愛依斯電力 (AES) 2020 Q2 法說會逐字稿

Good morning. Welcome to The AES Corporation Second Quarter 2020 Financial Review Conference Call. (Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Ahmed Pasha, Treasurer and Vice President of Investor Relations. Go ahead.

Thank you, operator. Good morning, everyone, and welcome to our second quarter 2020 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 during the call. 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; Gustavo Pimenta, our Chief Financial Officer; and other senior members of our management team.

With that, I will turn the call over to Andrés. Andrés?

Good morning, everyone. And thank you for joining our second quarter financial review call. Today, I'll spend some time on 3 near term priorities: achieving our 2020 guidance, attaining a second investment-grade rating and decarbonizing our portfolio. We believe that progress in these 3 key areas will allow us to reach a larger investor base in the near term. They will also advance our longer term strategic and financial objectives. After discussing these 3 themes, I'll provide an update on our sustainable growth initiatives and our efforts to create a technological competitive edge.

Last quarter, I indicated that we were well positioned to withstand the impact of the COVID-19 pandemic due to the resilience of our business model. I am pleased to report that our second quarter results demonstrate this resilience and keep us on track to achieve our full year guidance. We delivered adjusted EPS of $0.25 in the second quarter in line with last year. This reflects the strength of our business model, which is based on long-term take-or-pay contracts with creditworthy customers. As a result, we are very confident that we will achieve our 2020 adjusted EPS guidance of $1.32 to $1.42, and our expected parent free cash flow of $725 million to $775 million.

At the same time, we have continued to grow our free cash flow. We ended the second quarter with a parent free cash flow to debt ratio of 24%, which is comfortably above the 20% threshold required for investment-grade ratings. As a reminder, we've already received one investment-grade rating from Fitch and remain optimistic that we will attain our second investment-grade rating later this year.

Turning to our aggressive decarbonization goals on Slide 4. As we've said before, we are very focused on reducing our generation from coal to less than 30% of total generation to comply with Norges Bank Environmental Investment Criteria. On this front, we've made great progress over the past 2 months, signing binding agreements to sell OPGC in India and Itabo in the Dominican Republic. These sales will reduce our generation from coal by a 11 percentage points to 34%. We're working on a couple of additional transactions that combined with our growth in renewables will allow us to easily comply with Norges Bank's criteria by next year.

To further our reduction in coal exposure, AES Gener is negotiating with several off-takers in Chile to delink PPAs from physical assets and be able to monetize the value of long-term tolling agreements. These transactions will demonstrate that the real value of the business is in its contracts and customers while providing funding for AES Gener's successful green blend and extend renewables growth strategy.

Turning to Slide 5 and sustainable growth. I'm happy to announce that since our last call, we have been awarded or signed 852 megawatts of new renewable PPAs. This brings our year-to-date total to 1.5 gigawatts, including 346 megawatts of energy storage. As a result, our backlog of new renewable projects increased to 6.2 gigawatts. About half of this backlog is in the U.S., and the majority is expected to come online between 2021 and 2024. Therefore, we remain on track to continue to add 2 to 3 gigawatts of new renewables per year by capitalizing on our business platforms and our growing technological expertise.

In addition to our 6.2 gigawatt backlog, we have a pipeline of 15 gigawatts of renewable projects under active development in the U.S. This considerable pipeline positions us very well for an acceleration in U.S. renewables growth if federal policies change following the November elections.

Turning to Slide 7. We're also consolidating our position in existing renewable platforms. To that end, we recently acquired additional shares of AES Tietê, increasing our ownership from 24% to 43%. We will finance this acquisition mostly through nonrecourse debt in Brazil, and it is accretive from day 1. We plan to upgrade AES Tietê's listing to Novo Mercado on the Bovespa, where companies trade at significant premiums due to best-in-class governance. This move is expected to further unlock the value of AES Tietê for the benefit of all of its shareholders.

We continue to actively pursue new technologies that support our growth in renewables and innovative products that meet the changing needs of our customers. As you can see on Slide 8, Fluence, our joint venture with Siemens that sells energy storage technology to third parties, continues to be the global market leader in this sector. This leadership is based on our track record of deploying more than 2 gigawatts of energy storage, presence in 22 countries and offering more than 40 digital applications to our customers.

