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    AES Corp (AES)

    Q2 2024 Earnings Summary

    Reported on Jan 6, 2025 (After Market Close)
    Pre-Earnings Price$17.13Last close (Aug 2, 2024)
    Post-Earnings Price$17.13Last close (Aug 2, 2024)
    Price Change
    $0.00(0.00%)

    What went well

    • AES anticipates over 50% increase in peak load at its AES Ohio and AES Indiana utilities due to data center growth, leading to significant investments in transmission and generation assets and further increasing rate base growth.
    • Credit metrics are improving, with expectations to surpass last year's year-end figures, positioning AES for potential future credit rating upgrades.
    • AES is poised to benefit from the Inflation Reduction Act's domestic content bonuses, already meeting criteria for wind projects, expecting battery projects to meet requirements starting in 2025, and solar panels by 2026, which could enhance project returns.

    What went wrong

    • AES's renewable operations have been negatively impacted by weather-related disruptions, such as the forced outage at their 1-gigawatt Chivor hydro plant in Colombia due to record flooding, leading to reduced EBITDA this year.
    • AES experienced lower wind resources in Brazil, which also negatively affected EBITDA, indicating susceptibility of their renewable assets to variable natural conditions.
    • There is uncertainty about AES's ability to fully retain benefits from favorable market conditions or policies, as the division of gains with customers in PPA pricing depends on specific market circumstances, potentially impacting returns.

    Q&A Summary

    1. Utility Load Growth
      Q: What's the breakdown of the 3 GW utility load opportunity in Indiana and Ohio, and impact on CapEx?
      A: AES is seeing significant load growth opportunities in their utilities, driven by data centers. While specifics are still being finalized, this represents upside to their capital plans. They expect to include more details in next year's guidance, with the funding plan remaining unchanged due to strong asset sales and partnership capital. , ,

    2. Credit Metrics Improvement
      Q: Can you update us on credit metrics and FFO to debt ratio outlook?
      A: AES's credit metrics are improving and are expected to be higher than last year's year-end levels. They have a threshold FFO to debt ratio of 20%, with current metrics providing cushion above that. They foresee possible mid-BBB ratings in a matter of years, as the quality of cash flows improves with long-term contracts and asset sales. , ,

    3. Returns on Renewable Projects
      Q: Is there upside potential to returns given supply and demand dynamics?
      A: AES is focusing on maximizing the quality of megawatts over quantity, optimizing their renewable pipeline to maximize value. They've increased average project returns to the mid-teens and are optimistic that market conditions may allow for further return enhancements, although they are satisfied with current levels. ,

    4. Supply Chain and Time to Power
      Q: How secure is AES's domestic supply chain for 2026, considering tariffs?
      A: AES feels very confident in their ability to execute and deliver their U.S. backlog. They have secured necessary materials for this year, 2024, and the vast majority for 2025. Agreements with domestic suppliers starting in 2026 ensure compliance with domestic content requirements under the IRA, mitigating tariff risks.

    5. Financing Plan for Utility Growth
      Q: How will you finance the upside in utility CapEx due to load growth?
      A: AES doesn't expect changes to their funding plan, despite the anticipated utility growth. Successful asset sales and partnership capital provide the flexibility to invest in utility growth within their existing funding plan through 2027. ,

    6. Domestic Content Bonus Impact
      Q: When will your projects be eligible for the domestic content bonus, and implications for returns?
      A: AES's wind projects already meet domestic content criteria, with solar projects expected to qualify starting in 2026 and batteries in 2025. This qualifies them for a 10% adder across the entire capital cost of projects, enhancing returns. The benefit may be shared with customers depending on market conditions. ,

    7. Ohio Generation and Load Growth
      Q: Any appetite to own regulated generation in Ohio given load growth?
      A: AES currently has no appetite for owning generation in Ohio directly but sees opportunities for their renewables team. They are confident in meeting the increased demand over time without changing their current approach. ,

    8. Hyperscalers' Renewable Energy Demand
      Q: Do hyperscalers' renewable goals affect their power contracts?
      A: Hyperscalers prefer renewable power to meet their sustainability goals and require additionality, though they may use non-renewable power as a last resort. AES works closely with them to provide tailored renewable solutions, including colocation and innovative technologies, ensuring alignment with hyperscalers' environmental objectives. , , ,

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