AES says long-term contracts helped it avoid some coronavirus impacts

Houston — AES, which owns two US utilities but is an active power seller in a total of 15 countries, said Thursday that it is deriving roughly 70% of its pre-tax income from sales of power under long-term contracts.

It said it is now projecting a "5% negative impact on 2020 adjusted earnings per share" due to the pandemic, and does not see power markets returning to pre-crisis levels until 2021.

"Primarily at US regulated utilities, C&I demand declined by mid-teens, which was partially offset by an increase in residential demand of 6%," Andres Gluski, AES President and CEO told analysts during a Q1 2020 earnings call on Thursday. "Internationally, demand has declined by 5% to 15%, but exposure is limited due to take-or-pay contracts and tolling agreements."

Gluski said that the average life of its long-term power generation contracts is 14 years. It said that approximately 15% of its generation business was done with companies under short-term contracts, which it said "average four years or less." It said its short-term contracted generation business was down 10% in March and April.

The company said the remaining 15% of its generation business is done with utilities.

Gustavo Pimenta, the AES chief financial officer, said that the company is expecting "an extended u-shaped recovery," with "high single digit declines in demand" in Q3 2020 and "lower single-digit" decline in demand in Q4, with a return to pre-crisis levels in 2021.

AES reported that it is basing its year-to-go 2020 guidance on an SP 15 power price of $30.83/MWh.

COMPLETES 1,409 MW OF RENEWABLES IN Q1

The Arlington, Virginia-based company said its aim is to help "lead" the power industry's transition to clean energy, and said it expects to deliver between 2 GW and 3 GW of new renewables this year.

It told analysts that it intends to reduce the amount of MWh generated by its coal-fired assets to below 30% of total generation volume by the end of this year, and to less than 10% by 2030.

It also noted that Fluence, its storage joint venture with Siemens, has 1.3 GW of storage under construction in 21 countries and territories. AES said Fluence has been awarded 32 MW of projects year-to-date in 2020.

It said that in Q1 2020 it completed construction of 1,409 MW of new renewables projects, that included the 1,299 MW Southland Repowering in Southern California, the 100 MW Vientos Bonaerenses wind facility in Argentina and the 10 MW of solar and solar plus storage in the US at AES Distributed Energy.

So far this year 685 MW of renewables have come under long-term power purchase agreements, the company said. Those agreements include 10- to 21-year PPAs with AES Gener in Chile for a total of 522 MW of wind and solar generation and a 15-year PPA with sPower for 108 MW of energy storage in California. It also signed an agreement to supply 55 MW of wind power in Panama.

The AES executives said the company now has a 5,345 MW backlog of renewable projects, with 1,764 MW under construction and expected to be on-line through 2021, and 3,581 MW of renewables signed under long-term PPAs.

The project backlog consists of 10% hydro, 11% energy storage, 43% wind and 36% solar.

Gluski said that while AES has 30 projects currently under construction around the globe, only two projects, both of which are small solar projects in Upstate New York, had to temporarily stop work due to stay-at-home orders.

Gluski told analysts that AES had taken "early steps" in Q4 to ensure its PV plants did not face potential supply chain bottlenecks in China and Korea.

$300 MILLION INVESTMENT IN DPL

CFO Pimenta told analysts that as of March 31, AES had $3.3 billion of available liquidity. This included $2.5 billion of cash and cash equivalents, restricted cash and short-term investments, as well as $800 million available under committed credit lines.

He said the plan is to use $1.9 billion of the available cash to fund investments in its subsidiaries.

Pimenta said that the company is planning to invest $300 million of AES equity into modernizing its Dayton Power & Light utility's transmission and distribution infrastructure.

A $150 million portion of that investment is expected to be made this year, while a second $150 million investment is slated for 2021.

Analysts were also told that $140 million of DPL's non-recourse debt is to be refinanced in Q3, while $90 million of Indianapolis Power & Light's non-recourse debt will be refinanced in Q4.