This year, Fluence's revenue is expected to reach $500 million, an increase of 400% in relation to last year. We believe that energy storage will play a major role in the global transition to a low-carbon economy. As a result, we expect Fluence's revenue to grow at 40% compounded annually to reach $3 billion by the end of 2025.

Turning to Slide 9. We are already experiencing this acceleration of growth in demand for energy storage. In June, Fluence launched its sixth generation product, which includes a modular and factory assembled cube design that is safer, more reliable and lower cost. Fluence's new cube already has orders for more than 800 megawatts to be delivered over the next 3 years.

As you may know, Fluence is currently running a private placement for a minority partner in order to capitalize this high-growth business. We are encouraged by the strong interest we are seeing from potential investors, and we expect to have concrete details to share with you before the end of the year. Together, AES and Fluence continue to pioneer new applications for lithium-ion based energy storage technology. One example is a virtual reservoir for run of the river hydro projects, utilizing energy storage that charges when power prices are low and discharges during peak hours.

As shown on Slide 10, at the Cordillera hydro complex in Chile, we just commissioned the world's first such virtual reservoir, with 10 megawatts or 50-megawatt hours of energy storage. We can further expand this facility to 250 megawatts or 1,250 megawatt hours over the next couple of years. Today, about half of all our renewable projects have an energy storage component.

Now moving on to Slide 11. We continue to pursue new technologies that have the potential to provide us with a competitive advantage in our markets. To that end, we recently acquired a 25% stake in 5B, a prefabricated solar solution company in Australia. With 5B's patented technology, solar projects can be built in 1/3 of the time and in half the space. We believe that being able to double solar energy output from a given area will become increasingly important as solar penetration increases, especially near urban or congested areas.

In addition to 5B's potential pipeline of more than 10 gigawatts of third-party projects in Australia, we see an additional addressable market of 5 gigawatts across our development pipeline. As part of this strategic agreement, we have exclusive rights to develop utility-scale projects using 5B's technology in our key markets, including the U.S. We have already started the deployment of 2 megawatts in Panama and 10 megawatts in Chile. We aim to be the most competitive solar developer by using 5B to reduce time to build and increase energy density, while combining it with our robotic and digital solar initiatives.

Turning to Slide 12. In 2018, AES invested in Uplight to improve our customer experiences via digital cloud based technology. In addition, Uplight provides cloud-based services to third parties to improve energy efficiency and balance system demand. This fast-growing business already reaches more than 100 million household and businesses in the U.S. and expects a 20% increase in annual revenue in 2020.

Finally, regarding our partnership with Google, it is progressing well. And as you might have seen, we recently launched an RFP for 1 gigawatt of carbon-free energy in PJM. We are working on several other significant initiatives with Google, and we will share additional details as these firm up.

In summary, our ongoing leading technology efforts aim to give us a competitive edge to deliver the products and services required by our customers in a rapidly evolving and growing market.

Now I would like to turn over the call to Gustavo Pimenta, our CFO, so he can provide more color on our results, debt profile and guidance.

Thanks, Andrés. Today, I'll cover 3 key topics: our resilient business model, our performance during the second quarter and our capital allocation plan.

Let me start with our resilient business model on Slide 14. As you can see, 85% of our earnings are from utilities and long-term contracted generation with an average contract life of 14 years. This provides significant stability to earnings and cash flow. We have also reduced our exposure to volatility in foreign currency by growing the portion of our U.S. dollar earnings.

As you can see on Slide 15, today, 85% of our earnings are in U.S. dollars as compared to approximately 60% a few years ago. For context, through 2022, a 10% appreciation of the U.S. dollar would reduce our annualized EPS by only 1.5% or $0.02.

Looking at Latin America, specifically, almost all of our businesses in that region are contracted, as you can see on Slide 16. Nearly 60% of these businesses have no volumetric risk as a result of the take-or-pay nature of the contracts. The remaining capacity is mostly contracted with large industrials and export-oriented mining companies that continue to operate despite COVID-19 as they are deemed essential. We intentionally work with high-quality off-takers, and this strategy is also contributing to the resilience of our business model.

