our financial performance and outlook. For the second quarter, adjusted EBITDA with tax attributes was $607 million and adjusted earnings per share was $0.21. Results for the quarter. as well as for the first half of the year, are very much in line with our expectations. Thus, we're reaffirming our 2023 guidance for all metrics and our targeted annualized growth rates through 2027. As we noted earlier this year, approximately 75% of our 2023 earnings will come in the second half of the year. Now for an update on our strategic priorities. At the core of our strategy is a focus on, first, new renewables, with the target to triple our installed capacity by 2027. Second, growth at our U.S. utilities, where we expect to increase the rate base by more than 10% per year through 2027. And third, the transformation of our portfolio as we exit coal by the end of 2025 and invest in the new technologies that will define our industry for years to come. Today, I will provide an update on how we are executing across each of these focus areas, beginning with our renewables on slide four. We continue to see significant inbound interest from key customers wanting to do large US-based renewable projects with us. We believe this reflects both our reputation for consistently delivering on time as well as our best-in-class ability to tailor projects to the specific needs of our customers. Year to date, we have now signed 2.2 gigawatts of new PPAs, including 2.1 gigawatts since our investor day in May. These numbers do not include 1 gigawatt from Bellfield's second phase or 1.4 gigawatts from our green hydrogen project with Air Products in Texas, both of which could be signed before the year's end. I feel good about the likelihood that we will sign five to six gigawatts of new PPAs this year. We continue to be globally the number one seller of renewable energy to corporate customers. We also have a leading position in the U.S. providing renewable energy to data centers, which are seeing explosive growth in part as a result of the generative AI revolution. Turning to slide five, another area of recent success is how we have been working with technology customers to complete projects initiated by other developers. Our corporate customers want us to take on these projects because they know we will deliver them on time and can also restructure the original PPAs to provide customized solutions. Two great recent examples of this are the 185 megawatt Delta Wind project in Mississippi, which has a signed PPA with Amazon, and the two gigawatt Belfield project in California, one gigawatt of which has a signed PPA with a large technology company that is a repeat customers. Both of these projects demonstrate the strength of the relationships we have with our customers. For us, completing other developers' projects is especially attractive because we can get similar returns to greenfield projects while preserving our current pipeline for future projects. Our 61 gigawatt pipeline represents investments in land, interconnection, and development, which must be replaced once utilized. Giving growing constraints on new transmission in markets like California and PJM Having the flexibility to decide when to utilize these resources helps us maximize total returns from our renewables business. Moving on to slide six, we now have a backlog of projects with signed long-term contracts of 13.2 gigawatts, which is the largest in AES's history. I would like to reiterate once more that our definition of backlog includes only signed contracts for which we have an obligation to deliver and our customers have an obligation to take a given amount of renewable energy for a given amount of time. The average tenor of the contracts in our backlog is 19 years and currently 41% of our 13.2 backlog is already under construction and 74% is slated to come online within the next three years. Turning to slide seven. Since our investor day in May, we have completed a number of landmark projects. In June, we announced the commercial operation of the 238 megawatt phase one of the Shetland Butte Wind Project in Arizona. It is one of the first projects in the country to be placed in service to qualify for the 10% additional energy community tax credit bonus under the Inflation Reduction Act. And once phase two is completed, it will reach 454 megawatts and be the largest wind project in the state. In addition, we completed the Andes 2B solar plus storage project in Chile for our copper mining customers. Its 180 megawatts of solar plus 560 megawatt hours of storage will make it the largest battery storage installation in all of Latin America. We were also able to use 5B's prefabricated solar panels for a portion of the project, which advances the learning and lowers the cost of future developments. Turning to slide 8, we're on track to complete the 3.4 gigawatts of new renewable projects we committed to earlier this year, including nearly 800 megawatts we've already brought online. In the U.S., we expect to commission roughly 2.1 gigawatts which is roughly double the capacity we installed last year. I am very proud of the work our teams have done to ensure that we have had no supply chain or construction delays. All of the necessary equipment has been contracted for our 2023 through 2025 backlog. There remains the potential for completion of up to an additional 600 megawatts this year in the U.S. given the strong performance of our construction program. We see our record of completing projects on time as a key competitive advantage that is highly valued by our customers. We were one of the only major developers that did not abandon or meaningfully delay construction projects over the last two years due to supply chain issues. Furthermore, due to our emphasis on long-term planning and strong contractual agreements, we have maintained our project margins despite inflationary pressures and rising interest rates. Now moving to our second priority of utility growth on slide nine. We remain on track to grow our U.S. pre-tax contribution at an annualized rate of 17 to 20% through 2027. At AES Ohio, we expect to receive commission approval for our new electric security plan, or ESP4, by the end of August, at which point our new distribution rates would go into immediate effect. As a reminder, ESP4 includes approval of timely recovery of $500 million in grid modernization over the next three years, carrying a 10% return on equity. This will allow us to accelerate investments to continue to improve the quality of service while maintaining the most competitive rates in Ohio. At AES Indiana, we filed for a new rate case in June, the first rate case since 2018. The proposed new rates are designed to recover inflationary impacts since the last case, as well as investments in reliability, resiliency improvements, and system upgrades. We expect commission approval by the middle of next year. Even after this proposed increase, We still expect our residential rates to be among the lowest in the state. At AS Indiana, we continue to advance our low carbon generation growth plan. We recently filed for approval to build a 200 megawatt or 800 megawatt hour storage facility at the site of the retiring Petersburg coal plant. This project is expected to come online by the end of next year. at which point it will be the largest battery storage project in the Midwest. Now turning to slide 10 and our third priority of transforming our portfolio by exiting coal generation by the end of 2025. Since our investor day in May, we have significantly advanced our decarbonization objective by assuring the retirement of an additional 900 megawatts of coal generation. In June, we retired 415 megawatts of coal, as we shut down unit two of the Petersburg plant at AES Indiana. We also announced the retirement of the 276 megawatt NorHanair plant in Chile by 2025. Additionally, we received final approval allowing for the termination of the PPA at our 205 megawatt Warrior Run plant in Maryland for proceeds of 357 million. Now turning to slide 11, We have expanded our leadership in the development and application of new technologies in our sector. We see this as another important competitive advantage. A new example is the use of embedded artificial intelligence, including generative AI, across our operations. This year, we already expect more than 200 million of our adjusted EBITDA to be enabled by AI through both cost reductions and revenue enhancements. We have incorporated AI and data analytics across our operations from areas such as wind production forecasting to vegetation management to identification of isolated solar panel failures. As part of this program, we also continue to pioneer and advance the use of robotics to install and maintain solar panels. Through our solar robotics program, we are developing proprietary AI-based computer vision to install a wide variety of solar modules, including the largest and heaviest models. With this technology, we plan to install projects significantly faster and across a wide range of working conditions, including extreme heat. In the coming months, we will be validating this technology for the installation of tens of megawatts and expect to move to use it for full-scale solar projects in 2024. Finally, we're consolidating our lead in advanced green hydrogen projects with committed off-takers. We're currently developing the largest announced green hydrogen project in the U.S., jointly with Air Products in Texas. It features 1.4 gigawatts of inside defense, hourly matched renewables, 200 metric tons of hydrogen per day, and a 30-year take-or-pay contract. It is expected to come online in 2027. Our pipeline of advanced green hydrogen projects is equivalent to more than six gigawatts of renewables and 800 metric tons of hydrogen per day. With that, I would like to turn the call over to our CFO, Steve Coughlin.

