Participants

Julien Dumoulin-Smith; Analyst; Jefferies

Presentation

Operator

Hello, everyone, and a warm welcome to the AES Corporation fourth quarter and full year 2024 financial review call. My name is Emily, and I'll be coordinating your call today. (Operator Instructions)
I will now hand over to Susan Harcourt, Vice President of Investor Relations, to begin. Susan, you may begin.

Thank you, operator. Good morning and welcome to our fourth quarter and full year 2024 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 disclosed in our most recent 10-K and 10-Q filed with the SEC. Reconciliation between GAAP and non-GAAP financial measures can be found on our website along with the presentation.
Joining me this morning are Andrés Gluski, our President and Chief Executive Officer; Steve Coughlin, our Chief Financial Officer; Ricardo Falú, our Chief Operating Officer, and other senior members of our management team. With that, I will turn the call over to Andrés.

Good morning, everyone, and thank you for joining our fourth quarter and full year 2024 financial review call.
Today, I will cover our 2024 accomplishments, the resiliency of our business and our 2025 guidance and longer-term outlook. Steve Coughlin, our CFO, will provide more details on our financial performance and expectations after my remarks.
To say that we are extremely disappointed with our stock price performance is an understatement. Steve and I will address what we believe to be investors' concerns. Including policy uncertainties, renewable EBITDA growth and balance sheets and funding constraints. We will review why renewables are critical to meeting growing demand for electricity, particularly among technology customers, and why our business model is relatively well insulated from and resilient to potential regulatory changes.
Even with our resilient position, we are taking immediate steps to strengthen our financial position and outlook. These steps include reducing our parent investment in renewables by focusing on the highest risk adjusted return projects, improving organizational efficiency and continuing to operate some of our energy infrastructure assets. As a result of these actions, we expect to improve our credit metrics over time while eliminating the need for issuing new equity during the forecast period and maintaining our dividends.
Turning to slide 4. Let me start with our 2024 results.
We signed 4.4 gigawatts of new power purchase agreements for renewables last year. Our performance in 2024 puts us on track to achieve our goal of signing 14 to 17 gigawatts of new PPAs through 2025. We are prioritizing signing those contracts with the best risk adjusted returns rather than just maximizing growth in gigawatts.
In 2024, we also completed the construction or acquisition of 3 gigawatts of renewables and a 670 megawatt combined cycle gas plant in Panama, greatly increasing the utilization of our existing LNG terminal in that country. Our best-in-class record of on time and on budget delivery of renewable projects is something that our customers value highly and is one of our competitive advantages. Lastly, I should note that in 2024 we received approval from the Indiana Regulatory Commission for new base rates and an ROE of 9.9%, supporting an investment program that will improve reliability for our customers and support local economic development.
Now, moving to our financial results.
In 2024, we achieved adjusted EBITDA of $2.64 billion, which is in the lower half of our guidance range as a result of extreme one-time weather-related events in Colombia and Brazil. With both businesses down, a combined $200 million year on year.
Nonetheless, we generated parent fee cash flow of $1.1 billion, which is at the midpoint of our guidance. And we earned a record adjusted EPS of $2.14 which is materially above our guidance range and puts us well on track to achieve our annualized growth target of 7% to 9% from 2020 to 2025.
Moving to our renewables business on slide 5.
2025 will be an inflection point as we begin to realize the financial benefits from the maturing of our renewable business, including the addition of 6.6 gigawatts we inaugurated in 2023 and 2024. We're able to achieve increasing economies of scale that reduce our overhead per megawatt, as we now have 16.2 gigawatts of renewables online versus 5.9 gigawatts in 2018, excluding Brazil. At the same time, our development business is becoming more efficient as we are now harvesting the investments we made in creating our pipeline.
Furthermore, as profitability of each megawatt of new PPA sign has substantially increased, we do not need to bring online as many new projects to achieve the same level of financial growth. This strategy allows us to focus on the most profitable new projects while reducing costs and capital requirements, as I will shortly discuss.
There is a time lag between renewables development expenditures which flow through the P&L and growth in EBITDA. Creating a pipeline of potential projects requires expenditures in development activities such as scouting for prospects, negotiating land purchases or leases, measuring the wind or sun resource, and finally, obtaining permits. As our renewables are in a more mature state, our financials will start to reflect the true profitability of the business as new projects coming online, producing cash in EBITDA cover the cost of early-stage projects.
As the business grows, stewardship, including administrative and back-office activities, will get allocated over a larger operating base. This inflection in our life cycle starting in 2025 will strengthen our credit metrics as we achieve a higher ratio of projects online selling energy versus spending on pipeline and projects under construction.
With this background, let me turn to our financial expectations for our renewables business.
In 2025, we expect over 60% year-over-year growth in our renewables EBITDA, which Steve will discuss in more detail. Previous growth in our US renewables portfolio drives the majority of our expected EBITDA growth. And in 2025, we expect to bring online another 3.2 gigawatts of renewable capacity, which will contribute to strong EBITDA growth in 2026 and beyond. These numbers also reflect the maturing of our US renewable business as we harvest the investments we made to create our 50 gigawatt US pipeline.
Finally, I should note that our 2025 renewable segment guidance incorporates some changes in segment makeup, including the sale of 5.2 gigawatts in Brazil last year and the addition of 2.5 gigawatts in Chile. As the business has evolved, these Chilean renewable assets have now been moved from the energy infrastructure SPU to the renewables SPU. The sale of Brazil is an important de-risking of our portfolio as we have eliminated a significant portion of our hydrology, currency, spot price, and floating interest rate risk exposures.
Turning to slide 6 and the renewables market and our business.
Last year, the US added 49 gigawatts of new capacity with renewables and battery storage representing 92% of those additions. In 2025, the US is expected to add 63 gigawatts, 93% of which are solar, storage, and wind where we will likely see a surge for new gas capacity over the next decade. The delay in delivery of new gas turbines averages 3 to 4 years without taking into account new permitting requirements or building new gas pipelines. While a few decommissioned nuclear units are expected to be brought online in the next 5 years, a material contribution in new capacity from small nuclear reactors or advanced design nuclear plants is unlikely to occur for at least another decade.
Taking all this into consideration, renewables have the shortest time to power and much greater price certainty. Therefore, there is no doubt that the increased demand for electricity over the next decade coming from data centers and advanced manufacturing will continue to require vast amounts of renewable energy and batteries.
