AES Corp Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Nicholas Campanella - Barclays Capital Inc. - Analyst : So I wanted to just ask the comments about supply chain, you seem well positioned through 2026 with panels, et cetera. But you continue to construct 3.5 gigs for this year. You kind of outlined this previous target at the Analyst Day of 14 gig into 2025. So we're getting closer up to '25 now. I just kind of check in and see how you feel progressing towards that target because there will be -- it seems like it will be a pretty good step up into '25 here? And is that still attainable?

Question: Nicholas Campanella - Barclays Capital Inc. - Analyst : All right. When I think about '25 again, obviously, you had, on an tax attribute basis, some one-timers that's kind of putting you a little lower here. And I sense the notable confidence on the growth into 2025. Can you just kind of quantify for us how much is really just returned to normal versus new EBITDA from renewables contributions? And then when you consider things like Brazil rolling off, do you still expect that renewables segment

Question: David Arcaro - Morgan Stanley Co. LLC - Analyst : I was wondering if you could elaborate on the outperformance you had in tax credits that you received. You referenced the $200 million higher-than-expected tax credits. Wondering what that stemmed from? And is there an opportunity for any more outperformance from here?

Question: David Arcaro - Morgan Stanley Co. LLC - Analyst : Okay. Got it. That's helpful. Good to see just chipping away at the financing need with that. And then wondering if you could just touch on what renewable returns have been on the incremental projects that you've been signing, I guess, since raising your return expectations earlier in the year, how those return levels have been trending? Has there been continued momentum upwards?

Question: Durgesh Chopra - Evercore ISI - Analyst : Just wanted to start off with -- just want to start off with the actual portfolio that is going to come online, not from the guidance. But in terms of the 2.8 gigawatts that's coming online this year, should we expect an uptick in that number as we go into 2025, the actual construction and getting projects online?

Question: Durgesh Chopra - Evercore ISI - Analyst : Got it. Okay. That's very helpful. That's just project timing. Okay. I have two other questions. First, on the hydrogen project with APD, there may have been some changes there, with the activist involvement with the company. Just can you update us what your plan is there? How much capital might you have invested to date? And what do we do with those gigawatts coming online? Just anything you can share there, that would be helpful.

Question: Durgesh Chopra - Evercore ISI - Analyst : Got it, Andres. That's very helpful. And this is part of the backlog that you show, right? The -- I believe that number is 12 now. Is that the 1.5 gig that's included in the 12?

Question: Durgesh Chopra - Evercore ISI - Analyst : Understood. Okay. Very clear. And then one final question, sorry for dragging for this long. Steve, just on Moody's basis, earlier in the year, we've had conversations on the methodology -- potentially a methodology change at Moody's. Maybe just update us on where you stand on Moody's basis and the latest conversations you've had with the credit rating agency?

Question: Julien Dumoulin-Smith - Jefferies LLC - Analyst : Well, actually, since we're talking on the credit here, just to kick off on the nuance, just where do you see your metrics getting here? And then more specifically, do you anticipate needing to upsize the asset sales or accelerate the asset sale target to kind of true up the balance sheet for any reason here? I get the Moody's methodology is in flux, but as you think about the asset sale piece of this, any observations to make on that front since we were focused on in the second year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 1:00PM, AES.N - Q3 2024 AES Corp Earnings Call

Question: Julien Dumoulin-Smith - Jefferies LLC - Analyst : No. Fair enough, guys. Let me pivot real quickly to Palco here, right? We saw your peers to the north with NIPSCO. NiSource gave a very robust update. You guys are talking about 3 gigawatts of procurement activity. I know you guys already had a team's trajectory articulated at the Analyst Day last year, but I suspect that number is potentially meaningfully higher or potentially extend out for meaningfully greater duration given, a, the 3 gigawatts and b, the baseline of the rate base at Palco here. If you can speak a little bit to what your expectations on what total portion that you can own and how it impacts your financials here?

Question: Julien Dumoulin-Smith - Jefferies LLC - Analyst : Right. So even the medium-term rate base growth CAGR, it could potentially be heading higher is what I'm hearing. But actually, you made allusion to one thing here, if I can just clarify. You'll be providing an updated outlook here on the fourth quarter. And I know that there's a lot of different things that are moving around in the plan. So as you guys have done historically, expect that kind of integrated update here on 4Q roll forward from the Analyst Day?

