Executive Summary / Key Takeaways

• The AES Corporation is executing a strategic transformation, shifting its portfolio towards renewables and U.S. regulated utilities, aiming for a simpler, lower-carbon, and more resilient business model.
• Recent financial results reflect this transition, with strong underlying growth in Renewables and Utilities offsetting headwinds from asset sales and one-time operational challenges in Energy Infrastructure.
• A robust backlog of 11.7 GW in renewables, combined with significant data center load growth opportunities at U.S. utilities, provides clear visibility into future earnings and rate base expansion, supporting reaffirmed long-term growth targets.
• Strategic actions, including cost savings initiatives, reduced renewables investment focus on higher returns, and asset sales, are expected to enhance cash flow generation and improve credit metrics, eliminating the need for equity issuance through 2027.
• AES leverages technological innovation, including advanced supply chain management, tax equity optimization, and emerging AI/robotics in construction, to enhance project returns, mitigate risks, and build competitive advantages in a rapidly evolving energy landscape.

The Energy Transition Takes Shape

The AES Corporation, with roots tracing back to 1981, has evolved from a diversified global power producer into a company strategically focused on accelerating the future of energy. Its core business spans power generation across various technologies and operating regulated utilities, primarily in the United States and internationally. Today, AES is structured around four Strategic Business Units (SBUs): Renewables, Utilities, Energy Infrastructure, and New Energy Technologies, reflecting a deliberate pivot towards cleaner energy sources and stable, contracted revenue streams. This strategic shift is a direct response to global decarbonization trends, increasing demand for reliable and sustainable power, and the specific needs of high-growth customers like data centers.

The broader energy landscape is undergoing a profound transformation. Driven by climate goals, technological advancements, and surging demand from sectors like artificial intelligence and advanced manufacturing, the need for new, often low-carbon, electricity generation is unprecedented. Bloomberg New Energy Finance projects a requirement for at least 425 GW of new capacity in the U.S. alone through the end of the decade. Renewables, particularly solar, wind, and battery storage, are positioned to meet the bulk of this demand due to their rapidly improving cost-effectiveness, declining lead times compared to traditional thermal generation, and increasing price stability once contracted. This dynamic environment sets the stage for companies like AES with capabilities across development, construction, and operation of these assets.

Within this competitive arena, AES positions itself against a mix of large, established U.S. utilities like American Electric Power (AEP) and Southern Company (SO), major renewable players like NextEra Energy (NEE), and other diversified energy companies globally. While AEP and SO boast extensive regulated footprints and stable cash flows, AES differentiates through its significant global presence and early, aggressive push into large-scale renewables and energy storage. NEE stands out for its sheer scale and technological innovation in renewables, often achieving higher margins. Duke Energy (DUK) represents a peer navigating a similar transition from a mixed fleet. AES's competitive strategy involves leveraging its global development expertise, building deep relationships with large corporate customers (claiming leadership in serving data centers), and focusing on efficient project execution and innovative technologies to enhance returns and manage risk. While direct, uniformly comparable market share figures across all segments and geographies can be challenging to ascertain, AES's reported PPA signings and project backlog indicate a strong competitive position, particularly in the corporate renewables market.

A critical element of AES's strategy and competitive differentiation lies in its approach to technology and innovation. Beyond deploying standard renewable and thermal generation, the company is actively integrating advanced solutions and processes. This includes sophisticated supply chain management, which has been crucial in navigating recent disruptions and potential tariff impacts by securing equipment early and prioritizing domestic manufacturing. AES has proactively contracted for U.S.-produced solar panels, batteries, and wind turbines, significantly mitigating exposure to trade restrictions for its backlog through 2027. Furthermore, the company is a leader in optimizing the value of U.S. tax credits, leveraging expertise in areas like energy community qualification and utilizing transferability to enhance project economics and reduce capital needs.

Looking ahead, AES is exploring and implementing cutting-edge technologies. Its partnership with AI Fund aims to accelerate AI-driven solutions for the energy transition, addressing bottlenecks and improving efficiencies in development and operations. Internally, AI tools are being used to predict project timelines and optimize processes. A tangible example is Maximo, the world's first AI-powered solar installation robot, currently being deployed at the large Bellefield project. Maximo is designed to complement human crews, enabling faster construction times, reducing costs, improving safety, and allowing work in various weather conditions across multiple shifts. This innovation directly addresses labor constraints and project timelines, crucial factors for customers demanding rapid deployment. The "so what" for investors is that these technological advancements and strategic approaches to supply chain and tax equity are intended to create a competitive moat, allowing AES to execute its large backlog more efficiently, enhance project returns, and maintain its market position against rivals who may face higher costs or slower execution.