Moving to slide 7.
Over the past 5 years, we have endeavored to make our business resilient to potential policy changes. First, we have taken a lead in onshoring our supply chain to the US, which limits our exposure to new tariffs. We now have essentially all of our solar panels, trackers, and batteries either in country or contracted to be domestically produced for our US projects coming online through 2027.
Second, of the 8.4 gigawatts of signed contracts we have in the US, more than half are under construction, and nearly all have significant Safe Harbor protections, which will grandfather them under the existing tax policy regime.
Third, about 3 gigawatts or 30% of our backlog of signed PPAs are in USD, but in international markets, primarily Chile, which are unaffected by US policy changes. I should note that in our international markets, renewables can be even more profitable and most often the cheapest form of dispatchable energy even in a regime without meaningful subsidies.
Lastly, the vast majority of AES's customer base are corporations whose demand for new renewables continues to increase at a rapid pace. In fact, in 2024, approximately 70% of the PPAs we signed were with large corporations, and notably, we have once again, been designated by BNEF as the largest provider of clean energy to corporations in the world.
Even in the very unlikely scenario where tax credits for renewables are eliminated prospectively in their entirety, we believe that there will be continued strong demand from our corporate clients, especially data centers because there are no realistic alternatives for many years.
Without timely access to power, there can be no AI revolution. Obviously, the price of new PPAs in a future without tax incentives would increase and the profile of earnings in cash flow would change. This will look a lot like our projects in Chile. However, in any case, what ultimately matters to AES is our returns and cash flow per dollar invested.
Now, let me turn to our utilities business on slide 8.
AES Indiana and AES Ohio are executing on a multi-year investment program to improve customer reliability and support economic development. In 2024, we invested $1.6 billion leading to a rate-based growth of 20%. This investment program includes growth and modernization programs at both of our utilities and a plan to transition our aging coal generation in Indiana.
Our investment plans are driven by our customers, and our top priority is to support local communities with reliable, resilient, and affordable power. We have among the lowest residential rates in both states which we expect to maintain even as we grow our rate base.
Turning to slide 9.
Across our two utilities, we have growth riders or trackers which yield near real-time returns on our investments. More than 70% of the investment program is recovered through formula rates or existing riders. As through the [TDSI] program at AES Indiana, the FERC formulates to support transmission investment at AES Ohio. All of this combined with signed agreements for over 2 gigawatts of new data center demand make AES Indiana and AES Ohio among the fastest growing and modernizing utilities in the nation.
From 2023 to 2027, we expect annualized growth in our rate base of at least 11% across two utilities. This plan will support credit improvement at DPL Inc. Which we expect to achieve investment grade metrics by 2026.
Now, turning to slide 10.
Our energy infrastructure business provides a substantial and steady base of earnings and cash flow that support our credit ratings and help fund our dividends and new growth. We remain committed to an all of the above strategy which includes an important role for gas in our businesses and customer offerings. During the fourth quarter, we completed the construction of a new 670 megawatt fully contracted in dollars CCGT in Panama, which will result in much greater utilization of our existing LNG regasification and storage tanks in the country.
In addition, we're delaying the closure or sale of a few of our coal plants as a result of increased demand in those markets. These assets are largely depreciated yet contribute meaningful EBITDA and cash flow. We still remain committed nonetheless to a full exit from coal generation and we will continue to rapidly lower our carbon intensity and minimize carbon emissions from our generation fleet.
Now, moving to our financial outlook on slide 11.
Today, we're initiating our 2025 guidance, including adjusted EBITDA of $2.65 billion to $2.85 billion, parent-free cash flow of $1.15 billion to $1.25 billion and adjusted EPS of $2.10 to $2.26. We're also reaffirming all of our long-term growth rates, including 5% to 7% adjusted EBITDA growth through 2027. As we grow, we're also improving our business mix as we see a significant increase in adjusted EBITDA from renewables and US utilities.
Now, turning to our balance sheet and plans to improve our credit ratios through and beyond our guidance period on slide 12.
We are firmly committed to maintaining our investment grade credit ratings, as well as our dividends. As a result, we're taking several actions to improve cash flow and reduce parent equity requirements while ensuring that our capital plan will be totally self-funded. I should note that these efforts are ongoing, and we will continue to evaluate measures to strengthen our financial position on top of what's already included in our guidance.
First, we have resized our development program and organization to focus on executing on our backlog and pursuing fewer but larger projects to better serve our core customers. This strategy allows us to increase our returns on our available capital by selecting the most attractive projects.
Given the strength of our 50 gigawatt US pipeline, we also expect to execute more development transfer agreements, enabling us to monetize a portion of our renewables pipeline without requiring significant AES equity. As a result of all of these actions, we have reduced our parent investment in the renewables business by $1.3 billion from now through 2027 and eliminated the need for equity.
Second, we are streamlining our organization ahead of what was originally planned. Our business is significantly simpler today than it was 10 years ago. As we now operate in fewer countries, our portfolio consists of more than 50% renewables, and our growth is primarily concentrated in the US. In 2025, after the execution of this restructuring, we will realize approximately $150 million in cost savings. Ramping up to over $300 million in 2026 as we achieve a full year run rate.
Third, as I previously mentioned, we will retain a few of our coal assets beyond 2027 to support our financial metrics and fund new projects. Taken together, these actions enable an even stronger AES with a clear path to achieve our 2025 and long-term financial commitments and strengthen our credit metrics.
In summary, we have a resilient strategy to deliver on our financial commitments regardless of regulatory outcomes. We have continued to de-risk our business by exiting Brazil, locking in and onshoring our equipment and moving our supply chain to the US.
As I mentioned earlier, 2025 is an inflection point for the financial results of our US renewable business as we begin to harvest many years of work and investments. Demand from our corporate clients remains strong and growing, and we are taking all steps to increase our efficiency and profitability. We are confident in the underlying value of our business, and we are committed to strengthening our balance sheet while capitalizing on our unique competitive advantages.
With that, I will turn the call over to Steve.

