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S&P 500   5,087.03
DOW   39,069.11
QQQ   438.07
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Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
Roku stock and the mother of all entry opportunities
AI powerhouse NVIDIA will hit $1000 soon
Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
Nvidia, Royal Caribbean rise; Rivian, Etsy fall, Thursday, 2/22/2024
Rivian shares gets discounted; shares can move lower 
Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
The Trade Desk: 3 reasons to buy before a new all-time high
Wall Street sees a solid year ahead for homebuilders, though mortgage rates remain a wildcard
S&P 500   5,087.03
DOW   39,069.11
QQQ   438.07
Top-Rated AMD nears major breakout level
Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
Roku stock and the mother of all entry opportunities
AI powerhouse NVIDIA will hit $1000 soon
Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
Nvidia, Royal Caribbean rise; Rivian, Etsy fall, Thursday, 2/22/2024
Rivian shares gets discounted; shares can move lower 
Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
The Trade Desk: 3 reasons to buy before a new all-time high
Wall Street sees a solid year ahead for homebuilders, though mortgage rates remain a wildcard
S&P 500   5,087.03
DOW   39,069.11
QQQ   438.07
Top-Rated AMD nears major breakout level
Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
Roku stock and the mother of all entry opportunities
AI powerhouse NVIDIA will hit $1000 soon
Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
Nvidia, Royal Caribbean rise; Rivian, Etsy fall, Thursday, 2/22/2024
Rivian shares gets discounted; shares can move lower 
Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
The Trade Desk: 3 reasons to buy before a new all-time high
Wall Street sees a solid year ahead for homebuilders, though mortgage rates remain a wildcard

AES Q4 2022 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing

Participants

Presentation

Operator

Good morning, and a warm welcome to the AES Corporation Fourth Quarter and Full Year 2022 Financial Results Call. My name is Candice, and I will be your moderator for today's call. [Operator Instructions]

I would now like to hand you over to our host, Susan Harcourt, Vice President of Investor Relations. The floor is yours. Please go ahead.

Susan Harcourt
Investor Relations at AES

Thank you, operator. Good morning, and welcome to our fourth quarter and full year 2022 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. 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 Gluski
President and Chief Executive Officer at AES

Good morning, everyone, and thank you for joining our fourth quarter and full year 2022 financial review call. Today, I will discuss our 2022 financial results and strategic accomplishments, as well as our 2023 guidance. Steve Coughlin, our CFO, will discuss our financial results and outlook in more detail shortly.

Beginning with our 2022 results and accomplishments on Slide 3. I am very pleased with our performance in 2022, which was our best year ever. Adjusted EPS came in at a $1.67, above our guidance range of $1.55 to $1.65. This accomplishment is primarily the result of three factors; strong performance across our portfolio, growth in renewables, particularly from solar and energy storage in the US, and the benefit of embedded optionality in our LNG contracts.

Turning to Slide 4. I would like to highlight an area in which we are particularly proud of our performance, our success in bringing our construction projects online. In 2022, despite numerous market-wide challenges throughout the year, we added approximately 2 gigawatts of new projects to our portfolio, which was consistent with our expectations at the beginning of the year. Our success was the result of the extensive work we have done to develop the people, processes, and solid supplier relationships to rapidly expand our portfolio of renewables.

We see our ability to execute as the source of competitive advantage that is highly valued in the marketplace. Not only does it support our strong global customer relationships, but it also contribute to our confidence in our long-term forecast. In addition to our execution, 2022 was a year where we focused on taking actions that will position us well for future growth. These actions included signing a record number of new PPAs for projects that we will complete in the coming years, investing in our pipeline of future projects, creating a leading position in green hydrogen, establishing strong regulatory foundation to support future utility growth, and achieving significant coal phase-out milestones in Hawaii and Chile.

As you can see on Slide 5, 2022 was a record year for PPA signings for AES. We signed 5.2 gigawatts of renewables under long-term contracts, increasing our backlog to 12.2 gigawatts. In fact, for the second year in a row, BNEF reported that AES signed more renewable deals with corporate customers than anyone else in the world. This included an expansion of our 24/7 structured projects.

Moving to Slide 6. We also worked hard throughout the year to grow our pipeline of future projects, which increased by 25% to 64 gigawatts, including 51 gigawatts in the US. We see extensive and growing demand for renewables worldwide and expect that in the future, a key limitation to growth will be the availability of projects. We have been preparing by investing in land, interconnection and permitting work to advance the projects that will be used for future PPA signings.

Turning to Slide 7. We also established ourselves as a leader in green hydrogen. In December, we announced a partnership with Air Products to develop, build, and own and operate the largest green hydrogen production facility in the US. This project will have the capacity to produce more than 200 metric tons per day of green hydrogen and will include approximately 1.4 gigawatts of wind and solar generation. It builds upon the expertise we have developed in combining renewables to create around-the-clock carbon-free energy. This project has the potential to serve approximately 4,000 trucks, which, while significant represents less than 0.1% of the current market for long-haul trucking. As such, we see a massive total addressable market for decarbonizing the transportation sector.

Turning to Slide 8. Another focus of our 2022 work was to develop strong regulatory foundations for future growth at our US Utilities, where we expect to grow the combined rate bases 9% annually through 2025. Specifically, at AES Ohio, we filed a new Electric Security Plan, or ESP4, to enhance and upgrade the network and improve service reliability. With the lowest T&D rates in the states across all customer categories, AES Ohio is well positioned to make the much needed customer-centric investments. A ruling by the Ohio Commission on ESP4 is expected this summer.

