The AES Corporation Price & Performance (AES)

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 ks 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 Andre Skluwski, our President and Chief Executive Officer Steve Coughlin, our Chief Financial Officer Ricardo Fallu, our Chief Operating Officer and other senior members of our management [indiscernible] With that, I will turn the call over to Andres.

Good morning, everyone. And thank you for joining our fourth quarter and full year 2024 financial review call. Today, I will cover our 2024 accomplishments, the resiliency of our business, and our 2025 guidance and longer term outlook. Steve Cosslin, our CFO, will provide more details on our financial performance and expectation, after my remarks, To say that we are extremely disappointed with our stock price performance is an understatement. Steve and I will address what we believe to be investors' concerns including policy uncertainties, [indiscernible] EBITDA growth and balance sheet and funding constraints to meeting growing demand for electricity particularly among technology customers and why our business model is relatively well insulated from and resilient to potential regulatory changes. Even with our resilient physician we are taking immediate steps to strengthen our financial position and outlook. These steps include reducing our parent investment in renewables by focusing on the highest risk adjusted return projects. Improving organizational efficiency, and continuing to operate some of our energy infrastructure assets. As a result of these actions, we expect to improve our credit metrics over time while eliminating the need for issuing new equity, during the forecast period and maintaining our dividend. Turning to Slide four, Let me start with our 2024 results.

We signed 4.4 gigawatts of new power purchase agreements for renewables last year. Our performance in 2024 puts us on track to achieve our goal of signing 14 to 17 gigawatts of new PPAs through 2025. Are prioritizing signing those contracts with the best risk adjusted returns rather than just maximizing growth in gigawatts. In 2024, we also completed the construction or acquisition of three gigawatts of renewables and a six seventy megawatt combined cycle gas plant in Panama. Greatly increasing the utilization of our existing LNG terminal in that country. Our best in class record of on time and on budget delivery of renewable projects is something that our customers value highly and is one of our competitive advantages. Lastly, I should note that in 2024, we received approval from the Indiana Regulatory Commission for new base rates and an ROE of 9.9%, supporting an investment program that will improve reliability for our customers and support local economic development. Now moving to our financial results. 2024, we achieved adjusted EBITDA of 2,640,000,000.00 The as a result of extreme one time weather related events in Colombia and Brazil With both businesses down, a combined $200,000,000 year on year. Nonetheless, we generated parent fee cash flow of $1,100,000,000 which is at the midpoint of our guidance.

And we earned a record adjusted EPS of $2.14 which is materially above our guidance range and puts us well on track to achieve our annualized growth target of 7% to 9% from 2020 to 2025. Moving to our Renewables business, Slide five, 2025 be an inflection point we begin to realize the financial benefits from the maturing of our renewable business, including the addition of 6.6 gigawatts we inaugurated in 2023 and 2024. We're able to achieve increasing economies of scale that reduce our overhead per megawatt. As we now have 16.2 gigawatts of renewables online versus 5.9 gigawatts in 2018, excluding Brazil. At the same time, our development business is becoming more efficient as we are now harvesting the investments we made in creating our pipeline. Furthermore, as profitability of each megawatt of new PPA signed has substantially increased we do not need to bring online as many new projects to achieve the same level of financial growth. This strategy allows us to focus on the most profitable new projects while reducing costs and capital requirements as I will shortly discuss. There is a time lag between renewables development expenditures [indiscernible] through the P and L and growth in EBITDA.

Creating a pipeline of potential projects requires expenditures in development activities such as scouting for prospects, negotiating land purchases or leases, measuring the wind or sun resource, and finally obtaining permits. As our renewables are in a more mature state, our financials will start to reflect the true profitability of the business as new projects coming online cover the cost of early stage projects The business grows, stewardship including administrative and back office activities will get allocated over a larger operating base. This inflection in our lifecycle starting in 2025 we'll strengthen our credit metrics as we achieve a higher ratio of projects online selling energy versus spending on pipeline and projects under construction. With this background, let me turn to our financial expectations for our renewables business. In 2025, we expect over 60% year over year growth in our renewables EBITDA which Steve will discuss in more detail. Previous growth in our U. S. Renewables portfolio drives the majority of our expected EBITDA growth. In 2025, another 3.2 gigawatts of renewable capacity. Which will contribute to strong EBITDA growth in 2026 and beyond. These numbers also reflect the maturing of our U. S. Renewable business as we harvest the investments we made to create our 50 gigawatt U. S. Pipeline.

