AES Corp (AES) — Q1 2018 Earnings Call Transcript

Thank you, Austin. Good morning, and welcome to AES' First Quarter 2018 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. Please refer to our SEC filings for a discussion of these factors. Joining me this morning are Andrés Weilert, our President and Chief Executive Officer; Tom O'Flynn, our Chief Financial Officer; and other senior members of our management team. With that, I will now turn the call over to Andrés.

Thank you, Ahmed. Good morning, everyone, and thank you for joining our first quarter 2018 financial review call. Since our last call, we have made significant progress on a number of fronts. We delivered first quarter adjusted EPS of $0.28 and remain confident in our full year outlook. We continue to transform the company, simplifying and streamlining our businesses, reducing costs and improving our overall risk profile. Since our last call, AES Gener has significantly derisked the Alto Maipo hydro project in Chile by signing a new fixed-price construction contract. We implemented the $100 million annual cost reduction program that we announced on our last call. We closed the sales of 2 gigawatts of merchant generation, including 1 gigawatt of coal-fired capacity in the Philippines, and allocated $1 billion to reduce our parent debt, which was rewarded by the rating agencies. We also advanced our profitable growth projects, including signing long-term U.S. dollar-denominated PPAs for more than 800 megawatts of renewable projects and signing a major long-term contract to provide storage and transportation capacity from our LNG terminal in the Dominican Republic. Finally, we're excited about being a leader in applying new technologies to reduce our operating costs and deliver innovative solutions to our customers. With these advancements and trends, I am very optimistic about the future of the company. I will now discuss these in more detail. Beginning with Alto Maipo on Slide 4. AES Gener entered into a new contract with Strabag, the principal contractor, and is securing additional funding from project lenders and Strabag for its Alto Maipo hydroelectric project in Chile. The new contract is fixed-price and lump sum, transfers all geological risk to Strabag and provides a date certain for completion, with very strong performance and completion guarantees. The restructuring agreements with Strabag and the lenders have been signed and are expected to close this week. AES Gener, our subsidiary in which we own 67%, will be committing up to $200 million, which will be contributed to the project on a 50-50 basis upon meeting milestones along with additional nonrecourse debt. AES Gener will also commit to contribute up to another $200 million near the completion of the project in 2020, which can be used either to pay down project debt or fund any remaining project costs. On an ownership-adjusted basis, AES' maximum additional exposure will be up to $270 million. I would like to point out that all of AES Gener's Alto Maipo commitment will be funded entirely from its own cash flow and that the maximum amounts have already been factored into our cash flow forecast. By executing a fixed-price contract with a firm completion date, AES Gener has significantly reduced the risk associated with Alto Maipo. When completed in 2020, the Las Lajas, Alfalfal and Alto Maipo complex will give AES Gener 802 megawatts of hydroelectric capacity near the country's load center in Santiago and will significantly diversify AES Gener's generation mix in Chile, reducing its coal weighting from 72% to 64%. Turning to Slide 5. To improve AES' competitiveness and achieve our goal of $100 million of additional annual cost savings, we restructured our strategic business units and reduced our global workforce by 12%, including eliminating 30% of management positions. This leaner, simpler corporate structure will improve our agility, and the related cost savings will strengthen our ability to deliver on our long-term financial commitments. Turning to Slide 6. As you know, our success in asset sales has allowed us to meaningfully derisk our portfolio while, at the same time, unlocking value. A good example is the recent sale of our Masinloc business in the Philippines, which we closed at an attractive P/E multiple of 20. With this sale, we reduced our exposure to merchant coal and also exited the Philippines. Today, approximately 90% of our earnings are from just 8 countries. Next, beginning on Slide 7, I will provide you with an update on our profitable growth initiatives, starting with our projects under construction. Last month, our 671-megawatt Eagle Valley combined-cycle plant in Indiana became operational. With Eagle Valley, we have replaced nearly half of IPL's coal-fired generation with cleaner and more efficient natural gas. Now turning to our 1.3-gigawatt Southland combined-cycle project on Slide 8, which is a redevelopment of our existing gas generation in Southern California. Construction is proceeding as planned and is on track to be operational by the first half of 2020. Turning now to Slide 9 and our 380-megawatt Colón combined-cycle project in Panama. In April, we achieved first synchronization and completed the steam blow of one unit. The project is on track, and we project the commissioning of the plant early in the second half of this year. As you may remember, we're also building an LNG regasification and storage facility on the same site. The regasification facility is complete