Thank you, Andres, and good morning, everyone. Today, I will discuss our second quarter results, 2023 parent capital allocation, and 2023 guidance. Turning to our financial results for the quarter, beginning on slide 13, I'm pleased to share that the second quarter was fully in line with our expectations, keeping us well on track to achieve our full year guidance. Adjusted EBITDA with tax attributes was $607 million versus $722 million last year, driven primarily by lower margins at AES Andes and higher costs at a renewables SPU due to an accelerated growth plan. but partially offset by new renewables coming online and higher availability at select thermal businesses. Tax attributes earned by our U.S. renewables projects were relatively flat at $38 million in the second quarter of this year, in line with our expectations. Turning to slide 14, adjusted EPS was 21 cents versus 34 cents last year. In addition to the drivers of adjusted EBITDA, we saw higher parent interest expense this quarter. As a reminder, our year-to-date EPS is fully in line with the breakdown that we outlined earlier this year, in which we noted that roughly 25% of our earnings would come in the first half of the year and 75% in the second half. I'll cover the performance of our strategic business units, or SBUs, in more detail over the next four slides, beginning on slide 15. In the renewables SBU, we continue to execute on our strategic priority to triple our portfolio by 2027. For the second quarter, as expected, we saw higher adjusted EBITDA with tax attributes driven primarily by higher wind generation and new projects coming online, partially offset by higher business development and fixed costs due to our accelerated growth plan. At our utilities SBU, we saw higher adjusted PTC driven by lower maintenance expenses but partially offset by higher interest expense from new debt. We continue to expect strong utilities earnings for the second half of the year, driven by typical second half demand seasonality and the pending August decision on ESP4 at AES Ohio. With this pending decision and the great progress in renewables growth at AES Indiana, we are continuing to pursue our strategic priority to increase rate base by an average of 10% annually through 2027. Lower adjusted EBITDA at our energy infrastructure SBU primarily reflects lower margins at AES Andes in line with our phase out of coal, partially offset by higher availability at select thermal units. As we execute our third strategic priority to exit coal and complete the transformation of our portfolio, although not every quarter, we generally expect to see annual year-over-year declines in energy infrastructure, as we discussed at Investor Day in May. Finally, at our new Energy Technologies SBU, higher adjusted EBITDA reflects continued improved profit margins at Fluence. Fluence has shown year-over-year improvement for three straight quarters, and we are very pleased with the strong results they are delivering this year. Now to slide 19. We are on track to achieve our full year 2023 adjusted EBITDA guidance range of 2.6 billion to 2.9 billion. Growth in the year to go will be primarily driven by contributions from new businesses, including growth at our U.S. utilities and contributions from new renewables projects coming online. As a reminder, the 3.4 gigawatts of new renewables we expect to add this year represents an increase of over 75% compared to the 1.9 gigawatts we added to our portfolio last year. This amount also represents a doubling of new renewables in the US versus 2022. This growth will be offset by approximately 200 million of LNG sales we've recorded primarily in the third quarter last year, which we do not expect to recur this year. In addition to our adjusted EBITDA, we expect to realize 500 to 560 million of tax attributes in 2023, bringing our total adjusted EBITDA plus tax attributes to 3.1 billion to 3.5 billion for the year. Turning to slide 20, we are also reaffirming our full year 2023 adjusted EPS guidance range of $1.65 to $1.75. As a reminder, we expect our adjusted EPS to be heavily fourth quarter weighted due to the late-year seasonality of our U.S. Renewable Project commissioning. Now to our 2023 Parent Capital Allocation Plan on slide 21. Sources reflect approximately $2.4 billion of total discretionary cash, including $1 billion of parent-free cash flow, $400 to $600 million of asset sales, and a $900 million parent debt issuance we completed in Q2. For more information on our debt issuances at the parent company and our subsidiaries, please refer to the appendix of the presentation. On the right-hand side, you can see our planned use of capital remains largely in line with guidance, with higher parent investment reflecting our recent acquisition of the 2 gigawatt Bellfield project in the US. At our investor day in May, we outlined our capital allocation plan through 2027, including asset sales along with debt and potential future equity issuances. We appreciate all of the feedback we've received and I want to take a moment to clarify that we will only raise and invest capital in a way that's value accretive to our shareholders. Any potential future equity issuances would have to yield accretive value to shareholders for us to pursue equity as a source of capital. We are also committed to improving our credit profile over time and further bolstering our investment grade rating. We have a number of other levers to pull to support our growth, such as increased capital recycling through asset sales and sell downs. Given our strong asset sales track record and recent success, it is possible that any future equity issuances could be materially lower than the five-year figure we previously shared. As always, our investor relations team is happy to take additional feedback and to follow up on additional questions or data requests. In summary, we're continuing to make progress on transforming AES's portfolio while delivering strong growth in adjusted EBITDA, earnings, and parent-free cash flow. Our businesses are executing successfully and delivering on their commitments. We will continue to allocate our capital towards our high-growth renewables and utilities to maximize shareholder value. With that, I'll turn the call back over to Andres.

