AES Corp. will cut its global workforce by 1,000 employees, or 12%, and expects annual costs savings of $100 million as part of the company's reorganization.
"We continue to transform and simplify the company," AES President and CEO Andrés Gluski said Feb. 27 on the company's fourth-quarter 2017 earnings call. "To that end, we are maximizing our efficiency with a new organizational structure, which will yield an additional $100 million in annual cost savings by 2019."
AES on Feb. 5 announced it is restructuring its business to cut costs and streamline operations, targeting a smaller environmental footprint and stronger financial profile. The company, which has already exited a dozen countries, is consolidating its five geographic business units and reorganizing its growth and commercial activities under a trio of executives who will oversee operations in the Americas and the Caribbean.
On the financial front, AES reaffirmed its 8% to 10% average annual growth rate in adjusted EPS and parent free cash flow through 2020, inclusive of the impacts of federal tax reform. Executives also said they expect AES to achieve investment-grade credit metrics by 2019, a year earlier than their prior forecast, as the company prepays $1 billion in debt in the first half of 2018.
Management indicated they expect the lower corporate tax rate to have a near-term annual impact to earnings of 5 to 8 cents per share after incurring a one-time noncash charge of $1.08 per share in the fourth quarter largely tied to the repatriation of foreign earnings.
"Now there remains a lot to be clarified on this law," Gluski said. "We're taking a conservative approach to it. ... Over time, it gets better as the effects of a lower tax rate kick in."
AES also is reshaping and de-risking its portfolio as it targets a 25% reduction in carbon intensity from 2016 to 2020. The company aims to reduce carbon intensity 50% by 2030 from 2016 levels.
As part of this initiative, AES in July 2017 created a joint venture with Siemens AG to focus on energy storage and bought renewable energy developer sPower through another joint venture with Alberta Investment Management Corp.
AES Executive Vice President and CFO Thomas O'Flynn said the venture is receiving "inbound indications of interest" to partner on sPower's operating assets. "Incorporating such a partner would further increase our overall returns and transition a greater percentage of our capital into sPower's robust development pipeline," O'Flynn said.
On the energy storage partnership, called Fluence, Gluski said the venture is pursuing more than 1,000 MW of sales opportunities in 15 countries. "The goal is for Fluence to consolidate its position as market leader in this high-growth market. Lithium-ion-based energy storage is expected to grow tenfold in five years, reaching at least 28 GW of global installed capacity by 2022," Gluski said.
Overall, AES will add up to 8,300 MW of new capacity by 2020, including about 7,000 MW of projects under construction or recently acquired.
These investments in clean energy come as AES plans to sell or retire about 4,300 MW of merchant coal-fired generation globally. In the U.S., AES subsidiary DPL Inc. and Ohio utility Dayton Power and Light Co. in 2017 revealed plans to exit coal generation by mid-2018.
"We're taking a balanced approach to decarbonizing our portfolio, recognizing that coal will continue to play a role," Gluski said.
AES expects its coal-fired capacity to decline to 29% from 41% by the end of 2020 compared to year-end 2015, while renewables and natural gas will increase to 68% from 55%.
Management also indicated they are targeting an additional $1 billion in asset sale proceeds from 2018 to 2020.
"Now depending on the quality of the asset, whether it's accretive or dilutive, that will depend," Gluski said in response to an analyst's question on the sale plan. "But this is baked into our vision of the future and what we will deliver. So we feel very comfortable about hitting that $1 billion target. Some could be selling out and some could be selling down."
The CEO dismissed the idea of selling the DPL and Indianapolis Power & Light Co., or IPL, electric utility subsidiaries to fund a carbon-free portfolio in the U.S.
"We're taking a balanced approach," Gluski said. "We can see that coal could have a role to play in some markets well into the future."
IPL's generation mix will drop to about 44% coal from 79% coal once the Eagle Valley combined-cycle plant comes online later this year, he noted. "We see this as a long-term sort of derisking."
Gluski added that the company has found ways to run its coal plants "at lower means" or "basically like large batteries" that run alongside renewable generation, while IPL and DPL complement the company's financial and operational strategy.
"So right now, we would consider those utilities as core to our business proposition," Gluski said.