Finally, I should note that our twenty twenty five Renewable segment [indiscernible] incorporates some changes in segment makeup including the sale of 5.2 gigawatts in Brazil last year and the addition of 2.5 gigawatts in Chile The. The business has evolved, these Chilean renewable assets have now been moved from the Energy Infrastructure SBU to the renewables SBU. The sale of Brazil is an important de risking of our portfolio as we have eliminated a significant portion of our hydrology, currency spot price, and floating interest rate risk exposures. Turning to Slide six and the renewables market our business. Last year, The U. S. Added 49 gigawatts of new capacity with renewables and battery storage representing 92% twenty twenty five, The U. S. Is expected The to add 63 gigawatts 93% of which are solar, storage and wind. [indiscernible] we will likely see a surge for new gas capacity over the next decade, the delay in delivery of new gas turbines averages three to four years, without taking into account new permitting requirements, or building new gas pipelines. [indiscernible] While a few decommissioned nuclear units are expected to be brought online, in the next five years, material contribution in new capacity from small nuclear reactors or advanced design nuclear plants is unlikely to occur at least another decade.

Taking all this into consideration, renewables have the shortest time to power and much greater price certainty. Therefore, there is no doubt the increased demand for electricity over the next decade, coming from data centers and advanced manufacturing, will continue to require vast amounts of renewable energy and batteries. Moving to Slide seven, Over the past five years, we have endeavored to make our business resilient to potential policy changes. First, we have taken a lead in onshoring our supply chain to The U. S. Which limits our exposure to new tariffs. Trackers and batteries either in country or contracted to be domestically produced for our U. S. Projects coming online through 2027, Second, of the 8.4 gigawatts of signed contracts we have in The U. S, more than half are under construction. And nearly all have significant safe harbor protections which will grandfather them under the existing tax policy regime. Third, about three gigawatts 30% of our backlog of signed PPAs are in U. S. Dollars but in international markets, primarily Chile, which The unaffected by U. S. Policy changes. I should note that in our international markets, renewables can be even more profitable. [indiscernible] most often, the cheapest form of dispatchable energy even in a regime without meaningful subsidies.

Lastly, the vast majority of AES' customer base or corporations whose demand for new renewables continues to increase at a rapid pace. In fact, in 2024, approximately 70% of the PPAs we signed were with large corporations. And notably we have once again been designated by BNEF The largest provider of clean energy, to corporations in the world. Even in the very unlikely scenario, re tax credits for renewables are eliminated Prospectively, in their entirety, we believe that there will be continued strong demand from our corporate clients especially data centers, for many years. Without timely access to power, can be no AI revolution. Obviously, the price of new PPAs in a future without tax incentives would increase the profile of earnings in cash flow [indiscernible] Will look a lot like our projects in Chile. However, in any case, what ultimately matters to AES our returns and cash flow per dollar invested. Now let me turn to our Utilities business on Slide eight. AES Indiana and AES Ohio are executing on a multiyear investment program to improve customer reliability, and support economic development. In 2024, we invested $1,600,000,000 leading to a rate base growth of 20%. This investment program includes growth and modernization programs at both of our utilities and a plan to transition our aging coal generation Our investment plans are driven by our customers.

And our top priority is to support local communities with reliable, resilient and affordable power. We have among the lowest residential rates both states, which we expect to maintain even as we grow rate base. Turning to Slide nine, Across our two utilities, we have growth riders or trackers which yield real time returns on our investments The the investment program is recovered through formula rates or existing riders As through the TD Sic, program at AS Indiana, will defer formula rates the support transmission investment at AES Ohio. All of this combined with signed agreements for over two gigawatts of new data center demand make AES Indiana and AES Ohio among the fastest growing and modernizing utilities in the nation. From 2023, to 2027, we expect annualized growth in our rate base at least 11% across two utilities, The plan will support credit improvement at DPL Inc. Which we expect to achieve investment grade metrics, by 2026. Now turning to Slide 10. Our energy infrastructure business provides a substantial and steady base of earnings and cash flow that support our credit ratings and help fund our dividends and new growth.

We remain committed to an all of The above strategy includes an important role for gas in our businesses and customer offerings. During the fourth quarter, we completed the construction of a new six seventy megawatt fully contracted in Dollars CCGT In Panama, which will result in much greater utilization of our existing LNG regasification and storage tanks in the country. In addition, we're delaying the closure or sale of a few of our coal plants as a result of increased demand in those markets. These assets are largely depreciated yet contribute meaningful EBITDA and cash flow. We still remain committed Nonetheless, to a full exit from coal generation, and will continue to rapidly lower carbon intensity and minimize carbon emissions from our generation fleet. Now moving to our financial outlook on Slide 11. Today, we're initiating our 2025 guidance of 2.65 to $2,850,000,000 dollars Parent free cash flow of $1,150,000,000 to 1,250,000,000.00 and adjusted EPS of $2.1 to $2.26 We're also reaffirming all of our long term [indiscernible] including 5% to 7% Adjusted EBITDA growth through 2027 As we grow, we're also improving [indiscernible] As we see a significant increase in adjusted EBITDA from renewables U. S. Utilities. Now turning to our balance sheet and plans to improve our credit ratios through and beyond our guidance period.