Thank you, Steve. In summary, we're reaffirming our 2023 guidance for all metrics and our targeted annualized growth rates through 2027. We continue to make substantial progress on our strategic priorities, including tripling our installed renewables capacity by 2027, increasing the rate base at our US utilities by more than 10% per year through 2027, and transforming our portfolio by exiting coal by the end of 2025 while investing in new technologies. We are delivering on all the commitments we made on our Q4 2022 earnings call and at our investor day presentation. With that, I would like to open up the call for questions.

Thank you. We will now enter our Q&A session. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you change your mind and would like to revoke your question, please press star followed by two. When preparing to ask your question, please ensure that your device is unmuted locally. We'll take our first question from Derghesh Chopra from Evercore ISI. Derghesh, your line is now open. Please proceed.

Hey, team. Good morning, and thank you for giving me time. Andrea, is this the You know, you're now, if I heard you correctly in your remarks, are targeting 5 to 6 gigawatt of new PPAs first. Can you confirm whether that is accurate? Because that's higher than what kind of you might have logged down in previous years. And then what's driving that higher range?

Sure, Dagesh. Good to talk to you. Look, we signed 5.2 gigawatts of new PPAs last year. So what we're seeing this year is, you know, we already have 2.2 signed. We have visibility into just two projects, which would be another about 2.4, right? Would put us 4.4. And of course, we have other projects in the pipeline. So, you know, we're not really setting out an official target, but I'm saying that we believe that we should be, you know, similar, you know, to last year. And, you know, we do have a couple of what I call these whales, these, you know, one gigawatt plus targets, but know we feel very good because we see a lot of demand for our products and we have people coming to us uh with products so it's really looking at how do we best allocate our our our money where we get the highest returns uh and best allocate our teams got it um thank you for that and then maybe when could we get clarity on the potential 600 megawatts in terms of timing is that really sort of a acute recall event when we would know more how should we think about that i'm just thinking about the the projects that are pushed into uh 2024 yeah sure look i would say that um we feel very good about our construction program so you know versus uh this was the big challenge of this year to grow our construction program in the u.s by a hundred percent we feel very good about it um unfortunately a lot of these are uh slated to be commissioned towards the latter part of the year. So we should have a good view on the Q3 call of where we stand and whether we're going to do more of these projects this year. But in general, we're very pleased with the supply chain, with our construction teams. The team has really stepped up to the task, and I'm very proud of them.