and will receive Panama's first LNG shipment this month. We will utilize a floating storage unit until the storage tank is completed next year. LNG is going to play an important role in Panama as it does today in the Dominican Republic. I will discuss our overall LNG strategy shortly. Finally, turning to Slide 10. In Hawaii, we're delivering 2 solar-plus-storage facilities for a total of 47 megawatts of solar and 34 megawatts of 5-hour-duration energy storage on the island of Kaua'i. The first of these pioneering projects is under construction and will satisfy energy demand during peak hours as well as the rest of the day. Once both of these projects are completed, they will represent the largest solar-plus-storage installation in the world. Our remaining construction projects are proceeding as planned, including our 1.3-gigawatt thermal plant, OPGC 2, in India. These projects under construction will be key contributors to our earnings and cash flow growth through 2020. Now on to Slide 11. We have been reshaping our portfolio to deliver attractive returns to our shareholders while reducing our carbon exposure. Our focus is on natural gas and renewable projects with long-term U.S. dollar-denominated contracts. On a blended basis, these investments are projected to produce low to mid-teen IRRs, assuming conservative terminal values. For example, the renewable investments we made in 2017 are earning a weighted average 10% after-tax return in the U.S. and more than 16% in Brazil and Mexico. Looking forward, we expect to earn low double-digit returns in the U.S. as we focus on new development at sPower and AES Distributed Energy. These compelling returns are driven by several factors, including using our business platforms and global scale to lower costs such as PV panel and wind turbine purchases; utilizing local debt capacity in the businesses to fund these investments; bringing in partners to reduce our equity commitments while providing management and development fees; and about half of our investments are in markets with lower renewable penetration and faster electricity demand growth than the U.S. Turning to Slide 12. Year-to-date, we have achieved significant milestones on the 838 megawatts of renewable projects in our development pipeline. Specifically in the U.S., sPower signed long-term PPAs for a total of 618 megawatts of solar and wind, and AES Distributed Energy signed long-term PPAs for 120 megawatts of solar. This capacity will come online between 2018 and 2020. In Argentina, the government has implemented profound reforms to improve the long-term sustainability of the power sector. Electricity tariffs have been raised and are now denominated in U.S. dollars. The government also established a public bidding process for 25 gigawatts of additional capacity through 2025. As part of this process, AES Argentina agreed to acquire a 100-megawatt wind development project, which has a 20-year U.S. dollar-denominated PPA. The project will be funded 100% by AES Argentina. In summary, as you can see on Slide 13, we will be adding 6.6 gigawatts of new capacity by 2020, which is the equivalent of 20% of our current installed capacity. Of the new capacity being added, 5 gigawatts are projects either under construction or recently acquired. The remaining 1.6 gigawatts are projects in advanced-stage development, 80% of which are under signed contracts. These additions will help us to significantly extend our average contract life, which Tom will discuss shortly. Next, I'd like to discuss the opportunities to expand our LNG business in Central America and the Caribbean on Slide 14. We see ourselves well-positioned to take advantage of the growth of low-cost U.S. LNG exports due to our existing platforms, market knowledge and marketing partnership with ENGIE. As you may know, we own the only 2 LNG storage terminals in the Caribbean with reexport capability. We have annual storage capacity of 150 tera Btus, only half of which is contracted. Our remaining capacity is available to meet customer demand in the region, which has the potential to grow sixfold to 800 tera Btus per year. As we discussed on our last call, in the Dominican Republic, we will build another gas pipeline to connect our LNG terminal with the East, where there is significant demand from generators and transportation. To that end, yesterday, we signed a long-term gas supply contract with an anchor client. We expect to earn attractive returns on the sale of our excess LNG capacity as it does not require any new investment. The Eastern pipeline will not require any cash from the corporation either as it will be funded locally. We're also excited about our leadership in applying new technologies, such as drones and digitalization, to reduce operating costs and deliver innovative solutions to our customers. Our most mature example is lithium-ion-based energy storage on Slide 15. Fluence, our recently launched joint venture with Siemens, has contracts that will double its current installed capacity from 259 megawatts to 514 megawatts, and they're pursuing an additional 2.5 gigawatts of sales opportunity. Turning to Slide 16. AES has made a modest strategic investment in Simple Energy. Simple Energy has a digital platform that serves 29 utilities in the U.S., including IPL and DPL, with access to over 35 million end customers. Simple Energy's digital platform allows utilities to accelerate energy efficiency and demand response programs while improving customer experience.

