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AES Q4 2021 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing

Participants

Corporate Executives

  • Ahmed Pasha
    Treasurer and Vice President Investor Relations
  • Andres Gluski
    President and Chief Executive Officer
  • Steve Coughlin
    Executive Vice President and Chief Financial Officer
  • Unidentified Speaker

Presentation

Operator

Hello, and welcome to today's AES Corporation Q4 2021 financial review. My name is Bailey, and I'll be the moderator for today's call. [Operator Instructions] I would now like to pass the conference over to Ahmed Pasha, Global Treasurer and Vice President of Investor Relations. Ahmed, please go ahead.

Ahmed Pasha
Treasurer and Vice President Investor Relations at AES

Thank you, operator. Good morning, and welcome to our fourth quarter and full year 2021 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 Andres Gluski, our President and Chief Executive Officer; Steve Coughlin, our Chief Financial Officer; and other senior members of our management team. With that, I will turn the call over to Andres. Andres?

Andres Gluski
President and Chief Executive Officer at AES

Good morning everyone, and thank you for joining our fourth quarter and full year 2021 financial review call. Today, I will cover our full year results and discuss our strategy and areas of focus for this year. Before discussing our 2021 results and future plan, I want to state that we do not see any significant impact on our portfolio from the outbreak of hostilities in the Ukraine. Nonetheless, our thoughts and prayers go out to the Ukrainian people and government, and we hope for a speedy return to peace.

Now turning our focus back to our business. Today marks an important and exciting milestone for AES with the announcement of our intention to fully exit coal by year-end 2025. This accelerated goal is a result of our success in growing our renewables portfolio, and our backlog gives us the confidence to take this step. As a leader in the global energy transition, we are committed to the goals of the Paris agreement and achieving a net zero economy. We will work with our stakeholders to ensure a smooth transition while meeting our regulatory obligations. Our exit from coal will be modestly dilutive but we feel comfortable with our growth trajectory, and accordingly we are reaffirming our annualized growth target of 7% to 9% in earnings and cash flow Q [Phonetic] 2025.

Now moving onto our 2021 results and accomplishments. First, I am pleased to report our financial results including adjusted earnings per share of $1.52 which was in line with our expectation. Our 2021 parent free cash flow of $839 million exceeded our expected range of $775 million to $825 million. Second, we signed contracts for 5 gigawatts of new renewable projects significantly above our target of 3 gigawatts to 4 gigawatts that we set last year. In fact, according to Bloomberg New Energy Finance, AES signed more renewable deal with corporate customers in 2021 than anyone else in the world. Included in these deals were two groundbreaking arrangement to provide renewable energy on an hour by hour basis, 24 hours a day, seven days a week signed with Google and Microsoft. Third, Fluence successfully completed their IPO in November and have no foreseeable need for external funding to achieve their strategic and financial objective. Furthermore, Fluence has made progress towards mitigating the supply chain challenges they have faced which I shall discuss shortly. Finally, safety is our most important value. I'm very proud to report that our safety performance in 2021 was the best in our 40-year history with no major incidents recorded among roughly 25000 AES people, contractors and construction workers.

Today I will be discussing two things: First, executing today; and second, investing for the future. Beginning with executing today on Slide 4. Even as we are transitioning to a carbon free future, we are laser focused on delivering on our commitments. Our business model has proven itself to be resilient and enabled us to deliver predictable result. For example, 85% of our adjusted PTC is from long-term contracted generation and utilities, and 88% is in US dollars, with the remaining 12% split between euros and various Latin American currencies. Similarly, we are largely insulated from macroeconomic headwinds such as rising inflation and interest rates. As shown on Slide 5, 83% of our revenue is from businesses that have indexation clauses or are hedged to limit the impact from inflation. At the same time, almost 90% of our interest rate exposure is fixed or hedged protecting us from the impact of rising interest rate.

Next, turning to Slide 6. In January, we completed a tender to acquire the publicly traded shares of AES Andes, bringing our ownership from 67% to 99% today. This was motivated by our conviction in the underlying strength of the business which is highly contracted, predominantly in US dollars, and transiting to low carbon generation. This transaction is immediately earning and cash flow accretive. Moving to slide 7, we now have a backlog of 9.2 gigawatt including the 5 gigawatts we signed in 2021. About three quarters of the 5 gigawatt is in the US with the vast majority signed with C&I customers and to grow the rate base at our AES Indiana Utility. We have secured supply arrangement for the bulk of our current backlog. In 2021, we successfully added 2.1 gigawatt to our portfolio without any material delays or cost overruns. This execution demonstrated the robust nature of our supply chain and the strength of our relationships with our suppliers. For example, we secured Samsung battery for many of our new energy storage facilities to alleviate some of the supply chain challenges faced by Fluence. Being able to switch to different battery suppliers shows the inherent flexibility of their Gen6 product. As we look towards our 2.3 gigawatts of new projects coming online in 2022, two-thirds of which is in the US, we do not expect any significant delays or supply chain disruptions. We remain confident in our ability to complete our projects under construction on time and on budget.