For example, as you can see on Slide 17, roughly 2/3 of our customers in Latin America have investment-grade profiles. The remaining customers are largely backed by government-owned institutions. The result of this resilient contracting structure and customer base can be seen in our collections performance on Slide 18, with Q2 receivables and days sales outstanding remaining very much in line with historical levels.

Moving on to the impact of global lockdowns on our financial results on Slide 19. As you may recall, we had anticipated an extended U-shaped recovery in energy demand across our markets. This assumed the second quarter would be the hardest hit with a demand drop of about 10% to 12% at our U.S. utility businesses and between 7% and 15% internationally. The actual result was not as severe as anticipated, with volume at our US and Utilities dropping mid-single digits and demand in other markets declining in the range of low single digits to low double digits. As I have noted, our generation businesses did not experience any material impact on earnings from lower demand. Our utility business, where most of our volume exposure has experienced an impact of about $0.02 on adjusted EPS for the quarter, better than our initial expectation of $0.03 to $0.04. Despite these encouraging results, we continue to assume an extended U-shaped recovery for guidance purpose, given the overall uncertainty around the macro environment.

Now turning to our quarterly results on Slide 20. Adjusted EPS was $0.25 for the quarter versus $0.26 last year. This reflects the lower demand at our regulated utilities, I just discussed, and the regulatory changes that were implemented at DPL and Argentina in 2019. We are able to offset these headwinds through higher contributions from our South America and Eurasia SBUs as well as our cost savings and deleveraging initiatives.

Turning to Slide 21. Adjusted pretax contribution, or PTC, was relatively flat at $238 million for the quarter, with a decrease of only $2 million versus the second quarter of 2019. I will cover our results in more detail over the next 4 slides beginning on Slide 22.

In the US and Utilities SBU, lower PTC reflects the lower regulated tariff implemented in Q4 2019 due to the reversion to ESP 1 rates at DPL as well as lower demand at utilities due to the impact of COVID-19. Additionally, at Southland, we had lower capacity revenues as a result of the retirement of some of our legacy units in 2019. At our South America SBU, higher PTC was primarily driven by higher contributions from AES Gener, including better operating performance at our Guacolda plant and recovery of previously expensed payments from customers in Chile.

Higher PTC at our MCAC SBU reflects improved availability at our Changuinola hydro plant in Panama, following an extended major outage last year. We also benefited from improved hydrology in Panama, following a very dry year in 2019. This was partially offset by outage-related insurance proceeds in the Dominican Republic last year. Finally, in Eurasia, high results reflect improved operational performance in Vietnam and the impact of the sale of our loss-making business in the United Kingdom.

Now to Slide 26. To summarize our performance in the first half of the year, we earned adjusted EPS of $0.54 versus $0.53 last year. We are reaffirming our 2020 adjusted EPS guidance range of $1.32 to $1.42. Relative to the first half of 2020, performance in the second half of the year will benefit from contributions for new businesses, including the 1.3 gigawatt Southland repowering project, for which the 20-year contract began in the second quarter, and about 1 gigawatt of renewables coming online.

Now turning to our credit profile on Slide 27. As we discussed on our first quarter call, since 2011, we reduced our parent debt by approximately $3 billion or about 50%. At the end of the second quarter, our parent leverage was 3.5x, and our parent free cash flow to that ratio was 24%, comfortably within the investment-grade thresholds of 4x and 20%, respectively. This highlights once more our credit strength and give us confidence in attaining our second investment-grade rating later this year.

Moving on to liquidity on Slide 28. We have $3.5 billion in available liquidity, 2/3 of which is in cash. As you may recall from our prior call, we had taken a conservative approach to enhance our liquidity at the beginning of the COVID-19 outbreak by drawing on about $500 million of our revolvers. As a result of the strong collection we experienced in the quarter, we decided to pay back most of these facilities, lowering the overall interest expense for our businesses.

Next, I I'd like to provide an update on our refinancings on Slide 29. As you know, we have been proactively strengthening our debt maturity profile. Since last year, we executed more than $7 billion in liability management across our portfolio. In the second quarter alone, by taking advantage of a low interest rate environment, we refinanced more than $2 billion of debt, significantly reducing our interest costs while eliminating any material refinancing needs at both AES Corp. and DPL for the next 5 years.