Thanks, Andrés. Good morning. Today, I'll review our first quarter results, improving credit profile and capital allocation. We started 2018 well, with higher contributions from all of our strategic business units. As shown on Slide 18, adjusted EPS was $0.28 for the first quarter, putting us on track to achieve our full year guidance of $1.15 to $1.25. Much of our growth in the quarter was driven by higher margins in the U.S. and South America, reflecting higher regulated pricing and lower maintenance costs. We also benefited from a lower tax rate and debt paydown at the parent. Now Slide 19. We earned $288 million in adjusted PTC during the first quarter, an increase of $98 million. As part of our cost reduction program, we've streamlined our structure and will be reporting our financial results in 4 segments down from 5. US and Utilities includes the U.S. and Puerto Rico plus the utilities in El Salvador. South America combines our previous Andes and Brazil strategic business units and includes Chile, Colombia, Argentina, and Brazil. MCAC is comprised of Mexico, Panama, and the Dominican Republic. And the Eurasia segment remains unchanged. Now I'll cover our results in more detail over the next 4 slides, beginning on Slide 20. In the US and Utilities, PTC improved due to lower maintenance costs and higher regulated rates at DPL in Ohio following the resolution of ESP last November. Results also reflect higher availability in Hawaii and lower maintenance expenses in Puerto Rico. In South America, improved results reflect higher tariffs in Argentina following market reforms enacted in early 2017 as well as higher contract pricing in Chile and Colombia. This was partially offset by the favorable settlement of a legal dispute at Uruguaiana in Brazil in 2017. In MCAC, higher PTC was largely driven by Panama, where we've seen a return to more normal hydro conditions. We've also benefited from higher availability and the completion of the combined cycle last year in the Dominican Republic. Finally, in Eurasia, our results primarily reflect higher energy prices in the United Kingdom, offset by the sale of our businesses in Kazakhstan. Over the last few years, we've taken a number of steps to reposition our portfolio towards markets with attractive risk-return profiles. We've also been extending the contract lives of our generation businesses, as seen on Slide 24. We've been reducing volatility by selling assets with merchant exposure and investing in new businesses with long-term contracts and sustainable, competitive positions. This has increased our average remaining contract life to 8 years. Looking forward to 2020, we expect this to increase to 10 years as we bring online the growth projects in our pipeline. It's also important to keep in mind that about 15% of our PTC is from stable regulated T&D or integrated utilities, which are not reflected in this average contract life. Using 30 years as a proxy for regulated businesses would imply a blended average life of about 13 years in 2020. I'd also note that most of our PPAs are in line with the market so that future recontracting should be at similar prices and margins. One exemption is the Gener in Chile where the average remaining contract term is around 10 years. Contract prices are above market, but we believe that is more than fully reflected in Gener's current stock price. In fact, accounting only for the present value of Gener's PPAs and our hydro assets in Chile and Colombia, we believe the net equity value of Gener is well in excess of its current market cap. Now to Slide 25 and our improving credit profile. In the first quarter, we made significant progress towards achieving our investment-grade goals. After closing the Masinloc sale, we allocated $1 billion to pay down parent debt. We also refinanced nearly $1 billion of high coupon bonds, with new notes averaging 4.25% for annualized interest savings of $25 million. As a result, net of transaction costs, we expect to end the year with roughly $3.8 billion of parent debt. This puts us well on our way towards achieving investment-grade metrics in 2019 and ratings by 2020. We believe this will help us to not only reduce our cost of debt and improve our financial flexibility but also enhance our equity valuation. We're pleased that the commitment to improve our credit profile continues to be recognized by the rating agencies, as shown on Slide 26. In March, S&P upgraded us to BB+, and Moody's revised our outlook to positive. In addition to improvement at the parent, DPL received an upgrade from S&P and is now investment grade. This is a result of our actions to significantly derisk DPL by exiting 3 gigawatts of merchant generation and paying down $1 billion in debt since 2011. Now to 2018 parent capital allocation on Slide 27, which is in line with prior disclosure. Staying on the left-hand side, sources reflect $1.9 billion of total available discretionary cash, including $600 million to $675 million of parent free cash flow. Sources also reflect $1.25 billion in asset sale proceeds, including the $1 billion from Masinloc and a $250 million placeholder for additional asset sales this year. As you may be aware, there are competing tenders right now for Eletropaulo in Brazil, with an auction scheduled for June 4. We're assessing options for our stake, which is currently valued at about $265 million. Now to uses on the right-hand side of the slide. Including the 8.3% dividend increase we announced in December, we'll be returning $345 million to shareholders this year. We'll use over $1 billion to reduce parent debt, including revolver drawings. And we plan to invest at least $250 million on our subsidiaries, primarily for projects under construction, leaving us with about $100 million of unallocated cash. Finally, moving to our capital allocation from 2018 through 2020 on Slide 28. We expect our portfolio to generate $4.2 billion in discretionary cash or over half of our current equity market cap. More than half of this has been allocated to the current shareholder dividend and completed debt reduction. About $750 million is allocated to identified investments in our subsidiaries, including projects under construction in late-stage development. Taking into account the additional $750 million in asset sales, we're factoring in about $450 million in additional parent debt reduction. The remaining $800 million, which is largely weighted to 2019 and 2020, is available to create additional shareholder value. As Andrés mentioned, we believe we have a strong set of opportunities and expect to continue to invest in some of these in 2019 and '20. As you know, since 2011, we've invested $4.2 billion to reduce our balance sheet, with almost 40% going towards share repurchases. We'll continue to compete new investment opportunities against share buybacks. Regarding dividend growth, we've grown our dividend at an annualized rate of 9% over the last 3 years and 27% over the last 4. We believe that as our credit ratings continue to improve, we'll achieve better valuation for attractive dividend. We'll evaluate the potential level of dividend growth with our board going forward and will be influenced by the extent to which the dividend is reflected in our share price.