On Slide 12. We are firmly committed to maintaining our investment grade credit ratings as well as our dividend. As a result, we're taking several actions to improve cash flow and reduce parent equity requirements. While ensuring that our capital plan will be totally self funded. I should note that these efforts are ongoing and we will continue to evaluate measures to strengthen our financial position On top, of what's already included our guidance. [indiscernible] [indiscernible] we have resized our development program and organization to focus on executing on our backlog. Pursuing [indiscernible] but larger projects to better serve our core customers. This strategy allows us to increase our returns on our available capital by selecting the most attractive projects. Given the strength of our 50 gigawatt U. S. Pipeline, we also expect to execute more development transfer agreements enabling us to monetize a portion of our renewables pipeline without requiring significant AES equity.

As a result, of all of these actions, we have reduced our parent investments in the renewables business by 1,300,000,000.0 from now through 2027, and eliminated the need for equity. Second, we are streamlining our organization ahead of what was originally planned. Our business is significantly simpler today than it was ten years ago. As we now operate in fewer countries, our portfolio consists of more than 50% renewables and our growth is primarily concentrated in The U. S. In 2025, after the execution, of this restructuring, we will realize approximately $150,000,000 in cost savings ramping up to over $300,000,000 in 2026, as we achieved a full year run rate. Third, as I previously mentioned, we will retain a few of our coal assets beyond 2027 to support our financial metrics and fund new projects Taken together, These actions enable an even stronger AES with a clear path achieve our 2025 long term financial commitments and strength in our credit metrics. In summary, we have a resilient strategy to deliver on our financial commitments regardless of regulatory outcomes. Have continued to derisk our business by exiting Brazil locking in and onshoring our equipment and moving our supply chain to The U. S. As I mentioned earlier, 2025 is an inflection point The the financial results of our U. S. Renewable business, as we begin to harvest many years of work and investments.

Demand from our corporate clients remains strong and growing. And we are taking all steps to increase our efficiency and profitability.

We are confident in the underlying value of our business and we are committed to strengthening our balance sheet. While capitalizing on our unique competitive advantages. With that, I will turn the call over to Steve. Thank you, Andres, and good morning, everyone. Today, I will discuss our 2024 results and capital allocation, our 2025 guidance and our updated expectations through 2027. Turning to Slide 14, full year 2024 adjusted EBITDA was $2,640,000,000 versus $2,800,000,000 in 2023. Driven primarily by record breaking drought conditions in South America several forced outages and asset sales but partially offset by contributions from new renewables projects. Turning to Slide 15, adjusted EPS was $2.14 in 2024 versus 1.76 in 2023, Drivers were similar to those for adjusted EBITDA but also include significantly higher tax attributes on new renewables commissionings a lower adjusted tax rate. This tax benefit was associated with our transition to a simpler more U. S. Oriented holding company structure better aligned with our growth. This is partially offset by a $0.07 headwind from parent interest on higher debt balances primarily used to fund new renewables projects. I'll cover our results in more detail over the next four slides beginning with The Renewable strategic business, Unit or SBU on Slide 16.

Lower adjusted EBITDA at a Renewables SBU was primarily driven by historic weather volatility in South America. In the second quarter, an unprecedented flood forced an outage at our Chavor facility for nearly two months which was then followed by a record breaking drought across the country. Brazil was also impacted by a lengthy drought and extremely low wind resource. And the sale closing in the fourth quarter reduced EBITDA on a year over year basis. These negative drivers were partially offset by contributions from new projects that came online primarily in The U. S. At our Utilities SBU, higher adjusted PTC was primarily driven by rate based investment in The U. S. New rates at AES Indiana and improved weather but partially offset by the 2023 recovery of purchased power costs at AS Ohio included as part of the ESP4 settlement as well as higher interest expense from new borrowings. Lower adjusted EBITDA at our Energy Infrastructure reflects an outage in Mexico lower margins at Southland, and sell downs in Panama and The Dominican Republic. Finally, at our New Energy Technologies SBU, higher adjusted EBITDA reflects improved results at Fluence. Now let's turn to how we allocated our cash Beginning on the left hand side, sources reflect $3,100,000,000 of total discretionary cash.

This includes parent free cash flow of just over $1,100,000,000 which increased more than 10% from the prior year. We distributed nearly $600,000,000 of asset sales proceeds to the The and we issued $1,400,000,000 of hybrid parent debt. Moving to uses on the right hand side, We invested approximately $1,900,000,000 in growth at our subsidiaries. Of which more than 80% was allocated toward our renewables and utilities businesses. We also repaid roughly $180,000,000 of subsidiary debt and allocated $500,000,000 of discretionary cash to our dividend. In addition, we used a portion of December hybrid issuance proceeds to repay parent debt and have ended the year with a significant cash balance that will go toward executing on our backlog in 2025. Now turning to our guidance and expectations, beginning on Slide 21. Today, we're initiating 2025 adjusted EBITDA guidance of $2,650,000,000 to $2,850,000,000 in which growth in our core businesses is offsetting a number of one time year over year headwinds. Our guidance includes more than $300,000,000 of growth at our Renewables and Utilities SBUs, This is partially offset by the sale of AES Brazil and the pending 30% sale of AS Ohio, as well as approximately $200,000,000 from a reduction in Southland margins related to declining power prices in California, and the retirement of our Warrior Run coal plant in energy infrastructure where we recognized revenues in the first half of twenty twenty four related to the monetization of the PPA.