Moving to our second theme, investing for the future on Slide 8. Our actions today to ensure that we will be able to take full advantage of the unprecedented transformation of our sector. One clear example is the 5 gigawatts of new PPAs that we signed last year, an increase of 65% from 2020. For full-year '22, we expect to sign 4.5 gigawatts to 5.5 gigawatts of new renewables under long-term contracts. We are seeing strong demand for renewables, and so far this year we have already signed more than 600MW of new contracts. We expect our portfolio of operating renewable assets to more than double from approximately 13 gigawatts to 26 gigawatts by 2026. Despite any current headwinds for our sector such as delays in legislation and supply chain issues, we see very strong demand for low carbon energy especially for tailored products, such as our 24/7 renewable offering. That is why we have been investing in growing our pipeline of future projects to ensure that we are able to meet our customers' growing demand for AES services.

As you can see on Slide 9, we now have a development pipeline of 59 gigawatt which we believe is the second largest among US renewable developers. Our pipeline includes almost 10 gigawatts in the US that are ready to bid. This robust pipeline provides us with the projects we need to deliver on our backlog and to continue to build on our competitive position in the US. As a result, we're accelerating our goal of increasing the proportion of earnings coming from our US businesses to 50% by two years, from 2025 to 2023. We are also investing for the future by growing the rate base at our US utilities by 9% annually while delivering safe, reliable and affordable services to our customers.

As you can see on Slide 10 AES Indiana is executing on the approved plan to retire two coal units which we will replace with nearly 500MW of new renewable generation. We have already started our next integrated resource plan process which could include additional retirement or fuel conversion for the remaining 1 gigawatt of coal generation. At AES, Ohio, we're executing on our smart grid and transmission investment programs approved in 2021. AES Ohio is also in the midst of a distribution rate case and recently completed the hearing. AES Ohio's base distribution rate have been the lowest in the state for the past five years. In fact, as of the end of 2021, AES Ohio's rates were 16% lower than the next lowest utility in the state, and even with the requested rate increase would remain the lowest.

Turning to Slide 11, another way we're investing for the future is by developing and incubating new products and businesses platforms to AES Next. Our investment in AES Next help our core businesses be more innovative and competitive, and drive value for our customers and shareholders.

Turning to Slide 12, the most mature initiative under AES Next today is Fluence, the leading energy storage technology company. In 2021, Fluence completed their IPO with $1 billion in capital raise to invest in developing their products and supply chain as well as their digital platform. As of December 31, Fluence had 4.2 gigawatts of energy storage product deployed and contracted, and a signed backlog of $1.9 billion. Additionally Fluence's digital platform Fluence IQ now has 6 gigawatts contract of which more than 80% is with third party customers. Over the past several months, Fluence has been dealing with short-term challenges stemming from COVID 19 related supply chain issues. Their management team has taken proactive actions to address these challenges including diversifying battery suppliers, signing new shipping agreements, and building out their in-house supply chain team. Overall, demand for energy storage remains robust and Fluence is well positioned as a market leader. We see significant opportunity for them to continue to grow and remain confident that they will execute on their long-term plan which will deliver value to their shareholders. AES Next is also working to develop and incubate other technologies that help accelerate the deployment of renewable as shown on Slide 13. One example is our investment in 5B, which has a pre-fabricated solar solution called Maverick that is hurricane wind resistant and allows projects to be built in one-third of the time and on half as much land. This innovative product is currently being rolled out in Australia, Chile, the Dominican Republic,India Panama and the US.

Turning to Slide 14, we're one of a small number of companies in our sector with targets that are fully aligned with the Paris agreement according to the transition pathways initiative. We already have a goal to have net zero emissions from electricity by 2040. And as I mentioned earlier, we're excited to announce our intent to exit coal completely by the end of 2025 subject to receiving necessary approvals. We expect to achieve this objective through a combination of retirement, fuel conversions, and asset sales. In summary, we have consolidated our position as the leader of innovation in the industry and accelerated the decarbonization of our portfolio while delivering attractive returns to our shareholders. With that, I now turn the call over to our CFO, Steve Coughlin.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

Thank you, Andres, and good morning everyone. Today I will cover the following key topics, our financial performance during 2021, our parent capital allocation, and our 2022 guidance and expectations through 2025. As Andres mentioned our results for 2021 show our continued progress in leading the energy transition while achieving our financial goals. We delivered strong financial results even while absorbing the previously discussed impact from the share count adjustment related to the equity units issued last year. Overall, the strong growth of our core energy business which includes generation and utility gives us confidence that we will continue to achieve our earnings and cash flow target.