Thank you, Andrés. And good morning, everyone. Today, I will discuss our 2024 results and capital allocation, our 2025 guidance, and our updated expectations through 2027.
Turning to slide 14, full year 2024 adjusted EBITDA was $2.64 billion versus $2.8 billion in 2023, driven primarily by record-breaking drought conditions in South America, several force outages and asset sales, but partially offset by contributions from new renewables projects.
Turning to slide 15, adjusted EPS was $2.14 in 2024 versus $1.76 in 2023. Drivers were similar to those for adjusted EBITDA but also include significantly higher tax attributes on new renewables commissionings and a lower adjusted tax rate. This tax benefit was associated with our transition to a simpler, more US oriented holding company structure better aligned with our growth. This is partially offset by a $0.07 headwind from parent interests on higher debt balances primarily used to fund new renewables projects.
I'll cover our results in more detail over the next 4 slides, beginning with the Renewable Strategic Business Unit, or SBU on slide 16.
Lower adjusted EBITDA at a renewables SBU was primarily driven by historic weather volatility in South America. In the second quarter, an unprecedented flood forced an outage at our [Chevo] facility for nearly 2 months, which was then followed by a record-breaking drought across the country. Brazil was also impacted by a lengthy drought and extremely low wind resource, and the sale closing in the fourth quarter reduced EBITDA on a year over year basis. These negative drivers were partially offset by contributions from new projects that came online primarily in the US.
At our utilities SBU, higher adjusted PTC was primarily driven by rate-based investment in the US, new rates at AES Indiana, and improved weather, but partially offset by the 2023 recovery of purchase power costs at AES Ohio included as part of the ESP 4 settlement, as well as higher interest expense from new borrowings.
Lower adjusted EBITDA and our energy infrastructure SBU reflects an outage in Mexico, lower margins at Southland, and sell downs in Panama and the Dominican Republic. Finally, at our new energy technologies SBU, higher adjusted EBITDA reflects improved results at fluence.
Now, let's turn to how we allocated our capital last year on slide 20.
Beginning on the left-hand side, sources reflect $3.1 billion of total discretionary cash. This includes parent-free cash flow of just over $1.1 billion, which increased more than 10% from the prior year. We distributed nearly $600 million of asset sales proceeds to the AES parent, and we issued $1.4 billion of hybrid parent debt.
Moving to uses on the right-hand side.
We invested approximately $1.9 billion in growth at our subsidiaries of which more than 80% was allocated to our renewables and utilities businesses. We also repaid roughly $180 million of subsidiary debt and allocated $500 million of discretionary cash to our dividends. In addition, we used a portion of December hybrid issuance proceeds to repay parent debt and have ended the year with a significant cash balance that will go to executing on our backlog in 2025.
Now, turning to our guidance and expectations beginning on slide 21.
Today we're initiating 2025 adjusted EBITDA guidance of $2.65 billion to $2.85 billion in which growth in our core businesses is offsetting a number of one-time year-over-year headwinds. Our guidance includes more than $300 million of growth at our renewables and utilities SBUs. This is partially offset by the sale of AES Brazil and the pending 30% sale of AES Ohio, as well as approximately $200 million from a reduction in Southland margins related to declining power prices in California and the retirement of our warrior-run coal plant in energy infrastructure where we recognized revenues in the first half of 2024 related to the monetization of the PPA.
The timing of these 2024 items combined with the seasonality of our renewables growth will result in our first half EBITDA being lower on a year-over-year basis, while the second half will be significantly higher. In addition to these drivers, we also expect to realize $150 million of cost savings in 2025 across all businesses from the actions we are taking that Andrés outlined.
Looking beyond this year, these savings, which increased to a run rate of over $300 million in 2026 combined with continued growth in renewables and utilities, will accelerate the growth trajectory of AES. As a result, we now expect a much higher low 10s EBITDA growth rate in 2026 versus 2025.
In addition, we expect to recognize $1.4 billion of tax attributes in 2025. This represents an increase of nearly $100 million driven by more projects coming online in the US. In total, we expect to achieve $3.95 billion to $4.35 billion of adjusted EBITDA with tax attributes in 2025.
Turning to slide 22.
I will now provide some additional color on our renewables SBU adjusted EBITDA, which we expect to increase significantly year over year in 2025. This growth includes more than $150 million from new projects, much of which relates to the 6.6 gigawatts of new capacity we place in service in late 2023 and throughout 2024. These projects are already online and operating and will now contribute a full year of EBITDA in 2025.
The sale of AES Brazil in the fourth quarter of last year will serve as a $100 million headwind year over year but is more than offset by the re-segmenting and growth of our renewables business in Chile, which is forecasted to be close to $190 million in 2025. The last two drivers are the normalization of Columbia results after the second quarter, flood-driven outage and historic drought conditions in 2024 and the impact of resizing our development business as Andrés previously discussed.
Turning to slide 23.
We are initiating 2025 adjusted EPS guidance of $2.10 to $2.26 and we expect to achieve the upper half of the 7% to 9% long term growth target we initiated in 2021. Drivers are similar to adjusted EBITDA with tax attributes but will be offset by higher parent interests and a higher adjusted tax rate. As a reminder, our results have historically been somewhat seasonally weighted toward the second half of the year, and this year is no exception.
Now, turning to our 2025 parent capital allocation plan on slide 24.
Beginning with approximately $2.7 billion of sources on the left-hand side, parent-free cash flow for 2025 is expected to be around $1.15 billion to $1.25 billion. We expect to generate $400 million to $500 million of net asset sale proceeds this year and issue an additional $700 million of net new parent debt.
