Earnings Call Transcript
AES CORP (AES)
Earnings Call Transcript - AES Q2 2022
Operator, Operator
Ladies and gentlemen, thank you for holding. Welcome to the AES Corporation's Second Quarter 2022 Financial Review Call. My name is Irene, and I will be facilitating this event. I would now like to hand the conference over to our host, Susan Harcourt, Vice President of Investor Relations. Susan, please proceed.
Susan Harcourt, Vice President of Investor Relations
Thank you operator. Good morning and welcome to our second quarter 2022 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 discussed 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 Andrés 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 Andrés.
Andrés Gluski, President and CEO
Good morning everyone and thank you for joining our second quarter 2022 financial review call. As you have seen from our earnings release, we reported second quarter adjusted EPS of $0.34, which was in line with our expectations and consistent with our historical quarterly earnings profile. Our CFO, Steve Coughlin will discuss our financial results in more detail. Based on our year-to-date results and outlook for the second half of the year, we are reaffirming our 2022 guidance and our expectation for annualized growth in adjusted EPS and parent free cash flow of 7% to 9% through 2025. I would also note that our guidance and expectations do not include any benefit from proposed US climate legislation, which we see as a meaningful source of potential upside as it would drive additional demand for renewables and energy storage and accelerate the development of green hydrogen projects in the US. This morning I will discuss our strategy in the context of two broad themes. First, our resilience to macroeconomic volatility including high inflation, high commodity prices, fluctuations in foreign currency and ongoing supply chain constraints; and second, continued strong demand for renewables, particularly from corporate and industrial customers. With this backdrop in mind, I will discuss the robustness of our business and also review our disciplined approach to growth, both of which provide us with full confidence in our ability to hit our financial and strategic goals this year and beyond. Beginning with our resilience on slide 4. As a result of the transformation of our portfolio over the last 10 years, our financial results this quarter were insulated from the impacts of rising inflation, depreciating US dollar and volatile commodity prices. We do not expect any of these factors to have any impact on our full year results. As I have discussed on previous calls, 85% of our adjusted pretax contribution is derived from long-term contracts for generation and our regulated utilities. For the 15% of our earnings that is not derived from long-term contracts or utilities, such as our legacy Southland business in California or the 10% that is not denominated in US dollars, we have largely hedged both exposures. In some cases our strong contractual arrangements have allowed for additional upside. Throughout 2022, we have signed agreements to redirect excess LNG from Panama to international customers. The benefits of these agreements will accrue through the remainder of the year and we have the potential to sign similar agreements next year depending on market conditions. Turning to construction and supply chains on Slide 5. Our strategic sourcing and ability to execute on our commitments are key competitive advantages and we expect to complete all of the projects in our 10.5 gigawatt backlog with no cancellations or significant changes. We take a proactive approach to working with our suppliers and as a result, we had all of the solar panels required for our 2022 projects in country earlier this year. More recently, we worked to quickly resume imports following the Biden Administration's June executive order and none of our suppliers' panels have been stopped by customs this year. We also took decisive steps to further decrease solar panel supply risk by creating a more robust US supply chain. In June, we launched the US Solar Buyer Consortium along with three other solar developers to significantly drive the expansion of domestic solar manufacturing. Collectively, we committed to purchasing more than $6 billion of solar panels from manufacturers that can supply up to seven gigawatts of solar modules per year made in the USA starting from 2024. Therefore, despite industry-wide supply chain challenges, we do not anticipate any major delays to our US renewables backlog of 5.9 gigawatts. I would note that only two projects have been shifted from 2022 to 2023 and these were moved as a result of changes requested by customers with no impact on our guidance and expectations for this year or next. In addition, we recently broke ground on the largest utility scale solar plus storage project in the state of Hawaii. Across the states, we have more renewable projects under development and/or under construction than anyone else. As you can see on Slide 6, we anticipate completing 1.8 gigawatts of new renewables globally this year, 4.6 gigawatts next year for a total of 6.4 gigawatts by the end of 2023. Turning to Slide 7. Looking to our future growth. We continue to see strong demand