Turning to Slide 16. Full year 2021 adjusted EPS was $1.52, $0.08 higher than 2020. 2020 adjusted EPS of $1.44 included $0.03 of dilution from AES Next implying that our core business generated adjusted EPS of $1.47. In 2021, our core business grew by $0.21 to $1.68 primarily as a result of higher contributions from new renewables businesses, improved operations at both US generation and MCAC, and lower parent interest. Our 2021 results of $1.52 include the $0.07 impact due to a higher share count as a result of the accounting adjustment for the equity unit and the dilution from AES Next where we are investing and expanding our high growth technology businesses. The impact from AES Next was $0.03 higher than our prior expectation due to the non-recurring COVID related supply chain issues at Fluence. Going forward, we plan to manage the AES Next portfolio such that these businesses will yield a neutral to positive contribution to AES earnings by 2024.

Turning to Slide 17. Adjusted pre-tax contribution or PTC was $1.4 billion for the year, an increase of $171 million and 14% growth over 2020. I'll cover our results in more detail over the next four slides beginning with the US and Utilities SBU on Slide 18. Our increased investments in the US showed PTC growth of $155 million, a 31% increase over 2020. As of year-end 2021, the US represented 41% of our adjusted PTC, up from 34% in 2020. About half of this growth was driven by new businesses at AES clean energy that came online in 2021, and the rest of the increase was from our legacy Southland unit which remained a key contributor to the stability of the California grid during the peak summer season and delivered solid growth from increased dispatch and attractive market prices. We continue to see the potential for some of our legacy Southland units to support the energy transition in California for several years to come. Lower PTC at our South America SBU was primarily driven by regulatory adjustments and recovery of expenses from customers that were recorded in 2020. Hydrology was not a major driver as we benefited from the increased diversity of our generation portfolio and favorable hydrological conditions in Colombia offset drier conditions in Brazil. Higher PTC at our MCAC SBU reflects higher LNG sales in both Panama and the Dominican Republic as we benefited from higher contract levels at our LNG terminals. We now have roughly 80% of our LNG capacity contracted leaving approximately $20 million to $30 million of potential annual upside to our longer-term expectations. Finally in Eurasia, higher PTC was primarily driven by higher contributions from Bulgaria due to improved operating performance at Maritza and increased revenue at our wind farm which benefited from favorable market prices.

Now let's turn to review of how we allocated our capital in 2021 on Slide 22. Beginning on the left-hand side, sources reflect $2.3 billion of total discretionary cash, and I'm pleased to report that this includes parent free cash flow of $839 million which exceeded the top end of our guidance expectation. The remaining sources are largely in line with our prior disclosures except the $295 million in temporary drawing under our revolver which we utilized to fund our accelerating growth in clean energy. Moving to the uses on the right hand side. We allocated $450 million of our discretionary cash to our dividend. We invested nearly $1.8 billion in our subsidiary of which approximately two-thirds was in the US. As Andres mentioned, we expect the relative share of our allocation for the US to continue to grow, and I'm glad to report that we now expect to reach our goal of 50% of our earnings coming from the US in 2023, two years earlier than our previous target in 2025.

Now turning to our credit profile on Slide 23. As a result of the successful execution of our strategy over the last few years, our balance sheet continues to be in a much stronger position. We significantly reduced debt while growing our parent free cash flow. At the end of 2021 our parent free cash flow to net debt ratio was approximately 23% which is well above the 20% threshold required for an investment grade rating. We expect this ratio to continue to improve over time putting us in BBB territory by 2025. We are in active discussions with Moody's and remain optimistic that we will be upgraded this year.

Turning to our guidance and expectations beginning on Slide 24. We are reaffirming our annualized growth target of 7% to 9% in both adjusted EPS and parent free cash flow through 2025 off a base year of 2020. Today we are initiating guidance for 2022 adjusted EPS of $1.55 to $1.65. Key drivers of our expected growth include the approximate $0.09 benefit from our higher ownership of AES Andes which we increased to 99% as Andres mentioned earlier. This transaction is immediately significantly accretive on both an earnings and cash flow basis, and with a simplified shareholder base AES Andy will be able to more efficiently execute on its substantial renewables pipeline. Our adjusted -- our 2022 adjusted EPS will also benefit from continued growth in renewables and higher contributions from existing operation adding $0.10. This growth is expected to be partially offset by $0.11 of impacts from a higher adjusted tax rate, a full year of a higher share count due to the accounting adjustment for the equity units issued in 2021, and assumed dilution from planned asset sales. Our target for this year has increased to reflect our efforts to further decarbonize and fully exit coal by the end of 2025. I would also note that we previously expected the pending distribution rate case case of DPL to be resolved earlier in the year. However, we now expect resolution later this year and therefore have assumed only a small contribution in 2022.

Turning to Slide 25. Parent free cash flow for 2022 is expected to be $860 million to $910 million in line with our annualized growth target of 7% to 9%. Now turning to our 2022 parent capital allocation plan on Slide 26. Beginning with approximately $1.5 billion of sources on the left hand side, in addition to parent-free cash flow we expect to generate $500 million to $700 million in asset sale proceeds, roughly half of it is from already announced sales in Vietnam and Jordan and the remaining portion is expected to come from additional asset sales that have not yet been announced. Recycling of capital is an integral part of our capital allocation framework, and as we have done in the past, we will deploy asset sale proceeds to achieve our strategic objectives and maximize shareholder value.