Now, to the uses on the right-hand side, we plan to invest approximately $1.8 billion in new growth, of which more than 85% will be in the US. We also plan to repay roughly $400 million of subsidiary debt and allocate more than $500 million to our shareholder dividend, which reflects the previously announced 2% increase.
Turning to slide 25 in our long-term expectations.
We expect tremendous growth at our renewables SBU with an average annual CAGR of 19% to 21% expected from our 2023 guidance midpoint. This will be primarily driven by 6.6 gigawatts of new projects already placed in service along with roughly $700 million of new EBITDA from bringing the majority of our 11.9 gigawatt backlog online. Also included is the addition of Chile renewables offset by the sale of AES Brazil, neither of which were contemplated in our 2023 SBU guidance ranges.
At our utilities SBU, we expect annualized growth of 13% to 15% through 2027, reflecting upside from new data center development in our service territories that could serve as an even greater tailwind beyond 2027. This growth is largely covered by trackers and will be critical to improving service quality and reliability for our customers.
Our utilities plan also incorporates the 30% sell down at AES Ohio we expect to close in the first half of this year. This will reduce adjusted EBITDA in the near term, but allows us to fully capture the data center opportunity in the long term and maximize shareholder value.
In our energy infrastructure SBU, we now expect EBITDA contributions will decline at a slower rate than in our prior guidance as we plan to operate a few coal plants beyond our previously planned 2027 exit, improving earnings and cash flow.
Now to slide 26.
Bringing it all together, I am pleased to reaffirm our long-term adjusted EBITDA growth target of 5% to 7% and our long-term parent free cash flow growth target of 6% to 8% through 2027. This growth is largely locked in through signed PPAs for our backlog projects and approved or tracked rate-based investment at our utilities.
Turning to slide 27 in our long-term capital plan.
Total sources of $6 billion will be funded primarily with parent-free cash of $3.6 billion to $3.9 billion, reflecting average annual growth of 6% to 8% off our 2023 guidance midpoints. We also expect to issue $900 million to $1 billion of net new parent debt and realize $800 million to $1.2 billion of proceeds from asset sales. It is important to note here that we have fully removed any need for equity issuance throughout our guidance period.
On the right-hand side, parent investment of approximately $4 billion reflects a reduced investment in renewables. We also plan to repay $600 million of subsidiary debt. We expect to allocate another $1.6 billion of cash to our dividend, which we are fully committed to maintaining at its current level. However, given our efforts to minimize parent cash needs in the already highly attractive yield, we do not expect to grow the dividend during our planned period.
Our long-term guidance includes the impact of the actions we're taking to simplify our operations, reduce spending on development, and further increase our cash flow and strengthen our credit metrics. These include reducing our planned renewables investments by $1.3 billion. Implementing a restructuring program to generate over $300 million of run rate cost savings by 2026 and continuing to operate select coal assets with earnings and cash potential beyond 2027. These actions demonstrate our commitment to our financial targets as well as our investment grade credit ratings.
I want to briefly make a few points about our capital structure and financing model.
While we see an uptick in our total debt levels by the end of 2027, which should be looked at on an ownership adjusted basis, our actions to reduce costs and focus our development efforts on higher returning projects will increase cash flows and improve our credit metrics, this eliminates any need for new equity and gives us more flexibility on timing to execute asset sales and sell downs.
Approximately 20% of our debt is related to projects still under construction that are not yet yielding EBITDA or cash. And more than half of this amount will be permanently taken out by monetizing tax attributes when projects are placed in service, leading to a significantly lower level of long-term project debt.
Given that we carry this construction debt, it is relevant to consider a pro forma view of the annual EBITDA and cash generation that will recur once construction is complete. To be specific, the projects that come online during 2027 or are still in construction at the end of 2027 will generate an additional $400 million of annual adjusted EBITDA that is not reflected in our 2027 guidance window.
Beyond construction, our projects are financed with long term non-recourse debt that fully amortizes using project level cash flows over the life of the PPA. This project debt is non-recourse to the AES parent, resulting in a capital structure that is robust and low risk.
Turning to slide 28.
This chart provides an example of the typical debt and EBITDA levels we would expect over the life of a US renewables project. While a new project is under construction, debt ramps up with no corresponding EBITDA. Once the project is placed in service, there is a material reduction in the debt balance as more than half of the construction debt is repaid through the monetization of tax attributes. The remainder is refinanced using long-term fixed rate amortizing project debt that is pre-hedged when the PPA is signed.
In the first full year of operations, leverage ratios begin at approximately 6 times debt to EBITDA and will continue to decline each year as the project debt amortizes. This example helps demonstrate how AES leverage ratios appear artificially high while we execute on our ongoing construction program but will come back down as our operating portfolio reaches a larger scale.
In conclusion, 2025 is an inflection point for our business. The renewable segment will increase over 60% in 2025 and will yield annual growth at least in line with our 19% to 21% guidance through 2027.
Utilities rate-based growth is even stronger than previously expected. While energy infrastructure continues to contribute meaningfully to EBITDA and cash, we have taken actions to streamline our organization and reduce both costs and capital investments. These actions are further increasing our cash flows and will enable AES to deliver increasingly higher credit metrics as we execute on our backlog.
Finally, we are on track to achieve our long term financial guidance. I look forward to providing updates throughout the year as we continue executing on our plan and capitalizing on the actions we have taken to ensure continued success at AES.
With that, I'll turn the call back over to Andrés.