Question: Angie Storozynski - Seaport Global Holdings LLC - Analyst : So I just wanted to focus on the renewable power wisdom. So the one without credits for cash EBITDA, I would call it. So I'm looking at these results. I mean you will be basically flat since 2022. And now it looks like 2025 is going to be also like 620, 630 range. So I mean I understand that there are one-off items that weighed on this year's EBITDA, which is going to be even lower than the number I just mentioned. So I mean there has to be some growth in that number. And I hear you Steve, that there will be some in '26, '27, but you're making very substantial investments, and we're not seeing growth in that cash renewable EBITDA. Now the reason I'm actually asking about it is because if you look at the parent free cash flow, parent distributions, I mean the vast majority of them come from energy infrastructure, but that's a segment that is shrinking. So I will have to rely on cash distributions from renewables very soon in order to hit the free cash flow expectations. So I'm just hoping that we can reconcile this.

Question: Angie Storozynski - Seaport Global Holdings LLC - Analyst : Okay. So let me just push back the latter, meaning that Chile was supposed to be additive to the growth trajectory that you were showing at the Analyst Day. And now that we see the results, like year-over-year changes versus '23 results, you clearly point out that the second half of '23 had some big onetime benefits, which you could not have counted on during your '23 Analyst Day, and yet you came below your expectations, even the low end on renewables EBITDA for '23. So again, I mean I hear you that there is growth in the US portfolio, which will benefit the EBITDA, but again, I mean, you had some big positives in the second half of '23, which you could not have expected when you were giving guidance on '23 on renewables and you came below expectations on renewables in '23 now. So why should I have conviction that the same is not going to true in future years?

Question: Angie Storozynski - Seaport Global Holdings LLC - Analyst : And just one other question. So I'm looking at your guidance here on the free cash flow for the parent for the year. It seems like you are expecting about $1.5 billion to $1.6 billion in distributions from subsidiary and you are at about 800, 880, I forget. So is this apples-to-apples, meaning that I am basically 50% of distributions, meaning that the fourth quarter will be the big catch-up on distributions?

Question: Michael Sullivan - Wolfe Research, LLC - Analyst : Yes, I know that kind of got passed through a bunch there on the last line of questions or commentary, I guess. Just to make it simple, like you keep talking about significant growth in '25. We obviously don't know what that means exactly. But you have this 5% to 7% EBITDA CAGR off of '23. When do you get inside of that within your plan?

Question: Michael Sullivan - Wolfe Research, LLC - Analyst : Okay. That's very helpful, Steve. And then I had two ones just on your resource additions. The first, just in terms of looking at new gas at the utility, do you see that in the RFP? Or is that not until the IRP? And do you have a good handle on how much you could look to be doing in gas? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 1:00PM, AES.N - Q3 2024 AES Corp Earnings Call And then on the nonutility side, you all have traditionally been pretty solar heavy though I think you mentioned wind a few times just in terms of supply chain. But when I look at you and your peers, it doesn't seem like anyone's adding too much wind these days. So just curious what you're seeing on that front?

Question: Ryan Levine - Citigroup Inc. - Analyst : What is the time line for the $92 million Colombia impact to return to historic norms? And what is the risk to achieving this ramp at this stage in the year?

Question: Ryan Levine - Citigroup Inc. - Analyst : Okay. So then by 2026, you should be back to a more normal performance?

Question: Ryan Levine - Citigroup Inc. - Analyst : Okay. And then maybe switching gears, as you referenced in your prepared comments, impact to California spark spreads, are you looking to change your hedging strategy there? Or any color you could share around the outlook going forward for the Southland?

Question: Ryan Levine - Citigroup Inc. - Analyst : So then as a follow-up, given that framework and your decisions for next year, is there any color around -- any direction of travel for that asset's performance for '25 given what your parties decided?

Question: Richard Sunderland - J.P. Morgan Securities LLC - Analyst : I know you've covered a lot of ground. Just one quick cleanup. You've talked at various points about asset sale program and how you've thought about timing that and affecting that it sounds like more to come on year-end around that. But just curious how you're thinking about monetizing the new energy technologies investments? And if that's something that should fall within the planned period? Any thoughts there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 1:00PM, AES.N - Q3 2024 AES Corp Earnings Call