Now to the uses on the right hand side. We expect to allocate $494 million to our shareholder dividend which reflects our announced 5% increase. We are also projecting investment of roughly $1 billion in our subsidiaries for growth, of which about three quarters will be allocated to the US to renewables and utility. Finally, turning to our four-year capital allocation plan through 2025 beginning on Slide 27. Our financial strategy is centered around maintaining a strong investment grade rated balance sheet while investing in our growth to achieve our strategic and financial objectives. Our total growth investments for 2022 through 2025 have increased to $3.8 billion. We expect to continue to increase our dividend 4% to 6% annually in line with our prior guidance. As you can see on Slide 28, we plan to fund the $6 billion with 60% parent-free cash flow, and the remaining 40% will be from asset sale proceeds and future parent debt issuances. Relative to our prior plan you may notice that we have increased asset sale proceeds by $500 million and future parent debt by $300 million which will be utilized to fund our future growth and repay drawings on our revolver that funded the higher growth from 2021. In summary, we accelerated AES growth in 2021 and executed on our financial and strategic commitment. Going forward, we will continue to deliver on our strategy including executing on asset sale to decarbonize and exit coal, maintaining the strength of our balance sheet, and allocating capital to maximize per share value for our shareholders. With that, I'll turn the call back over to Andres.

Andres Gluski
President and Chief Executive Officer at AES

Thank you, Steve. As you can see, we're not only delivering on our commitments but accelerating our transformation. Our near term actions will enable us to achieve our three goals for creating additional shareholder value. First, attaining an investment grade rating from Moody's in 2022. Second, increasing the proportion of earnings from the US to 50% by 2023. And third, exiting coal generation by the end of 2025. With that I'd like to open up the call to questions.


Questions and Answers

Operator

Thank you. [Operator Instructions] Our first question today comes from Angie Storozynski from Seaport. Angie, please go ahead. Your line is now open.

Angie Storozynski
Analyst at Seaport Ventures

Thank you. So my first question, and I see your disclosures on sensitivities. But I'm just wondering if you could describe the impact of the higher power price environment that we're seeing pretty much everywhere in the world on your both existing assets and growth prospects. I mean, any sort of increased economic dispatch and how -- and the appeal of renewables and how those are embedded in your '22 guidance and long-term growth.

Andres Gluski
President and Chief Executive Officer at AES

Good morning, Angie, and thank you. Basically, as you know we're highly contracted. But what we're seeing in terms of higher prices for oil-based generation in many of our markets that favors us because we're much more hydro renewables and even coal. In places like where we have a big plant in Europe in Bulgaria, our plant is now very much cheaper than the other generations in the country. So we're seeing improved prospects for a lot of our generation because we are not a big generator using international price gas, most of our gas units are running on Henry Hub, or almost all. And so we're basically competing against those very high prices. So even though we're highly contracted, there's always some margin. So that's positive. It's also positive on the renewable front and on the innovative front because I think people are saying that renewables in an environment where gas prices can be more volatile is favorable. So in the net-net, overall it's positive for us in the short run and certainly even more so in the long run because as I said, we are highly contracted.

Angie Storozynski
Analyst at Seaport Ventures

Okay, just one follow-up. How about your LNG business? Is there any near-term or longer term impact?

Andres Gluski
President and Chief Executive Officer at AES

Well we are contracted now in Panama and the Dominican Republic basically at Henry Hub -- Henry Hub plus of course. So it's favorable to us in that prospect. Now, when those contracts burn off in a couple of years then we have to see when the re-contracting levels will be, and hopefully there will be more supply of gas at that point in time.

Angie Storozynski
Analyst at Seaport Ventures

Okay. And just one other question. So you show the impact -- or the drag on earnings from asset sales, if you could comment a little bit it, does that include any of those accelerated coal plant shutdowns or sales? Again I'm trying to -- I'm just trying to reconcile the earnings impact of the transactions already announced.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah, hey Angie, this is Steve. So yes, we are -- consistent with the announcement to exit coal, we are increasing our total asset sale plan to a $1 billion and then we have increased the sale target this year to $500 million to $700 million. So yes, it does reflect in part the announcement that we made today. We had prior announcements in the past about Vietnam and in Jordan, so that's a portion of it, but the additional portion reflects the updated strategy to accelerate our exit.

Andres Gluski
President and Chief Executive Officer at AES

Just to be clear, it's fully reflected, so some of it had been included in the past. It reflects a 100% of the additional.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah.

Angie Storozynski
Analyst at Seaport Ventures

Okay. And my last question on Ohio, a delay in resolution of the rate piece. Is there -- I mean is there something that we should be concerned about or is this just that the process takes longer?

