The AES Corporation Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Electricity Market in US: Demand for energy is growing rapidly, prices are rising, and most new additions over 5 years will be renewables and energy storage. AES has a mature pipeline of renewables and battery storage with a substantial backlog of signed PPAs.
• Renewables SBU Growth: Adjusted EBITDA for Q2 2025 was $240 million, up 56% year-over-year. Added 3.2 gigawatts of new projects over last 4 quarters. Signed 1.6 gigawatts of new PPAs since last call, including $650 million with Meta, all with data center customers.
• Backlog and Protection: Backlog of 12 gigawatts of signed PPAs, with 6 gigawatts planned to be placed in service by end-2027, all qualifying for existing tax credits. Well-protected from US policy changes due to safe harboring and domestic supply chain.
• Supply Chain Strategy: All major equipment from US-based suppliers with diversified supply chains outside China, eliminating impact from tariffs.
• Future Growth Drivers: Robust demand for electricity, especially from data centers; renewables offer competitive LCOE; strategy centered on meeting customer needs for quick deployment of renewables and storage.
• US Utilities Investment: Largest investment program in AES Indiana and AES Ohio history, investing ~$1.4 billion in 2025 for customer reliability and economic development, including energy storage and generation build-out.

Segment Performance

• Renewables SBU: Adjusted EBITDA for Q2 2025 was $240 million, representing a 56% growth versus Q2 last year. This growth is tied to 3.2 gigawatts of new projects added over the last 4 quarters. Year-to-date, 1.9 gigawatts of projects were completed, and 80% of the remaining 1.3 gigawatts is complete.
• Utilities SBU: Lower adjusted pretax contribution in the quarter due to planned outages and the sell-down of AES Ohio, but expects significant growth in the year ahead driven by new investments.
• Energy Infrastructure SBU: Lower EBITDA versus Q2 2024 primarily due to prior year Warrior Run coal PPA monetization and sale of AES Brazil, partially offset by acquisition of Cochrane coal plant.
• New Energy Technologies SBU: Lower EBITDA primarily reflects AES' share of lower results from Fluence.

Guidance

• Reaffirmed 2025 adjusted EBITDA guidance of $2.65 billion to $2.85 billion, driven by renewables growth and strong utilities investment.
• Reaffirmed 2025 adjusted EPS guidance of $2.10 to $2.26, exceeding long-term growth targets.
• Long-term adjusted EBITDA growth target of 5% to 7%, with renewables growth 19% to 21% and utilities growth 13% to 15%.
• Parent capital allocation plan includes ~$2.7 billion of discretionary cash, returning ~$500 million to shareholders and investing ~$1.8 billion in growth, primarily renewables and utilities.

Risks

• Potential changes in US policy, including new legislation, tariffs, or IRS guideline changes, which could impact project economics.
• Executive orders and Foreign Entities of Concern (FEOC) restrictions, though AES is well-positioned with existing projects and domestic supply chain.
• Uncertainty around the timing and impact of renewable tax credit sunsetting, though AES expects to adapt and maintain growth.

Question and Answer

Q: On new project construction timeline, when will the remaining 1.3 gigawatts be completed and how does it affect EPS and EBITDA recognition?

A: Most of the remaining 1.3 gigawatts will be commissioned in the third quarter with a small portion in the fourth quarter. 80% progress is made, and equipment is on site. Tax attributes related to these projects will be roughly split between third and fourth quarters.

Q: How does AES view the value of its underlying business versus public market trading, and regulatory hurdles for potential acquisition?

A: AES feels undervalued, with strong backlog, execution, and flexibility. It's an all-of-above company serving customer needs. Regulatory hurdles for acquisition would depend on specific circumstances but AES focuses on creating shareholder value.

Q: Risk to safe harboring from executive order and potential changes to guidelines?

A: 6 gigawatts of US backlog will be placed in service by end-2027, qualifying for existing tax credits and not exposed to new treasury guidance changes. Remaining 1.9 gigawatts have safe harbor protections, and projects started before January 1, 2026, are not exposed to FEOC restrictions.

Q: Load updates and interest in utilities service territories?

A: Strong interest in AES' utilities, with significant data center demand and inbounds continuing. Demand for services remains robust, especially from rapidly growing data center sector.

Q: Details on PPAs signed in the quarter, location, and resource type?

A: $650 million PPA with Meta, all 1.6 gigawatts signed since last call with data center customers, skewed towards solar plus batteries technologies.

Q: Evolution of thoughts on new gas plant build for data centers?

A: AES has gas development capabilities and will use technologies based on customer needs. If customers request gas, AES is capable of providing it, but currently skewed towards renewables and storage in the near term.

Q: Lag in Ohio utilities and 3-year forward test year?

A: Existing rate case under prior framework expected to settle soon, with new rates under 3-year forward-looking structure likely filed later this year, reducing regulatory lag and supporting investments.

Q: Cash flow associated with Maximo and AS plan, and commercial interest?

A: Maximo is in beta testing, with 4 units operating. It allows faster project completion, more efficient work, and is beneficial for desert settings with hour limitations. Plans to have several more next year, with commercialization likely in 2027 or beyond.

Q: Gas generation billback capability for data center build-out?

A: AES has gas generation capabilities, converting coal plants to gas and building combined cycle plants. Capable of expanding sites for data center needs based on customer requests.

Q: Consolidation in renewables industry and opportunities for AES?

A: Smaller, less capitalized developers may face challenges, creating opportunities for AES to acquire advanced stage development projects or roll up smaller developers, as seen with past acquisitions like Bellefield.

Q: Bookings trajectory in July post OBBB and data center renewables demand?

A: Strong demand for PPAs, with customers trying to lock in deals to benefit from tax incentives. Data center renewables demand remains strong due to fixed prices, price certainty, and competitive LCOE even without tax credits.