Now to 2020 parent capital allocation on Slide 30. We expected $1.4 billion of discretionary cash this year, which is largely consistent with our previous disclosure. Regarding asset sales, we have already announced agreement to sell 2 gigawatts of cogeneration, achieving roughly half of our target for 2020. We are working on a few other transactions and feel good about the prospect of achieving our targeted asset sales of $550 million for this year.

Moving to uses on the right-hand side. Including the 5% dividend increase we announced in December, we expected to return $381 million to shareholders this year. We plan to invest $700 million in our subsidiaries, 90% of which is in the U.S., demonstrating our proactive actions to grow the portion of earnings coming from the U.S. to about half by 2022. These investments include funding our renewables backlog, the equity for the Southland repowering and the investment in rate base growth at our utilities.

Regarding AES Gener, as Andrés mentioned, we are in negotiations to delink the PPAs from the coal assets and monetize the value of some of its store in agreements. As a result, we now expect the capital increase in our contribution of equity to happen in 2021. This leaves us with up to $317 million to be allocated in 2020.

Next, moving to our capital allocation from 2020 through 2022, beginning on Slide 31. We continue to expect our portfolio to generate $3.4 billion in discretionary cash. 3/4 of this is expected to be generated from parent free cash flow, with the remaining $900 million coming from asset sale proceeds.

Turning to the uses of the discretionary cash on Slide 32. Roughly 1/3 will be allocated to shareholder dividends. Subject to annual review by the Board, we continue to expect to increase the dividend by 4% to 6% per year in line with the industry average. We're also expected to use $1.9 billion to invest in our backlog, new projected PPAs, T&D investments at IPL, the partial funding of our Vietnam LNG project and the investment in AES Gener. This $1.9 billion also included the $300 million infrastructure investment in DP&L. Once completed, these projects will contribute to our growth through 2022 and beyond.

In summary, we are very encouraged by our solid financial performance to date despite being in the middle of an unprecedented global crisis. Our performance and position validate the actions we have taken over the last several years to materially improve the quality and resilience of our business model, and we remain very confident in our ability to continue delivering on our strategic and financial objectives.

With that, I'll turn the call back over to Andrés.

Thank you, Gustavo. Before we take your questions, let me close today's call by saying that we remain very confident in achieving our guidance for 2020 and growth rates through 2022, attaining a second investment-grade rating before year-end and realizing our decarbonization goals to meet Norges Bank's threshold by the end of the year. At the same time, we continue to make progress on deploying innovative technologies that we believe will give us a competitive edge in today's rapidly evolving and growing market.

With that, I would like to open up the call to your questions.

(Operator Instructions) Our first question is from Julien Dumoulin-Smith from Bank of America.

And congratulations on continued execution here. Perhaps just going back to the '20 guidance, and I know you guys just commented here in your prepared remarks about a little bit of your positioning, but I'd like to dig a little bit further into that. So you're saying that you're a few pennies ahead relative to initial expectations for the utility after last quarter's update. You're saying your power outlook is not appreciably impacted from lower demand. Just help frame where you are within that '20 guidance range as a consequence of these updated assumptions?

And then thirdly, I didn't see you comment specifically on how the asset sales and/or expected asset sales impact and the potential dilution from those impact where you are within that range. If that makes sense?

Yes. Okay. Let's split this into 2, I'll take the first half and Gustavo can take the second half. Look, we feel confident that we're going to hit our numbers. We feel very good. We have a lot of good things happening. We're still, I think, all of us in uncharted territories. This has to play out for the second half of the year. I think our business model has demonstrated its resilience. I think very importantly, both earnings and cash or accounts receivable are very much in line from where they were last year. So we feel good about it. We have a lot of positive things. But there is some uncertainty. So we -- what we're saying is we feel very confident we will hit these numbers. And the model is resilient, and let's see what plays out in the second half of the year.

With that, I'll pass it over to Gustavo to talk a little bit about asset sales.

So Julien, yes, those 2 asset sales, they were already incorporated in our long-term forecast. So the associated dilution is already in the 7% to 9%. So no impact to our forecast.

Nor the impact of any perspective further so that's already assumed, right?

No, no. The additional ones to reach the $500 million are also in this plan, the 7% to 9% growth.