Unidentified Speaker
at AES

Sure. Hey Andy, this is Amit. I think no, I don't think there is. It's a process because previously we were hoping to settle, and now we are going through -- because we could not reach a settlement although the staff had recommended a reasonable increase in response to our request. And one of the interveners OCC subsequently argued that the rate freeze should remain intact and now we are going through the political process. But we think our request is fair and is driven by the cost which are out of our control. And frankly, primarily to deliver the more reliable and economic power to our customers. So we think we will get through this by mid this year, the approval from the Commission. So net-net, our rates are the lowest in the State and will remain lowest with this requested increase. So we feel pretty good that Commission will approve our request by mid to late '22.

Andres Gluski
President and Chief Executive Officer at AES

So in summary it's just the timing issue. Yeah.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah, it's the timing, and in fact the PUCO staff did support an increase as part of the process already.

Unidentified Speaker
at AES

Yes, did recommend. Yeah.

Angie Storozynski
Analyst at Seaport Ventures

Okay, thank you. Thanks.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

Thank you.

Operator

Thank you, Angie. The next question today comes from Richard Sunderland from JP Morgan. Rich, please go ahead. Your line is now open.

Richard Sunderland
Analyst at JPMorgan Chase & Co.

Hi, good morning, thanks for the time today. Maybe starting on 2022 guidance, could you walk from the outlook a year ago at the Investor Day, so now in terms of AES Next, the rate case and other factors separate from the equity units issued called out in terms of changes from the 7% to 9% growth rate versus the growth is embedded in the current guidance?

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

Yes, sure. Hey, this is Steve. So, really the two primary drivers -- or a couple. So our growth is faster. So we've accelerated our renewables growth. Now that's been offset by the additional share count of course, as we talked about last year. Now again, we took advantage of the value opportunity with Andes. So we've largely offset the share price -- share count dilution with our acquisition of the additional shares in Andes. So really what's then changed on a net basis is more on the asset sale program which we just talked about and how we are accelerating our decarbonization and our exit of coal. And then the other real driver is the -- is what we also just talked about which is the DPL rates which we previously assumed would be in effect early this year, and now are assuming late this year. So those are really the two primary drivers. And then there is an uptick in the tax rate from the past. At this point we're guiding to 26% to 28% on the tax rate. So that's the piece of the story as well.

Richard Sunderland
Analyst at JPMorgan Chase & Co.

Understood. So then just kind of walking forward in terms of regaining the 7% to 9% trajectory in the second half of the plan, I guess you called out the rate cases and timing factor. Could you just speak a little bit more to how you see the growth coming in to kind of regain the 7% to 9% trajectory?

Andres Gluski
President and Chief Executive Officer at AES

Sure, this is Andres, I'll give a sort of high level. Look, we have a backlog of 9.2 gigawatts of projects. This year we'll be commissioning 2.3 gigawatts. So obviously in a steady state, these two have to be about equal. And so what you're going to have is a real pickup in commissionings '23, '24 going forwards. So we feel very confident about that because those are already signed projects. We already have the sites and now it's a question of executing on building them. The other one is that we expect AES Next as Steve mentioned is going to be neutral to positive by 2024. So that's a driver as well. So, the drivers are our growth which is part of our backlog what we're talking about, and then we're also talking about the other things you mentioned DPL rate case in IPO. Again, when we build all the wind and rate base that as well, you have the smart grid and DPL. So our growth projections are based on things that we had in the bag.

Richard Sunderland
Analyst at JPMorgan Chase & Co.

Got it. Understood. And just one more for me. The unannounced asset sales that the incremental portion versus the prior plan, is that solely related to the coal exit or is there anything else you're looking at maybe LNG or elsewhere?

Andres Gluski
President and Chief Executive Officer at AES

Look, we tend not to talk about the exact assets that we're going to sell. As you know we've been always churning capital. We've made a major transformation of our portfolio. I can think back we peaked at probably 22000 megawatts of coal, we're down to 7000. We have basically sales for three of those, so we're down to 4000. So, yes part of it is selling those called assets, but also the continual churn that we have, so it might include other assets. We don't like to comment on them, but we will be hitting our 50% US, 50% renewables on an accelerated basis. And those sales help us achieve those goals.

Richard Sunderland
Analyst at JPMorgan Chase & Co.

Great. Thank you for your time today.

Andres Gluski
President and Chief Executive Officer at AES

Thank you.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

Thanks.

Operator

Thank you, Rich. The next question today comes from Insoo Kim from Goldman Sachs. Insoo, please go ahead. Your line is now open.

Insoo Kim
Analyst at The Goldman Sachs Group

Yeah, thank you. My first question going back to that 9.2 gigawatts of backlog, it seems unchanged from the amounts you've set out in the third quarter earnings. Just wondering if there's any read through in the current inflationary environment at least just for this year with any resistance or unwillingness for additional contracts to be signed for now?