for renewables from our key customer groups. Despite increases in the cost of renewables resulting from inflation and supply chain constraints, a far greater increase in the cost of fossil fuels has made renewable energy even more price competitive. As a result, demand from corporate customers has never been higher. So far this year, we have signed or been awarded 1.6 gigawatts of long-term renewable PPAs, the majority of which have been negotiated on a bilateral basis. For full year 2022, we continue to expect to reach a total of 4.5 gigawatts to 5.5 gigawatts. As shown on Slide 8, we now have a backlog of 10.5 gigawatts all of which is expected to come online through 2025. Turning to Slide 9. I'd like to note that we currently have 13.7 gigawatts of renewables in operations. So this backlog of projects in construction or with signed PPAs represent more than 75% growth in our installed renewable capacity over the next four years. Including additional PPAs, we expect to sign by 2025, our portfolio will grow to almost 50 gigawatts of which 77% will be renewables. We also expect to have completely exited coal at that time. As we scale up in renewables, we continue to complement our portfolio with innovative businesses and solutions which require the best talent in order to deliver on our commitments. Earlier this week, Fast Company recognized AES in their top 10 rankings of best workplaces for Innovators and as the winner in the category of best workplaces for Early Career Innovator. We are very proud of receiving this recognition and our innovative teams and their many accomplishments. Additionally, although we don't have any specific announcements to make today, we continue to make good progress on our two large green hydrogen projects in the US and Chile. These projects include the integration of electrolyzers and renewables and have the potential to provide significant new sources of growth. I will provide additional updates in the coming months. In the meantime, we launched a 2.5-megawatt pilot project in Chile. This project will be a hydrogen fueling station and will produce up to one metric ton of green hydrogen per day. Finally turning to Slide 10. Growth opportunities at our US utilities represent one of the key drivers of our overall 7% to 9% annual growth in earnings and cash flow. This growth also advances our objective of increasing the proportion of our earnings from the US to 50%. As a reminder in both Indiana and Ohio, we have the lowest residential rates in each state, providing a great runway for growth and investment, while keeping rates affordable for our customers. Through 2025, we expect to invest a total of $4 billion in new renewables, generation, transmission, modernization and smart grid at our US utilities. These investments will improve our customers' experience and translate to average annual rate base growth of 9% which is at the high end of growth projection for US utility. We expect the earnings from these core businesses to grow in line with the rate base. At AES Ohio, we are currently awaiting the commission's decision on our distribution rate case. As a reminder, we see significant opportunity to invest to improve reliability and strengthen AES Ohio's balance sheet while remaining cost competitive. With that I will now turn the call over to our CFO, Steve Coughlin.
Steve Coughlin, CFO
Thank you, Andrés and good morning, everyone. Today I will discuss our second quarter results 2022 parent capital allocation and 2022 guidance. Turning to our financial results for the quarter beginning on Slide 12. I'm pleased to share that we had a good second quarter in line with our expectations which keeps us well on track for our full year guidance. Adjusted EPS was $0.34 versus $0.31 last year, driven by growth in our core business segments higher margins primarily at AES Andes and a lower adjusted tax rate. These positive contributions were partially offset by the higher share count as a result of the accounting adjustment we made for our equity units, higher parent interest expense related to growth funding and one-time outages at select thermal businesses. These outages were primarily driven by turbine manufacturer component defects and the plants impacted are now all back online. There are two additional points I would like to highlight from the second quarter. First, we successfully closed several non-recourse subsidiary financing, extending tenures at very attractive rates and expanding facilities that support our renewables growth. And second, our collections and days sales outstanding in all of our businesses remain strong reflecting our predominantly investment-grade rated customer base. Turning to side 13. Adjusted pre-tax contribution or PTC was $304 million for the quarter, which was relatively flat year-over-year consistent with the drivers I just discussed. I'll cover the performance of our strategic business units or SBUs in more detail over the next four slides beginning on slide 14. In the US in Utilities SBU, lower PTC was driven primarily by outages at Southland and AES Indiana as well as lower contributions from AES Clean Energy due to increased investment in renewables development. Contributions from new clean energy project commissionings will be more skewed