Excellent. And then just one last one for me. Steve, you mentioned that the equity needs could be materially reduced. It's nice to hear that in your prepared remarks. Can you give us more color? When could we get an update on timing? What are you thinking? Just the current equity needs, when in the plan are those scheduled to hit? And when could we get an update?

Yeah, look, I mean, as I said in my remarks to our guests, you know, this is just a function of multiple levers. And we're seeing a lot of great progress on our asset sale program. And the $3 billion that we put out in Investor Day was well below the total universe of opportunity. So, you know, what I wanted to point out is that we're only going to issue equity in in the future, and that could be far in the future, to the point that it's value accreted to shareholders, and we haven't also tapped other sources that we intend to tap, which is our asset recycling program. So, as you saw with Warrior Run, as we've seen, as we've executed on the renewable sell downs, as we exit further coal assets, you know, we have a lot of upside in that asset sale number. So at this point, it's indefinitely into the future and our share price would need to be substantially higher than where it is today. And it would have to be value accretive to shareholders on a per share basis.

Yeah, I guess another point I'd like to make is that we've been very effective at bringing in partners to fund our projects. So that's obviously another lever that we have. So we laid out what could be a possible opportunity path. We were very conservative on the numbers. But if we don't feel that we want to at some point in the future issue equity, we can always invite partners into our project. Of course, we're giving them part of the upside as well.

Got it, guys. Appreciate that detailed commentary. Thank you very much.

Thank you.

Thank you. Our next question comes from David Alcaro from Morgan Stanley. David, your line is now open. Please go ahead.

Hi, good morning. Thanks so much for taking my questions. Hi, good morning. I was wondering just what's your latest thinking on just the hydrogen PTC timing in terms of treasury guidance here and what the rules around matching and additionality might be? And kind of just in coordination with that, what are your you know, what's your current like project pipeline and discussions with potential partners on that side of the business as it stands currently?

Sure. Great question. Well, of course, you know, the final rules haven't come out. What I would like to say is that our Felix project, our project in Texas is really would meet the very strictest criteria. So it is additional. It is hourly matched. It is regional. So it has the very lowest carbon footprint technically feasible in the U.S. So I'd like to put that right out there, that our project is not dependent in any way about how the rules come out. Now, having said that, I do believe that additionality is important. I also believe that we have to move to hourly matching, in part because we need green hydrogen projects to be tradable goods. So these are the rules in Europe. I also think regionality is important, so we don't add further congestion. So really what we want is that the new rules come out, help us create a market, but they also help lower our total carbon footprint. So we don't want to just be squeezing the balloon, taking off renewable energy from the grid to produce green hydrogen. And, you know, we can get into more specifics there. So I do expect that the, you know, rules will come out, will incorporate some of these factors. But I want to say that our projects are, you know, very solid. We have committed off takers, which I think is the key. You know, what is, because this market for green hydrogen is developing. So to have early on projects, I think the key is not only have a great project, have it with a very low carbon footprint, so you get all of the benefits of the IRA, but to have a committed off taker.

Okay, great. That's helpful color. And then, you know, I was curious if you could speak to the transmission challenges just related to transmission interconnection in the renewable industry. You alluded to it in your commentary, but I was wondering if you could speak to what your kind of current pipeline of maybe transmission queue positions and also with regard to like early stage development, land positions, things like that. How soon could a transmission constraint potentially impact your business and how are you positioned now to kind of avoid that in the foreseeable future?