Finally, we are pleased with the constructive outcome of AES Ohio's distribution rate case, in which the Ohio commission approved an annual revenue increase of $75.6 million. At AES Indiana, we filed our Integrated Resource Plan, or IRP, with the Indiana Utility Regulatory Commission in December. AES Indiana's near-term plan includes the conversion of the utility's last two coal units to natural gas in 2025, using an existing onsite gas pipeline. It also includes the addition of up to 1.3 gigawatts of new wind, solar, and energy storage by 2027 and should reduce AES Indiana's carbon intensity by two-thirds from 2018 to 2030. This plan is an important step to fully transition away from coal and provides the opportunity for substantial additional investments at AES Indiana.

Now turning to our outlook for 2023 on Slide 9. Today, we are initiating adjusted EPS guidance of $1.65 to $1.75 and reaffirming our long-term growth rate of 7% to 9% through 2025 for both adjusted EPS and parent free cash flow, off a base year of 2020. Our focus this year will remain on execution. As you can see on Slide 10, we expect to complete approximately 3.4 gigawatts of new projects, including 2.1 gigawatts in the US. I will note that our 2023 guidance range does not include a potential upside from 600 megawatts of projects currently scheduled to be completed in December 2023, but which are likely to come online in 2024.

Looking at our growth through 2025 on Slide 11. We expect to maintain the pace of PPA signings we have established with an estimated 14 gigawatts to 17 gigawatts expected to be signed over the next three years. We see strong demand for renewables across all of our key markets, particularly the US, where the benefits of the Inflation Reduction Act, or IRA, are becoming even clear. Thus, given the strength of our backlog and our visibility into future PPA signings and project completions, we are confident in reaffirming our long-term guidance through 2025. Finally, today, we are announcing that we will hold an Investor Day this spring. We will be sharing our strategic long-term view of the company, introducing new business segments and extending our long-term growth rate. We will provide additional details at a later date.

With that, I now would like to turn the call over to our CFO, Steve Coughlin.

Stephen 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 2022, our parent capital allocation, and our 2023 guidance and expectations through 2025. As Andres mentioned, our results for 2022 demonstrate the strength, resiliency and flexibility of our portfolio as we surpassed our guidance range of $1.55 to $1.65. Overall, our portfolio is well structured to perform in the current market environment and is well positioned for growth as AES continues to lead the global energy transition.

Turning to Slide 13. Full year 2022 adjusted EPS was $1.67 versus $1.52 in 2021, driven primarily by a significant volume of LNG sales and our increased ownership of AES Andes. These positive drivers were partially offset by unplanned outages, several one-time expenses we recorded at our US & Utilities and South America SBUs, a higher share count as a result of the 2021 accounting adjustment for our equity units, and higher parent interest, stemming from higher debt balances. The $1.67 per share also includes approximately $0.12 of losses from AES Next, primarily from our ownership in Fluence, which served as an additional drag year-over-year. We expect Fluence's results to significantly improve beginning this year as they discussed on their recent earnings call.

Turning to Slide 14. Adjusted pretax contribution, or PTC was $1.6 billion for the year, an increase of $149 million and 11% growth over 2021. I'll cover our results in more detail over the next four slides, beginning with the US & Utilities SBU on Slide 15. Lower PTC in the US was primarily driven by the recognition of one-time expenses from previously deferred purchased fuel and energy costs at our utilities, outages at Southland Energy and AES Indiana in the second quarter, and lower contributions from Clean Energy and the retirement of our coal plant in Hawaii, partially offset by higher contributions from our Southland legacy assets in the third quarter.

Higher PTC at our South America SBU was primarily driven by our increased ownership of AES Andes and higher margins at both AES Andes and AES Brasil, but partially offset by a prior year gain related to an arbitration at Alto Maipo, outages at AES Andes, and a one-time regulatory provision in Argentina. Higher PTC at our MCAC SBU reflects the benefit from a large volume of LNG sales redirected to the international market. As I'll discuss later, we do not expect an opportunity of the same scale to recur this year and anticipate lower PTC from MCAC in 2023. The LNG sales were partially offset by the full year impact from the sale of our coal plant in the Dominican Republic in 2021. Finally, in Eurasia, adjusted PTC was relatively flat year-over-year with an overall net decline driven by higher interest expense, but partially offset by higher energy prices earned at our wind plant in Bulgaria.

Now let's turn to how we allocated our capital in 2022 on Slide 19. Beginning on the left-hand side, sources reflect $1.3 billion of total discretionary cash. This includes parent free cash flow of $906 million, which was near the top end of our guidance expectations. Asset sales were below our expectations for the year, but we still expect to achieve our goal of $1 billion in proceeds by 2025. Given the delay in asset sales, we accelerated the issuance of some parent debt, which is within our long-term expectations. Moving to uses on the right-hand side, we invested more than $700 million in growth at our subsidiaries, of which approximately two-thirds were in the US. We also allocated nearly $500 million of our discretionary cash to our dividend.