to the second half of the year. Higher PTC at our South America SBU was mostly driven by higher contributions from AES Andes resulting from our increased ownership as well as higher margins, but partially offset by the outages I previously mentioned. Higher PTC at our Mexico Central America and Caribbean or MCAC SBU primarily reflects favorable market conditions caused by better hydrology in Panama. As Andrés discussed the reduced need for thermal generation in Panama has allowed us to sell our excess LNG on the international market at higher prices, which will serve as a positive driver in the remainder of the year. Finally in Eurasia, while our business performance has been very strong the lower PTC reflects higher interest expense coming from additional non-recourse debt at one of our Eurasia Holdco. Now to slide 18. We are on track to achieve our full year 2022 adjusted EPS guidance range of $1.55 to $1.65. Our typical quarterly earnings profile is more heavily weighted toward Q3 and Q4 with about two-thirds of our earnings occurring in the second half of the year. We continue to expect a similar profile this year as we grow more in the US where earnings are higher in the second half based on solar generation profiles, utility demand seasonality, the commissioning of more new projects in the third and fourth quarters and higher demand at Southland and the peak cooling months in Southern California. Growth in the year to go will be primarily driven by contributions from new businesses including 1.4 gigawatts of projects in our backlog coming online over the next six months as well as further accretion from our increased ownership of AES Andes, higher LNG revenues and growth at our US utilities. We are also reaffirming our expected 7% to 9% average annual growth target through 2025 based on our expected growth in renewables energy storage and US utilities. Our guidance also assumes the recycling of capital from many of our thermal businesses into those three growth areas across our portfolio. Now to our 2022 parent capital allocation plan on slide 19. Sources reflect approximately $1.6 billion of total discretionary cash including $900 million of parent free cash flow. Due to timing uncertainty around our planned asset sales, we are now expecting to achieve the lower end of our $500 million to $700 million asset sales target within the year with the remaining sales expected to close in 2023. To fund our strong growth expectations until the asset sales are completed, we plan to issue approximately $200 million of new parent debt which was already included in the long-term capital allocation plan we laid out earlier this year. On the right-hand side, you can see our planned use of capital. We will return nearly $500 million to shareholders this year. This consists of our common share dividend including the 5% increase we announced last December and a coupon on the equity units. We plan to invest approximately $1.1 billion in our subsidiaries as we capitalize on attractive opportunities for growth. About half of these investments are in renewables reflecting our success in securing new long-term contracts during 2021 and our expectations for 2022. Nearly one-quarter of these investments are in our US utilities to fund rate base growth with a continued focus on grid and fleet modernization. In summary, nearly three-quarters of our investments this year are going to grow AES' renewables businesses in our US utilities, reflecting our commitment to continue executing on AES' portfolio transformation. We have made great progress on our growth investments so far this year and remain on track with our annual investment targets. We will continue to allocate our capital in line with our strategy to lead in renewables, grow our utilities by 9% annually and to recycle capital out of thermal assets to decarbonize our portfolio. With that, I'll turn the call back over to Andrés.
Andrés Gluski, President and CEO
Thank you Steve. In summary, our actions and strategy have put us in a strong position to achieve this year's guidance and a 7% to 9% annualized growth through 2025. Once again, our portfolio of businesses is proving its resilience to any macroeconomic volatility in the US or internationally. We have signed or been awarded 1.6 gigawatts of new renewable PPAs year-to-date and we're targeting 4.5 gigawatts to 5.5 gigawatts this year. Our backlog has reached 10.5 gigawatts and our construction schedule has not been affected by supply chain issues. To further derisk our supply chain, we have led a consortium to buy up to seven gigawatts of US made solar panels annually starting in 2024. Finally, we see significant upside to our growth including green hydrogen in the US, should the proposed Inflation Reduction Act be approved. With that, I would like to open up the call for questions.
Operator, Operator
Thank you. Our next question comes from Insoo Kim from Goldman Sachs. Insoo, your line is open.
Insoo Kim, Analyst
Thank you. First question starting off with the IRA bill. Thank you for the comments on potential upside and all that stuff. I guess, are you inferring that if this bill does pass as proposed that you could potentially see upside to your 7% to 9% EPS growth over the next few years on a CAGR basis?
