Hello, everyone, and a warm welcome to the AES Corporation Q2 2024 Financial Review Call. My name is Emily, and I'll be coordinating your call today. I will now hand over to our host, Vice President of Investor Relations, Susan Harcourt, to begin. Susan, please go ahead.

Thank you, Operator. Good morning and welcome to our second 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; Steve Coughlin, our Chief Financial Officer, and other senior members of our management team. With that, I will turn the call over to Andres.

Good morning, everyone, and thank you for joining our second quarter 2024 financial review call. We are very pleased with financial performance so far this year. Today, I will discuss our results, the significant advancements we've made with large technology customers, and the work we are doing to incorporate generative AI in our portfolio to develop new competitive advantages. Beginning on slide three, with our second quarter results, we had a strong second quarter that was in line with our expectations, with adjusted EBITDA with tax attributes of $843 million, adjusted EBITDA of $652 million, and adjusted EPS of $0.38. We are on track to meet our 2024 financial objective, and we now expect to be in the top half of our ranges for adjusted EBITDA with tax attributes and adjusted EPS. We are also reaffirming our remaining 2024 guidance metrics and growth rate to 2027. I am pleased to report that, since our last call in May, we have signed 2.5 gigawatts of new agreements in total, including 2.2 gigawatts with hyperscalers across our Utilities and Renewal businesses. This includes 1.2 gigawatts of new datacenter load growth across AES Ohio and AES Indiana. A PPA to provide 727 megawatts of new renewables in Texas, and a 310 megawatt retail supply agreement in Ohio. With these arrangements, we are expanding our work with the major datacenter providers to new areas of business. Turning now to datacenter growth at our U.S. utilities, on slide four, since our last call, we have signed agreements to support 1.2 gigawatt of new load across AES Ohio and AES Indiana, expected to come online in phases, beginning in 2026. Additionally, we're in advanced negotiations across several sites to support another 3 gigawatts of new load. These agreements are transformative for both utilities, with the potential to increase the peak load at both AES Ohio and AES Indiana by more than 50%. As a result, AES Ohio's rate base will consist predominantly of FERC-regulated transmission assets, receiving timely recovery through a formula rate. For AES Indiana, this growth creates the potential for significant investment in transmission, as well as additional build-out of new generation assets. These opportunities will even further increase our industry-leading U.S. utility rate base growth plans. Our service territories are particularly well-positioned to serve datacenters and other large loads with available interconnection, lower rates, and land prices, access to water resources and local incentives. Turning to slide five, and the generation build-out at AES Indiana, we continue to make progress in upgrading and transforming our generation fleet as we shut down or convert our coal units to gas, and build our renewable fleet. I am pleased to announce that we have signed a deal to acquire a 170 megawatt solar plus storage development project that AES Indiana will construct and own. The project will require approximately $350 million of CapEx, with an expected completion date in late 2027. Once approved by the Indiana Utility Regulatory Commission, this will be the sixth project supporting AES Indiana's recent generation growth. Now turning to our Renewables business on slide six, since our last call in May, we have further expanded our partnership with Google, signing a 15-year PPA for 727 megawatts in Texas to power its datacenter growth. The agreement includes a combination of wind and solar to further Google's 24-7 carbon-free energy goals. These projects are expected to come online in 2026 and 2027. We also recently signed a retail supply agreement with Google for 310 megawatts to support their Ohio datacenters. This agreement demonstrates the strong trust and collaboration between our companies, which began with our original 2021 partnership to provide 24-7 renewable power in Virginia. We see further opportunities to add renewables to support Google's datacenter growth in Ohio. Turning to slide seven, with these major announcements today on our collaborations with hyperscalers, we have now signed a total of 8.1 gigawatts directly with technology companies, which is clearly a leading market position. As you can see on slide eight, our backlog of projects under signed long-term contracts now stands at 12.6 gigawatts. Our focus remains on maximizing the quality of megawatts over the quantity, which means delivering high-quality projects with higher returns and long-duration PPAs. We have never felt better about our key customer relationships, the long-term market dynamics that are supporting growth and value creation in our portfolio. Turning to slide nine, the demand for power that is coming from the rise in generative AI in datacenters represents a significant structural change in the Power segment, and no one is better positioned than AES for sustained growth from this opportunity. Regardless of election or policy outcomes, we are confident in our ability to continue signing renewable PPAs with mid-teen IRRs. Our corporate customers value our unique record of bringing projects online on time over the past five years. Furthermore, looking at the interconnection queues, time to power and price certainty, we see renewables as the only source of new power that can meet most of the demand over the next decade. AES has a longstanding and deep relationship with hyperscaler customers. This includes our ability to co-create new offerings and structure innovative clean energy solutions, such as hybrid PPAs, shaped products, and 24/7 renewables. As you can see on slide 10, of the 3.6 gigawatts that we expect to bring online this year, we have already completed the construction of 1.6 gigawatts and expect the remainder to be weighted towards the third quarter. I should note that for the projects coming online this year, we have all of the major equipment already on site in almost all for 2025. Additionally, we expect a significant portion of our solar panels to be domestically produced beginning in 2026. All of the above combined with having panels on site for 2025 projects greatly mitigates our exposure to any potential new tariffs. Our diversified and resilient supply chain has been and will continue to be best-in-class. Finally, turning to slide 11, not only is generative AI shaping the customer landscape, but it is also transforming how we work internally, providing new opportunities for efficiencies, customer service and innovation that will give us new competitive advantages. As you may have seen, in June, we announced a partnership with AI Fund to accelerate AI-driven energy solutions. Founded by AI leader Andrew Ng, AI Fund is a venture studio that works with entrepreneurs to rapidly build companies. We are collaborating with AI Fund on co-building companies that leverage AI to address bottlenecks and improve efficiencies in the energy transition in areas such as developing and operating renewables and asset management. At the same time, we continue to leverage AI across our portfolio with our culture of innovation and continuous improvement. We are increasingly using proprietary tools across a wide range of our business operations, enabling our people to work faster and smarter. For example, our renewables team has built sophisticated tools that utilize generative AI to accurately predict the speed at which projects will move through interconnection queues, helping us more efficiently coordinate the various simultaneous development processes. As you can see on slide 12, earlier this week, we launched the world's first AI-powered solar installation robot, Maximo, which uses state-of-the-art AI and robotics to complement our construction crews in the installation of solar modules. Maximo enables faster construction times and reduces overall project costs. It can work three shifts, even in the worst weather conditions, with a more inclusive workforce. Not only does it reduce time to power, which is highly valued by our customers, but it will boost overall project returns. We plan to ramp up our use of Maximo in 2025 and are already utilizing it to construct a portion of our two-gigawatt Bellefield project in California, which is the largest solar plus storage project in the U.S. and is contracted to serve Amazon. With that, I would now like to turn the call over to our CFO, Steve Coughlin.