Andres Gluski
President and Chief Executive Officer at AES

That's a good question. No, we're not seeing that at all. We seeing strong demand, of course, if the backlog remains constant. Yeah, we commissioned quite a lot of projects between the third quarter and now. So already this year we have 600MW of new PPA signed in the -- under AES clean energy. We're seeing strong demand especially for our tailored projects. So, no, I don't think there is, -- what we're seeing in the market is, again, especially for differentiated products there's a lot of demand, it's a matter of being able to have all the projects that are in pipeline to be able to meet that demand, meet the structured project -- product that they want. I would say that, yes, PPA prices are going up to reflect the increase in prices. But as you know we've handled the supply constraints, first, I'd say the importing of solar panels from China. PV panels from China that we were able to first move out of China and then second, we're diversifying the source of our polysilicon away from China as well. And so we're not seeing that as a constraint. As we said, we have an inventory of everything that we need to fulfill certainly this year's construction and also already assigned a lot of the backlog. So [Indecipherable] position.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

I would just also add on the numbers specifically. So as you said, as Andres alluded to, there are some tractions coming from that backlog. So as we're completing construction, completing acquisitions. So there's about 1.5 gigawatts that we actually pulled out of the backlog because of completion. So net-net, there is significant additions going in too.

Insoo Kim
Analyst at The Goldman Sachs Group

Okay. That's both good color there. Thanks. And maybe, Andres, just a broader question for you. I think the three key points that you guys made on this call to accelerate a coal exit plan, the US earnings being 50% earlier, and then the IG plan. Those are all I think good strategies. But I guess when we think about the investor base and how over the past few years the structure of growing EPS and having the consistent dividend, all of that to mirror kind of a utility like structure. I think it served you well as you've consistently executed at least over the past few years. Just wondering when you think about strategy and the cost benefit of the actions you're taking on the asset sales and whatnot, maybe having a near-term dilutive impact, I just wonder -- just wondering your strategy on that going forward and whether that's worth taking the hit now versus kind of trying to make a more consistent or a predictable growth profile.

Andres Gluski
President and Chief Executive Officer at AES

Well, that's a great question. Look, we are laser focused on delivering on our commitments. So we haven't changed our growth profile, maybe to some extent a little bit back end loaded because of the dilution that we're putting in for earlier sales. However, I think the strategy has served us well. We've gone from 22000MW of coal to completely exit by the end of 2025, and we think that's what a lot of new investors will like. So we think we will have the triple investment grade. We have a growing dividend. We are continually de-risking as we get out of -- we are more concentrated in the US and more concentrated on renewables. So we think this will be a company that will attract new additional shareholders and continue to serve our existing shareholders well.

Insoo Kim
Analyst at The Goldman Sachs Group

Understood. Thank you so much.

Operator

Thank you. Our next question today comes from Julien Dumoulin Smith from Bank of America. Julien, please go ahead, your line is now open.

Julien Dumoulin-Smith
Analyst at Bank of America

Hey, good morning team. Thanks for the time and the opportunity here.

Andres Gluski
President and Chief Executive Officer at AES

Good morning, Julien.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

Good morning.

Julien Dumoulin-Smith
Analyst at Bank of America

Yeah. Thank you. Excellent, perfect. So just a couple of follow up items here if I can. So when you talk about asset sales that's more specifically driving to a neutral to positive outcome for AES Next, I mean how does one view that? Are further divestments and sell downs of your stakes part of how you manage those earnings or is this really about managing it organically to make sure that whether it's Fluence or other pieces of the business, they ultimately all cohesively drive to an inflection in earnings contribution here in that '24 timeframe. So, I want to clarify that.

Andres Gluski
President and Chief Executive Officer at AES

Yes, no, that is organic. We expect the business to turnaround, a lot of what have occurred this year is one-time related to COVID, both on the supply chain, in fact -- of course, include shipping as well. So we expect the business to turn around. As they said on their call, they expect to be at a gross margin run rate by the fourth quarter. And so we will hold them accountable for that and -- through the Board and we continue to innovate together. So both the big companies are Fluence and Uplight and we own expect them both to execute on their plans and that is an organic. Again, what we are mentioning is that we always have many levers to pull. So what we're saying is by 2024 this will be positive or -- neutral at worst and hopefully positive.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

And I would just add, Julien, if you think about the stage of these businesses, they're investing in their product development and in their market expansion, the Digital IQ for Fluence for example. So you'd expect them to be bottom line losses at this point of their lifecycle. And as Andres said they have a plan to get back to the gross margin targets by the fourth quarter. And then with the added volume as that grows -- the top lines have been very successful. As the volume of the margin grows, then the bottom line of that business will overcome its R&D and G&A costs and get to a positive place.

Julien Dumoulin-Smith
Analyst at Bank of America

Got it. And if I can come back to one of the underlying points you -- obviously you have a long-term earnings trajectory and growth in '22 is a little bit slower than that trajectory would otherwise indicate. So, if you will, there has got to be a pickup at some point here. You've talked about some of the timing related issues specifically in '22. How do you think about that sort of inflection, that catch-up period, is there a bigger step-up in say, '23 or '24. Just curious about the sort of the profile against average [Technical Issues] there.