Andrés Gluski, President and CEO
Yes. Good morning Insoo. Look what we're saying is that there are a number of very good opportunities, which would be certainly made more likely by the IRA bill. One of them, for example, is green hydrogen in the US. We'd also expect greater demand from utilities and corporate customers as well. So it's generally. So rather than say we're going to exceed that it certainly would push us towards the higher end if these come true. So that's how I would think about it.
Insoo Kim, Analyst
Okay. And you think at that higher end there's enough visibility of that if the component of the bill has passed?
Andrés Gluski, President and CEO
Yes. I mean, I think there will be discrete projects potentially in green hydrogen. And also you would see it in the number of renewables that we signed in the US.
Insoo Kim, Analyst
Got it. My second question on that consortium for domestic panel manufacturing on solar. How should we think about what that does for the projects that get those panels domestically from a cost perspective, and just any changes to the return profile for those projects that we should be considering?
Andrés Gluski, President and CEO
Well, this begins in 2024. I would emphasize that the key aspect is the security of supply. As we've observed just this week, having domestic manufacturing is very advantageous. You'll notice that Fluence announced they will manufacture their modules in Utah, in the United States. I believe the scale is substantial enough that it should be cost competitive, and we need to assess the market clearing prices in the US for solar projects. As we've discussed previously, most of our projects in the US are bilateral agreements negotiated with corporate clients. We're not merely adding generic clean kilowatt hours; we're also incorporating additional features and enhancing value for our customers. I believe this will make us more cost competitive. However, the most critical factor is that it will protect us from any potential future trade restrictions on solar panel imports from Asia. I think that is the primary benefit.
Insoo Kim, Analyst
Understood. Thank you so much.
Operator, Operator
Thank you, Insoo. Our next question comes from David Arcaro from Morgan Stanley. David, you may ask your question.
David Arcaro, Analyst
Hi. Good morning. Thanks so much for taking my question. I was wondering on the pace of PPA signings here. What's the pace we should expect through the rest of the year? We've seen, I guess, a bit of a slowdown in the second quarter with the uncertainty around the tariff. But what's your confidence level right now in still achieving that 4.5 gigawatt to 5.5 gigawatt level by the end of the year?
Andrés Gluski, President and CEO
Yes, good morning, David. Those are great questions. As I mentioned in the previous call, we anticipated that the activity would be more concentrated in the second half of the year due to ongoing negotiations with key clients and some price uncertainties that we have now addressed. Currently, we expect to finalize another 500 megawatts today, which would bring our total to 2.1 gigawatts. We anticipate this news breaking shortly, and if it happens, we’d reach 2.1 gigawatts, which is close to the lower end of our target range. However, we expect increased activity in the second half of the year, and we are confident we will fall within the range of 4.5 gigawatts to 5.5 gigawatts. These transactions can be irregular, so they don't occur in uniform increments. If we had signed these earlier, the information in our press release would have looked different. We expect to finalize this morning, bringing us to 2.1 gigawatts.
David Arcaro, Analyst
Got it. Okay. No, that's great to hear. It sounds like active dialogue is happening. I wanted to discuss foreign exchange. We’ve observed significant fluctuations in foreign exchange rates. Are you able to quantify the potential drag or impact on future years? Also, are there efforts underway to find offsets and manage any downside exposure?
Steve Coughlin, CFO
Yes, this is Steve. I believe you're inquiring about the longer term, but we are well hedged through 2023 and even into the following year. In fact, we anticipate some net upside this year due to our hedge positions. It's important to note that around 90% of our business is denominated in US dollars, so our exposure is primarily limited to a few markets—specifically Argentina, Brazil, and Colombia. Overall, this represents a small portion of our business. In Brazil, for instance, we've actually experienced an appreciation of the real this year, which has been beneficial for us. Our main concern is Argentina, but we have strategies to address that risk, including local expenses and debt, making the situation manageable within our guidance.
Andrés Gluski, President and CEO
Yes. I would add also that part of that is Bulgaria.
Steve Coughlin, CFO
Yes. So if you look at between dollars and euros, you're probably getting to about 95%. So we're very much in strong currency. This is, again, a decade of work and with the great job that the finance team has done in shaping our portfolio, but also making sure that the new contracts we sign are primarily in dollars.