Thank you, Steve. In conclusion, here are the key points we want to leave with you today.
There is an unprecedented need for incremental energy to power the AI revolution in the United States. Notwithstanding concerns about potential regulatory changes under the new administration, renewables have the best time to market at a competitive price. Additionally, we are well insulated from potential changes in US renewables policy or tariffs through Safe Harbor protections for our backlog, having locked in equipment and EPC pricing and established domestically based supply chains. Our renewables business is at an inflection point with improving financial results from the combination of continued growth, reaching economies of scale, and reductions in development expenses.
We are reaffirming our longer-term growth rates through 2027 as we execute on our 11.9 gigawatt backlog and we are taking steps to improve our credit metrics. As always, we are highly focused on delivering the highest risk adjusted returns to our shareholders. And we believe that AES is very well positioned to meet both our customers' energy demands as well as our financial commitments.
Operator, please open the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
Nick Campanella, Barclays.

So just on the cost savings, morning, so you have $150 million rapping to $300 million over time, I heard you, Steve, say that these are run rates, so I assume that these are ongoing and not one time in nature. Just I recognize you had about $52 million in the bridge for renewables. So is the bulk of this coming from the parent? Is it -- does it happen naturally as you sell down more on the energy infrastructure business? And maybe you can kind of just expand on your confidence level and achieving these reductions and where you see a bulk of these happening in the portfolio.