Thank you, Andres, and good morning, everyone. Today, I will discuss our second quarter results and our 2024 guidance and parent capital allocation. Turning to slide 14, adjusted EBITDA with tax attributes was $843 million in the second quarter versus $607 million a year ago. This was driven by growth in our renewables SBU, new rates and growth investments in our U.S. utilities, and higher margins in our energy infrastructure SBU. Turning to slide 15, adjusted EPS for the quarter was $0.38 versus $0.21 last year. Drivers were similar to those of adjusted with tax attributes, but partially offset by higher depreciation and higher interest expense as a result of our growth. I'll cover the performance of our SBUs on the next four slides. Beginning with our renewables SBU on slide 16, higher EBITDA with tax attributes was driven primarily by contributions from new projects, but was partially offset by lower availability from a forced outage event at our 1 gigawatt Chivor hydroplant in Colombia. The outage was caused by record water inflows in early June, which brought significant sediment into the plant and damaged the units. Repairs of the plant were completed quickly and all units resumed operations by mid-July. Higher adjusted PTC at our utilities SBU was mostly driven by higher revenues from the $1.6 billion we invested in our rate base in the past year, new rates implemented in Indiana in May, year-over-year low growth of 3.1% as well as favorable weather. Higher EBITDA at our energy infrastructure SBU primarily reflects higher revenues recognized from the accelerated monetization of the PPA at our Warrior Run plant and higher margins in Chile. Partially offset by lower margins in the Dominican Republic and the sell-down of our gas and LNG businesses in Panama and the Dominican Republic. Finally, relatively flat EBITDA at our new energy technologies SBU reflects our continued development of early-stage technology businesses, partially offset by continued margin increases at Fluence. Now turning to our expectations on slide 20, as a result of our strong first-half performance and high confidence in a strong second-half, I am very happy to share that we now expect adjusted EBITDA with tax attributes to be in the top half of our 2024 expected range of $3.6 billion to $4 billion. Drivers of adjusted EBITDA with tax attributes in the year ago include higher contribution from new renewable commissioning, contributions from growth investment, and expected higher load at our U.S. utilities. Partially offset by expected closings in our asset sale program. Turning to slide 21, I am also very glad to share that we now expect our 2024 adjusted EPS to be in the upper half of our guidance range of $1.87 to $1.97. We increased our share of earnings in the first-half of the year from 25% in 2023 to nearly half in 2024. Growth in the year to go will have similar drivers as adjusted EBITDA with tax attributes, partially offset by higher interest expense from growth capital. Now to our 2024 parent capital allocation on slide 22, sources reflect approximately $3 billion of total discretionary cash including $1.1 billion of parent free cash flow, $900 million to $1.1 billion of proceeds from asset sales, and $950 million of hybrid debt that we issued since our last earnings call in May. On the right-hand side, you can see our planned use of capital. We will return approximately $500 million to shareholders this year, reflecting the previously announced 4% dividend increase. We also plan to invest $2.4 billion to $2.7 billion towards new growth, of which 85% will go to renewable and utility. Turning to slide 23, we are well on our way to achieving our long-term asset sale target of $3.5 billion from 2023 through 2027. We signed or closed more than $2.2 billion of asset sales since the beginning of last year. And we are now nearly two-thirds of the way to reaching our target even though we are only 1.5 years into our five-year guidance period. We do not announce specific asset sales in advance. But the remaining proceeds could come from sell-downs of renewables projects, our intended coal exit, monetization of our new energy technologies businesses, and sales or sell-down of other noncore assets. In summary, we made excellent progress this quarter toward all of our strategic and financial targets. We have clear line of sight towards achieving the key drivers of our year-to-go earnings growth. And we are well-positioned to continue delivering on our financial goals beyond this year. We also made significant headway on our long-term funding plan which allows us to continue simplifying and focusing our portfolio while we scale our leading renewables and utilities business. Our strategy to serve high-value corporate customers including a rapidly growing base of datacenter providers across our Renewables and Utilities businesses is highly resilient and will continue to yield financial success for AES and our shareholders. With that, I'll turn the call back over to Andres.