David Arcaro, Analyst
Got it. That’s helpful. Thanks so much.
Andrés Gluski, President and CEO
Thank you.
Operator, Operator
Thank you, David. Our next question comes from Durgesh Chopra from Evercore. Durgesh, your line is open.
Durgesh Chopra, Analyst
Hey, good morning, Steve and Andrés. I have breaking news regarding the 500 megawatts. Is that from one customer? Congrats, by the way. Is that from a single customer or multiple customers?
Andrés Gluski, President and CEO
That is one transaction. That is one transaction.
Durgesh Chopra, Analyst
Excellent. Congrats on that. Okay. So I wanted to kind of dig in a little bit on the alternative minimum tax and how do you think that impacts you and your business. I mean, I think, the last time we talked about it, the headwind was offset by credits. Maybe just talk to that. And then, Andrés, I'd love to get your views on this transferability concept that is introduced in the bill. How do you think that works?
Steve Coughlin, CFO
I will address the tax aspect. It is still somewhat early in the process, and the situation is changing. However, based on our current understanding, we do not anticipate any significant impact from the 15% global minimum tax in the near future. We will continue to examine the details and monitor the situation, making a final assessment once the bill is finalized. If there are any effects, they would likely emerge several years down the line, and we would expect to have offsets and planning strategies in place by then. Essentially, this is a parallel methodology. We are already subject to the GILTI tax framework, and this is simply another calculation approach to ensure a minimum standard. Overall, I do not foresee any impact in the coming years.
Andrés Gluski, President and CEO
Yes. Regarding your question on transferability, this is being able to sell tax credits to third parties. We don't see like a major impact, but we see it as an additional tool in our cash management practices. So that's favorable.
Steve Coughlin, CFO
Yes. I mean, it could impact the way tax equity partnerships are structured, could make it simpler perhaps. So we've got to see what all the rules are around the transferability first. But if anything, it looks that it may make the financing structure simpler to manage and account for.
Durgesh Chopra, Analyst
Got it, okay. I appreciate it certainly. So thank you for the discussion. Maybe just a really quick follow-up, Steve when you say several years out on the alternative minimum tax, is that because your U.S. businesses are not of that $1 billion threshold? Is that why it is, or when you say several years out, what does that mean?
Steve Coughlin, CFO
Yeah. So there is a $1 billion test as you referred to. So I don't expect that we would meet that. And there's like a three-year I think averaging of that. I don't expect we would meet that for several years to come.
Durgesh Chopra, Analyst
Got it. Thanks for the time guys.
Steve Coughlin, CFO
Thank you.
Operator, Operator
Thank you. Our next question comes from Richard Sunderland from JPMorgan. Richard, your line is open.
Richard Sunderland, Analyst
Hi. Good morning. Thanks for the time today. Starting with the 2H walk, I see $0.08 from new renewables. I'm curious is that pretty locked in given your commentary around only two projects shifting into 2023? I guess, similarly on that front, the $0.08 of LNG utilities and other, can you break that down to the component uses and relative line of sight to the U.S. utilities portion you've given Ohio remains outstanding?
Steve Coughlin, CFO
I feel quite positive about the $0.08 from renewables. This includes growth from new projects and higher generation from our hydro portfolio, especially since last year was not a good year for hydro. On the utilities and LNG side, we have been benefiting from favorable commodities this year, with international LNG prices remaining high. In Panama, we had a very wet year, allowing us to redirect LNG cargoes to the international market instead of using them locally. While this won’t impact our year-to-date results, it sets us up for better performance going forward. Together, these factors account for about half of the $0.08. We also anticipate additional utility growth in the second half of the year, which are the main drivers for that figure. I believe there’s potential for even greater upside. Regarding Ohio, we are still awaiting a decision and have not included significant contributions from the new rates for this year, but we remain optimistic about a positive outcome. However, it will not significantly impact our results this year.
Richard Sunderland, Analyst
Understood, I appreciate the color there. And they're thinking broadly about the U.S. green hydrogen opportunity. How do you think this ties in with the existing renewables platform? How could it expand I guess both the demand for new renewables and timing with some of the more complex structured products opportunities you capitalized on in the past two years?