Performance and Strategic Execution in Motion

Recent financial performance reflects AES's ongoing transformation and the dynamic market environment. In the first quarter of 2025, the company reported a net loss of $73 million, a decrease from net income of $278 million in the prior-year period. This shift was primarily influenced by the absence of significant prior-year revenues from the monetization of the Warrior Run PPA, one-time costs associated with organizational restructuring initiatives ($48 million pre-tax charges in Q1 2025), and a gain recognized in the prior year from the dilution of AES's interest in Uplight. Adjusted EBITDA also saw a decrease, falling to $591 million from $640 million, mainly due to lower contributions from the Energy Infrastructure SBU, again impacted by the Warrior Run PPA and prior-year derivative gains. Adjusted EBITDA with Tax Attributes similarly decreased to $777 million from $868 million, reflecting these operational factors alongside lower realized tax attributes in the quarter due to timing.

Despite these specific headwinds, the underlying performance of AES's core growth engines, Renewables and Utilities, showed strength. The Utilities SBU saw a significant increase in Adjusted PTC, rising to $121 million in Q1 2025 from $41 million in Q1 2024. This growth was driven by the impact of new rates implemented at AES Indiana in May 2024, returns on ongoing rate base investments, and favorable weather contributing to higher demand. The Renewables SBU also saw an increase in Adjusted EBITDA, reaching $161 million compared to $111 million, benefiting from contributions from new projects placed in service and improved hydrology in certain regions, partially offset by increased fixed costs related to growth plans and restructuring charges. The Energy Infrastructure SBU's performance declined, reflecting planned asset sales (like the Brazil exit) and the comparison against strong prior-year results from specific assets. The New Energy Technologies SBU's Adjusted EBITDA decreased slightly, primarily due to lower contributions from Fluence (FLNC).

Operationally, AES continues to make substantial progress on its strategic priorities. The company's PPA backlog stands at a robust 11.7 GW as of March 31, 2025, with 5.3 GW currently under construction. This backlog represents contracted future growth, providing significant revenue visibility. Management expects to bring a total of 3.2 GW of new capacity online by the end of 2025, with 643 MW already completed in Q1 and the remaining projects approximately 80% complete. A key project, the 1 GW Bellefield 1 solar-plus-storage facility in California (part of a larger 2 GW project for Amazon (AMZN)), is nearing completion and expected to be fully operational by summer 2025.

The U.S. Utilities segment is embarking on its largest-ever investment program, planning to invest approximately $1.4 billion across AES Indiana and AES Ohio in 2025. These investments target critical infrastructure upgrades, smart grid deployment, and new generation/transmission capacity to support growing demand, including significant load growth from data centers. AES has signed agreements for 2.1 GW of new data center load in AES Ohio's territory and is in negotiations for an additional 3 GW across both utilities, representing a potentially transformative increase in peak load. Regulatory mechanisms like riders and formula rates are expected to provide timely recovery for over 70% of these investments, supporting projected double-digit rate base growth through 2027. The recent sale of a minority stake in AES Ohio to CDPQ further supports the funding of this growth.

The Energy Infrastructure segment continues to provide foundational earnings and cash flow. While the company remains committed to its decarbonization strategy and intends to exit the substantial majority of its 2022 coal fleet by year-end 2025, it is strategically delaying the closure or sale of a few coal assets in certain markets where they provide needed capacity, contributing meaningful EBITDA and cash flow beyond previous timelines. The completion of the 670 MW combined cycle gas plant in Panama in 2024 enhances the utilization of existing LNG infrastructure.