Yeah. Well, look, I think transmission constraints are affecting the market already. So we got out early and we started getting a filing for interconnections on a big way three years ago in key markets like PJM, Kaizo. So, you know, I think we're in a good position there. I think right now we have a new industry here, and so I think we have to come to terms with the new definitions. What is pipeline? So for us, pipeline is projects that we already have, either land rights, interconnection rights, real prospects to make a project. And then, of course, there are different phases. Some projects are far more advanced, shovel-ready, and some are more at the beginning of the queue. I think having looked at a lot of... say proposals from other developers, you know, they count pipeline things that we would call prospects. And I think, you know, we have to move towards a common definition. I mean, a little bit perhaps like the oil sector, which has possible reserves, has probable reserves and has proven reserves, right? And I think what's very important is that to get a pipeline, you have to invest and you have to have money. So some of the new changes, for example, on the interconnections will make it a little bit more costly just for sort of spurious flood the zone request for interconnections. So maybe Steve can give you some comments on how that is progressing, which would be favorable to us. We don't see any sort of short run effect of it, but in the long run, it's favorable to us because I think we've been the most, I would say, stringent about what we consider pipeline. And what we're very interested in doing is, maximizing the conversion rate. But I do also want to emphasize that if somebody comes to us, a client, and asks us to complete an advanced stage development project, that's the best of all worlds because we get to conserve the pipeline. We weren't investing money when it was at the highest risk stage and can bring it online more quickly and satisfy that client.

Yeah, and I would just add to that, look, I mean, we're very pleased with the final rules coming out of the FERC order 2023. But although, as Andre said, you know, this has been our strategy to lead renewables development for many years. So we put ourselves in an advantage position, I think, many years ago getting into these queues. Nonetheless, it is important for the industry overall for these queues to be developed. move along faster and the process to be more efficient. So having the higher financial thresholds to get into the queues and to stay in the queues, having to demonstrate project maturity in terms of permits and financing behind them, having cluster studies so that this isn't just a one by one review process, and then having the penalties and the teeth behind the deadlines that have to be met to do the studies is also important. So there's a number of angles at which this issue is being approached through the order the order is due to be published i think very very soon and will go into effect 60 days later so i think it's a great thing for the industry we've already felt great about our position but of course over the longer term to have these cues cleaned up and moving faster is uh is very important and i think will further uh accelerate growth uh throughout the rest of the decade and i think look we're also taking sort of technological um uh

a look at how we can improve transmission for our projects. So this is like using the grid stack to be able to base load transmission lines, which are really peakers. This means dynamic line rating. This means using our prefab solar, which takes about half the space, to be able to put higher loads where we have a good interconnection. And you also notice that we're putting large battery projects where we have interconnections from our decommissioned coal plants. So we're looking at this problem rather holistically. And again, I think we're in a very good position to take advantage of what's going to be an increasingly congested grid.

OK, got it. Understood. Thanks so much. I appreciate it.

Thank you. Thank you.

Thank you. Our next question comes from Richard Sunderland from JP Morgan. Richard, your line is now open. Please proceed.

Hi. Good morning. Am I coming through clearly?

Yes, you are.

Okay. Great. Thank you. Thank you for the time today. Circling back to the data center commentary from your script, curious how much of a near-term change in C&I demand you're seeing from this subsector specifically? And any indications of upside just on that ramp over the next one to two years relative to what you were seeing maybe six months or a year ago?

I would say yes. I mean, there's some definitions that they are waiting for in various markets, but, you know, about rules of where you can locate data centers. But no, we're definitely seeing increasing demand, and we're the largest provider to U.S. data centers. And so I think we can uniquely provide data centers with the same quality of service, for example, in certain markets abroad, be it Mexico, Chile, Brazil, which is another advantage for us. So, yeah, we are seeing increased demand from that sector.

Got it. Very helpful. And then just wanted to parse the kind of backlog pipeline conversation a little bit more finally for the hydrogen. It sounds like the 1.4 gigawatts for Texas could come in this year. Could you speak a little bit more to your confidence level there for 23 specifically and what you're focused on there? And then thinking about the balance of the hydrogen opportunities, when could those come in over the next few years?

Well, again, I think we're the most advanced in terms of real green hydrogen projects. So in the US, you know, we have, you know, committed off takers for that project in Texas. We have several other projects, including two of the hubs, one in Los Angeles, also one in Houston. I would say that, you know, we could sign the first project. this year, it would be for coming online for 2027 outside our guidance range. And the subsequent ones would be somewhat further out, you know, 2728. But what we're seeing is a strong demand. And basically, we are seen as a preferred partner by by several people. And we also have very good projects, for example, in Chile, which is to green the mining sector. You know, they're heavy equipment, we've already green their electricity use, and a possible ammonia export project in the northeast of Brazil. So, again, you know, stay tuned. But I feel quite confident saying we're the most advanced in projects with committed off-takers. And, you know, we think we will hit these numbers. It's really a question of, you know, as they come online, because, you know, you have to have equipment that can use it. Certainly in the shorter term, you know, you can substitute green hydrate in thermal processes in a lot of petrochemicals or steel plants, other things like that. So we have to see if this market develops. But again, I think we're very well positioned. It's a very exciting opportunity for us.

Understood. Very helpful. And then just one final one for me. The Belfield project, you've been very clear in a lot of the messaging around how that came together. I'm just curious in terms of considerations around phase two versus phase one. Does phase one meet your return thresholds on a standalone basis? You know, how to think about the progress to signing phase two? Anything you can offer there would be helpful.