Turning to our guidance and expectations, beginning on Slide 20. Today, we are initiating 2023 adjusted EPS guidance of $1.65 to $1.75. This year we expect to commission approximately 3.4 gigawatts of new renewables, which is the largest year-over-year increase in AES history. This growth further validates AES' position as a leader in renewables and highlights the outstanding efforts of our commercial and operations teams in our markets. Roughly 65% of this new renewable capacity is located in the US. More than half our total 2023 adjusted PTC will come from the US this year, as we execute on the transformation of our portfolio.

As I discussed last quarter, our US renewables projects benefit from both investment tax credits and production tax credits. Our 2023 guidance includes approximately $500 million of adjusted PTC from tax credits generated and recognized by new US renewable projects coming online this year, which is approximately double the amount from 2022. Tax credits are an important component of our renewables business earnings and cash flow and we intend to provide updates on our 2023 tax credit expectations throughout the year. While the midpoint of our 2023 guidance range is below our long-term annual growth target, we are reaffirming the 7% to 9% growth rate through 2025. 2023 growth is lower than the long-term trend for a few reasons.

First, we've taken a conservative approach to modeling renewables projects expected to come online in 2023. Our renewables construction is typically concentrated in the fourth quarter, and this year will be no exception. As a result, construction delays of only a few days could cause a project to shift from 2023 to 2024 and negatively impact this year's results. This is particularly relevant for our US renewables projects, where we recognize significant earnings from investment tax credits in the year a project is placed into service. Of the 2.1 gigawatts we plan to complete in 2023, two-thirds are expected to come online in the fourth quarter. Our guidance assumes that an additional 600 megawatts of projects, currently scheduled to come online in December, slip into 2024. If some or all of these projects are completed on schedule, this will create up to $0.10 of upside to our 2023 guidance. It's also important to note that even if there are delays next year, this is only a timing issue with no material value impact and would support higher growth in 2024 with no impact on our long-term growth rate expectations.

Second, we expect to see lower contributions from our MCAC SBU on a year-over-year basis, primarily driven by more than $200 million of adjusted PTC from LNG sales we executed in 2022. Our commercial team was able to leverage the optionality embedded in our LNG supply contracts to capitalize on high international gas prices by redirecting Henry Hub-linked LNG cargos to the international market. Although LNG sales will continue in 2023, we do not expect the same magnitude of opportunity as the spread between Henry Hub and international gas prices have compressed and more of our gas supply this year is linked to TTF international prices rather than Henry Hub.

Third, we expect to see lower margins at our Chile business this year, particularly in the first half of the year, which is a temporary impact of our Green Blend and Extend strategy to transition our customers from coal power to renewables. Several coal PPAs have or will expire this year as we proceed with our intent to fully exit coal by 2025, and others have been restructured to be priced off renewables that are still under construction. We view this as a short-term cost of decarbonizing our portfolio and do not expect any impact to our 7% to 9% long-term growth rate.

Looking ahead, our teams are working on commercial solutions to mitigate the dilution as the portion of our earnings from coal continues to decline. Based on the drivers discussed, we expect our 2023 earnings to be significantly second half weighted, with approximately three quarters recognized in the second half of the year. While we typically have had about two-thirds of our earnings in the second half, the increase in seasonality this year is driven by the significant volume of new US renewable projects coming online in the fourth quarter.

Now turning to our 2023 parent capital allocation plan on Slide 21. Beginning with approximately $2.2 billion of sources on the left-hand side, parent free cash flow for 2023 is expected to be $950 million to $1 billion, in line with our annualized growth target. In addition to parent free cash flow, we expect to generate $400 million to $600 million in asset sale proceeds this year. This includes our previously announced sale in Jordan, as well as the pending sell-down of some of our operating renewables in the US. I also want to point out that we intend to relaunch the sale process for our Mong Duong coal plant in Vietnam to better align with the approval requirements that became clear during the initial sale. The remaining portion of our 2023 asset sales is expected to come from additional sell-downs and sales supporting our decarbonization goals.

Now to the uses on the right-hand side. We plan to invest approximately $1.7 billion toward new growth of which about two-thirds will be allocated in the US to renewables and to increase our utility rate base. We expect to allocate approximately $500 million to our shareholder dividend, which reflects the previously announced 5% increase. In summary, we exceeded our financial commitments for 2022 and are confident in this year's guidance and the long-term outlook for AES. The energy transition provides tremendous investment in innovation opportunities, and I believe no company is better positioned than AES to lead this transition. As we execute on our strategy, we will continue to deliver on our financial commitments 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. In summary, 2022 was our best year ever. Not only did we meet or exceed our targets for adjusted EPS and parent free cash flow, but we signed more PPAs and added more renewables to our portfolio than ever before. Once again, we were recognized by BNEF as the top developer worldwide selling clean energy to corporations through PPAs. We also launched the first mega-scale green hydrogen project in the US and developed a regulatory foundation that will enable us to grow our US Utilities by 9% annually through 2025. Looking forward, we are very well positioned for the future. Our leadership in corporate PPAs and green hydrogen gives a line of sight into our continued success. We remain focused on executing on our construction program and further developing our pipeline of potential future projects, and we are on track to exit coal by the end of 2025.

With that, I would like to open up the call for questions.


Questions and Answers

Operator

Thank you. [Operator Instructions] So our first question comes from the line of Angie Storozynski. Your line is open. Please go ahead.

Angie Storozynski
Analyst at Seaport Global Securities

Good morning, guys. So first maybe --

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Good morning, Angie.