In other words, they're assumed in our forecast.

And if I can ask just a step further here. I mean you guys made a further commitment in Brazil in recent weeks. Can you talk to your thought process about realizing the full value there? I mean I suppose it's a unique situation and backdrop where you all are, I suppose, your peer shareholders is receiving a premium bid and you all are stepping in to basically say, we see greater value. So can you elaborate on where you see that value coming and maybe further next steps in realizing that?

Sure. Look, we have, I think, a very good track record in Brazil of creating value in our separate companies. If you think of the sale of Sul, the sale of Eletropaulo, you think of the sale of our telecom Atimus. So what we're doing here is we're -- BNDES wanted to sell part of its share. So by buying BNDES' shares, we go from 24% ownership to around 43% ownership. This will allow us to list AES Tietê on the Novo Mercado. In the Novo Mercado, generally companies trade at a 10%, 20% premium versus where they trade on ordinary listings.

So in Brazil, you have your preferred shares, which actually don't have a vote and receive a 10% dividend uplift. And then you have normal ordinary shares, which have votes. So our shares and BNDES' shares are ordinary shares. So what we see here is an upgrade of the company in terms of its market listing, in terms of who can invest in the company. And we're able to go to Novo Mercado because now we own a much larger percentage of the company. So it's one share one vote, we still control this company.

I'd say furthermore, you might have seen there the Tietê actually is a good platform for growth. It has now almost 4 gigawatts of 100% renewable energy. And we've been able to do some very innovative things there. So in terms of our big strategy, it makes sense as well. So it makes sense from a money point of view because we're buying it accretive. We are -- it's accretive at these prices. Second, I would say that it's a platform for growth and fits into our overall strategy of reducing our carbon intensity, the carbon intensity of our footprint.

Sorry, last quick clarification. What's the contribution for renewables in aggregate in 2020 and beyond? Just getting this question consistently.

Look, right now, including, again, renewables for hydro, it's about 1/3 of our fleet.

Earnings terms?

Earnings...

By the same.

I think it's pretty much in line.

Our next question is Agnie Storozynski from Seaport Global.

Our next question is from Stephen Byrd from Morgan Stanley.

Great update on a lot of fronts. Just on the storage side of things, obviously, the size of this business and the growth is impressive. Could you just speak maybe generally to the capital needs for this business, strategically how you think about the growth of this business within AES? And just -- and it's just an unusual business given the incredibly rapid growth rate. I'm just curious sort of strategically, how are you thinking about this business?

Well, we started 12 years ago. So we have a long history of energy storage. And we've really been an innovator in applications. So we've decided to sell it to third parties via Fluence, and we're very happy with the partnership with Siemens because it allows us to sell it in 160 countries. So what we're seeing is that this is a very rapidly growing market. So Fluence itself, we see a lot of new applications, not only the virtual reservoir, but I can see grid booster, which really reduces significant long distance transmission expenses or investments. So that, I think, is the next front. So I think this is an area that's going to grow very quickly.

So how does it fit in into AES. Well, first, of course, we're happy with the investments we've made in Fluence. I think time will show that, that was a very good investment. But it's also good for us in the sense we're one of the big customers of Fluence. So today, half of our product offerings have an energy storage component. So we have stand-alone storage, but we also have it integrated into solar, as you know, our award-winning project out in Kiewit. But we also have it incorporated, for example, wind. So when we talk about green blend and extend and meeting customers' future needs, if customers want 24/7, for example, renewables, energy storage plays a big component.

Now I'm a believer in lithium-ion batteries for -- our batteries, let's say, electrical batteries because they don't have to be lithium ion for the next 5 to 10 years for many of the applications. And the reason is that it's very -- as the batteries become more efficient, become cheaper, you're basically going from electric to -- in some cases, a chemical back to electric. And the losses are very low.

There's been a lot of talk about hydrogen, for example. Hydrogen has advantages and then it has much greater energy density. So we see much -- many more applications in transportation where the weight of batteries precludes long distance, say, big trucks using a battery. So I think this is a very interesting area. But if you're talking about sort of combining renewables with storage or day-to-day applications, we really think that batteries seem to be the killer app.