I think we're well advanced on phase two is what I'm willing to say. And it's a, you know, it would be a similar project to phase one. So that is the largest solar plus storage project in the U.S. in California. So it's a, you know, Very unique offering that we can bring together.

Great. Thank you very much for the time today. Thank you.

Thank you. Our next question comes from Angie Surzynski from Seaport. Angie, your line is now open. Please go ahead.

Good morning, guys. So I wanted to start with... some high-profile management departures we've seen since the analyst day, basically from your core businesses, the U.S. utilities and U.S. renewables. I mean, you might be just victims of your own success in a sense, but just how you can reassure us that there's no change in the execution of your growth plans, especially in these two businesses and the deep bench that you have to fill those vacancies?

Well, hi, Angie, and thanks for that question. And I think you got it spot on. Look, this is, quite frankly, a symptom of strength in our case. We have the hottest management team in the market. And so, of course, people are going to be being made offers. And if people are obviously, if they want to go to private equity and bet on a longer-term IPO, that's their right. But this in no way affects our business whatsoever. And I think the best proof of that is after the departure in clean energy, we've signed more PPIs. So we're doing very well. I don't expect it to have any impact on the business. And I expect the same in U.S. utilities. I don't expect this will have any impact whatsoever. But it is a sign of that, yeah, we have a strong team. We have a deep bench. And, you know, we'll continue to identify talent and prepare it and move it up. You know, if, again, let's say where AES was in, say, in 2012 or something, you know, our team wasn't the hottest in the business. People wouldn't be trying to poach it. So, yeah. It is what it is, but I feel very good about where we are, and it doesn't change our plans whatsoever, and I think the teams are very motivated on executing on the plans that we laid out.

Okay. And moving on, you talked a lot about your backlog of renewable power projects and then potential monetization of assets in the world of equity. So first on the backlog, I mean, we've heard stories about some public renewable power developers basically showing in their backlog third-party projects where they don't have exclusivity for these projects. So, again, I know this is just anecdotal evidence, but I'm just wondering if you've heard of those instances and if any of this could be true for you guys. Okay? Okay.

Well, I can say categorically, okay, absolutely, under no uncertain terms, We have no such projects in our backlog. I want to make very clear because maybe some other people are doing that. I think that's not transparent. I would not recommend anybody do it. In our case, whatever we have in the backlog, we have the project. We are committed to delivering it on a certain date for a certain amount of time. And our clients have an obligation to take that energy, you know, a certain amount of energy for a certain amount of time. So this is binding for both sides. And the fact that 43% of our backlog is currently being built, we have ordered all the equipment for our 23 through 25 backlog, and about three quarters of them will come online by 2025. So I want to make very clear that's a good question. I wouldn't recommend to anybody to do that. And I can say categorically, we would never do something like that.

Okay, and then on the monetization of assets. So I understand that there is a very big difference between the assets that recently transacted and the ones that you are developing, if only because of the duration of the PPAs. So basically the duration of the cash flows. But on the flip side, right, you have higher discount rates for the DCF value of those cash flows. So I'm just thinking... you know, if you were to monetize some of these assets, again, I guess it all depends where the stock is, but again, how would that, you know, from your perspective, demonstrate the value of the portfolio that you currently have?

Yeah, Angie, this is Steve. So, look, we have, as you know, been selling down our renewable projects after they've come online and we've packaged them together in portfolios. So, You know, we have seen some, I would say, relatively small uptick in return requirements there, but nothing outside the range of what we expected within our plan in terms of, you know, these are very low-risk assets. They're solar coupon, essentially, you know, no fuel costs, very low maintenance. So, these are very predictable, and the demand for these assets continues to be very strong. So we don't see any impact to the plan for how we sell down from sort of where rates are in the market today. Does that address your question?

I think so. I mean, the other thing is that these are, you know, all investment grade quality offtakers, the very highest quality offtakers that you can have. So, you know, we are selling down the, you know, premium product in the market. I think it's important to say that, look, people have talked about inflation. People have talked about rising interest rates. We're not seeing a degradation of our margins. So the margin of our money into these projects, we're not seeing any squeeze whatsoever.

And on top of that, of course, the IRA incentives sweep. So just as Andres pointed out, with the Chevron View project, we have the energy community adder for that project. And actually, most all of our wind projects going forward, we expect to qualify for the domestic adder as well, Angie. So there's some significant offsets to the cost of financing that we've been achieving too.

Very good. Thank you, guys.

Thank you, Angie.

Thank you. Our next question comes from Julianne de Moulin-Smith. from Bank of America. Julian, your line is now open. Please go ahead.