Steve Coughlin, CFO
Well, as we said in the past we are looking at partnerships with producers of hydrogen to actually get more integrated in the whole production chain. So, what's very interesting is that the problem of producing cheap green hydrogen is very much like supplying 24/7 100% green energy or carbon-free energy to data centers. So, we think we have a leg up here. So, we're working on this. If the legislation passes then it's very likely to move forward. So, that's what we've been waiting for. In the meantime in Chile we have a different project which obviously does not depend on this. And that would be much more to supply the local market. And we have done a very good job of decarbonizing the Chilean system and the mining sector in particular. So, we feel good about both of these and these would be significant projects. So, they would accelerate the growth of renewables because of the additional demand.
Richard Sunderland, Analyst
Understood. Very helpful. Just one final cleanup for me. The Southland outage what led to that and any inflation impact there?
Steve Coughlin, CFO
Yes, the issues were related to the turbine compressor unit at both Southland and Indiana. There was a component failure due to a manufacturing defect. Both units have been replaced at Eagle Valley in Indiana and at the New Southland combined cycles, and they are now back online.
Richard Sunderland, Analyst
Understood. Thank you for the time today.
Steve Coughlin, CFO
Thank you.
Operator, Operator
Thank you. Our next question comes from Angie Storozynski from Seaport. Angie, your line is open.
Angie Storozynski, Analyst
Thank you. I wanted to discuss the Ohio rate case. I understand there is no impact on the timing of decisions for 2022, but it will affect 2023. It seems you will need to file an ESP, which might delay the final resolution. Therefore, there should be an impact in 2023. In that context, you mentioned additional optionality around the LNG cargoes that could affect 2023. Can we assume that any impact from the shifting of the LNG cargoes will also occur in 2023?
Steve Coughlin, CFO
It certainly could be. We're not necessarily linking one as a counterbalance to the other. The staff has already come out in support of a rate increase. The key issue is whether, given that we've historically had a rate stability charge in place for about 20 years, new rates could be introduced while that charge remains effective. That’s the core matter being considered by the commissioners. If the rates are frozen, we will swiftly proceed to file a new Energy Supply Plan (ESP), which will include new riders. This would lead to a delay rather than anything else. At that point, the current rate stability charge would remain, we would file a new ESP, and the new rates would take effect once that ESP is approved. This could extend into the middle of next year, causing some delay. We remain optimistic due to our legal stance that a rate freeze is unnecessary and believe the outcome will favor us. However, there is still a path to what we outlined in our guidance; it just may face delays if we need to pursue the rate freeze to get the ESP filed.
Andrés Gluski, President and CEO
And Angie, maybe to describe a little bit the opportunity in Panama. We have hydro, but we also have the LNG re-gasification terminal being at Henry Hub prices. Of course, Henry Hub prices plus transportation liquefaction re-gasification. But nonetheless, it's kind of a one-sided bet, because we have enough cash to fulfill our contracts, but we had the opportunity, if there is a lot of rain, a lot of water in the reservoirs to not burn, and therefore ship those cargoes to international customers at obviously the international rates. So there's a very interesting arbitrage opportunity there. So it's a one-sided bet. If it stops raining, or if the reservoir levels fall then we'll just consume the gas and fulfill our contracts.
Angie Storozynski, Analyst
And how sort of, are you going to know that? So in a sense, I mean, it's hard to predict hydro conditions, but I mean, is it a bit like a rainy season by some months?
Andrés Gluski, President and CEO
Yeah. So look, it's been raining a lot. So the rainy season has started. The reservoirs are full and that's why we're able to make these sell gas to international customers and get that arbitrage. What I'm referring to more really would be 2023 do these conditions persist, or does say 2023 start off being a very dry year. So for 2022, we're locked in. It's really a question of will this opportunity repeat in 2023.