The timing of these 2024 items combined with the seasonality of our renewables growth will result in our first half EBITDA being lower on a year over year basis. While the second half will be significantly higher. In addition to these drivers, we also expect to realize $150,000,000 of cost savings in 2025 across all businesses from the actions we are taking that Andres outlined. Looking beyond this year, these savings, which increased to a run rate of over $300,000,000 in 2026 Combined with continued growth in renewables and utilities, will accelerate the growth trajectory of AES. As a result, we now expect a much higher low teens EBITDA growth rate in 2026 versus 2025. In addition, we expect to recognize $1,400,000,000 of tax attributes in 2025. This represents an increase of nearly $100,000,000 driven by more projects coming online in The U. S. In total, we expect to achieve $3,950,000,000 to $4,350,000,000 of adjusted EBITDA with tax attributes 2025. Turning to Slide 22. I will now provide some additional color on our Renewables SBU adjusted EBITDA which we expect to increase significantly year over year 2025. This growth includes more than $150,000,000 from new projects, much of which relates to the 6.6 gigawatts of new capacity we placed in service in late twenty twenty three and throughout 2024.

These projects are already online and operating and will now contribute a full year of EBITDA in 2025. The sale of AES Brazil in the fourth quarter of last year will serve as a $100,000,000 headwind year over year but is more than offset by the resegmenting and growth of our Renewables business is forecasted to be close to $190,000,000 in 2025. The last two drivers are the normalization of Colombia results after the second quarter flood driven outage and historic drought conditions in 2024 and the impact of resizing our development business as Andres previously discussed. Turning to Slide 23, we are initiating 2025 adjusted EPS guidance of $2.1 to $2.26 and we expect to achieve the upper half of the 7% to 9% long term growth target initiated in 2021 Drivers are similar to adjusted EBITDA with tax attributes but will be offset by higher parent interest and a higher adjusted tax rate.

As a reminder, our results have historically been somewhat seasonally weighted toward the second half of the year and this year is no exception. Now turning to our 2025 parent capital allocation plan on Slide 24. Beginning with approximately $2,700,000,000 of sources on the left hand side. Parent free cash flow for 2025 is expected to be around $1,150,000,000 to $1,250,000,000 We expect to generate $400,000,000 to $500,000,000 of net assets sale proceeds this year and issue an additional $700,000,000 of net new parent debt. Now to the uses on the right hand side, we plan to invest approximately $1,800,000,000 in new growth of which more than 85% will be in The U. S. We also plan to repay roughly $400,000,000 of subsidiary debt and allocate more than $500,000,000 to our shareholder dividend. Reflects the previously announced 2% increase. Turning to Slide 25 and our long term expectations. We expect tremendous growth at our renewables SBU with an average annual CAGR of 19% to 21% expected from our 2023 guidance midpoint. This will be primarily driven by 6.6 gigawatts of new projects already placed in service along with roughly $700,000,000 of new EBITDA from bringing the majority of our 11.9 gigawatt backlog online.

Also included is the addition of Chile Renewables offset by the sale of AES Brazil neither of which were contemplated in our 2023 SBU guidance ranges. Our utilities SBU, we expect annualized growth of 13% to 15% through 2027, reflecting upside from new data center development in our service territories that could serve as an even greater tailwind beyond 2027. This growth is largely covered by trackers and will be critical to improving service quality, and reliability for our customers. Our utilities plan also incorporates the 30% sell down at AS Ohio we expect to close in the first half of this year. This will reduce adjusted EBITDA in the near term but allows us to fully capture the data center opportunity in the long term and maximize shareholder value. In our Energy Infrastructure SBU, we now expect EBITDA contributions will decline at a slower rate than in our prior guidance. As we plan to operate a few coal plants beyond our previously planned 2027 exit, improving earnings and cash flow. Now to Slide '26. Bringing it all together, I am pleased to reaffirm our reaffirm our long term adjusted EBITDA growth target of 5% to 7% and our long term parent free cash flow growth target of 6% to 8% through 2027.

This growth is largely locked in through signed PPAs for our backlog projects and approved or tracked rate based investment, at our utilities. Turning to Slide '27 and our long term capital plan. Total sources of 6,000,000,000 will be funded primarily with parent free cash of 3,600,000,000.0 to 3,900,000,000.0 reflecting average annual growth of 6% to 8% off our 2023 guidance midpoint. [indiscernible] also expect to issue $900,000,000 to $1,000,000,000 of net new parent debt and realize $800,000,000 to $1,200,000,000 of proceeds from asset sales. Is important to note here that we have fully removed any need for equity issuance throughout our guidance period. On the right hand side, parent investment of approximately 4,000,000,000 reflects our reduced investment in renewables. We also plan to repay $600,000,000 of subsidiary debt. We expect to allocate another $1,600,000,000 of cash to our dividend which we are fully committed to maintaining at its current level. However, given our efforts to minimize parent cash needs and The already highly attractive yield we do not expect to grow the dividend during our planned period. Our long term guidance includes the impact of the actions we're taking to simplify our operations reduce spending on development, and further increase our cash flow and strengthen our credit metrics.