Andres Gluski
President and Chief Executive Officer at AES

Of course we can't guide to '23, '24 specifically, but obviously if you look at the number of PPAs we have signed which will come online in '23, '24, that's the big driver behind that. If you also look at the rate cases that we have in the utilities in the US, that's a big driver of that as well. So that's a pickup. I mean, realize that for '22, we're also making up for the change in how it is accounting -- the accounting the issue that we had for the share count. So, actually we are more than delivering on what we had set out say two years ago. So we're making up a $0.09 hit for this year based solely on how you account for the number of shares.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah. And I think in addition to that, the opportunity to take advantage of the value in AES Andes, an increase in the shares, that was significantly earnings in cash accretive immediately and will continue to be. So that's a big [Indecipherable] to us too.

Julien Dumoulin-Smith
Analyst at Bank of America

In fact if I may, and again, I [Indecipherable] provide longer-term guidance. But given what you just said a moment ago and you offset some of the '22 [Indecipherable] that are some more technical here. I mean to what extent could we expect an extension or acceleration, if you will, implicitly given what your successes on renewables, the ability to drive that catch up against your 7% to 9% in the later years and what that means for sort of an exit rate trajectory subsequent to [Indecipherable] '25 and beyond. You get what I'm saying? If the plan is that [Indecipherable] about the longer-term?

Andres Gluski
President and Chief Executive Officer at AES

Well, again, we're very optimistic about the longer-term and we feel we are in the right place in the market that we have differentiated products, we have -- growing very fast in renewables, we in the right markets and we have upside potential from projects like in green hydrogen we have a number of projects that we're progressing there. I think something that will give us additional juice is the path of the climate plus plan which we'll clarify what are the various subsidies or if you want tax tax percentages, tax ITC, PTC et cetera. So once that's clarified, that could give us upside. And then also as Steve mentioned in his speech, a greater use of our facilities in Southern California, a longer and extension of it which looks technically possible. So there certainly are upsides from that. What we're doing is saying based on the situation that we're in today, this is our plan.

Unidentified Speaker
at AES

The only thing I would -- Julien, I would add, this is Amit, is that back in March last year at our Investor Day we had already assumed significant dilution because we said our goal is to go below 10% coal by '25. So our growth rate already had embedded at that time decent dilution. We showed that roughly $0.30 at that time. So I think now we are saying we are down to zero. So I think we -- and the factors that we've discussed today, the positive things that go in our favor like increased share in AES Andes, accelerated growth in renewables, things like that will help us offset that. So we don't expect any hockey stick if you wish type profile, if that was your question.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

And the share count change was baked in Julien for '24 and '25. So that's relative to the near-term guidance that's having a disproportionate effect on '22 and '23 but as for '24 those shares were assumed to be converted anyway so they're already baked in.

Julien Dumoulin-Smith
Analyst at Bank of America

Right. Clearly, but again, you give me no reason to be less confident here. Thank you, guys. I appreciate it.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

Thank you.

Operator

Thank you, Julien. The next question today comes from Durgesh Chopra from Evercore ISI. Durgesh, please go ahead. Your line is now open.

Durgesh Chopra
Analyst at Evercore ISI

Hey, good morning team. Thank you for taking my question. I want to go back to the renewable backlog, and I think, Steve, you said there -- that the projects that were completed and taken out and few new adds. So there is a fair bit of gas in that 9.2 gigawatt number, can you elaborate what -- those are gas-fired plants, are those LNG projects? What does that comprise of?

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah so we do have -- so we have a project that we acquired in Panama in those numbers, the Gatun project is included, otherwise it's renewables.

Andres Gluski
President and Chief Executive Officer at AES

Yeah. And just -- we own 25% of the project -- the gas project in Panama. So we -- actually we own higher percentages of the renewables.

Steve Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah. Yeah, the whole, the whole amount is reflected here but from an economic standpoint we own more of the renewables.

Durgesh Chopra
Analyst at Evercore ISI

Okay. Maybe I could just follow-up with Amit on that. Okay, and then just can you talk about sort of how should we think about the financial impact if any of the Community Energy acquisition. I mean in terms of financing costs and things like that on 2022 guidance and future earnings projections?

Andres Gluski
President and Chief Executive Officer at AES

Yeah, the community -- look, we've grown our AES Clean Energy very quickly. We've merged our sPower with distributed energy and then we've also acquired Community Energy. Now, Community Energy comes with a pipeline of 10 gigawatts and 70 seasoned professionals. And so it was very important in this time of rapid growth to have first, the people, and second the pipeline. So that's going to help our growth. Now, in terms of their projects, when those will be offered to our customers and come online, they did -- no backlog is coming from Community Energy, but certainly we think that we can get better financing terms and better costs for equipment and improved execution. So that's upside from that. So I don't know if that answers your question but basically, you know, that there are now part of that unit. And what they've done is help us accelerate their growth.