Angie Storozynski, Analyst
Okay. Okay. So moving on to the other inflation bill, so I understand, the comments you made about green hydrogen and energy storage. But when you actually listen to smaller developers they are also talking about maybe installing – adding solar PV to existing sites of conventional power assets, retrofitting existing assets with storage facilities. I mean, some changes in repowering of wind farms. I mean, there are some, I would say, secondary benefits from that bill, which could also benefit your portfolio. I guess it depends on the age of your contracts, and how heavy they are in the money. But could you talk about again benefits or additional benefits that this bill could add to your existing portfolio?
Andrés Gluski, President and CEO
Yes, I believe it contributes to repowering and add-ons. We have existing contracts in these areas, so the question is whether we can negotiate an additional contract based on our previous repowering efforts. We're currently repowering units in California at Mountain View and also plan to do so in Maryland at Laurel Mountain. This will facilitate those projects. It's important to evaluate what we already have and what opportunities are available, but since we are largely contracted on the renewable side, the key question is whether there’s additional energy we can offer the same client, or what other opportunities might exist. You’re correct that this presents a smaller upside, which is why we haven’t discussed it extensively.
Angie Storozynski, Analyst
Okay. And lastly, I mean, we saw these media reports about Vietnam and offshore wind. I mean, I don't think that I've ever imagined yet an offshore wind in the same sentence. So could you talk about that opportunity?
Andrés Gluski, President and CEO
Sure. As mentioned in our press release, we are in Vietnam working with the Vietnamese on a plan to decarbonize their grid. We have a LNG terminal project there and have been discussing the implementation of energy storage and other renewable sources to reduce the need for additional coal plants. Currently, this is more of an exploratory effort. We remain disciplined and committed to our goals of 50% US and 50% renewables. When venturing into new technology, we need to partner with experienced entities. We haven't pursued offshore wind because it hasn't been economically viable in the U.S. markets, where there is still ample land available, and it hasn't been cost competitive. We do not hold any objections to the technology itself, but we would require a partnership with someone who has extensive experience. At this moment, we are not ready to pursue new technology on a large scale independently. This is not a formal announcement from us, but we assure you that we will adhere to our established goals.
Angie Storozynski, Analyst
Great. Thank you.
Andrés Gluski, President and CEO
Thank you.
Operator, Operator
Thank you, Angie. Our next question comes from Julien Dumoulin-Smith from Bank of America. Julien, your line is open.
Paul Zimbardo, Analyst
Hi. Good morning. It's Paul Zimbardo sitting in this busy morning. Thanks a lot.
Andrés Gluski, President and CEO
Good morning.
Paul Zimbardo, Analyst
I wanted to check in. I believe the last long-term guidance you gave for AES Next was breakeven net income by the end of the plan in 2025. That's still a good assumption? And how could that evolve under the Inflation Reduction Act?
Steve Coughlin, CFO
Yes. Actually, it was 2024, Paul, that I said that. So look Fluence is the largest component of Next. So I can't go into detail, they'll have their call soon and we'll talk about their performance. But they've been executing on a number of things lately. As Andrés talked about, they are launching their Utah manufacturing facility. They're diversifying their battery supply base. So, we fully expect based on what they've guided to which is that they'll be bottom line neutral by 2024. That's very consistent with what we've included in our guidance as well. And so I would say, they'll talk about their progress, but we feel good about both. But Fluence is doing as well as the levers that AES has regardless of what happens with Fluence that that portfolio will be neutral and then growing from there.
Andrés Gluski, President and CEO
Let's discuss some other components like Uplight. They recently partnered with Schneider Electric, which has expanded their product offerings and provided them with a strong strategic ally. Then there's 5B, the manufacturer of Maverick, the prefabricated solar solution. Interest in Maverick is growing, especially with large-scale projects coming to completion in Chile and significant projects underway in Puerto Rico, along with a small project already completed in Panama. A key feature of this product is its resistance to hurricane winds, which is generating interest throughout hurricane-prone areas in the Caribbean. Additionally, there has been a change in government in Australia, where this company is based, leading to favorable prospects for their large projects there. Overall, we believe AES Next is successfully achieving its goal of providing cutting-edge technologies and enabling us to be the first to implement them.
Paul Zimbardo, Analyst
Okay. Great. Thank you. And then just separately could you please elaborate a little bit on the recent California legislation, how that would impact either extending, increasing or both the cash flows from the gas assets you have there?