Angie Storozynski
Analyst at Seaport Global Securities

About the disclosure. Good morning. The disclosures that you guys have in the -- in your presentation. I understand that there is an Analyst Day coming, but there are a number of slides that are missing, especially the segmental earnings contributions for '23. I mean, is there any reason for that?

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yes, Angie. Hey, it's Steve. So yes, and that's because as Andres shared in his remarks, we are intending to update you on our new business segments. And so, when we issue --

Angie Storozynski
Analyst at Seaport Global Securities

Okay.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

That level of guidance, it will come in the Investor Day.

Angie Storozynski
Analyst at Seaport Global Securities

Okay. I understand. Okay. Just moving on, just looking at the year-over-year bridge between '22 and '23 EPS. There is no benefit from lower losses of AES Next. And I'm just wondering -- I mean, it's not even mentioned as a driver. Can you comment about your expectations for that business?

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah. So Next, in total, Angie was roughly a $0.12 drag last year. We have to be careful, because Fluence is a separate public company and we can't get ahead of their disclosures. They haven't specifically guided to earnings. But on their last call, they did guide to a significant improvement in margins this year. So Next is a positive driver this year, and I would say to a material extent, but I can't say specifically, because I can't get ahead of them on their earnings disclosures. But we are expecting it to be much better. They've made a ton of progress on all of the operational and commercial improvements that they've been outlining. And as I've said previously, the Next portfolio we expect to be neutral to our earnings by 2024, and I still expect that.

Angie Storozynski
Analyst at Seaport Global Securities

Okay. But I'm just -- so again, not to be picky, but so which bucket would this be included in? I mean, on that Slide 20, I mean, I understand that it's lumped with some other drivers. So would it be basically upside to the guidance?

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

No. It would be lumped into that second column with the negative -- it would be an offset in that negative $0.15, basically.

Angie Storozynski
Analyst at Seaport Global Securities

Okay. Okay, I understand. Okay. And then just one other question about '22. So when I'm looking at the actual results versus what you were guiding to the corporate drag is more than $100 million higher than expected. And I'm just wondering -- I understand some of it is interest expense, but any other driver?

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

The corporate does include AES Next, under our current segments.

Angie Storozynski
Analyst at Seaport Global Securities

Okay.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

And so, we'll be talking more in Investor Day about the future. But I can say it's largely parent interest on the revolver, where we've had higher balances. And of course, higher rates going into the revolver as well as the incremental drag from AES Next.

Angie Storozynski
Analyst at Seaport Global Securities

Okay. Thank you. And then the core question. So based on the IRA, I mean, this discussion about shifting from solar ITC to solar PTC, there is obviously the bonus ITC. And I'm just wondering, how are you positioned to benefit from those additional tax credits in the US? And also, I mean, it's a very competitive market, as I understand. So can you actually retain some of this benefit, i.e., both the profitability of future solar projects in the US, or is this more a function of basically securing more contracts by trading away that benefit?

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Sure. So look, first of all, we're very happy to have the optionality from the IRA on choosing ITC or PTC newly for solar, as well as having the ITC for storage. So typically we're going to choose the tax credit structure that yields the highest return in the projects. So it's great to have that optionality. I would say going forward, the ITC, there is a difference in the earnings profile. There is an upfront recognition of the ITC versus the PTC is spread out over 10 years. But other than that, you'd expect the lifetime earnings roughly to be the same if the credit structure yielded roughly the same returns. So in this case we have about -- in AES' case, about one-third of our pipeline, we believe will qualify for the energy community adder. And so we feel that we're going to be very competitively positioned to get at least the 40% level for about one-third of our pipeline. So that's a good thing.

I would say in terms of where the credit accrues, I think it's going to be a mix of things. Certainly, there's been higher costs that the industry has absorbed on the order of 30%. I think part of it goes to absorbing that impact of higher costs in renewables. I would say some will go to competitiveness in terms of bidding for the PPAs. And largely, as Andres has talked about before, we see this -- there being more of a constraint on the supply side in the renewables market. So we do see that continued strong demand, but that there's going to be constraints on the supply side of projects being ready to meet that demand and that will have some upward pressure on returns.

Andres Gluski
President and Chief Executive Officer at AES

Yeah. Angie, the way I'd put it is that the cost increases have largely been absorbed by the market. So we're seeing constant margins. What you saw the last year, there was less commissioning of new projects in renewables than was expected by a big factor, like 40%. So what a lot of the clients have done has postponed some of their renewable goals. But eventually, what you're going to see is a shortage in the market. So we feel confident about that, and that's why we are continuing to invest to build that pipeline to be able to respond to that demand. So those are the dynamics. This is a market that, yes, while it's very competitive, the dynamics are positive. And then we are also selling, a lot of our projects are differentiated projects. So they're structured projects. They bring something to the table other just than your plain vanilla bus bar PPA.

Angie Storozynski
Analyst at Seaport Global Securities

Great. Thank you.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Thank you.

Operator

Our next question comes from the line of Nick Campanella of Credit Suisse. Your line is now open. Please go ahead.

Fei
Analyst at Credit Suisse Group

Hi, good morning. Thanks for taking my questions. This is Fei [Phonetic] for Nick today. First quick question on the Analyst Day. Can we just get some colors on your thoughts on the timing? I know you mentioned spring. But what are some of the specific drivers to determine the timing of the Analyst day?