Thank you, Steve. Before opening up the call for Q&A, I would like to summarize the highlights from today's call. With more than 8 gigawatts of agreements already signed directly with large technology customers, including 2.2 gigawatts signed since our last call, we continue to be the industry leader in this segment. At the same time, we continue to deliver our projects on time and on budget, with 1.6 gigawatts completed so far this year. We are fully on track to add a total of 3.6 gigawatts by the end of 2024. We see demand for power from datacenters in the U.S. growing around 22% a year. And we could not be better positioned to serve these customers, from our Renewable business to our Utilities. I would like to reiterate that with strong demand for the projects in our 66 gigawatt development pipeline and our existing 12.6 gigawatt backlog of signed long-term PPAs. We are very confident in our ability to continue to meet or exceed our long-term objectives. Operator, please open up the line for questions.

Thank you. Our first question today comes from Durgesh Chopra with Evercore ISI. Durgesh, please go ahead.

Hey, team, good morning. First off, congrats on a solid quarter and first half. Too bad the market is down today. Maybe just I had one question on the numbers, and then I have just one high-level macro question. First, to Steve, could you update us on credit metrics, where did you end up as of Q2, and then where do you expect to be at the end of 2024 on FFO to debt?

Yes, sure. Hi, Durgesh, it's good to hear your voice. So, the credit is looking very, very strong. So, we continue to be on a path of improving credit. At the parent level, I expect we will be even higher than last year's year-end. And so, it looks very good. There's obviously intra movement in quarters as we have some cash flow lumpiness coming up, but it continues very strong. I think we'll see the year end be even better than last year.

So, just to be clear there, Steve, I think the target last year was 22%, if I have those numbers right on FFO to debt basis is the S&P methodology. Is that still kind of a good goalpost?

Yes. So, we have a threshold of 20%. So, you're referring more to, I think, where we ended, which had plenty of cushion above that. And I think we will likely see ourselves even higher than that at the end of this year.

Okay, perfect. Just a lot of questions on the balance sheet. Okay, then maybe just one election question. Andres, appreciate the commentary in your prepared remarks. But I'm just wondering, obviously a great quarter here. You added to the Utilities, you added on the Renewable side. But I'm just wondering if all the noise around repeal of tax credits and other policy chatter does that hurt your ability to sign new contracts? Does that come up in your contract negotiation, is that a risk? Maybe just help us sort through that. Thank you.

Sure, Durgesh. No, it's not slowing down our signing of contracts. What we really had is a situation that we had, to some extent; foreseen a couple of years ago where there's really a shortage of renewable power for datacenters in many markets. So, what's the biggest concern of our clients is actually time to power, can you get me the power on time to power datacenters. And that's their main constraint. So, no, there has been anything holding us back or, quite frankly, a major issue of conversation with them. I do think we have to step back and say, 'Look, ITC investment tax credits, production tax credits, they've been around for 32 years.' Second, there's been a tremendous amount of investment related to the Inflation Reduction Act. And 85% of that investment has gone into Republican districts. Today, there are eight million people working directly or indirectly in renewables in the U.S. So, a total dismantling is highly unlikely in any scenario, whether there are some changes around the margin; sure. But thinking about the sector, quite frankly we operate in markets where there are no subsidies. We actually make more money without those subsidies. And it would change somewhat the structure of the contracts. But we see a wholesale revision of this very, very unlikely. Something more likely would happen to NAFTA, where it became the USMCA and actually was, quite frankly, updated and improved in some areas. So, that's where we see the market right now.