Thanks, Tom. Before we take your questions, let me summarize today's call. We have delivered strong results during the quarter and implemented the $100 million cost savings program. We remain on track to achieve investment-grade credit metrics in 2019. We're making progress on our 4 gigawatts of projects under construction. We have continued to transform, simplify and derisk our portfolio while delivering attractive, long-term growth by reshaping our portfolio through selective asset sales; adding profitable investments in renewables, natural gas, and LNG with long-term U.S. dollar-denominated contracts; using partnerships, management contracts, and our local platforms to improve our returns; and exploiting our leadership in applying new technologies to lower expenses and grow revenues. We expect to generate substantial amounts of discretionary cash from 2018 through 2020, which we'll deploy consistent with our capital allocation framework. And we are therefore reaffirming our full year 2018 guidance and 8% to 10% growth rate target through 2020.

Andrés, first question, coming back to Alto Maipo. Can you tell us now, when you look at this project and the increased equity investment going in, how should we look at the returns for this project for AES? And what does it do for sort of your overall merchant exposure, if you will, in that market? And how did you look at this decision versus the abandonment decision, which I know was one of the things you had been looking at in terms of deciding what to do with Alto Maipo?

Sure, that's a great question. First, we need to consider this project in relation to AES Gener. It's crucial because it allows AES Gener to reduce its dependency on coal generation and adopt a more varied energy mix. As you're aware, there is a $5 per ton carbon tax in Chile, and the Alto Maipo project will provide Gener with many options. Additionally, Gener possesses a strong portfolio of long-term contracts, which enhances our company's flexibility. Regarding the project itself, we had to carefully evaluate the returns on any marginal investments. Aside from mitigating risks associated with the project and Gener, we are aiming for reasonable rates of return on these extra investments. It's also worth noting that there are opportunities to enhance the returns from Alto Maipo. First, we can use it to move away from coal dependence. There is also the potential, though still in early stages, to leverage new technologies, such as energy storage, to create the world's first hydro project with energy storage capabilities. In Chile, while there has been significant growth in renewable energy, there hasn't been a substantial increase in capacity. We believe that having this capacity close to Santiago's load center will be very beneficial over time.