These include reducing our planned renewables investment Implementing a restructuring program to generate over $300,000,000 of run rate cost savings by 2026 and continuing to operate select coal assets with earnings and cash potential beyond 2027. These actions demonstrate our commitment to our financial targets as well as our investment grade credit ratings. I want to briefly make a few points about our capital structure and financing model. While we see an uptick in our total debt levels by the end of twenty twenty seven, which should be looked at on an ownership adjusted basis our actions to reduce costs and focus our development efforts on higher returning projects increase cash flows and improve our credit metrics. This eliminates any need for new equity and gives us more flexibility on timing to execute asset sales, Approximately 20% of our debt is related to projects still under construction that are not yet yielding EBITDA or cash. And more than half of this amount will be permanently taken out by monetizing tax attributes when projects are placed in service. Leading to a significantly lower level of long term project debt. Given that we carry this construction debt, it is relevant to consider a pro form a view of the annual EBITDA and cash [indiscernible] that will recur once construction is complete.

To be specific, the projects that come online during 2027 or are still in construction at the end of twenty twenty seven will generate an additional $400,000,000 of annual adjusted EBITDA that is not reflected in our 2027 guidance window. Beyond construction, our projects are financed with long term non recourse debt that fully amortizes using project level cash flows over the life of the PPA. This project debt is non recourse to the AS parent resulting in a capital structure that is robust and low risk. Turning to Slide 28, this chart provides an example of the typical debt and EBITDA levels we would expect over the life of a U. S. Renewables project. While a new project is under construction, debt ramps up with no corresponding EBITDA. Once the project is placed in service, there is a material reduction in the debt balance as more than half of the construction debt is repaid through the monetization of tax attributes. The remainder is refinanced using long term fixed rate amortizing project debt that is prehedged when the PPA is signed. In the first full year of operations, leverage ratios begin at approximately six times debt to EBITDA and will continue to decline each year as the project debt amortizes.

This example helps demonstrate how AES leverage ratios appear artificially high while we execute on our ongoing construction program but will come back down as our operating portfolio reaches a larger scale. In conclusion, 2025 is an inflection point for our business The Renewables segment will increase over 60% in 2025 and will yield annual growth at least in line with our through 2027. Utilities rate base growth is even stronger than previously expected. While energy infrastructure continues to contribute meaningfully to EBITDA [indiscernible] We have taken actions to streamline our organization, and reduce both costs and capital investments These actions are further increasing our cash flows and will enable AES to deliver increasingly higher credit metrics as we execute on our backlog. Finally, we are on track to achieve our long term financial guidance. I look forward to providing updates throughout the year as we continue executing on our plan and capitalizing on the actions we have taken to ensure continued success at AES. With that, I'll turn the call back over to Andres.

Thank you, Steve. In conclusion, here are the key points we want to leave with you today. There is an unprecedented need for incremental energy to power the AI revolution. In The United States. Notwithstanding concerns about potential regulatory changes, under the new administration, Renewables have the best time to market at a competitive price. Additionally, we are well insulated from potential changes U. S. Renewables policy or tariffs, through safe harbor protections for our backlog, having locked in equipment and EPC pricing, and established domestically based supply chains. Our Renewables business is at an inflection point with improving financial results from the combination of continued growth reaching economies of scale, and reductions in development expenses. We are reaffirming our longer term growth rates through 2027 as we execute on our 11.9 gigawatt [indiscernible] And we are taking steps to improve our credit metrics. As always, we are highly focused on delivering the highest risk adjusted returns to our shareholders. And we believe that AES is very well positioned To meet [indiscernible] Our customers' energy demands as well as Operator, Thank you. Our first question comes from Nick Campanella with Barclays.

Nick, please go ahead.

Just on the cost savings, morning. So you have $150,000,000 ramping to $300,000,000 over time.

I heard you Steve say that these are run rates. So I assume The are ongoing and not one time in nature. Just I recognize you had about $52,000,000 in the bridge, for renewables. So is the bulk of this coming from the parent it does it happen naturally as you sell down more in the energy infrastructure business? Maybe you can kind of just expand on your confidence level in achieving these reductions and where you see a bulk of these happening in the portfolio? Yes. Hi, Nick, it's Steve.

So the cost savings are spread across the portfolio and definitely include renewables business as well. It is a run rate when we hit over $300,000,000 next year. So these are not one time And I would emphasize that we've already taken these acts we're very confident in because we've already made the decisions and taken the actions that we need to take to achieve the renewables number that you see for 2025 in that bridge, that will also ramp up in line with the $150,000,000 going to 300 would expect that to proportion to remain roughly the same. Okay.