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah. I mean -- so first of all, Andres mentioned, we will be discussing new business segments. So we are closing out 2022 under our current segments. We will then move over to new segments very shortly. And so part of the timing is to fully make that transition internally and then to be able to come out in the spring time frame with that look at the new segments, the new way of looking at AES going forward, as well as discussion about guidance beyond 2025.

Fei
Analyst at Credit Suisse Group

Okay. That's helpful. Thanks. And just maybe -- just on the asset sales proceeds, I know you're filling some of the asset sales proceeds with parent debt issuance. But as we think about the 7% to 9% CAGR currently, can you just -- are you able to continue to bridge this growth rate without any additional common equity? Just want to check in on that.

Andres Gluski
President and Chief Executive Officer at AES

Yeah. Look, we feel confident in terms of what we've said in the past that to grow through 2025, we don't need additional equity for that period of time. So we also feel confident in our ability to raise $1 billion through asset sales.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah. [Speech Overlap] And with regard to the debt, it's really just -- it's somewhat fungible. We look at both our sales program, as well as our debt capacity, always holding to our investment-grade metric plus a cushion as a minimum. But it's really just timing. So there's just flex between when we determine to issue the debt within our expectations and when those asset sales come in. So it's just executing somewhat of a flexibility on the timing of the asset sales and the debt kind of flex back and forth.

Fei
Analyst at Credit Suisse Group

Great. Great. Thanks for the colors. I appreciate it, and I'll jump back in the queue. Thanks.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Thank you.

Operator

Our next question comes from Durgesh Chopra of Evercore. Your line is now open. Please go ahead.

Durgesh Chopra
Analyst at Evercore ISI

Hey, good morning, team. Thank you for taking my questions. Just kind of -- I want to focus on the plan for this year 2023 that is, what's the level of confidence? I mean, maybe you can share some details with us in terms of what you already have in terms of material secured, et cetera, et cetera, and getting the sort of the 3.4 gigawatts online and getting the $0.27 earnings accretion year-over-year.

Andres Gluski
President and Chief Executive Officer at AES

Okay. Hi, Durgesh. Listen, we feel good about the numbers that we're giving out there. We have all the equipment basically secured. And we're very -- I'd say about -- what, we have about 5.5 gigawatts under construction as we speak. Okay, not all of them are going to come in line on -- in '23. But just to give you an idea, we feel very good about it. Now the 600 megawatts that we said might slip into 2024, what are the issues? Well, for some of that, there could be equipment delivery. There could be interconnect timing, easement issues, final permits, the usual stuff that when you're doing construction. So we're going to try very hard to get it done this year. But we feel it's prudent to say that these are going to slip -- most likely slip into 2024.

Now what I would like to reiterate is that this really isn't a business issue. This is just an accounting issue from my perspective, because we -- all of those 600 megawatts, I feel very confident would get done, for example, by -- certainly by March. So -- and the -- there aren't any penalties involved, and there isn't any significant change to the return of those projects. So unfortunately, what you really have is given that we run on a calendar year. We have so much happening in the last quarter. But I want to really emphasize, this is not a -- we have -- of all the renewable developers, we have not abandoned any project because of equipment delays or permit delays. We have delivered on all those. So we feel very good. But there is a timing issue, and we thought it prudent to say, look, these 600 megawatts, we think are most likely to fall into next year. But it's a matter of -- it could be weeks, and we will nonetheless try very hard to get them done this year.

Durgesh Chopra
Analyst at Evercore ISI

Thank you, Andres. That's very helpful. And then just in terms of milestones for us to watch, as to whether you can get them done this year or are they going to push next year, when are you going to have that clarity? Is that sort of kind of a summer type of event, or will you have more clarity by your Investor Day?

Andres Gluski
President and Chief Executive Officer at AES

I really don't think we'd have it, honestly, by our Investor Day to be frank. I think it'd be more by the summer that we would have more indications on particularly the project. This gets quite granular.

Durgesh Chopra
Analyst at Evercore ISI

Yeah.

Andres Gluski
President and Chief Executive Officer at AES

X projects got a permit or something that was missing. But I don't -- really don't see that before that.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah. Durgesh, [Speech Overlap] our plan is -- though on -- but just on each call, we will give updates to the extent we have updates on the construction program, as well as the tax credit expectations throughout the year on the calls as well.

Durgesh Chopra
Analyst at Evercore ISI

Got it. And then, thanks, thanks, Steve. And just one last one. I noticed the '23 to '25 PPAs finding is again, very healthy, 14 gigawatts to 17 gigawatts. But you're not sort of giving us an annual number this year like you did in 2022, which was 4.5 gigawatts to 5.5 gigawatts, and you came in right in that range. Are you expecting that '23 to '25 signings to be lumpy, or should we still expect, right, the new PPAs in the 5 [Phonetic] and a handle range each year?

Andres Gluski
President and Chief Executive Officer at AES

I would expect honestly them to be right around that sort of 4.5, 5.5 [Phonetic] range every year, but we decided to give a multi-year range, because there is some lumpiness. I mean, we do have some projects, which are like 1 gigawatt. And it's the same thing. The signing could happen in January instead of December. So we wanted to give a -- basically, think of it more as sort of a rolling number. But again, we feel good about being able to reach that range.