Now we've put a toe in the water into hydrogen as well. We've actually run some tests on old coal plants in Chile, basically cracking the hydrogen, using renewable energy at around $35 a megawatt hour, and it still comes out quite expensive. We do see it could be -- we've also run some tests on diesel, and it might be interesting for micro grids. So we do have an electrolyzer in Chile, where we -- actually, in Argentina, excuse me, where we actually produce hydrogen for our own needs at the San Nicolas plant.

So we have a foot into this. We're looking into this. But I just mentioned this because there some people say, well, hydrogen will replace battery-based energy storage. And the reason we don't see that is, at least in the short term, is because you're going from electric to produce a chemical -- a chemical reaction. Then you have to store it cryogenically, then you have to transport it, then you basically have to burn it again. So if you look at the energy from the original electricity losses to electricity again, you're talking about at least half. Whereas with the battery, you're talking about a much smaller percentage.

Now of course, batteries don't work for intraseasonal differences. So we're looking into it. And we have some small experiments in some of our different units. And as I said, the ones that look more promising really are diesel units. And we're certainly a believer of green hydrogen for transportation.

That's a great description of the market potential of storage versus hydrogen. And I wanted to shift over, maybe just to your corporate relationships. Maybe we could just briefly touch on Google to make sure we just talk through the, sort of, the commercial relationship. I guess there's sort of an element of near term fees plus longer term margin potential. But then also just thinking more broadly and maybe more importantly, just about the potential for other such corporate relationships, given AES' global footprint and ability to help customers globally to decarbonize. If you could just talk to that opportunity broadly as well, please.

Yes. Thank you for that question. I mean we are investing very heavily into the U.S., as Gustavo said, it's about 90% of what we're investing. But we do have this wonderful global footprint. So if a client has global needs, we can satisfy those. So when you talk about the relationship with Google, we are -- we do supply them with renewable energy in Chile. And we did have the RFP -- we have the RFP out for 1 gigawatt of zero-carbon energy in PJM.

We're also -- as I mentioned in my speech, looking at other possibilities with them, I really can't comment on them -- about them at this time. But it goes beyond just a single sort of RFP or a single PPA in one country. Because we're doing, I think, a lot of innovative things like they are, and so we have commonality of interest in some areas. But just like Google, I mean, of course, there are other companies that are also interested in our global footprint. And having a, let's say, common high-tech approach to reducing carbon emissions among multiple countries, and we can certainly supply that.

(Operator Instructions) Our next question is from Charles Fishman from Morningstar.

If I could firstly ask a housekeeping question on Slide 18. I guess it's a lot more than housekeeping, but your receivable balance is going lower. Now first of all, I assume that's apples-to-apples. In other words, you adjusted that from any businesses you've divested between Q4 and Q2.

That's correct, Charles. This is Gustavo. That's correct.

Okay. I assume that, but just wanted to ask it now. And then, I guess, more of a big picture question. Why -- is there any particular reason you see your receivable balance going actually lower, which is certainly great considering the environment, where among your -- well, there's nobody really up here with you guys, but other utilities, let's say, which I realize are different businesses, most of them have capable balances going in the other direction. Anything that you're doing differently or you probably have more contracted type generation. I realize that, but is there anything else going on?

Yes. No, I think you hit the nail on the head. It's 85% of our business is contracted generation. And we have credit-worthy off-takers. So there are situations, for example, where, say, a currency depreciates but what they're exporting is actually then more attractive because they have a portion of their costs, whether it'd be mining or such things that they're exporting. So in general, our clients are doing well. Much better than the markets that they're in. So I think that's very important. But we're 85% contracted generation. And that's a big difference.

So if you actually see why we guided down initially. We correctly forecasted that we would have a drop in demand with the quarantine at our utilities, at our distribution businesses. So that's what's going on. But other than that, our plants are critical. So in those cases, where we're selling to the grid or selling to, which is, in many cases, backed by the government, we are -- make sure that we get paid because we're absolutely critical to the grid or the low-cost generator in that market. So we're very well positioned in this crisis. So we don't expect that to change, certainly, in the generation business, given, let's say, the current outlook.

Okay. And then, Andrés, if I can ask you one strategic question with respect to Fluence. Why a minority partner at this point? What is the thinking behind that?