So the cost savings are spread across the portfolio and definitely include the renewables business as well. It is a run rate when we hit over $300 million next year, so these are not one time. And I would emphasize that we've already taken these actions, so this is something that we're very confident in because we've already made the decisions and taken the actions that we need to take to achieve the cost savings. So the renewables number that you see for 2025 in that bridge, that will also ramp up in line with the $150 million going to $300 million, I would expect that to proportion to remain roughly the same.

And then you know just on the comments you're cutting cap back but you're still hitting the growth target of 5% to 7% long-term EBITDA, so you previously talked about a 12% to 15% IRR on renewables. What's the IRR of these higher quality projects that you're now targeting and is the cost cuts just are the cost cuts just making up for the rest of that delta, just tying out to the long-term guidance?

Sure. Look, we're taking an integrated approach. So, yes, we see a strong demand in the markets. We see that we have very attractive projects, so that our IRRs are going up on average. But at the same time, we're also reducing those costs not directly associated with the project, so it's really coming from both sides. So it's an integrated approach.
So what we're doing is, and we quite frankly have said this to some extent in the past, it's not just the number of gigawatts, it's the returns we get, for example, EBITDA created by each investment dollar. So that's really what we're focusing on. So it will mean fewer projects, but larger projects and at the end, more profitable projects.

Operator

David Arcaro, Morgan Stanley.

Let's see, looking at that, it seems like you're pulling back somewhat on the renewable CapEx in the forecast, wondering from a high level kind of strategic perspective, Andrés, do you see this as a kind of a pause in, I guess in the renewables growth or just a bit of a pull back in making those investments into the renewables business just given the current environment that. And over time would you expect to re-assess and potentially reaccelerate, to the extent financing becomes easier the backdrop, becomes more favorable?

Look, we are focusing on executing on our 12 gigawatt pipeline, in which 85% of that will be online by 2027. So, that's our number one focus. As we mentioned in our script, we've been spending a lot, which flows through P&L is building that 50 gigawatt pipeline in the states and 10 gigawatt pipeline outside.
So really, what we're doing is harvesting that pipeline. So you know we don't want to grow it to 100 gigawatts. So we've done that work, we're going to harvest it. So basically we're spending less, if you will, on future projects with a time horizon of 5 to 7 years because we've done that work.
Now in terms of total growth rate, what we're saying is we're going to be building less gigawatts for sure, but we're going to maintain our financial results so that's the sort of picture. Now again, what we see is strong demand from our clients, but we're very happy to -- this year, we'll be commissioning around 3 gigawatts of new projects, next year, that would step up to 4 gigawatts. So you're seeing we're signing around 4+ per year. So eventually, the amount that we commission and the amount that we build have to roughly come in line.

And then I guess looking at the overall profile of the businesses and your asset sales target now, I guess you're -- seems like you're increasing the asset sales target overall, but you're keeping coal in the plan for a bit longer than originally planned. Could you maybe talk about what the profile is of the assets that that you might be looking at in the asset sales target now what could be represented in there?

So, similar to what we have talked about in the past, it does still include some coal exit, it does still include some monetization of our technology portfolio, but we have always said that the universe is greater than the $3.5 billion. We've actually taken a little bit more conservative view on what we intend to execute here, so we're really confident in the number between '25 and '27.
And you know we have looked at the sell downs as well, so this number includes some of the partnerships that we do. But what I would say is this capital plan relies less on these asset sales than in the past, and we have baked in more flexibility to execute the sales over time.

Operator

Durgesh Chopra, Evercore ISI.

Just I wanted to double click on cost savings $300 million annual target, it's pretty substantial when I look at your EBITDA number, roughly 10%. Maybe just can you give us some examples ff what cost reductions are these personnel reductions or these process improvements just so we can get a little bit more comfort around your target level of cost reduction, please?

Sure, great question. With me is Ricardo Falú, our Chief Operating Officer, who's been leading a lot of the reorganization restructuring efforts. So, I'll let him answer that question.

So this, cost reduction program includes as Andrés and Steve mentioned first, the resizing of our development program to focus it on executing on our backlog as well as pursuing fewer but larger project. And as a result, we resize the team. We also materially cut the new sites origination as well as early stage of project cost. And on top of that, we reduced a 10% -- we had a 10% reduction in our workforce, which includes the elimination of certain management layers as well as a much leaner organization both at corporate and business levels.
This is something that we plan to occur more gradually through 2027. However, in response to the current market conditions, we decided to accelerate and this organization now it's aligned to the much simpler portfolio that Andrés mentioned.