Durgesh Chopra
Analyst at Evercore ISI

Got it. Okay guys, thank you for that color. Appreciate the time.

Andres Gluski
President and Chief Executive Officer at AES

Thank you.

Operator

Thank you. The next question today comes from Stephen Byrd from Morgan Stanley. Steven, please go ahead, your line is now open.

Stephen Byrd
Analyst at Morgan Stanley

Hey, good morning.

Andres Gluski
President and Chief Executive Officer at AES

Hey, good morning, Steve.

Stephen Byrd
Analyst at Morgan Stanley

I wanted to first just talk about the Chile and just wondering if you could expand a bit on the dialog you've had with its laying government in terms of helping the nation to decarbonize and pursuing green ammonia. And just a little bit more color on the nature of that dialog?

Andres Gluski
President and Chief Executive Officer at AES

Sure. Well, I think we know that -- the new President [Indecipherable] through the Council of America as we know about him. I would say that it's very much aligned with our plans because he wants to continue to decarbonize the mining sector. That would fit in well with our project to supply the mining sector with hydrogen fuel for their large machinery. Also it fits in very well with our planned shutdowns of our coal plants and their replacement for -- with our pipeline of renewables. So I think we're very much aligned with that plan. And I think he wants to increase and accelerate the carbon tax. So we don't see -- our contracts have pass-throughs -- or the higher carbon tax in most cases and our renewables would benefit from it. So we felt there was a tremendous opportunity at AES Andes. And we're running a lot of new technology out in Chile in terms of batteries, in terms of the Maverick, product for 5B. We have we believe the most efficient solar farm in the world that's close to 38% in Chile. So we have a lot of good things happening in Chile which weren't reflected in the market price. And in terms of the government, our plans are very much aligned with what they want to achieve.

Stephen Byrd
Analyst at Morgan Stanley

Very good. And then just another topic I've been getting some questions on is just El Salvador and the state of the economy. I guess I've been seeing that there has been fairly good economic growth in El Salvador, it's an important country for you. There is some concern though about the linkage with Bitcoin and just sort of the overall sort of growth and stability potential there. I wonder if you could just expand a little bit on what you're seeing in El Salvador and sort of the outlook there for your business there?

Andres Gluski
President and Chief Executive Officer at AES

Look, our business in El Salvador has been very stable. The dollar is the currency of the country so Bitcoin is not going to replace it. And certainly with the volatility that Bitcoin has had, it's not feasible. They did do one financing in Bitcoin that I am aware of. So I don't see a change there. The biggest export of El Salvador is people, and especially if you live in the DC area. So it's remittances that drive the economy. So a big factor there is that the US economy is doing well. So I'd say the thing to watch in El Salvador is we always have to be on top of collections, and those are doing very well. So I know there's some noise. There is some political noise and there have been some announcements like Bitcoin but we don't see anything that would substantially affect our business.

Stephen Byrd
Analyst at Morgan Stanley

It's very clear and very helpful, thank you so much.

Andres Gluski
President and Chief Executive Officer at AES

Thanks, Steve.

Operator

Thank you. [Operator Instructions] The next question today comes from Gregg Orrill from UBS. Greg, please go ahead, your line is now open.

Gregg Orrill
Analyst at UBS Group

Thank you. I'm sorry if you covered this, but what was the last 10% on -- that relates to the exit of coal by '25? What steps get you there?

Andres Gluski
President and Chief Executive Officer at AES

Yeah. So that was our previously stated goal. So we're just above 20%, around 20% this year. And so our previously stated goal is to get below 10% by 2025 and that is through a combination of asset sales, retirements, fuel conversions. So it's -- what we've talked about today is really just a full exit by the end of 2025. And so that's really the difference there.

Gregg Orrill
Analyst at UBS Group

Can you be any more specific plant wise?

Andres Gluski
President and Chief Executive Officer at AES

Greg, well, I'd put it this way. Again, in the big -- if you look over time. I mean, we've gone from 22 to 7 we've already signed, about -- of that 7, about half of it's already basically sold and we have to disclose the sales, so you're left with a number of plants and there is a combination of replacements, let's say for renewables. There is fuel conversions, where we can start running those plants on gas. And those few cases where we -- that does not work, then there's obviously the possibility of asset sales. So just like we've been doing over, we're just accelerating that and saying, look, rather than have 10% linger on for a couple of years, let's just go ahead and bite the bullet and say, we're out of coal by end of '25.

Gregg Orrill
Analyst at UBS Group

Got it. Thank you.

Andres Gluski
President and Chief Executive Officer at AES

Thank you.

Operator

Thank you, Gregg. There are no additional questions registered at this time, so I hand the call back to Ahmed Pasha for closing remarks. Ahmed, please go ahead.

Ahmed Pasha
Treasurer and Vice President Investor Relations at AES

Thanks everyone 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 great day.

Operator

[Operator Closing Remarks]

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