Financially, AES is focused on strengthening its balance sheet and ensuring a self-funded growth plan. The company ended Q1 2025 with $1.8 billion in unrestricted cash and cash equivalents. Total gross debt stood at $30.3 billion, with the majority being non-recourse project-level debt. While some subsidiary debt is currently in technical default ($178 million as of March 31, 2025, plus $353 million at AES Dominican Renewable Energy classified as held-for-sale), none of these currently trigger cross-defaults at the Parent Company level based on materiality definitions. The Parent Company's recourse debt was $6 billion, with $1.2 billion maturing in the next twelve months, including commercial paper borrowings. AES successfully addressed its 2025 debt maturities with a March 2025 issuance and has hedged 100% of its benchmark interest rate exposure for corporate financings through 2027. The sale of a minority stake in AGIC for $450 million in April 2025 achieved the company's full-year 2025 asset sale proceeds target of $400-$500 million, contributing to the $3.5 billion target through 2027, which is already nearly two-thirds complete.

Outlook and Path Forward

AES has reaffirmed its financial guidance and long-term growth targets, signaling confidence in its strategic direction and execution capabilities. For 2025, the company expects Adjusted EBITDA between $2.65 billion and $2.85 billion, and Adjusted EPS between $2.10 and $2.26. This guidance anticipates significant growth in the Renewables and Utilities segments, driven by new projects coming online, the full-year impact of recent rate increases, and the realization of cost savings initiatives ($150 million in 2025, ramping to over $300 million run rate in 2026). These positive factors are expected to offset the headwinds from asset sales completed in late 2024 and early 2025 (like Brazil and the Ohio sell-down impact) and the normalization of results in Energy Infrastructure following one-time events in 2024. Management expects the growth trajectory to accelerate beyond 2025, projecting a "much higher low teens EBITDA growth rate" in 2026 compared to 2025.

The long-term outlook through 2027 remains robust, with reaffirmed targets of 5% to 7% annualized growth for Adjusted EBITDA and 6% to 8% for Parent Free Cash Flow, off a 2023 base. Adjusted EPS is targeted to grow 7% to 9% annualized through 2027 (off a 2023 base). This growth is underpinned by the execution of the 11.7 GW backlog, the significant rate base expansion at the U.S. utilities driven by data center demand and infrastructure investment, and the benefits of cost efficiencies and portfolio simplification. The company's capital plan through 2027 is designed to be self-funded, relying on parent free cash flow ($3.6-$3.9 billion), asset sale proceeds ($800 million-$1.2 billion), and net new parent debt ($900 million-$1 billion), explicitly removing any need for equity issuance during this period.

AES is committed to improving its credit metrics, targeting mid-twenties for recourse metrics by the end of 2027 and reaching or exceeding a 12% FFO to debt ratio (Moody's (MCO)) in 2026. This improvement is expected as the operating portfolio grows, cash flows increase, and the significant portion of debt related to projects under construction is reduced upon commissioning through tax attribute monetization. While the company is committed to maintaining its current dividend level ($0.18 per share quarterly), it does not expect to grow the dividend through 2027, prioritizing cash retention for growth and balance sheet strength.

However, the path forward is not without risks. Potential changes to U.S. renewable energy policy, including tax credits and tariffs, remain a key uncertainty, although AES believes its Safe Harbor protections, domestic supply chain efforts, and international portfolio provide significant resilience. Operational risks, such as extreme weather events impacting generation (as seen in 2024), unplanned outages, and supply chain disruptions, could affect performance. Macroeconomic factors like inflation and interest rate volatility could impact costs and financing, although hedging strategies are in place. Country-specific risks in certain international markets and ongoing litigation also pose potential challenges. Regulatory developments, including environmental regulations and utility rate case outcomes, could influence investment recovery and operating costs.

Conclusion

The AES Corporation is navigating a critical phase of its strategic transformation, shedding legacy assets and focusing intensely on building a leading position in renewables and growing its U.S. regulated utility businesses. While recent financial results reflect the complexities of this transition and the impact of specific operational headwinds, the underlying narrative is one of robust growth potential driven by a substantial contracted backlog, surging demand from high-value customers like data centers, and significant planned investments in utility infrastructure.

The company's commitment to a self-funded growth plan, coupled with initiatives to enhance efficiency and improve credit metrics, provides a clearer path to realizing value. AES's strategic focus on supply chain resilience, tax equity optimization, and leveraging innovative technologies like AI and robotics positions it to execute its ambitious development pipeline more effectively and competitively. Despite facing risks inherent in a global, transforming energy sector, AES's strategy to concentrate on long-term contracted revenues with creditworthy counterparties and expand its regulated asset base forms the core of its investment thesis, suggesting a company poised to harvest the benefits of its transition and deliver on its long-term financial commitments.