Got it. Thanks so much for the time, I appreciate it.

You're welcome. Thank you.

The next question comes from Richard Sunderland with J.P. Morgan. Please go ahead.

Hi, good morning, and thank you for the time today.

Hi, good morning, Rich.

Hi, Rich.

Starting on the Utility announcements, can you outline the utility load opportunity in terms of the breakdown of that 3 gigawatts in advanced negotiations between Indiana and Ohio, plus how much of that capital could fall into the transmission and generation buckets relative to what's in the plant today?

Okay, look, that's a great question. But we will give you more color on that as time passes, because these are multiple agreements with multiple clients. And we'd really like to see how it shakes out. We're certain that there's going to be a lot of load added, a lot of transmission assets added. But this is between two utilities, between multiple clients. So, right now it's a little bit too early for us to give too much in terms of exact load growth by business.

Yes, and just to add to that, Rich, we had previously guided to around 10% up for the utilities combined, this is definitely upside. There's significant acceleration of discussions. So, definitely upside to the plans that we've given in the past. Timing matters here, though, so we'll see some within our long-term guidance period, and some beyond that. But we do see a lot more growth than we saw even at the start of this year.

Understood. Thanks for the color there. And then, your language in the slides on maximizing megawatt quality over quantity; that message has certainly been clear. But I'm curious if this is consistent with your rate of return assumptions, I think that was back in 4Q. Or do you see further upside potential to returns given the supply and demand dynamics currently?

Okay. There are several key points to consider. First, when we reference pipeline, it indicates we have something in the interconnection queue and a certain level of land control. Not all pipelines are the same. When we mention backlog, we are referring to signed contracts that require delivery and involve customer purchases of energy. We have never removed anything significant from our backlog, even during COVID. The main point is that we have improved our average rate of returns for these projects, and we are not just looking at mid-teen rates. Additionally, instead of entering into a single umbrella agreement with a specific client, we are working to optimize the value of this resource across various clients and opportunities. We view this as an investment to build a real pipeline, and we want to maximize its value. Whether average returns will increase further depends on market conditions and opportunities. However, we are currently very optimistic about the mid-teen returns we discussed, and we believe we are effectively utilizing that pipeline to generate value for our shareholders.

Great, thank you for the color there. I'll leave it there.

Okay. Thanks, Rich.

The next question comes from Antoine Aurimond with Jefferies. Please go ahead.

Hey, guys. Hope you're well. Thank you for taking my question.

Good morning.

Good morning. I guess to follow-up on Durgesh on the credit side, how do you frame the prospects of going towards a mid-BBB rating and what would be the timeline we'll be contemplating?

Yes. So, as I said, credit metrics are definitely continuing to improve and so I see that as a possibility in a matter of years, not this year, that will have those metrics. So, we don't have a specific target to share with you at this point, but I expect to be higher than last year and I expect it to continue to improve. As the installed base of our growth continues to grow and add cash. Today, we do carry construction debt that's not yet yielding. But relative to the base, the base is increasing every year significantly in this moment that we are in. So, yes, I think that's very possible, but I don't have a specific date to share with you at this point.

One thing I'd like to add, as we exit countries and as we're investing primarily in long-term contracted with investment-grade off-takers in renewables, or our U.S. utilities, which also with this transformation are moving more towards a transmission rate base, the quality of our cash flow continues to improve. So, it's not only a question of the metrics, which as Steve said are improving, but the quality of that cash flow or how it's seen by credit rating agencies is improving as well. So, on both sides, we feel very good about it.

Yes, and actually, I guess we'll keep going here because I have just that reminds me of another topic really here. Keep in mind that 80% of our debt is nonrecourse to the parent, and nearly all of that is amortizing investment-grade rated subsidiary debt. So, it's a very high-quality structure, and the agencies are seeing that. So, I think this, both the quantified metrics as I've mentioned as well as Andres said in the quality and looking at the debt structures, amortizing investment grade, it's a very, very robust, healthy structure.

Got it. Yes, that makes sense guys. I guess on that note, with 85% of the CapEx going towards U.S. based businesses, where do you see the geographical mix trending towards the end of the time period?

At the end of the time period, like 2027 you're speaking?

Yes, yes.

Okay. Look, I'd say we can I think there's a transformation in terms of, we're moving more towards U.S. dollar-based investment grade off-takers. So, yes, there's going to be heavier weighting towards the U.S. We do have opportunities to serve the same type of clients outside the U.S., with your investment-grade dollar contracts, many times with the same, with the same client. So, if we serve hyperscalers in the U.S. and they want the same services, say in Chile or in Mexico, then we can service. And that is a competitive advantage we have.