Okay. And then just on the comments you're cutting CapEx, but you're still hitting the growth target of 5% to 7% long term EBITDA. You previously talked about a 12% to 15% IRR on renewables. What's the IRR of these higher quality projects that you're now targeting?

And Is the cost cuts just are the cough cups just making up for the rest of that delta? Just tying out to the long term guidance? Thank you.

Sure. Look, we're taking an integrated approach. So yes, we see strong demand in the markets. We see that we have very attractive projects. IRRs are going up on average But at the same time, we're also reducing those costs not directly associated with the project. So it's really coming from both sides. So it's an integrated approach. So what we're doing is and we quite frankly have said this to some extent in the past, it's not just the number of gigawatts. It's the returns we get for example, EBITDA created by each investment tower. So that's really what we're focusing on. So So it will mean fewer projects, but larger projects and at the end more profitable projects.

Okay. Thank you. Our next question comes from David Arcaro with Morgan Stanley.

Please go ahead, David.

Good morning, Dave. Good morning.

On The [indiscernible] Let's see. Looking at that, it seems like you're pulling back somewhat on the renewable CapEx in the forecast. Wondering from a high level kind of strategic perspective, Andres, do you see this as kind of a pause in guess, in the renewables growth or just a bit of pullback in making those investments into the renewables business just given the current environment? And over time, would you expect to reassess and potentially reaccelerate to the extent financing becomes easier, the backdrop becomes more favorable.

That's a great question. Look, we are focusing on executing on our 12 gigawatt [indiscernible] Which 85% of that will be online by 2027. So that's our number one focus. As we mentioned in our script, we've been spending a lot which flows through P and L, is building that 50 gigawatt pipeline in The States. And 10 gigawatt pipeline outside. So really what we're doing is harvesting that pipeline. So we don't want to grow it to 100 giga So we've done that work we're going to harvest it. So basically we're spending less if you will, on future projects with The time horizon of five to seven years, because we've done that work. Now in terms of total growth rate, what we're saying is we're going to be building less gigawatts. For sure, but we're going to maintain our financial results. So that's The sort of picture. Now again, what we see is strong demand from our clients.

But we're very happy to This year we'll be commissioning around three gigawatts of new projects Next year that would step up to four gigawatts. So you're seeing we're signing around four plus per year. So The, the amount that we commission and amount that we build have to roughly come in line.

Yes, got it. Great. Thanks for that. Extra detail. And then I guess looking at the the overall profile of the businesses and your asset sales target now? I guess, seems like you're increasing the asset sales target overall, but you're keeping coal in the plan for a bit longer than originally planned. Could you maybe talk about what the profile is of the assets that that you might be looking at in the asset sales target now? What could be represented in there?

Sure. Hey, David. So similar to what we have talked about in the past, it does still include some coal exit It does still include some monetization of our technology portfolio. But we have always said that the universe is greater than the 3,500,000,000.0 We've actually taken a little bit more conservative view on what we intend to execute here. So we're really confident in the number between twenty five percent and twenty seven And we have looked at the sell downs as well. So this number includes some of the partnerships that we do. But what I would say is The capital plan relies less on these asset sales than in the past. And we have baked in more flexibility to execute the sales over time.

Okay, got it. Makes sense. Thanks so much. Our next question comes from Durgesh Chopra with Evercore ISI.

Please go ahead.

Hey, team. Good morning. Thanks for giving me time. Just a wanted to double click on cost savings, dollars 300,000,000 annual target It's pretty substantial when I look at your EBITDA number roughly [indiscernible] Maybe just can you give us some examples of what cost reductions are these? Are these personnel reductions process improvements? Just so we can get little bit more comfort around Your targeted level of cost reduction, please? Sure, Dhruvesh. Great question. With me is Ricardo Fallou, our Chief Operating Officer. So I'll let him answer that question. Thank you and good morning. So ESAT cost reduction program includes, as Andres and Steve mentioned, first, the resizing of our development program The focus it executing on our backlog as well as pursuing fewer but larger projects. And as a result, we resized the team We also materially cut the new sites origination as well as early stage project cost.

And on top of that, we reduced a 10% we had a 10% reduction in our workforce. Which includes the elimination of certain management layers as well as a much leaner organization, both at corporate and business levels. This is something that we plan to occur more gradually through 2027. However, in response of the current market conditions, we decided to accelerate this organization now it's aligned to the much simpler portfolio that Andres mentioned. Yes. I'd like to mention that these actions have been taken. So Steve also mentioned that [indiscernible] these are done.

And also The decisions in terms of losing The amount of capital we put into the renewables business. So it's there is very little execution risk on it because it's done.

That's very helpful color.

I could sense The the confidence you have in executing on these cost reductions. Okay. Thank you. And then my final question, Steve, just maybe can you help us with where you landed on FX total debt basis and referring to sort of on a Moody's adjusted basis, for 2024 relative to your credit downgrade thresholds?