Durgesh Chopra
Analyst at Evercore ISI

Got it. Thanks, guys, and congrats on the BNEF recognition again this year. I appreciate the time.

Andres Gluski
President and Chief Executive Officer at AES

Thanks a lot.

Operator

Our next question comes from the line of Julien Dumoulin-Smith of Bank of America. Your line is now open. Please go ahead.

Cameron Lochridge
Analyst at Bank of America

Hi, there. Good morning. This is actually Cameron Lochridge on for Julien. Thanks for taking my questions. I wanted to maybe come back real quick to the idea of the renewables backlog and how maybe that influences the 7% to 9% growth CAGR that you guys have laid out. I appreciate you've reaffirmed that through 2025, but given where the backlog is and where the growth is expected to come from over the next several years, is there any reason you should not be perhaps rolling that forward out beyond 2025 and continuing to underwrite to that, or is there something else that may be driving that either higher or lower beyond '25?

Andres Gluski
President and Chief Executive Officer at AES

Yeah. I mean, look, let's see, we have a 12.2 gigawatt backlog, of which about 5.5 gigawatts are under construction now and a good portion of that's going to come online between now and 2025. So there's no reason to think of a change. If anything, the market continues to grow and we see a shortage. I don't know if, Steve, you want to comment on this?

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah. I would say the backlog is at 12.2 gigawatt, and we're delivering 3.4 gigawatt this year plus potentially some of that upside from the 600 megawatt. So that leaves still about 8.5 gigawatt [Phonetic] to be delivered over the next few years. So we feel really good about the commissionings coming through '25 to support the growth. And then as Andres has covered, the pipeline in the US is 51 gigawatts, and it is continuing to mature. So we'll talk more at Investor Day about beyond 2025, but I feel really good about the growth expectations.

Andres Gluski
President and Chief Executive Officer at AES

Yeah. This is not a market that is not growing very rapidly. And we do see pent-up demand. What we do see is that because a lot of people did not deliver in 2022, we see pent-up demand. So what we have to do is really make sure that we're getting the returns that we want and really going after the value-add on those projects. But it's not for a dearth of projects by any means.

Cameron Lochridge
Analyst at Bank of America

Understood, understood. Thank you both. Maybe just going back to 2023 and looking at guidance, I know you're looking at $0.27 a share from the new renewables in 2023. I kind of wanted to unpack that a little bit. In terms of how much -- if you could quantify, how much of that $0.27 is, we'll call it, a roll forward from projects that were placed in service in 4Q '22? And is there any reason that was meaningfully different or will be meaningfully different this year, thinking about the $0.10 a share that could potentially slip into 2024?

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah. So the primary portion of that relates to the increase in the tax credit. So a portion of the $0.27 is related to just that base of projects from '22 coming into 2023. So that's part of it. But I would say the largest component is the increase in the tax credit to the range of about $500 million recognized this year, which is a little more than double what we recognized that last year. So that's the largest component of the $0.27.

Cameron Lochridge
Analyst at Bank of America

Okay. Got it. But I guess, maybe [Speech Overlap]

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah.

Cameron Lochridge
Analyst at Bank of America

Yeah, no. Go ahead. I'm sorry.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah. And I would also just going to say, and that's partly why we're calling out this additional 600 megawatts, because it's largely -- in fact, it's all investment tax credit based projects. So as Andres described, even -- in the most extreme, even if you just had a project that was commissioned on January 1 instead of December 31, you would move that tax recognition over a calendar year. So that's why we're calling out that as potential upside and the sensitivity to the tax credit. And it's just timing is all it is.

Andres Gluski
President and Chief Executive Officer at AES

Yeah. The other thing I'd point out is, when we sell the tax credits, we also get the cash.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Exactly. Yeah.

Andres Gluski
President and Chief Executive Officer at AES

So there is lumpiness in the cash as a result of this. So the cash and the earnings go together.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah.

Cameron Lochridge
Analyst at Bank of America

Got it. Got it. Okay. That will do for us. Thank you guys, both.

Andres Gluski
President and Chief Executive Officer at AES

All right. Thanks.

Operator

Thank you. Our next question comes from the line of Richard Sunderland of JP Morgan. Your line is now open. Please go ahead.

Richard Sunderland
Analyst at JP Morgan Cazenove

Hi, good morning, and thanks for the time today. Just one last one on this '23 versus '24, on 600 megawatts. It sounds like if the $0.10 slips to '24, this clearly should be additive to the prior growth outlook meeting [Phonetic] additive to the 7% to 9% CAGR. Is that the right frame of reference for whether the 600 megawatts late into '23 and brings you kind of back to the original range, or '24 pushes you above?

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Exactly. So that's exactly right. It doesn't change the 7% to 9% through '25. But all else being equal, '24 would go well above the 7% to 9% as a result of these projects moving into next year. That's exactly right.

Richard Sunderland
Analyst at JP Morgan Cazenove

Okay. Got it. Very clear. Thank you. Turning to Ohio, ESP4, any sense on the backdrop in conversations there after all the time and engagement around the AES Ohio rate case?