In considering the incremental return, previously in your slides, you assumed there would be no return for Alto Maipo regarding the equity invested. For the additional investment, how should we evaluate it? Is it expected to be in the low single-digit range, or how should we approach this?

We previously indicated that we expect no returns in our forecast through 2020. We used the term "up to" because there may be potential partners for this project. We have stated there will be no returns for the 2020 period and have made very modest forecasts for the project going forward. However, we believe that having 800 megawatts of hydro capacity close to the load center, particularly considering AES Gener and the entire complex, will yield better returns. This project is an expansion of a facility built in 1985. We view this as a critical step to mitigate risk by securing certain timelines, getting the contractor to make significant completion guarantees, and providing part of the financing.

Yes. Separately, on the asset sale front, I just wanted to clarify, the Eletropaulo stake, assuming the auction goes, and as you mentioned, it's currently $265 million for you, that would go as part of the asset sale program that you laid out. So in other words, Eletropaulo alone gets you to the $1.25 billion rough target that you have for the year. And related to that, if you do another $750 million on top of that, are you then done, and is your portfolio where you would like it to be? Or are there more opportunities even beyond that extra billion?

Okay, let me take the multipart question. The first, the answer is yes. Eletropaulo would get us to the amounts that we talked about this year. That is $250 million. Then the remaining $750 million that we had identified, well, that could be selldowns. That could be selling out of some businesses. I think we'll continue to optimize our portfolio. So there is no hard limit on this. To the extent that we can get partnerships in places where we could sell down and improve our returns on invested capital, we will do so. So again, we are, I think, in a strong position. All of our businesses are making money and that we have this opportunity going forward. So as you'll note, the numbers that Tom gave are quite conservative in terms of sales and what we can achieve this year.

Right. Lastly, you didn't mention it this time, so I thought I'd ask. Any updates on Maritza given what you told us last quarter?

Yes. We had identified that in Bulgaria, we were in talks with the Bulgarian government regarding, let's say, the claim of illegal state aid on the PPA of Maritza. I would say those discussions continue underway. I don't think anything will happen in the very short term. They are up-to-date on their payments. We're getting paid regularly. The plant is performing well. The plant is necessary for the Bulgarian system. So it's really a question of how will we resolve this issue for a win-win situation for the Bulgarian energy system and us? So stay tuned. And again, I would say we're progressing constructively.

Can you hear me?

We can hear you loud and clear.

Excellent. Well, just to follow up on Ali's question just real quickly, just to be perhaps exceptionally clear about the Alto Maipo situation. How does this change your financial forecast at the end of the day versus what you all had talked about last quarter? Because I know some of this had been potentially would be partially contemplated. So I just want to be very clear about that, and I got a follow-up.

Okay. The first question, it doesn't change it at all, zero.

Okay, excellent. Just wanted to be very clear about that. And then separately, if I can follow up here. Asset sales, how are you thinking about U.S. versus international and then gas versus coal selldowns? I mean, obviously, there's kind of a repositioning taking place here, but I'd be curious about priorities and opportunities.

Well, I would say that first, we were in 28 markets. We're down to 15. 5 years ago, I said somewhere between 15 and 12 was the optimal number. So again, stay tuned for that. Regarding – our priority, quite frankly, has been to sell merchant and specialty coal assets. So if you think of the Philippines, you think of some of the DPL, you think of some of the assets we've sold, and that's just basically because as part of our derisking, I mean, we derisk the company from hydrology, we derisk it from a commodity point of view, from a currency point of view. We also think that derisking from a carbon intensity point of view is important for the long term. So of that, that would be really our priority. We can hit both carbon intensity and merchant, like the Philippines, that is ideal. Now regarding selldowns in the states, we have partnerships in the states, and we can sell down to the extent that, one, it improves our returns; and two, it gives us capital to redeploy. As I mentioned in my script, that to the extent we do more development and new projects with sPower, we will improve our average returns. So there's a lower price obviously for spinning assets than there is for developing greenfield projects. So we are focused on increasing our returns on invested capital. We're focused on continued derisking long-term dollar-denominated contracts. So you put that all together, our contract length will increase substantially by the end of this year.