Yes, absolutely, Durga. So on the recourse metrics, so at the parent level, we ended at 22% So it's a significant cushion above the 20% threshold On the Moody's metric we ended on our calculations at 10% which is right in line with where we expected to be. In both cases, these metrics will improve over time. At this point, with this updated plan where we focused very closely on improving our credit metrics, We do expect to get into the mid-20s on the recourse metrics by the end of the guidance period, and in 2026, in line with what we've been discussing with Moody's, we expect to be at or above the 12% threshold.

I feel really good about the actions that we've taken and what we're doing to increase our cash and EBITDA. Net debt to EBITDA ratios will improve over time as well. The other thing I would point out is as I said in my prepared remarks, we do carry About $4,000,000,000 to $5,000,000,000 of construction debt. On our balance sheet at any one The. The is not yet yielding.

And so our leverage ratios [indiscernible] artificially high at any one point in time as a result And so these ratios, when adjusted for that, for example, on a net debt to EBITDA comes down one to 1.5 times just by adjusting for that construction. But as I looked at the ratios or I mentioned the ratios, those are based on the actual way that they get calculated without this adjustment. But I do think it's important in understanding our leverage profile It's very important to look at this ownership adjusted debt level because the EBITDA, of course, is ownership adjusted. And to understand and that the leverage profile continues to improve over time as the operating portfolio gets bigger and bigger. Relative to the construction.

Got it. Very helpful color. Steve, and appreciate disclosure and slides explaining The debt to EBITDA over time. Thank you. Thank you, Georges. [indiscernible] Our next question comes from Julien Dumoulin Smith with Jefferies. Please go ahead.

Hey, good morning team. Thank you guys very much. I appreciate it.

Maybe just a follow-up on that last one, just one more on the subject.

Can you just elaborate, I mean, to what extent have you gotten in front of Moody's with this plan? And just if you could elaborate a little bit on how you're thinking through 2027 on that evolution of those metrics and that's sufficing given the backdrop of Moody's here?

Yes, sure. Good morning. Julian. So we have discussed as we were working with Moody's last year where this was headed. What I would say is it looks right on track, in fact even a little bit better. Given the actions that we've taken Effectively, what's happening is, our our cash flow and EBITDA is increasing substantially through the plan period. And that's a result of bringing on some 12 gigawatts in our backlog, most of which will be coming online through 2027. And then on top of that, we are reducing as Andres and Ricardo discussed, Our development spending is down based on our updated strategy of pursuing larger but fewer projects. We're putting less money into early stage prospecting and more maturing pipeline that we have. And then our administrative spending is down substantially as well. And that's also as a result of what was mentioned about our simplification of our portfolio, and the reduction of management layers and efficiencies that result from these actions that we have already taken. So together with this cash flow increase from operations, the reduction in cost, The ratios continue to look very healthy and grow in line to better than our prior expectations.

Excellent. Thanks, Steven. Maybe just to keep going with that a little bit further.

Just given the reduction of €1,300,000,000 here, Just on balance, are you actually selling down stakes in more renewables in order to reduce that need for contributions?

Or is the aggregate level of renewable investment per year slowing down here? I just want to make sure we're clear. You've talked about backlog and executing at this. Want to understand like how you think about like renewables per year install evolving through the period now given the update as well as what level of contribution from coal, not what assets, but just what level of cash or EBITDA, however you want to talk about it from coal are you anticipating in 'twenty six and 'twenty seven beyond now as well? Okay. Let's sort of break that. I think The several questions, sir. So on the first one The, again, through the 2027, we're basically executing on our backlog. And look, we're seeing very strong demand from our clients. Since our last call, we've signed four fifty megawatts with tech customers. So we see no downturn in demand. So Basically, what we see is there's no cliff in 2027. I mean, our demand continues to grow.

Second, maybe an easy way of thinking with Steve had described is, if you have a pool, say roughly $4,000,000,000 to $5,000,000,000 in construction debt, and you are basically carrying that over 16 gigawatts and then you go up to 25, 30 gigawatts The your credit metrics improve. Even though that debt really sort of short term rotating because of it is going to be paid back upon completion. That's number one. So The number [indiscernible] talking about how much coal is going to contribute, sort of post 2027. I'll pass The to Ricardo. Thank you, Andres. Good morning, Julian.

So just to put it into perspective, we are talking about keeping or retaining fuel few coal assets, half less than half of what we currently have and will be less than 8% of the expected capacity by the end of twenty twenty. Twenty seven, These assets continue to provide critical capacity to the grid and also to our customers And therefore, they continue contributing I would say, to the financial help of the company. We're clearly not abandoning our intention to exit coal, but it will take longer The we previously expected.

Yes. And I would also add here, Julian, that these are also assets The as that as they're more mature, their debt is amortized but they're also very accretive in terms of our credit Metrics.

And lastly, to say, we're doing this because in those markets, Because of the sort of supply demand balance they need to keep these plants online. So it all comes together. It's good for our financials, but it's also giving the market what the market is asking for.

Bottom line though, you're seeing a down you're seeing a leveling off in renewable The cadence just The per annum just to come back to that backlog comment. I'm just trying to understand The the end of the day like how you see it? Yes.