Got it. Okay. That makes sense. And then, I guess, so you mentioned more sort of quality of megawatt versus this is just volume. We're going to do, what, 3.6 gigs this year. How should we think about that number evolving? Assuming it's still going to increase, but I guess you mentioned more quality, right? So what's sort of like that number fast forward a couple years?

We have a backlog of more than 12 gigawatts of signed Power Purchase Agreements (PPAs) that we need to deliver, with most of that expected to be completed by 2027. This indicates a guaranteed build-out over the next three years. If we continue to sign around 4.5 to 5.5 gigawatts of new PPAs, those figures should align over time. However, if we increase the number of megawatts in the PPAs we are signing, it may take longer to achieve that alignment. Based on our current backlog, we anticipate having over 4 gigawatts in the coming years and expect that figure to grow beyond 2027.

Yes, that makes sense. Okay, great. Well, Andres, thank you so much.

Thank you.

The next question comes from David Arcaro with Morgan Stanley. Please go ahead.

Hey, good morning. Thank you. Maybe back on the utility side of things, it's great to see all that load growth opportunity coming. When do you think you'd have an opportunity to relook at the CapEx outlook? And then at a high level, how do you think about financing upsides in the utility CapEx trajectory?

Yes, hey, David. Good morning. So, as we are looking through the details of the timing of what we've recently signed, we'll flesh that out in our planning process in the second half of this year and bake that into our update of guidance for the beginning of next year. So, definitely, I would see in the long-term horizon that we have out there through '27, this will start to come into play in the capital plan, but our funding plan, I don't expect to change at all. We have really done well on our asset sale plan. We are two-thirds of the way through, after only 18 months on a five-year plan. We've got a lot of flexibility there. We have partnership capital. So, there is no shortage of capital to invest in the utility growth here. It's a very attractive profile. And so, I see it becoming material, but I see it within the funding plan that we've already released through '27.

Got it. That's really helpful. Thanks for that. And then, just appreciate the comments on the supply chain outlook on the renewable side. I was just curious if I could get your sense, like how much line of sight do you have right now for that domestic supply in 2026, just as we think about navigating some of the tariffs on solar panels and battery storage? How are you feeling right now in terms of the line of sight for both of those supply chains?

Well, we're feeling very good. And what I would say is, as we've mentioned, we have everything we need for this year, for 2024, and most of you know, vast majority of what we want for 2025. And then, we have signed agreement with domestic suppliers for starting in 2026. So, we feel very good about our ability to execute and deliver on our backlog in the U.S. And I would say that again, to date, we have not had to postpone or abandon any material project in our pipeline over the last five years. So, compared to what happened to supply chains with COVID, this is much more predictable. So, we feel very good about it. And basically, we're again going to make that switch to domestic supply starting in 2026.

Okay, great, understood. Thanks so much.

Thank you.

Thanks, Dave.

The next question comes from an analyst with Barclays. Please go ahead.

Hi, good morning. Thanks very much for taking my question. So, I guess just first quickly on renewable execution, really great to see the guidance update in terms of EBITDA with tax attributes. I guess, could you maybe just talk about, given the backlog, the PPA signing cadence, the ability to bring projects online, how does your EBITDA excluding tax attributes would trend, I guess given where it is now year-to-date? Seems a little light, but just wanted to see how should we think about it going deeper into the year? Thanks.

Good morning, and thank you. We have notable growth in our tax credits, largely due to qualifying for more energy communities than we initially expected. Additionally, we've seen a higher valuation of our tax attributes, especially through transfers. It's important to highlight that these represent cash flow, not just earnings, which leads to an early return of a significant capital investment ranging from 30% to 50%. We're very pleased with this positive development. There are also increases in EBITDA from higher margins and increased dispatch in our gas operations in the Dominican Republic. We continue to enhance efficiency and productivity in our renewables and utilities sectors, focusing on growth that is actually costing less than we anticipated. This is favorable for our EBITDA this year. However, there has been some offset from the Colombia outage, caused by extensive flooding that impacted operations throughout June and early July, negatively affecting this year's EBITDA. Additionally, there was a particularly low wind resource in Brazil, especially in the first quarter, which also impacted our EBITDA. Despite these challenges, we are overall very satisfied with our cash-driven growth and our improved efficiency in our renewables and utilities divisions.

I understand. That's really helpful. Regarding your comment about bringing most of the backlog online by 2027, with a target of 3.6 gigawatts of new projects coming online in 2024, could you discuss the timeline for launching new projects from this year through 2027 and what kind of fluctuations we might anticipate during that period?

