President and Chief Executive Officer at AES
Good morning, everyone. And thank you for joining our second quarter 2022 financial review call. As you have seen from our earnings release, we reported second quarter adjusted EPS of $0.34, which was in line with our expectations and consistent with our historical quarterly earnings profile. Our CFO, Steve Coughlin will discuss our financial results in more detail.
Based on our year-to-date results and outlook for the second half of the year, we are reaffirming our 2022 guidance and our expectation for annualized growth in adjusted EPS and parent free cash flow up 7% to 9% through 2025.
I would also note that our guidance and expectations do not include any benefit for proposed US climate legislation which we see as a meaningful source of potential upside. As it would drive additional demand for renewables and energy storage and accelerate the development of green hydrogen projects in the US.
This morning I will discuss our strategy in the context of two broad themes. First, our resilience to macro-economic volatility, including high inflation high commodity prices, fluctuations in foreign currency and ongoing supply chain constraints. And second, continued strong demand for renewables, particularly from corporate and industrial customers. With this backdrop in mind, I will discuss the robustness of our business. And also review our disciplined approach to growth, both of which provide us with full confidence in our ability to hit our financial and strategic goals this year and beyond.
Beginning with our resilience, on Slide 4. As a result of the transformation of our portfolio over the last 10 years, our financial results this quarter were insulated from the impacts of rising inflation, depreciating US dollar and volatile commodity prices. We do not expect any of these factors to have any impact on our full year results.
As I have discussed on previous calls 85% of our adjusted pre-tax contribution is derived from long-term contracts for generation at our regulated utilities. For the 15% of our earnings, that is not derived from long-term contracts or Utilities, such as our legacy Southland business in California, or the 10% that is not denominated in US dollars, we have largely hedged both exposures.
In some cases, our strong contractual arrangements have allowed for additional upside. Throughout 2022 we have signed agreements to redirect excess LNG from Panama to international customers. The benefits of these agreements will accrue through the remainder of the year. And we have the potential to sign similar agreements next year, depending on market conditions.
Turning to construction and supply chain, on Slide 5. Our strategic sourcing and ability to execute on our commitments, our key competitive advantages and we expect to complete all of the projects in our 10.5 gigawatt backlog with no cancellations or significant changes. We take a proactive approach to working with our suppliers and as a result we had all of the solar panels required for our 2022 projects in country earlier this year.
More recently we work to quickly resume imports following the Biden Administration's June Executive Board and none of our suppliers panels have been stopped by customers this year. We also took decisive steps to further decrease solar panel suppliers by creating a more robust US supply chain.
In June, we launched the US Solar Buyer Consortium along with 3 other solar developers, to significantly drive the expansion of domestic solar manufacturing. Collectively, we committed to purchasing more than $6 billion of solar panels for manufacturers that can supply up to 7 gigawatt of solar modules per year made in the USA, starting from 2024.
Therefore, despite industry wide supply chain challenges, we do not anticipate any major delays to our US renewables backlog of 5.9 gigawatts. I would note that only 2 projects have been shifted from 2022 to 2023 and these were move, as a result of changes requested by customers. With no impact on our guidance and expectations for this year or next.
In addition, we recently broke ground on the largest utility-scale solar plus storage projects in the State of Hawaii. Across the state, we have more renewable projects under development and or under construction than anyone else.
As you can see on Slide 6, we anticipate completing 1.8 gigawatts of new renewable globally this year. 4.6 gigawatts next year, for a total of 6.4 gigawatts by the end of 2023.
Turning to Slide 7, looking to our future growth. We continue to see strong demand for renewables from our key customer groups. Despite increases in the cost of renewables resulting from inflation and supply chain constraints. The far greater increase in the cost of fossil fuels has made renewable energy even more price-competitive, as a result demand from corporate customers has never been higher.
So far this year we have signed have been awarded 1.6 gigawatt of long-term renewable PPAs. The majority of which have been negotiated on a bilateral basis. For full-year 2022 we continue to expect to reach a total of 4.5 to 5.5 gigawatt. As shown on slide 8, we now have a backlog of 10.5 gigawatt all of which is expected to come online through 2025.
Turning to Slide 9. I'd like to note that we currently have 13.7 gigawatts of renewables in operation. So this backlog of projects in construction or with signed PPAs represent more than 75% growth in our installed renewable capacity over the next four years. Including additional PPAs, we expect to sign by 2025 our portfolio will grow to almost 50 gigawatt of which 77% will be renewable. We also expect to have completely exited coal at that time. As we scale up in renewables, we continue to complement our portfolio with innovative businesses and solution, which require the best talent in order to deliver on our commitments.
Earlier this week, Fast Company recognized AES in their top 10 ranking of best workplaces for innovators and as the winner in the category of Best Workplaces for early career innovator. We are very proud of receiving this recognition and our innovative team and their many accomplishments.
Additionally, although we don't have any specific announcements to make today, we continue to make good progress on our two large green hydrogen projects in the US and Chile. These projects include the integration of electrolyzers and renewable and has the potential to provide significant new sources of growth. I will provide additional updates in the coming months.
In the meantime, we launched a 2.5 megawatt pilot project in Chile. This project will be a hydrogen fueling station and will produce up to one metric ton of green hydrogen per day.
Finally, turning to Slide 10. Growth opportunities at our US utilities represent one of the key drivers of our overall 7% to 9% annual growth in earnings and cash flow. This growth also advances our objective of increasing the proportion of our earnings from the US to 50%. As a reminder, in both Indiana and Ohio, we have the lowest residential rates in each state, providing a great runway for growth and investment while keeping rates affordable for our customers.
Through 2025, we expect to invest a total of $4 billion in new renewables generation, transmission, modernization and smart grid at our U.S. utilities. These investments will improve our customers' experience and translate to average annual rate base growth of 9%, which is at the high end of growth projection for U.S. utility. We expect the earnings from these core businesses to grow in line with the rate base.
At AES Ohio, we are currently awaiting the commission's decision on our distribution rate case. As a reminder, we see significant opportunity to invest to improve reliability and strengthen AES Ohio's balance sheet while remaining cost competitive.
With that, I will now turn the call over to our CFO, Steve Coughlin.