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Q3 2024 AES Corp Earnings Call

Thomson Reuters StreetEvents

Sat, Nov 2, 2024, 2:41 a.m.46 min read

Good morning. Thank you for attending today's AES Corporation Third Quarter 2024 Financial Review Call. My name is Megan, and I'll be your moderator for today. (Operator Instructions)
I would now like to turn the call over to Susan Harcourt, Vice President of Investor Relations at AES Corporation. Susan, you may begin

Susan Harcourt

Thank you, operator. Good morning, and welcome to our third quarter 2024 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 disclosed 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; Stephen Coughlin, our Chief Financial Officer; and other senior members of our management team. With that, I will turn the call over to Andres.

Andres Gluski

Good morning, everyone. Thank you for joining our third quarter 2024 financial review call. We are pleased with our performance this year. And today, I will discuss our third quarter results, a robust growth we are seeing at our renewables and US utility businesses and our progress towards our asset sales target.
Beginning on slide 3 with our third quarter results, which were generally in line with our expectations. Adjusted EBITDA with tax attributes was about $1.2 million, adjusted EBITDA was $692 million and adjusted EPS was $0.71. We're on track to meet our 2024 financial objectives, including our expectation to be in the top half of our ranges for adjusted EBITDA with tax attributes and adjusted EPS.
At the same time, we now expect adjusted EBITDA to be towards the low end of the guidance range for the year, primarily due to the onetime impact of extreme weather in Colombia and the lower margins in the energy infrastructure SBU. We are reaffirming our expected growth rate through 2027. Steve Coughlin, our CFO, will provide more detail on our financial performance and outlook.
I'm also very pleased to report that since our last call in August, we have signed or been awarded 2.2 gigawatts of new contracts. This includes both long-term renewable PPAs and new data center load growth at our US utilities.
Moving to our renewables business on slide 4. Since our Q2 financial review call, we have added 1.3 gigawatts of new PPAs to our backlog, bringing our year-to-date total to 3.5 gigawatts, more than 70% of which is with corporate customers. As a reminder, last year, we set a target of signing 14 to 17 gigawatts of new PPAs from 2023 to 2025. And with 9.1 gigawatts signed or awarded since the beginning of last year, we're currently well on track to meet this objective. Since setting that goal, we also materially increased our project return targets, and we are focused on prioritizing the most profitable PPAs.
Moving to slide 5 and our construction progress. Since our second quarter call in August, we have completed construction of an additional 1.2 gigawatts of new projects, bringing year-to-date total to 2.8 gigawatts, which represents nearly 8% of the 3.6 gigawatts we expect to complete this year.
On-time execution is one of our competitive advantages, and we believe we have the best supply chain management in the industry. In the US, we have 100% of our solar panels on site for those projects coming online this year and 84% in country for next year. For 2026, we have 100% of our solar panels either in country or contracted to be domestically manufactured, providing protection against potential changes in tariff policy.
We have also been a first mover in securing domestically manufactured battery modules and cells. We expect our first battery energy storage project with domestic content to come online in the first half of 2026. Additionally, we have established a robust supply chain for wind through our strategic suppliers with domestic manufacturing. Regarding long lead time equipment, such as transformers, and high-voltage breakers, we have secured all of the supply for our backlog through 2027.
Turning to slide 6. We are very well positioned as a leading provider of renewable energy to data center companies, particularly in the US and to large mining companies outside the US. These customers want to work with AES due to our track record of providing customized solutions that best serve their specific needs and delivering our projects on time and on budget.
With the US elections only a few days away, I have great confidence in the resilience of our business plan, regardless of the outcomes of the presidential and congressional elections. While we do not believe the elimination of the investment tax credit or production tax credit is likely, even in an extreme scenario, we're uniquely well positioned due to the following.
First, regardless of federal policies, our corporate customers had a massive need for new power that can only be met by renewables over the next decade. McKinsey estimates that in the US data centers alone could require an additional 450 terawatt hours through the end of the decade, which is equivalent to more than the annual electricity consumption of France. With these market dynamics, we will continue to sign high-return renewables PPAs with our core customers.
Second, should there be any changes to US tariff policy, we have a resilient supply chain, with a large majority of our project components manufactured domestically by 2026. Finally, our strategy of procuring our equipment at the time of the PPA signing provides clear safe harboring protection from potential changes in policy.
Now turning to slide 7. Over the last 12 months, we have embarked on the most ambitious investment program in the history of our US utilities, which will improve reliability and quality of service for our customers, while maintaining some of the lowest rates in both states. AES Indiana and AES Ohio are now two of the fastest-growing US utilities, with projected double-digit rate base growth through 2027 based on necessary investments for our customers. As you may recall, in the third quarter of last year, we received commission approval for a new regulatory structure for AES Ohio, providing for timely recovery of the majority of these investments.
Similarly, earlier last year, we received commission approval for new rates at AES Indiana, our first rate case in seven years. We are starting to see the benefits from the $1.2 billion we have invested in both utilities so far this year, representing a year-over-year increase of investment of 60%. Excluding the onetime settlement benefit recognized in 2023, year-to-date EBITDA is up 25%.
Turning to slide 8. We're also seeing additional investment opportunities from data center growth in our service areas above and beyond our existing rate base projections. Our utilities have many natural advantages that are attractive to large technology companies, such as proximity to fiber networks and the presence of ample land and water. We have worked to proactively identify sites that are well positioned to support new data centers, capitalizing on our deep relationships with technology companies.
At AES Indiana, we expect to have specific data center deals to announce in the coming months, as we've been in active negotiations with several parties. We recently launched an RFP for 3 gigawatts of new generation to support accelerating demand growth. From a regulatory perspective, we will use the results of this RFP to help inform our IRP submission next year. At AES Ohio, we have now signed agreements for new data center load growth of 2.1 gigawatts, including an incremental 900 megawatts, on top of the 1.2 gigawatts we already announced on our last call.
On our fourth quarter call in February, we will provide a comprehensive update on how these agreements impact our long-term investment plan and rate base growth. Today, we can indicate that just what we've signed to date provides a nearly 30% increase in investment through the end of the decade over our current plan.
Turning to slide 9. In September, we announced the plan to sell down 30% of AES Ohio to CDPQ, our longtime partner in AES Indiana. This transaction builds upon our strong relationship with CDPQ and allow us for common ownership across our US utilities. This partnership will support growth at AES Ohio, with CDPQ as a funding partner for increasing investments to support reliability and economic development.
Finally, as you may have seen in our release, we are pleased to report that we have now closed the sale of our equity interest in AES Brazil. We are proud of the work our people have done in Brazil to expand beyond the 2.7-gigawatt hydro portfolio by adding 2.5 gigawatts of operating wind and solar, creating one of the largest renewable businesses in the country.
With these two transactions, we have now signed or closed agreements for more than three-quarters of our $3.5 billion asset sale proceeds target through 2027. We have also further simplified our portfolio and eliminated Brazilian weather, interest rate and currency risks.
With that, I would now like to turn the call over to our CFO, Steve Coughlin.