Yes, well, I think we've smoothed out the cadence of bringing projects online. At the beginning where we were ramping up very fast, in fact, last year we grew 100% the number of projects we're bringing online. So, this year we're able to manage it much better in the sense that it's almost about half is being done in the first half, and the third quarter is going to be quite heavy as well. So, the cadence is going to be much more even throughout the year, as again, the growth rate is not 100% in one year, and obviously it will increase because again, we have to deliver 12.6% over the next three years. And so, most of that is it gets your numbers closer to four. So, we feel very good about the cadence. The biggest challenge was to ramp up 100%, and we did that, and we actually did all of our projects that we needed to get done last year on time.

That's great. Really appreciate the colors from both. Thanks.

Thank you.

Thanks.

The next question comes from Michael Sullivan with Wolfe Research. Please go ahead.

Hey, good morning.

Good morning, Michael.

Yes. Hey, Andres. A couple of questions, I know there's been some on the utility growth, but 50% plus load growth seems pretty eye-popping, and I'm just curious, like, how you're feeling about the supply side and ability to serve that. Like, for example, if I just look at, you have an AES Indiana, I don't know, I mean, there's like a planned conversion, and then a handful of renewables, and a lot of load growth coming. And then, obviously, in Ohio, you have less control over the supply, and we got a data point on that earlier this week. I guess, yes, just how explosive load growth, how are you feeling about the ability for generation to serve that in those two states?

Yes. Look, that's a great question. This is going to be timed over the years, so it's not like all at once we have to deliver this in the next two years. So, it represents opportunities, definitely, for additional generation. And as I've been saying in my remarks, a good part of that's going to come from renewables. Some of that increased demand may come from gas in some locations. So, definitely all of this is we feel it will get done, and the solution will be different in MISO or PJM; there will be differences, and it'll be different between the two utilities, in terms of one of them will involve more direct securing the generation itself. So, this will pan out, but it's a very good question because yes, there is quite a high number of growth. It represents a great opportunity, but we wouldn't have said it if we didn't know how this could be served.

Yes, I would like to emphasize Andres' point about Indiana, where generation is part of the solution. We have several existing gas sites, including the conversion at Petersburg and additional capacity at Eagle Valley, Harding Street, and the Georgetown site. This entire setup is positioned to support datacenter growth in that region. In Ohio, as you noted, there is a focus on distribution and transmission. Our service area is extensive, with plenty of affordable land that is conveniently situated near fiber networks and water resources, making it a very attractive region for datacenters. The recent PJM capacity auction results were quite high, underscoring the significant increase in demand. Within PJM, our territory in Western Ohio stands out as one of the most favorable areas, if not the best.

Yes, appreciate all that color. Just to follow up on that last point, this came up on some of your peers' calls, but any appetite from your standpoint to own regulated generation in Ohio, and what could that look like if it turns out that this can't be done through competitive markets?

Yes, look, right now we have no appetite for generation in Ohio directly, but again, this represents opportunities for our renewables team. So, I would say stay tuned, but certainly we feel that these targets can be met, but again, realize this is going to happen over time, as Steve had said in his comments.

Okay, great. And then, just one more, over to like the renewable side, I think since the last call we had the Brazil asset sale announcement, should we just think about that as fully embedded in your longer-term guidance, or is there like more additions than expected that are going to kind of backfill that in terms of the longer-term growth?

No, that's already embedded in our guidance.

Yes, both this year and obviously the long-term Brazil exit is included in our numbers.

Great. Thank you.

Thank you.

The next question comes from Willard Grainger with Mizuho. Please go ahead.

Hi. Good morning, everybody. Can you hear me?

Yes. Good morning.

Thanks for taking my question. Just maybe one, with the results of the PJM capacity auction coming out this week and just directionally higher power prices and projects coming out of the queue for next year, just how are you thinking about the cadence of your development pipeline? And any color on that would be super helpful. Thank you.

Look, we have been saying, again, for several years that we were seeing shortages developing just looking at the corporate demand, especially for renewables, and the ability of suppliers to ramp up to meet that demand. So, to some extent, what is happening in the market is what we expected. This is not going to make any difference to our plans. Again, we have contracts, we have sites, we've already locked in financing, et cetera. So, equipment prices so it doesn't make any change to our plans. What it does, I think, signal is the value of our existing assets is going to go up as this shortage materializes. So, no effect in the, generally, in the shorter term, but in the longer-term, it means that our assets are more valuable, and to some extent, it's what we've been planning for. So, it's not, of course, a specific option; we don't intend to be clairvoyant, but the general direction of the market that's unfolding is what we expected.

I appreciate the color there. Most of my questions have been answered. Thank you. I'll get back in queue.