Excellent. Can I follow up quickly? This seems to be more about timing. You mentioned that the present value of the power purchase agreements and the hydro assets in Chile and Colombia significantly exceed the current value. Could you elaborate on that? Also, is this figure net of both the recourse and nonrecourse debt at those subsidiaries?

Yes, Julien, that makes sense. That's how we view it. We regularly assess our major assets, which include the PPAs. On average, they last 10 years, although some have longer durations. The average lifespan is 10 years, including Alto Maipo. When we evaluate the value of the PPAs along with the hydro assets at conservative market rates per kilowatt and consider all liabilities, primarily our debts, we find that the value of the equity or the net asset value significantly exceeds the current equity market capitalization.

Got it. And just to be clear, can you elaborate on discount rates or anything? I mean, I'd just be curious by how much you see that delta.

Yes. It might be better to avoid going into details and instead engage in a broader discussion at a higher level, as it can be sensitive considering the public nature of this matter. However, it involves both assets and liabilities, so it isn't as influenced by discount rates as one might expect.

Got it. All right, fair enough. And just lastly, very quickly, the LNG updates, how material is that in terms of your outlook for the Dominican Republic?

We have one gas pipeline from the Andres facility to Los Mina, and the potential is significantly larger than what is currently contracted. While I can't disclose the contract amount, once the pipeline is built to the East, there’s considerable upside. We have some of the upside from the current contract, but there's even more potential for additional contracts. It's important to note that we still have over 40% of the storage capacity at Andres not utilized, and any increase in utilization will positively impact our bottom line. The same applies to Panama, where we will be using less than 40% of that tank; adding more clients will enhance the project’s attractiveness. We base our projections on our own plant but anticipate additional usage. In the Dominican Republic, we have good experience, as we are already selling 10% of our capacity to third parties for transportation and commercial use.

Looking at Slide 28, the update from Q4 is quite clear. There was $1.25 billion of unallocated discretionary cash in Q4, which has now been divided into $450 million intended for potential debt paydown and $800 million that remains unallocated, compared to the $1.25 billion noted during the Q4 call. Is the logic that the $450 million is necessary to achieve the targeted credit metrics to reach investment grade, leaving $800 million unallocated, or is there another reason for this allocation?

Yes, it's Tom. This aligns with our previous discussion. Previously, we mentioned $1.25 billion, along with about $400 million in potential debt retirements. We wanted to clarify by breaking that into a separate portion, which is now the $450 million. From our perspective, with the $1.25 billion in asset sales, including Masinloc and the $250 million placeholder, we estimate that we need to reduce our debt by another $100 million to $200 million to reach investment-grade status. We also plan to sell an additional $750 million in assets. Depending on the cash flow from those assets, we are accounting for more debt retirement from the proceeds of those sales. So the $800 million is an estimate and may vary based on the cash flow from the assets we are selling, but we wanted to present it more clearly.

So the $800 million wedge is the use of that proceeds will flex based on the outcomes in terms of asset sale prices and cash flow, that sort of...

Yes.

Yes.

Okay. And then my second question is just a cleanup question, too, on Slide 50. I know it's all the way in the back of the deck. But the slide that replaced used to have ROE and cash yield targets for the portfolio. Now I'm just wondering, obviously, the Alto Maipo returns are under pressure. But when we look at Colón, OPGC 2, and Southland repowering, are the expected returns on those investments the same as they were in the Q4 deck? Or has something also changed there?

Yes. Greg, this is Ahmed. Yes, you're right. I think, given that we have already included a slide on return, Slide 11, so we thought, I mean, the returns are pretty much in the same ballpark range. So yes, you don't need to read anything between the lines, but the returns are somewhere close to mid-teens.