Yeah, I'd like to mention that these actions have been taken. So Steve also mentioned that, so these are done and also the decisions in terms of losing the amount of capital we put into the renewables business. There is very little execution risk on it because it's done.

And I can sense the the confidence you have in executing on these cost reductions. Okay, thank you.
And then my final question, Steve, just maybe can you help us with where you landed on FX or debt basis and referring to sort of on a Moody's adjusted basis for 2024 relative to your credit downgrade thresholds.

Yeah, absolutely. So on the recourse metrics, so at the parent level, we ended at 22%. So you know it's a significant cushion above the 20% threshold. On the Moody's metric, we ended on our on our calculations at 10%, which is right in line with where we expect it to be. In both cases, these metrics will improve over time. At this point with this updated plan where we focus very closely on improving our credit metrics, we do expect to get into the mid-20s on the recourse metrics by the end of the guidance period and.
In 2026, in line with what we've been discussing with Moody's, we expect to be at or above the 12% threshold. So I feel really good about the actions that we've taken and what we're doing to increase our cash and EBITDA. Our net debt to EBITDA ratios will improve over time as well.
The other thing I would point out is, as I said in my prepared remarks, we do carry about $4 billion to $5 billion of construction debt on our balance sheet at any one time, that is not yet yielding. And so, our leverage ratios look artificially high at any one point in time as a result. And so, these ratios when adjusted for that, for example, in a net debt to EBITDA comes down 1 to 1.5 times just by adjusting for that construction debt.
But as I looked at the ratios or I mentioned the ratios, those are based on the actual way that they get calculated, without this adjustment. But I do think it's important in understanding our leverage profile, it's very important to look at this ownership adjusted debt level because the EBITDA, of course is ownership adjusted, and to understand that the leverage profile continues to improve over time as the operating portfolio gets bigger and bigger relative to the construction.

Operator

Julien Dumoulin-Smith, Jefferies.

Julien Dumoulin-Smith

Maybe just to follow up on that last one, just while we're on the subject, can you just elaborate? I mean, to what extent have you gotten in front of Moody's with this plan and just if you could elaborate a little bit on how you're thinking through '27 on that evolution of those metrics and that's sufficing given the backdrop of Moody's here.

So we have discussed as we were working with Moody's last year, where this was headed. What I would say is it looks right on track, in fact, even a little bit better given the actions that we've taken. Effectively, what's happening is our cash flow and EBITDA is increasing substantially through the plan period. And you know, that's a result of bringing on substantial amounts of operating assets. We have 12 gigawatts in our backlog, most of which will be coming online through 2027.
And then on top of that we are reducing, as Andrés and Ricardo discussed, our development spending is down based on our updated strategy of pursuing larger but fewer projects. We're putting less money into early-stage prospecting and more maturing the pipeline that we have. And then our administrative spending is down substantially as well, and that's also as a result of what was mentioned about our simplification of our portfolio and the reduction of management layers and efficiencies that result from these actions that we have already taken. So together with this cash flow increase from operations, the reduction in cost, the ratios continue to look very healthy and grow in line to better than our prior expectations.

Julien Dumoulin-Smith

Maybe just to keep going with that a little bit further. Just given the reduction of $1.3 billion here just on balance, are you actually selling down stakes and more renewables in order to reduce that need for contributions, or is the aggregate level of renewable investment per year slowing down here? I just want to make sure we're clear.
You've talked about backlog and executing it, but I just want to understand like how you think about like renewables per year install evolving through the period now given the update as well as what level of contribution from coal, not what assets, but just what level of cash or EBITDA, however you want to talk about it from coal, are you anticipating, in '26 and '27 beyond now as well.

So on the first one again, through the 2027, we're basically executing on our backlog. And look, we're seeing very strong demand from our clients. Since our last call, we signed 450 megawatts with tech customers. So we see no downturn in demand. So basically, what we see is there's no cliff in 2027. I mean, our demand continues to grow.
Second, maybe an easy way of thinking what Steve had described is if you have a pool of say roughly $4 billion to $5 billion in construction debt, and you are basically carrying that over 16 gigawatts and then you go up to 25, 30 gigawatts, that your credit metrics improved, even though that debt is really sort of short term rotating because half of it's going to be paid back upon completion. That's number one. So then number two, talking about how much the goal is going to contribute sort of post 2027, I'll pass that to to Ricardo.

So just to put it into perspective, we are talking about keeping retaining few coal assets, half or less than half of what we currently have and will be less than 8% of the expected capacity by the end of 2027. These assets continue to provide critical capacity to the grid and also to our customers, and therefore, they continue contributing, I would say, to the financial health of the company. We're clearly not abandoning our intention to exit coal, but it will take longer than we previously expected.