Okay. Thank you.

The next question comes from Angie Storozynski with Seaport. Please go ahead.

Thank you. So, I have lots of questions. So, first, maybe in this low-interest rate environment, I'm just, I'm actually wondering. So, first, again, so does that actually help further boost the profitability of the projects that are yet to be built? Meaning, I mean, you have embedded certain assumptions about interest rates for like construction financing, for cost of debt, et cetera. So, do I get actually an incremental benefit now that we're seeing seemingly in a lower interest rate environment?

So, Angie, this is Steve. Good morning. So, look, we can't have it both ways. So, we have, as I've often talked about, a very low risk way of executing, which means we lock in almost all of our costs when we sign our PPAs, including hedging the long-term financing. So, for anything that we've signed, we've baked in the price of that financing. But on a go-forward basis, look, lower interest rates are a good thing. They reduce the cost of new infrastructure and so reduce the cost to the customer. So, overall, I think it's a further catalyst to demand and will help the whole sector. But we maintain a low-risk structure in the way we execute.

Obviously, we are highly contracted for future cash flows. So, lower interest rates mean a lower discount rate. It means those cash flows are worth more. But the benefits on a sort of new contract basis will be for new contracts being signed, but not for the backlog.

Okay. So, then, changing topics, those emission reduction targets or renewable power targets for hyperscalers, so obviously, here are those points that they're making, but I also see a number of these datacenters being developed on very coal-heavy grids, like Kentucky and Mississippi. I mean, and then the utilities that are on the other side of those transactions are basically saying that hyperscalers have eventual targets for emission reductions or carbon goals. But they're happy with just absorbing carbon-heavy power early on and then dealing with that carbon footprint later. So, how does that tie into this pitch that, in a sense, they have to just procure renewable power when, again, when we have these instances where they're just going for large quantities of available power, largely regardless of the carbon footprint?

That's a great question. The way I would put it is their preference is renewable power. Right? So basically, you're talking about situations where they have no other alternative. So, they're not happy to utilize coal power from the grid. They basically will either have offsets with a VPP or buy RECs, and quite frankly, in most cases, will require that renewables come online in the future. So, you have to put it like this is the last alternative. And so, obviously, if you have a datacenter, the most important thing is to have power. So, if you have no other alternative, you will not go for renewables. But they do have the renewables goals, and they do want that power to be as low carbon as possible. So, that's in terms of the demand. Now, let's look at the supply. If you look at what's in the interconnection queue, almost all of it is renewables, if you include batteries. So, the fact is what can get built, let's say, over the next five years, for sure, is going to be very heavily weighted towards renewables. As Steve mentioned, you have to combine these in the lowest carbon way possible. And if that means adding some gas plants, that will be done. But I think that the direction is clear because I remember you on one call said that it's all going to be nuclear. And I kind of laughed, we both laughed and said, 'Tell me what the price of an SMR is? How can we sign a PPA with embedding nuclear? Second of all, the regulatory hurdles to bringing on nuclear are still very significant. And we really don't have price certainty on it. So, renewables are going to be the bulk of that add-on. That's what they want. Again, yes, they will make deals for the short run if that's the only alternative. But it's not their preferred route.

No, I understand. But again, I obviously hear your point. Yes, it's just that I'm wondering if renewable power is more like a source of basically carbon-free credit, or is it the source of energy? Because again, one could argue that the datacenters are basically using traditional thermal power for the supply of energy. And then, renewables, again, just offset the carbon footprint. And I'm not sure if that's actually bad or good. I'm debating it myself; it depends on my question. But I'm just again.

Yes, I think it depends on the client, quite frankly. Some clients are much more stringent. Some clients actually want hourly-matched renewables. Some clients require additionality. Most of them require additionality. So, it's not just one-size-fits-all. I think the renewable standards will differ among them. But the direction is very clear. So, I don't see anybody sort of walking away from it at this point. And quite to the contrary, they're under pressure a lot because as they ramp up their datacenters significantly and they're taking some power, which is not renewable, their total carbon footprint goes up, and that's something that they've had to address. So, I would say that, yes, they're being pragmatic. But in terms of their goals and desires, those remain unchanged. And it's not uniform across all of them; it's not one-size-fits-all.

Lastly, could you clarify the additional transactions you've discussed with hyperscalers? Is this related to co-location? Are these assets situated within the same area, such as PJM? I'm not trying to be facetious, but I'm curious if this power is actually supplied directly to these hyperscalers, or is it mixed with other sources, which would mean it represents more of a carbon attribute rather than the energy itself?