Yes. That's a great question because this is a rapidly growing business. And we think it has a great future, and it's coming out with new products. Part of it is that both of us, Siemens and AES, we would like to have a marker from a transaction. We're not going to sell down a very large stake, we're talking of around a 10% stake. So we think it would be just good to have that capitalize it, maybe 10% with an outside partner. And obviously work towards a bigger sell-down perhaps in 2, 3 years of an IPO. But -- and then we'll have to reassess strategically how we feel about this business.

But we feel very good about the business. And as I said, I think that this is a market, which is growing very rapidly. Now something that people haven't talked about, I think, so much is, if you do have a change in federal policies in the U.S. to promote green or carbon-free generation, we're very well positioned. Fluence is very well positioned. But specifically, AES because we have a pipeline of 15 gigawatts of potential projects in the U.S. And those run the range from quite advance to medium advance.

If we looked at just hypothetical projects, it's a much bigger number. So we feel good that we have a pipeline that we could execute on and potentially double our rate of growth of renewable build in the U.S. should there be such a change.

Okay. So -- and the partner then very well could be financial rather than just somebody like yourself that's also selling the Fluence product?

No, yes, no, absolutely. Absolutely. A lot of the people looking at are just financials. We're looking at a good investment with an eye towards a potential IPO, 2 to 3 years from now.

Our next question is from Agnie Storozynski from Seaport Global.

So I have a number of questions. So first, on Fluence. I mean incredible results, by the way. But on Fluence, so the attempt to monetize the business, which I don't think that you're being paid in the current stock price for Fluence among others. So is there any EPS contribution for Fluence in 2020 or even in 2022?

No. No. I mean this year, it'll -- it should be probably about $0.01 dilutive. And the reason for that is even though it's like margin positive, and we haven't been putting more money in as it had this very rapid growth is because R&D, you have to expense. So for example, all the design work, the production work of the new -- next-generation of the sixth generation, well, that is expensed.

So look, we've talked probably, I'd say around 2 years for it to turn positive in terms of EPS. And what basically happens is that the faster it grows, the more new products you have to come out with, you delay that, turning it positive. So it's a business that could be positive today if that were the objective. But the objective is to create value. So we think a sell it down, as you say, will give us a marker. So people say, well, how much does it worth? Well, somebody just paid expert. Like we did, for example, with the gas business in the Dominican Republic, people weren't giving us much value and we were able to show what it was worth to third parties.

The second question, so it's a 2-part question. So one, is there like a rule of thumb that I can say, for example, for 2021, you will have additional 2,000 megawatts of renewables in operation and granted it's probably going to be scattered throughout the year. But can I say, for instance, that 100 megawatts adds x in EPS?

Well, it will depend a little bit because it depends what you are inaugurating, right, and where? So there's a difference between solar and wind, and there's a difference outside of the U.S. because of tax. So it's -- there's no rule of thumb for just like 100 megawatts. I don't know Gustavo, if...

What I would do is, we are putting on average $300 million, $350 million per year, right? So that's our equity in the project. We bring partners and so on. So if you assume, call it, 12% return on average, you're going to come up with the EPS accretion that those deals are bringing to us.

Awesome. Awesome. And now a bigger picture question. So I've been actually looking at it. So as you become investment grade, I know you're already investment-grade by Fitch, but you get those additional investment-grade ratings. Would you ever consider not project finance, but corporate-level debt to fund the growth? I understand that there's an issue of finite life of the contracts for the renewables.

But I think that there is this growing conviction even among investors that the useful life of these assets is going to be longer than the duration of the original contract. And under project financing, you are in a sense -- the debt amortization, most of the cash flows of the project, and so the real equity accretion is only at the end of this contract. So in a sense, you could help yourselves quite meaningfully from a cash flow perspective if you were started to rely on corporate level debt -- on corporate debt.

Yes. Let me sort of answer philosophically, then I'll pass it to Gustavo. Look, philosophically, we like doing project-level debt because it's an asset test. So since I've been CEO, almost all of our major projects, I think with the exception of Southland, we brought in a partner. And the reason was that bankers have first dibs on the cash flow. So you have to convince somebody, a third-party, that you're going to operate this and that they think it's a good project as well.