Steve Coughlin, CFO
Yes. No we feel very optimistic. So we have – as I talked about previously, we've only included Southland legacy businesses, you've got Alamitos Huntington Beach and Redondo through 2023. So it may not be all three plants, but I would say probably at least two that we would expect to be extended possibly for several years. So the formal process I would expect in terms of permitting the ones through cooling permits that are needed, etc. will likely kick off here in the next one to two months. And then that will run into the first say half of next year through the first half of next year. As we've done in the past, when we've been facing a potential extension, we've looked to do where we've executed contingent capacity contracts, continued upon the permitting and all that coming forward – going forward. So we'll start looking at commercial opportunities for the extensions, once the formal process gets underway in the state. And so we'll have more certainty next year but I would say, we're all very optimistic here that given the fundamentals of the California system and the droughts in the Southwest of the US but that additional peak capacity is going to be needed for several years to come. And so we feel we're in a good position to provide that and that will provide some upside to our plan.
Paul Zimbardo, Analyst
Great. Thank you, Coughlin.
Steve Coughlin, CFO
Thank you, Paul.
Operator, Operator
Thank you. Our next question comes from David Peters from Wolfe Research. David, your line is open.
David Peters, Analyst
Yes. Hey, good morning, everyone. Andrés, I was just wondering if you could comment specifically with respect to the US, LPA. We've heard from some companies here recently that they're seeing issues with panels being stopped recently at the border. Just wondering if you all are seeing this at all and if not kind of what you're doing differently I guess.
Andrés Gluski, President and CEO
Yes. We have not experienced any of our panel imports being halted due to the Uyghur Forced Labor Prevention Act. We have been monitoring this situation closely for a while. The panels we import to the US are sourced from Southeast Asian countries, and we have instructed manufacturers to ensure that no materials come from Western China, where there are potential concerns about forced labor. We plan to start using polysilicon from Korea, as China is more likely to have such allegations. However, it's important to note that 95% of wafer production still takes place in China. We need to gradually shift that supply chain out of China, which will take some time. In short, we haven't encountered any issues, and we trust our suppliers to maintain proper documentation. We have been collaborating with them for a long time, so this is not a new issue for us, but we will continue to monitor the situation as it evolves. Therefore, we do not anticipate any significant problems.
David Peters, Analyst
Great. And then just one other one on the asset sale target being at the low end, and I guess you're expecting a little less dilution this year, as a result too. Can you just give a little bit more of an update on the processes in Vietnam and Jordan? And just when are those expected to close I guess?
Andrés Gluski, President and CEO
Yes. Essentially, this has to do with government approval. We've reached an agreement with our counterpart. It's not about the price but rather the government's approval, particularly in Vietnam, where the government has been slow to approve the new operator of the plant. This is why the process has taken longer than anticipated. However, we expect a resolution by the end of this year. As for Jordan, the delay is related to some lenders, including the US government, needing to approve the loans for the new buyers. These are mainly bureaucratic issues; the sale price, buyer, and conditions have all been settled, but it's taken longer than we hoped.
Steve Coughlin, CFO
Yes. Yes. And that's the majority of the $500 million. So we feel good, as Andrés said, we'll get there on those by the end of this year. And then, we have been working on additional sales and sell-downs of primarily thermal businesses. So as we work towards those and the timing around those, some variability, it looks like some of that may happen in say the first half of 2023, which is why we said, let's focus on $500 million this year, the remaining of the $500 million to $700 million will come in through next year. And then we have the full $1 billion target, we feel well on track for. So, it's just a matter of some timing expectations around what we're doing in the next say 12 months or so.
David Peters, Analyst
Okay. Thank you, guys.
Andrés Gluski, President and CEO
Thank you.
Operator, Operator
Thank you. We have no further questions. Therefore, I would like to hand back to Susan Harcourt for any closing remarks. Susan, please go ahead.
Susan Harcourt, Vice President of Investor Relations
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.
Operator, Operator
Thank you. Ladies and gentlemen, this is today's conference call. Thank you for being with us today. Have a lovely day ahead. You may disconnect your lines now.