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah. So at this point, as Andres said in his remarks, the ESP4, we're expecting to be decided this summer. So that was filed last fall. The PUC did issue the order on the distribution rate case back in December, which was very favorable to us. And so really those rates are just pending the approval and finalization of the ESP4. So -- and keep in mind, the ESP4 has a couple of things that are very additive. So one is that it will catch up the investment that's occurred between the last rate case filing in 2020, up close to the point in which the ESP4 was filed last year. So there's a catch-up there. There's also a new framework for investment going forward, including a distribution investment rider, as well as some additional riders that will result in faster recognition of investment going forward. So our expectation is that we'll see the new structure in place that sets Ohio on the course for new investment for the second half of this year, and then it becomes a growth driver going forward into the next several years. We see in total, our net rate base increasing close to $1.5 billion across both utilities from now until 2025.

Richard Sunderland
Analyst at JP Morgan Cazenove

Understood, understood. Thank you. And then you reference changes around the Vietnam requirements for sale and relaunching that transaction. Could you just parse that a little bit more in terms of what you're expecting there now? Do you see a quicker path to divestment under a second go? Anything else would be helpful here.

Andres Gluski
President and Chief Executive Officer at AES

Yes. Well, we hope so, and then it will be fast as [Phonetic] second time around. I mean, basically, the -- what happened here is that the government wanted more of an operator than a financial investor. They're very happy with us, and they want somebody equally good. So we feel there is a number of people interested in the asset, because they actually canceled the number of new coal plants that were going to be built. So there's an appetite especially from Asian operators for this asset. So hopefully, it will be faster. It was somewhat of a surprise, but our intentions remain the same. So to be out of coal by the end of 2025.

Richard Sunderland
Analyst at JP Morgan Cazenove

Got it. Thank you for the time today.

Andres Gluski
President and Chief Executive Officer at AES

Thank you.

Operator

Our next question comes from the line of Steve Fleishman of Wolfe Research. Your line is now open. Please go ahead.

Steve Fleishman
Analyst at Wolfe Research

Yeah. Thank you. Andres, maybe could you give us just some overall color on how things are proceeding on panel supplies and particularly you flip up implementation issues. And is that kind of a key variable in the timing of these projects or is it more other issues?

Andres Gluski
President and Chief Executive Officer at AES

Let's see. Well, we feel pretty -- we feel good about the panel issue. As you know, again, we got all the panels we could use in 2022. So in 2023, we have all the orders in. Our suppliers have been getting through. So again, we feel good about that. In terms of what would determine that last, sort of 600 megawatts, it's really a combination of issues. It's not just solar panels. It runs the gamut from wind turbines, deliveries, et cetera, pyramids easing. Also the interconnection timing is the client ready to take that energy. That was one of the biggest issues we had in 2022. We were ready, but the client wasn't ready.

So it's just a bag of different issues. I'd say an important issue going forward is, as you know we're heading the solar panel buyers consortium. We want to have solar panels starting to be delivered late 2024, 2025 made in the USA, and what we're seeing now is really one of the regulations may be issued by treasury, what constitutes domestic content to get those additional credits. So I'd say that's an item that we're watching very closely, but generally we feel good about. And there are certainly people interested in locating that flat here to supply that contract.

Steve Fleishman
Analyst at Wolfe Research

Okay. And then just -- I know this was discussed on the last call, but just how are you making the decision between, on US projects, ITC versus PTC, I guess solar PTC. I think you had talked about still having a lot of value in the tax equity and the depreciation, but just, do you see that starting to shift at some point as you execute on future projects?

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah, I do. Steve, now that we have the optionality for production tax credits on solar. I would see that option being exercised primarily in the sunniest places in the US. So in the Southwest US projects where the production-based incentive is going to yield a higher value than necessarily the capex based or the capital investment-based incentive. So we are modeling more production tax credit into our longer term. For this year, it's not -- I wouldn't say it's impacted us really at all this year, because for the most part we're locked into a tax credit structure election and a tax equity partnership that we've already agreed to. But going forward, we'll start to see more production-based incentive come into the mix. And that's something again, for Investor Day, as we talk about beyond 2025, kind of how do we look at the business, how do you look at the metrics of the business, how do you look at tax credits distinct from earnings that don't include tax credits, things like that, that we'll be giving more guidance on to help people understand what that looks like going forward.

Steve Fleishman
Analyst at Wolfe Research

Okay. Thank you.

Andres Gluski
President and Chief Executive Officer at AES

Thanks, Steve.

Operator

Our next question comes from the line of Gregg Orrill of UBS. Your line is now open. Please go ahead.

Gregg Orrill
Analyst at UBS Group

Hi, thanks for taking my question. I would just wanted to sort of confirm where the credit goals are sort of with the guidance update and the segment -- the new segments that you're thinking about? Sorry, if I'm getting ahead of myself.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Are you referring -- no, no, no. No problem. Are you referring to the tax credit goal?

Andres Gluski
President and Chief Executive Officer at AES

I think the credit rating, right?

Gregg Orrill
Analyst at UBS Group

Yeah.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Credit rating, okay. In fact, we've been talking so much about tax credit. So, yeah, the credit rating, certainly the BBB- is a constant constraint. And then we see a likely improvement going forward, particularly as our business mix evolves to more long-term contracted renewables and more investment in the US utilities. So I would say that's going to be a driver of improvement to the overall profile and view on the source of where our cash is coming from going forward.