Hey, good morning, team. Thank you very much for the time. I appreciate it. I know a lot's been said here already, but let me follow up on some details here just on the year-over-year comparisons here as we go to the back half of the year, if I may. Look, I'd love to talk about, I think you have in your slides here, 24 cents of positive net impacts in the back half of the year from renewables and year-over-year comps on LNG. But if I rewind here, I think you said in the back half of the year that, I mean, last year it was like $0.30 contribution from LNG. Just as I think about that, that seems like a pretty big step up year over year in renewables. Can you talk about what renewables assumptions you're baking in as sort of a discrete item, especially in the back half of the year to sort of make up for what you need to get to your guidance? And then if I think about the start of the year, right, in terms of what you talked about, renewable contributing year I think we talked about 27 cents for the full year. So it seems like what's implied here, again, I'm curious, that renewables are actually contributing more than what we thought at the start of the year. And maybe what that says for future years as well. But please, by all means, respond accordingly.

Okay. So, yeah, this is Steve, Julian. So the 30 cents, it doesn't sound correct, or actually more like 20 cents is the LNG year over year. delta to be offset and then of course we're more than doubling the renewable commissionings this year so if you recall it was just around one gigawatt last year and it's 2.1 gigawatts this year most all of which is in the second half of the year so what we're carrying in the first half is sort of you know more of the cost in renewables the ebida has been relatively flat through the first half In the second half, then we're going to see that renewable number pick up substantially. And that's why we have the 75% loading on the second half of the year earnings. That's a major driver. The other is, of course, utility demand in Ohio and Indiana, peaking in Q3. You've got Southland, where we have the peak cooling season in the third quarter. And then we have hydro in Latin America. Typically, the volumes are much higher as we come out of the Robert Hechtman, LNG Planner, wet season in the summer and the winter and you have the snow melt into the into the fall So those are really the primary drivers is the clean energy Southland. Robert Hechtman, LNG Planner, utilities and then some of the hyper assets in Latin America, having much more volume in the in the second half of the year, but the LNG offset is really only about 20 cents for the for the and mostly in the third quarter.

Oh, sorry.

Go for it. We're executing exactly what we laid out at the beginning of the year, so there's been no change. I want to make that clear.

I think we're right at 25% on the EPS, Julian, year-to-date. What we're seeing, although the year-over-year and the quarter is lower, that's primarily due to coal retirements in Chile. As we've done the green blend and extend, some of the coal that's still there, the margins have come down, which was all expected. So we're exactly on track. And also to your point, you know, there is some potential upside, as Andres noted. You know, if you're really good about being on track with the construction program, and there still remains the upside on the 600 megawatts, too, potential.

Right. But the point is, the plan for 27 cents of renewables contribution in 23 unchanged from the start of the year still yeah let us get back to you on the exact number um because i don't have that math in front of me but the renewables contribution is is looking at least on track is what i would say okay wonderful thank you uh if i can give it a slight different direction here trying to follow up on a few earlier questions Just on the asset sale dynamics versus equity, can you comment a little bit further about what else you're seeing out there or what else could be monetized just as you think about de-emphasizing equity? Sounds like the principal lever, Andres, you were alluding to is that you would just sell down your interest in the new renewables even more so. Is that fair to say in terms of like the alternative lever here versus the corporate level equity? And also just to clarify the point you made earlier on just very, you know, very precisely at these levels today, you would definitively move away from the equity levels that you, equity issuance levels you defined earlier in lieu of these alternatives.

So on the first point, no, it's not fair. Your characterization is not fair. So what, look, we have partnerships in all of our businesses, right? So we don't necessarily have to do it on the new projects. So we can bring in partners to, you know, money's fungible. So if we monetize a different business, that means we have more money available for renewables. We will, as we have in the past, pick and choose, you know, to optimize the return on invested capital. And I think that we were doing a very good job of how we exit coal. I think the warrior run monetization, I think it's probably better than people's expectations. And so we continue to manage that. So all I'm saying is that we never, as Steve said in his script, we put this out as a five-year plan. And in the five-year plan, we had a certain amount of asset sales, a conservative number, and we had a sort of range for potential equity issuance as well. So the two somewhat offset each other. So if we do better on the asset sales, we will need less equity and we do better in terms of bringing in partnerships. So what we're saying at these levels, we do not feel comfortable issuing equity. But I think it's been very clear from our presentation that we have tremendous demand for what we're doing. And that is a once in a lifetime market opportunity. So we want to create the most value for our shareholders from that opportunity. So obviously, you know, if we don't have, you know, what we feel is correctly valued equity, we'll have to use other levers. And this should be nothing new to you guys. We have financed a remarkable change in this company without issuing equity. We did it by selling down assets. We got into wind by bringing in partners. So what we're saying is nothing like a promise for the future. It's just more of the same. So we will use whatever of the levers creates the most value for our shareholders. And we will continue to do so.

got it right so your your point ultimately is uh not committing to selling down uh partners per se a variety of different sources here incrementally just not issuing the equity at current levels and it's it and if i can also clarify this maritza process underway i know that was it was listed in the queue here as well is that still status quo underway no there's no yeah no there's no specific maritza process uh underway julian at this point so still evaluating

different pathways for Maritza.