So Yes, I would put it this way.

Post 2027, what we see is less growth in number of megawatts. Than our original plans. I mean that's clear because we're spending less on creating a pipeline of potential projects five to seven years out.

So yes, the answer is yes. The next question comes from Michael Sullivan with Wolfe Research.

Please go ahead, Michael.

Hey, good morning.

Thanks for the update.

Yes. Hey, guys. Why don't I just pick up on the last question around just the coal contribution? I think Ricardo you're giving it on a capacity basis.

Any chance we can get that on The EBITDA basis? Just trying to think about think when you had the Analyst Day, you said coal was like a $750,000,000 roll off. What does that look like now through 'twenty seven? Since I'm the financial numbers guy, Steve, I'll take that one.

Michael. So we had guided, as you said, about $7,000,000 that would be eliminated I would say, we're looking at roughly a third of that that may continue beyond '27 for a period of time.

Okay. That's very helpful.

And then on Just interest rates, I think you have a couple of parent maturities coming up. Should we think of those as derisked from a sensitivity standpoint or what are you embedding there in terms of refi or anything like that?

Yes. So we did do a hybrid at the end of last year, dollars 500,000,000, which starts us well into this year. And then we will be in the market to refi. So we have a maturity here in July and one in January. So we will be in the market I would say relatively soon. We typically refi somewhere between three to six months. In advance of these maturities and our plans will be similar this year.

Okay.

And then last one, yes, I definitely can appreciate the sort of ramp of things here. The 5% to 7% EBITDA CAGR can you get in that range in 2026? Off of 2023 or we really looking to '27 The really get in there. [indiscernible] Question is that on those refis by the way, we are nearly fully hedged So we don't carry any interest exposure further interest exposure on those refi. And then with respect to 2026.

If that's a significant benefit from this action plan, We did contemplate simplification of the portfolio and cost reduction in the past over time, But what we have really done here is we've accelerated this And so 2026 is going to be a year of significant in our EBITDA. And I think I mentioned in my comments in the low teens and we expect another significant year growth in 2027 So we will jump ourselves up onto at least that trend line next year. This year in 2025, the guidance isn't as exciting simply because we had the remaining transformation here around the Brazil exit We had the Warrior Run benefit last year. And so some of these items depressed The year over year But the reality is where the core business is growing is contributing more than $300,000,000 this year There's just those offsets Going forward, The infrastructure SBU we've largely absorbed most of the decline as of 2025 And so we won't see a significant of an offset from energy infrastructure going forward. And therefore sort of that growth is unleashed from the core businesses to truly drop all the way into the total bottom line and therefore we have higher growth rates beyond this year.

One thing I'd like to mention is, we're talking about the quantitative results, but it is really very important qualitative results.

We're transitioning this portfolio to be more contracted to be more renewables, more utilities, less but by getting rid of five gigawatts, think about Brazil, I mean The was about We have about 30 gigawatts We sold out of five. That was most of our hydrology currency, interest rate exposure, So qualitatively, we're transforming this portfolio at the same time. So it's not just that it's going to have very good growth in 2026 and 2027, but it's going to be a much better portfolio as well.

Thank you, Michael. Thanks.

Our final question today comes from Will Granger with Mizuho.

Please go ahead, Will. Hi, good morning, everybody. Appreciate all the disclosures here.

Understand you reduced CapEx here, but just want to understand a little bit more what's the flexibility to thinking about maybe reducing it even more and investing in your stock here, just given where you're trading?

Any color on that cost of capital would would be super helpful. [indiscernible] as I said it very first statement, we're very well aware of where talking by citizen. We're doing everything possible to improve it. What I would say is that what we're presenting here is a plan that we think accomplishes The and We are paying we're giving back to shareholders $500,000,000 a year. We're paying a very substantial dividend.

So right now, this is the plan that we feel very confident about executing. And that we think will when the market settles down, we think will result in very good returns for our shareholders. But thanks for the question and we are constantly thinking of those things.

Appreciate that. And then maybe just one final one from me. Understand you're doing a lot of work with technology customers, manufacturing customers and Just on the items at the FERC and what we're seeing also in [indiscernible] Does that impact your ability to contract long term renewables either through colocation or virtual PPAs? Any color on that Appreciate it.

Yes. I think you're probably referring like this as a private so colocation private use networks.

Look, we don't see that affecting us. We think that most of our we have a very I would say resilient pipeline because we have very few federal lands if they all roll on private lands. And we don't have as part of that pipeline any PUNs. At this point. So we feel very, very confident about our pipeline and we don't see any of these regulations affecting us.

Great. Appreciate the color.

Thank you.

Those are all the questions we have. And so I'll turn the call back to Susan Harcourt for closing remarks.

We thank everybody for joining us on As always, the IR team will be available to answer any follow-up questions you may have.

Have a nice day.

Thank you, everyone, for joining us today. This concludes our call and you may now disconnect your lines.