Okay, that's actually what I thought. I just wanted to sort of confirm that. My final question is about the possibility of bringing in third-party capital to co-invest in certain projects. Have you noticed any interest from third parties in co-investing in ventures like the Fluence joint venture or sPower? This could help validate the growth potential of those businesses and allow you to free up some of your discretionary cash.

Yes, I'd say that regarding Fluence, we have just launched it and its cash requirements are quite modest as it develops alongside Siemens. At this initial stage, it is crucial for us to grow the business and achieve our target market share of approximately 20% to 25%. It is too early to consider bringing in external funding for validation. This venture is distinct from our usual operations, and typically, we seek partners for more established businesses. However, if opportunities arise where we can collaborate with a partner, such as spinning off assets to reinvest at higher returns or gaining a management or development fee, we would consider it. Fluence, however, is not likely to fit into that scenario in the short term.

I think, Greg, regarding sPower, I think we've said maybe on the last call that we have had some incoming inquiries from some financial investors about taking an interest in some of the operating assets or pieces of the operating assets. And those are things that we are pursuing with our partnering co. We'll update you to the extent something specific unfolds, but those would be at valuations that would improve our all-in returns.

I wanted to get a little bit better sense on your overall growth plan in the renewables business and get a sense for how much of that you'd expect to come from U.S. or North American contracts versus outside of North America, and within the U.S., maybe you could comment on the market that you're seeing for corporate counterparties versus utilities.

That's a good question. Currently, we're seeing a balanced approach with our new project signings. There's a noticeable increase in demand from corporations, which is particularly exciting for sPower. We're also observing growth in community solar projects for distributed energy in the U.S. Outside the U.S., particularly in Latin America, there are more auctions, especially in Argentina and Brazil, focused on renewable energy. We're making significant progress in Chile with PPAs for commercial and industrial customers. We're experiencing a blend of projects in various markets, with corporates playing a more significant role, and most of these corporates are seeking renewable energy. In terms of our pipeline, sPower has a substantial 10 gigawatts, which is solid and shows promise. While the current mix may slightly favor the U.S., we have numerous projects launching in Brazil, Argentina, and El Salvador, among other appealing markets. The key challenge remains securing a PPA that is either dollar-denominated or inflation-indexed.

Great. And then could you speak a little bit in more detail about the international contracts? Obviously, the returns that you detailed today are pretty good, and you mentioned that you used conservative terminal values there. But when we think about the overall package of risk that you're taking in order to get that return, is it fair to say that you're comfortable there that, whether it's FX or non-U.S. dollar-denominated contracts, capacity factor assumptions, et cetera, are all kind of where you maybe expected them to be or better versus when you entered into this JV and this investment a year plus ago?

The projects outside of the U.S. are not with sPower; they are associated with our platforms. A significant factor in the compelling returns we're observing is the utilization of our platforms, which provide us with a comprehensive support network, including a commercial team and a management team. Additionally, we can leverage local resources to enhance our returns through established relationships. For example, in the MCAC category, all returns are derived from dollar-denominated contracts, with the exception of those in Brazil, which are in reais and indexed to inflation. The debt also exists in reais. We feel very secure regarding the risk associated with these projects since both the debt and cash flows are in the same currency, ensuring they are either inflation indexed or dollar-denominated. We believe these contracts are exceptionally strong.

Just first, what is the date certain on Alto Maipo now?

The date certain, we're talking about 2020.

Yes. Is there a specific date with which we can kind of track it?

With Alto Maipo, there are several important milestones. First, there is Las Lajas, which is located lower on the mountain and will be the first to be operational. Then, there is Volcán, which is higher up and will come online at a later date. We will start generating revenue as soon as the initial sections are completed.

Okay. And then just how is the plan at Gener to fund the equity commitment?

Well, Gener has sold some assets. It's strengthened its balance sheet. So Gener has the cash flow to make these investments as required.

They've completed a few asset sales, generating approximately $300 million that is expected to close soon. These sales involve older fossil plants. Additionally, they have indicated that they are considering selling some transmission assets, which will contribute to their cash flow and help fund their initiatives. They also continue to maintain a strong dividend.

Okay, great. And then on the sPower, its potential selldown, is there kind of a sense on timing of that?

There are ongoing discussions that we will assess this year.