Okay. All right. Fair enough. All right, guys. Thank you very much. Appreciate it. You're welcome.

Thank you. Our next question comes from Ryan Levine from Citi. Ryan, your line is now open. Please go ahead.

Good morning. A couple of specific follow-on questions. Is your Fluence state core to your portfolio? And I guess, secondly, on the financing side, are you still or still open to considering the convert market to help offset equity issues?

Hey, so this is Steve. So, yes, Fluence is part of the portfolio. We own roughly a third, 34% of Fluence. It is not consolidated, but it does come in through equity method. And we do, in our adjusted EBITDA definition, include an adjustment to include Fluence EBITDA. So that does show up, and it's in our new energy technologies SBU, and Fluence margins have continued to improve.

The question is, is that core?

Is that core? Is it at core? Did you say, or is it core? Is it core to our business?

Core.

So look, I mean, I would say core, yeah. You know, given that it's an outside business, you know, I don't think I would parse this out as like core or non-core. It's been a really important strategy for us to be able to lead in energy storage, both in development as well as in the technology and as well as sort of advancing the way that storage gets used to create the innovative solutions we've done, like 24-7 carbon-free energy to make those products work. We've done a lot of co-innovation, co-development with Fluence around that. So that's, I would say, definitely core to our strategy is what we've been able to do with storage. But as Andre said many times, these are technology businesses of their own right. They're separated. We are not in them indefinitely, and we continue to grow new opportunities, and as we do, we may look to monetize part of our positions down the road. No time soon, and we see a lot of value upside. We're very pleased with how the new management team has driven value already that's been recognized, but we still see a lot of upside, and there's a lot of partnership that we continue to work on new solutions around. So it is core from that perspective that I laid out.

Okay, and then on the convert option?

So, no, nothing that we're contemplating at this point. I mean, look, we, you know, we did a $900 million debt deal just in the second quarter. Nothing, no specific convert for us contemplated at this point.

Okay, and then last question, in terms of Puerto Rico, What's your strategy there from existing assets and future development perspective?

Well, in Puerto Rico, we're greening the island's energy grid. So we do have renewal projects. We're bringing in batteries as well. And it's our plan to phase out coal by 2025. So we're assisting the island in its energy transition, and I think we've been very clear what our objectives are.

I appreciate it. Thank you. Thank you.

Thank you. Our final question comes from Greg Orrell from UBS. Greg, your line is now open. Please proceed.

Yeah, thank you. Probably quick, on AES Ohio, is the DPL rate case, how does that timing compare with what you were assuming in guidance or any other differences with how that's proceeding versus the 23 guidance?

Yeah. Hi, Greg. It's right on track with what we assumed in our guidance. So, the decision has been put on the agenda. for next week, August 9th. That was just published, I believe, yesterday. So right on track in terms of when we assume the decision to be made. And we still feel really good about where that is likely to come out. As a reminder, once the decision is made, ESP4 put in place, then the new rates that were decided upon last year immediately go into effect. And as we've laid out, the riders would go into effect And then the frequent quarterly recovery on our distribution investments going forward would start to be put in place. And so this is a business really pivoting to a very different phase from where we've been delivering and setting that business up for a more normalized structure. This is an important pivot point for Ohio to really pivot to growth. And there's a lot of room for growth as there's the lowest rates in the state there in all customer classes. And even with the ESP4, the new rates, we expect it to continue to be the lowest rates in the state for the foreseeable future. And we have, as Andres noted, 10% plus rate-based growth expected going forward. So we're very excited about this and look forward to the decision next week.

Yeah. And I'm also very excited about that Dayton is finally getting incoming investment. So you have a New Honda EV plant, you have a battery plant coming into our service area. So you're starting to see an economic recovery. Dayton had sort of been not participating in the expansion that we had seen in Eastern Ohio. So it's a very exciting time. And we're very happy that, you know, we could invest and continue to improve the quality of service and continue to attract new investments into the Dayton area. So it's not only a rate-based story. I think there's an economic recovery story happening in Dayton for the first time, you know, in decades. So it's a very exciting time to be in Dayton.

Good. Thanks.

Thanks, Greg.

Thank you. I'll now hand back to Susan Harcourt for any closing remarks.

We thank everybody for joining us on today's call. As always, the IR team will be available to answer any follow-up questions you may have. Thank you and have a nice day.

This concludes today's conference call, everybody. Thank you very much for joining. You may now disconnect your lines. Have a great rest of your day.