Yes. So, I'll just add on to what Andres said. So, in almost all these cases, even you're talking about, Angie, not to say, yes, these are resulting in renewable PPAs, some cases in the same location or nearby locations, and others where they're focused on time to power going to the grid, but then also contracting for renewables perhaps further away. Most of what we are doing is I would say you would call more of a co-location regionally where we're supplying energy, including most of what we signed recently in the same grid and relatively close to the datacenter. So, that is by and large what we've seen most looking for. But when time to power is, of course, a priority, they're looking for alternatives. But the great thing is that in all cases, the additionality of renewables, whether it's direct or through RECs, is a top demand from these customers.

Okay. And then, lastly, so what happens, for example, with AES Ohio now that we have this pickup in capacity prices, most of the energy prices will follow. I mean, this is a wires only business. Are you concerned about the impact on electric bills and affordability and how that might suppress any sort of a T&D investment?

I would say, look, first, we have the lowest rates in the state. So, we're starting off from the best position of anybody. Second, realize that our new additional growth, these are people who, again, the most important thing is to find a good location and to have the power and the other services that they need. So, that does not concern me in terms of, let's say, saying, well, this growth will not happen because the capacity prices went up. And as I've said before, to some extent, not this particular auction, not the extent of this one-time jump. But we had been expecting this. So, this is not something that's like out of left field and we have to scramble. We have been talking about, and you can hear from all our earnings calls, and we've been saying, look, there's going to be a shortage. And returns are going to improve over time. And so, directionally, this is very much what we expected.

Okay. Thank you. Thanks.

All right. Thanks, Angie.

Thank you for taking my question. Could you discuss when you expect your projects to qualify for the domestic content bonus and the potential implications for your returns? Additionally, it would be helpful if you could address the solar and storage projects separately. I also have a follow-up question.

Okay. So, first, I'd say in terms of domestic content, in terms of our wind project, those already meet the criteria. Remember, it's a criteria based on the total cost of the project, the different components. In terms of solar panels, again, we expect to be meeting that by 2026. In terms of batteries, our main supplier is Fluence, and they should be meeting that, quite frankly, starting in 2025. So, all together we feel very good about meeting domestic content requirements. And then, there are other things like trackers, inverters, et cetera, that we've been working on as well. So, I think the team's done a very good job to combine the various assets such that they do meet the domestic content criteria. So, it's not one-size-fits-all. It's like what's available, and if you have wind, it may be greater. If you have, say, solar panels, it may be lesser, but you put it together and the total meets it. So, we feel very good about that meeting the domestic content criteria.

And I would just add, keep in mind that the adder is across the entire capital cost of the project once you meet the threshold for the certain components that have to be domestically sourced. So, it's a 10% across not just those components, but the whole thing, which is really attractive.

Yes. And we have no trouble meeting things like prevailing wage, et cetera.

And is your expectation that you would be able to retain most of that or you would have to pass along that in terms of PPA pricing, just trying to understand the impact to your returns?

Again, I think it's on a case-by-case basis. It depends on the demand supply in the particular market.

Got it. My follow-up was about the time needed to generate power. For renewable projects, can you discuss the advantages or what you offer specifically from a technology standpoint? I believe last quarter you mentioned DLR and batteries, as well as other solutions that could address the concerns of your end customers.

We take a holistic approach and collaborate closely with our clients to understand their needs, bringing the right technologies to meet those demands. We don't simply present a product and tell clients what to purchase. With the emergence of new technologies, we consider ourselves leaders in this field. For instance, we pioneered the use of lithium-ion batteries for grid stability 14 years ago. Currently, we have the largest dynamic line rating project in the country, and our team at Fluence is implementing innovative solutions that utilize batteries to maximize the effectiveness of existing transmission lines. We were also the first to establish hourly matched 24/7 long-term contracts for hyperscaler clients. Our partnership with Uplight has led to the development of well-managed Virtual Power Plant facilities, enhancing energy management. Maximo is a prime example of our forward-thinking approach. One challenge we've faced is the labor force required for solar project construction, particularly since lifting solar panels can be physically demanding, especially in extreme heat where crews can only work limited hours. Maximo allows us to expedite the process, enabling operations across three shifts, regardless of weather conditions, and reducing the physical strength required, as workers only need to supervise the robot. This innovation helps us deliver projects more quickly and cost-effectively. We are beginning to integrate this technology now, with plans to ramp up next year, and envision a fleet of Maximo units that will provide us with a competitive edge. This way, we can address labor shortages by tapping into a broader pool of workers, operate efficiently in various conditions, and further enhance our capabilities. Overall, our AES Next initiative and commitment to technology positions us as industry leaders.

Okay. Thank you.

Thank you.

Those were the questions we have time for today. And so, I'll turn the call back to Susan for any closing remarks.

We thank everybody for joining us on today's call. As always, the IR team will be available to answer any follow-up questions you may have. Thank you. And have a nice day.

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