Okay. Tom, regarding your comments about potential uses of capital, you mentioned the dividend growth you've achieved and the consideration of whether this will affect stock credit and buybacks. Is there a timeline for when you will be able to fully evaluate this? Since you're not expected to reach investment grade until 2020, which is still a few years away, is that the target date or is it sooner? How do you plan to approach this from a timing perspective?

We recently increased the dividend by 8.3%, and we believe we have a solid track record of dividend growth. Our focus is on strengthening our credit position, aiming for investment-grade metrics while maintaining a substantial dividend. As Tom noted, we will discuss any potential dividend increases at the end of the year with our board, but we have already implemented a dividend increase, which may seem premature. Regarding capital allocation for stock buybacks, we have executed significant buybacks in the past, and we will evaluate the need for future buybacks over time. Our primary priorities are achieving investment-grade status and completing attractive investment opportunities. It’s crucial to understand the derisking of our portfolio; for instance, we operate 777 megawatts of hydro in Panama, and with the completion of the combined-cycle gas plant, those hydro assets are expected to gain value, especially in drought years, which would reduce volatility and enhance earnings. Additionally, the reexport capabilities in the Dominican Republic and Panama present promising prospects. Ultimately, we have made substantial stock buybacks previously, and we just raised our dividend as well.

Okay, I'm trying to understand your response. It seems like you're going to take your time with this decision since you've just increased the dividend, and it appears you won't make any sudden changes.

Yes, that's correct, that's correct.

Tom, this is a hypothetical question that you may choose not to answer. If AES had $1 billion in unallocated cash, would you prefer to buy back AES stock or make an investment that has a risk-adjusted weighted average cost of capital plus 1%?

Yes, that's part of how we approach things. Over the past several years, we've done both. In the short term, regarding our capital allocation through 2020, our main focus is on enhancing our credit rating and reaching investment-grade status, which we believe we can achieve by next year, and with some time, we aim for investment grade by 2020. We estimate that we have nearly $1 billion available, roughly $800 million, primarily from our plans for 2019 and 2020. We evaluate investment opportunities based on their returns, considering them within the overall business context rather than as isolated assets, as we think about our strategy on a platform level, not just on individual assets. We will also compare this with our share repurchase strategy, similar to what we've done previously.

Okay. In the past, AES has always indicated that if it has an asset with no future or growth prospects, it is likely better utilized by others, assuming it is generating cash. DPL and IPL fit that description perfectly, especially now that AES has surplus generation. Is AES still holding onto IPL and DPL because it needs them to achieve an investment-grade rating? Once AES obtains that rating and secures adequate backstops, will that be the point at which DPL and IPL are removed from AES' portfolio?

What I'd say is we are doubling the rate base at IPL, and we think that the new investment grade-rated DPL also has significant rate base growth. So a lot of catch-up because a lot of the utilities in the area have been investing a lot in their rate base. And DPL has not been in a situation where it could do that. And so we think believe there's catch-up. So no, we think there's attractive growth, risk-adjusted growth in both of those utilities, and we expect them to do quite well.

That's great. The last question is, is there a way for AES to achieve a 15% to 20% compound annual growth rate over the long term? What would it take to reach that goal? Is it impossible?

This is Ahmed. I think we just gave our guidance, so let us deliver on this. We can talk about the rest later. Apologies.

Andrés, those of us in the utility sector who monitor the industry certainly recall the Westinghouse situation from the past year. What we have learned is that the value of a guarantee from an EPC contractor depends significantly on the financial stability of its parent company. How financially capable is Strabag? Is there a bank performance guarantee supporting it? What gives you confidence that this contract is truly priced appropriately at this time?

That's a great question. I'd say, number one, the guarantee here is from the head office, Strabag, which is an investment-grade company listed in Austria. Second, that the LCs will be bank guarantees. So when we say that there are strong guarantees, these are backed by significant, investment-grade bank LCs. So on both counts, Strabag is a company that's in good shape, and second, that these are your top-notch bank guarantees LCs. No, it's a very fair question.

Thanks, Austin, and we thank everybody for joining us on today's call. As always, the IR team will be available to answer any questions you may have. Thank you, and have a nice day.