And I would also add here, Julian, that these are also assets that as that as they're more mature, their debt is amortized, but they're also very accretive in terms of our credit metrics.

And lastly to say, we're doing this because in those markets because of the sort of supply demand balance, they need to keep these plants online. So, it all comes together. It's good for our financials, but it's also giving the market what the market is asking for.

Julien Dumoulin-Smith

Bottom line though, you're seeing a down you're seeing a leveling off in renewable the cadence just the per annum just to come back to that backlog comment. I'm just trying to understand at the end of the day like how you see.

Yes, I would put it this way. Post 2027, what we see is less growth in number of megawatts than our original plans. I mean, that's clear because we're spending less on creating a pipeline of potential projects 5 to 7 years out. So yes, the answer is yes.

Operator

Michael Sullivan, Wolfe Research.

I think, Ricardo, you're giving it on a capacity basis, any chance we can get that on the EBITDA basis? Just trying to think about, I think when you had the analyst day, you said coal was like a $750 million roll off, what does that look like now through '27?

So we had guided, as you said, about $750 million that would be eliminated, I would say, we're looking at roughly a third of that that may continue beyond '27 for a period of time.

And then on just interest rates, I think you have a couple of parent maturities coming up, should we think of those as de-risks from a sensitivity standpoint or what are you embedding there in terms of refis or anything like that?

Yeah, so we did do a hybrid at the end of last year, $500 million, which starts us well into this year. And then, we will be in the market to refi. So we have a maturity here in July and one in January. So we will be in the market, I would say relatively soon. We typically refi, somewhere between 3 to 6 months in advance of these maturities, and our plans will be similar this year.

And then last one, I definitely can appreciate the the sort of rampant things here. The 5% to 7% EBITDA CAGR, can you get in that range in 2026 off of '23 or we really looking to '27 to really get in there?

So definitely in '26 and actually let me add one other thing to your prior question, is that on those refis, by the way, we are nearly fully hedged, so we don't carry any interest exposure -- further interest exposure on those refunds. And then with respect to 2026, that's a significant benefit from this action plan, we did contemplate a simplification of the portfolio and cost reduction in the past, over time, but what we have really done here is we've accelerated this. And so, 2026 is going to be a year of significant growth in our EBITDA, and I think I mentioned in my comments in the low 10s and we expect another significant year growth in in 2027. So we will jump ourselves up onto at least that trend line next year.
This year in '25, the guidance isn't as exciting simply because we had some of the remaining transformation here around the Brazil exit. We had the warrior run benefit last year. And so, some of these items depressed the year over year, but the reality is where the core business is growing, is contributing more than $300 million this year. There's just those offsets.
Going forward, the energy infrastructure SBU, we've largely absorbed most of the decline as of 2025. And so, we won't see a significant of an offset from energy infrastructure going forward and therefore, sort of that growth is unleashed from the core businesses to truly drop all the way into the total bottom line and therefore we have higher growth rates beyond this year.

One thing I'd like to mention is, we're talking about the quantitative results, but it is really very important qualitative results. We're transitioning this portfolio to be more contracted, to be more renewables, more utilities, less but by getting rid of 5 gigawatts, think about Brazil. I mean that was about -- we have about 30 gigawatts. We sold out of 5. That was most of our hydrology, currency, it was all floating rate, interest rate exposure. So qualitatively, we're transforming this portfolio at the same time. So it's not just that it's we're going to have very good growth in '26 and '27, but it's going to be a much better portfolio as well.

Operator

Will Grainger, Mizuho.

I understand, you reduced CapEx here but just want to understand a little bit more what's the flexibility to thinking about maybe reducing it even more and investing in your stock here just given where you're trading, any color on that cost of capital would be super helpful.

Now we're -- as I said in my very first statement, we're very well aware. We talk and we're doing everything possible to to improve it. What I would say is that what we're presenting here is a plan that we think accomplishes this, and we are paying, we're giving back to the shareholders $500 million a year. We're paying a very substantial dividend.
Right now, this is the plan that we feel very confident about executing, and that we think will -- when the market settles down, we think will result in very good returns for our shareholders. But thanks for the question and we are constantly thinking of those things.

And then maybe just one final one from me. Understand you're doing a lot of work with technology customers, manufacturing customers, and just on the items at the FERC and what we're seeing also in Texas, does that impact your ability to contract long-term renewables either through co-location or virtual PPAs and any color on that?

Yes, I think you're probably referring like this is a private, so co-location, private use networks. And look, we don't see that affecting us. We think that most of our -- we have a very, I would say resilient pipeline because we have very few federal lands, if at all. We're all on private lands and we don't have as part of that pipeline, any PUNs at this point. So we feel very confident about our pipeline and we don't see any of these regulations affecting us.

Operator

Those are all the questions we have and so, I'll turn the call back to Susan Harcourt for closing remarks.

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

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.