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AES targets 12% to 16% EPS growth through 2018

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Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

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AES targets 12% to 16% EPS growth through 2018

is targeting 12% to 16%average annual EPS growth through 2018, driven primarily by new projects now underconstruction coming online.

"Approximately5% of this annual growth rate is driven by cost reductions and revenue enhancements.Another 8[%] to 10% of expected growth is driven by the 2.4 GW of construction projectscoming online in 2017 and 2018," AES President and CEO Andrés Gluski said May9 during the company's first-quarter 2016 earningscall. "Based on our strong market position in attractive high-growth markets,we're optimistic about our ability to drive growth beyond 2018."

AES expectsto commission "6 GW of new capacity from projects currently under constructionthrough the first half of 2019," Gluski said on the call, adding that the totalcapital expenditure for the projects is $7.5 billion, with 74% of investments inthe Americas.

"Ithink what we feel very confident saying is we're not going to, sort of, run outof growth projects in 2018," the CEO said when asked by an analyst how longthe company can sustain its anticipated growth rate. "We already have significantprojects that will come online [in] 2019, 2020, and we continue to work on waysto accelerate that rate of growth.

"Ithink we're going to remain the very disciplined company that we have been, certainlyover the last five years. We're going to be very disciplined and make sure [to not]fall into a rapid growth for growth's sake [scenario]."

Gluskisaid the company wants to "maximize" its business and has shown that itis "willing to have less megawatts and less clients under operation, but havea better risk profile and a better growth profile."

Generation projects

AES,in the first quarter, started construction on the 335-MW expansion of its Masinlocsupercritical thermal plant in the Philippines, which has a price tag of approximately$740 million. The new unit, funded with debt capacity and free cash flow generatedfrom the existing unit on-site, is expected online in the first half of 2019.

AES alsois in the advanced development stage of its 380-MW combined-cycle Colon gas plantand related LNG facility in Panama. The combined-cycle gas turbine is expected onlinein 2018 followed by the LNG facility in 2019. The expected total project cost isapproximately $1 billion, with AES equity expected to be around $200 million.

"TheColon project is strategically located near the entrance of the Panama Canal andwill be able to offer bunkering to the maritime industry as it starts to use naturalgas as a fuel," Gluski said.

The CEOadded that the company has made "good progress on the remaining regulatoryapprovals" for AES SouthlandLLC's repowering and energy storage project in Southern California.In late 2014, Edison Internationalsubsidiary Southern California EdisonCo. signeda 20-year power purchase agreement for 1,284 MW of combined-cycle natural gas capacityfrom AES Southland's AlamitosRepowering project and 100-MW AES Alamitos Energy Battery project.

AES expectsto break ground on these projects in 2017, with operations beginning in 2020 and2021.

"Weanticipate funding the $2 billion total project cost with a combination of nonrecoursedebt and $500 million in equity from AES and a possible financial partner,"Gluski said.

Battery storage

Outsideof its generation projects, AES has 394 MW of battery-based energy storage in operation,under construction or in late stage development, including the 100-MW Californiaproject.

"Weremain optimistic on the future of battery-based energy storage and our leadershipposition in this market," Gluski said.

AES plansto expand this business by 2017 from the four countries in which it already operates— the U.S., the U.K., Chile and the Netherlands — to India, the Philippines andthe Dominican Republic as well.

"Wesee growth in our energy storage business through two paths: AES-owned projects… and sales of our advanced energy storage solutions by AES and our channel partners,"Gluski said. "These sales will target utilities and other large energy storagecustomers."

"Wecontinue to work with local regulators to facilitate the development of market structuresthat enable new investments in battery-based energy storage," he added.

its new Advancion batterystorage technology and software in late 2015 at the Warrior Run site in Maryland. The 10-MW batteryarray is designed to smooth out changes on the electric grid on a second-to-secondbasis rather than complement a wind or solar installation.

It beganoffering services to the PJM InterconnectionLLC grid around November 2015.

"Weare in discussions with other potential partners to sell Advancion in additionalmarkets," Gluski said. "Although battery-based energy storage is stillearly on in its product cycle, we believe that Advancion presents an interestingopportunity for upside in our cash and earnings forecast."