The segments, -- there's not -- I can't say too much about that right now. As we've been operating under the current segments, we'll be moving to the new ones soon and then talking about that on the call going forward. But the segments we'll make it very clear as to the sources of earnings and cash going forward and where the business is growing, frankly, much, much higher than 7% to 9% and where the business is shrinking largely consistent with our decarbonization goals. So it will peel apart where that 7% to 9% has come from through '25, as well as go beyond '25.

Andres Gluski
President and Chief Executive Officer at AES

Yeah. So Gregg, in terms of the credit rating, we're already more than 50% of our earnings are coming from the US.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah.

Andres Gluski
President and Chief Executive Officer at AES

And a higher and higher percentage is coming from renewables. So we already have a -- if we're growing 7% to 9%, that includes the dilution from getting out of coal.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah.

Andres Gluski
President and Chief Executive Officer at AES

So actually our renewables are growing at a much higher rate, more like 10% to 12%. So to put that in context, all of those things point to an improvement, as Steve was saying, in terms of the quality of the numbers beyond the metrics. So again we feel very confident in what we've said. This is a red line. We're not going to drop below investment grade and we're going to continue to strengthen it.

Gregg Orrill
Analyst at UBS Group

Thank you.

Andres Gluski
President and Chief Executive Officer at AES

Thank you.

Operator

Thank you. Our next question comes from Ryan Levine of Citi. Your line is now open. Please go ahead.

Ryan Levine
Analyst at Smith Barney Citigroup

Good morning. I'm hoping to follow up on --

Andres Gluski
President and Chief Executive Officer at AES

Good morning, Ryan.

Ryan Levine
Analyst at Smith Barney Citigroup

The change in -- good morning. In terms of the change in segmentation, maybe just to take a step back what's prompting the re-review of how you're looking to disclose information? And is there anything that any review would signal strategically for the company?

Andres Gluski
President and Chief Executive Officer at AES

No. I mean, we really think this is a culmination of what we've been doing in terms of moving into renewables. And our business is long-term contracted. And what we're seeing is a lot of -- this would make our business. We feel more transparent and more comparable to other people's businesses. So that's all I can say at this point. But it's something that I think you guys will welcome, because it gives greater transparency. And I think it makes more and more sense as again we transition more to renewables.

Ryan Levine
Analyst at Smith Barney Citigroup

Okay. And in your guidance you disclosed a step-down from the LNG contribution for this calendar year. What are you assuming for, like, TTF, Henry Hub spreads or upside or contribution from that portion of your contract portfolio?

Andres Gluski
President and Chief Executive Officer at AES

Well, I'd say there are two elements. One is that we have less gas available to take advantage of that opportunity, because we had a step down in our Henry Hub-based gas contracts. The second is -- has to do with the spread between Henry Hub plus and TTF. So those spreads have narrowed. It's been a very warm winter, especially in Europe. So we'll see. So that's an opportunity that exists there, but we're not -- it would be smaller, smaller quantity. And we're not counting on it this year, because right now the spreads are not such that between all the transportation and the sharing of the upside with oil traders, et cetera, look particularly attractive. But the option is there, should the situation change.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah. So it's -- I mean, it's largely based on current outlook for the year on the commodities. But to the extent that spread were to increase, that would be an upside to the guidance we've given here.

Ryan Levine
Analyst at Smith Barney Citigroup

Great. And then last question for me. In terms of the asset sale process, to the extent some of these deals don't happen or get delayed, what tools do you have to alter your financing plan in light of looks like choppy M&A market?

Andres Gluski
President and Chief Executive Officer at AES

Well, first, we have many assets that we can sell, and it's not only sell-out, sell-down. So we have -- I think a lot of levers there. And we don't like to talk a lot about any specific asset until we have a deal done. It doesn't help us. But we always also sell down, for example, some of our renewables, because that increases our returns, sell down a portion of it, we continue to operate them. So if you have movements, say in time that a specific asset sale gets delayed and you are not ready to do another one, that's where other kinds of financings come in, and we'll do the one that's -- makes the most sense. But again, as I said before, maintaining our credit metrics and our investment grade that's the red line in the sand.

Ryan Levine
Analyst at Smith Barney Citigroup

Great. Thank you.

Andres Gluski
President and Chief Executive Officer at AES

Thank you.

Operator

Our final question is a follow-up question from Angie Storozynski from Seaport. Your line is now open. Please go ahead.

Angie Storozynski
Analyst at Seaport Global Securities

Thank you. Just one thing. So the 600 megawatts that might slip into '24, that's the growth number, right? What would it be adjusted by ownership?

Andres Gluski
President and Chief Executive Officer at AES

Just two things. I mean, we normally sell down after the commissioning.

Stephen Coughlin
Executive Vice President and Chief Financial Officer at AES

Yeah. I mean, so we do have the AIMCo. So this is a US number. So we have our partnership with Alberta Investment Management. And so I would say for the most part, it's about 75% AES, is that number. And the -- up to $0.10 that I mentioned, Angie, is AES' share. So that's not the growth [Speech Overlap].

Angie Storozynski
Analyst at Seaport Global Securities

Okay. Okay. That's all I need. Thank you.

Operator

Thank you. As there are no additional questions waiting at this time, I'd like to pass the conference back over to Susan Harcourt for closing remarks.

Susan Harcourt
Investor Relations at AES

We thank everybody for joining us on today's call. As always, the IR team will be available to answer any follow-up questions you may have. Thank you, and have a nice day.

Operator

[Operator Closing Remarks]

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