So given that, philosophically, we like using project-level debt, and so I don't see that changing for the time. There are advantages of certain roll-ups. We can aggregate at the sublevel. Gener has debt, for example, Tietê has debt, which would get some of those advantages. But we think that the discipline of having to project finance is good and having to bring in partners is good. So Gustavo?

I think, Andrés, you covered well. I mean it brings more discipline to the process. It also allows us to amortize the debt within the PPA time frame, which we like. We don't want to count on post-PPA period to pay for debt, quite frankly. So it's just more disciplined. I think the projects are more sustainable when we validate at the project level, right, with the debt there and all the amortization within the PPA flow.

And just one follow-up, if I can, on Fluence. So we saw the results of the investigation by APS on the root cause of the storage system accident. And we also saw some response from LG. And APS seems to suggest that there needs to be some changes in the configuration of those storage systems going forward. I haven't necessarily seen the response from Fluence, but is there any fundamental change in how you think those storage designs need to be adjusted? And if there is any needs to make adjustments to your already existing operating systems?

Yes. I think, look, that was a unit that was inaugurated in 2017. We're 2 generations away from that. The issue as we see it was with a series of LG Chem batteries, a specific series that were produced in some factories. So we've operated for 12 years. This is the first, let's say, serious incident we've had. But really, the best standards are, for example, UL 9045a. And if you look at the best-in-class standards, the sixth generation incorporates all these.

So if you look at, for example, it doesn't require -- it's not contained, so it's actually outside. The modules are separated, so you don't have cotangents. It has enhanced fire suppression systems on it. And in the worst case, should there be any type of thermal event since it's not enclosed, the heat and any gases would rise. So definitely, we feel that we've taken all the lessons learned from this event. We've incorporated into the new design. And really, safety was one of our #1 priority. So again, we have 12 years of operating these. And we -- this is the one really event that we had.

Now regarding those cases, which weren't that many. I think you can count on them with one hand, all those units that had that series of battery in them, we immediately put out instructions of not to charge them -- like instructions you get on your Tesla car, not to charge them above 75%. And we've taken corrective actions and we've given more information, more training for like local fire units, et cetera.

So yes, we -- as you know, safety is #1 value, super important for us. We have been very serious and very diligent, I think, about looking into this and supporting our clients and supporting our local fire departments on this. But I feel very good that the sixth generation cube is the safest unit out there and incorporates all of the suggestions that are out there technically.

Our next question is from Richard Sunderland from JPMorgan.

Just starting off with the opportunity around delinking PPAs. Could you provide a little bit more color around that opportunity versus your current financing plan? And maybe the assumed asset sales as well. Is there an inter-player offset potentially with this new consideration? Or is it more of another tool in the tool bag down the road?

Well, we've always said that -- and they've had a lot of tools to address its financing needs because it's growing so fast, they've been so successful on green, blend and extend. We really can't comment on some of these transactions until they close. But there are several transactions where we're delinking the PPA, which in some cases, was specific to a given asset. So like this power plant has this PPA. We are delinking them and allowing us greater flexibility in terms of how we satisfy their demand or requirements of the customers.

So I really can't give you too much color on it, other than saying that it will help us. It will help Gener with its financing plan. And so it's very likely that any capital contribution from us will be in 2021 instead of 2020, this year. We tend to be very conservative. So we saw that these have been advancing. So prior to having these as advanced as they are today, we had talked about AES putting in the money this year. So that, I think, is the main change. So I'd say stay tuned, and we can give you more color as these transactions close.

Great. Look forward to that. And then just a quick clean-up question. The inclusion this quarter, I believe it was recovery of expense payments from customers in Chile. Just -- was this in your plan, specifically in your 2020 plan, included in guidance?

Yes. I mean this is -- at the AES Corp. level, I mean, this is about a couple of cents in this quarter when you normalize for ownership adjustment and so on. It was included. This is good guy, meaning cash and earnings from prior expenses, pass-through costs that we had with some particular clients and we're able to firm up those receivables back.

But this is baked into the original guidance?

Yes.

This concludes our question-and-answer session. I would now like to turn the call back to Ahmed Pasha for closing remarks.

Thank you. Thanks, 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. Thanks again, and have a nice day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.