AES Corporation Progresses on Key Overseas Projects in First-Quarter 2015, Looks Forward to $7 Billion in Plans

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Researched by Industrial Info Resources (Sugar Land, Texas)--Thermal and renewable energy provider AES Corporation (NYSE:AES) (Arlington, Virginia) overcame the dragging effects of a strengthening U.S. dollar in first-quarter 2015 as the company fortified its operations internationally, particularly in India, Panama and Vietnam. Net income was reported to be $142 million, compared with a net loss of $58 million in the first quarter of 2014.

Industrial Info is tracking $16.64 billion in active projects involving AES, including the $690 million construction of Eagle Valley Generating Station in Martinsville, Indiana. The 656-megawatt (MW), natural gas-fired, combined-cycle power plant, which is owned by Indianapolis Power & Light Company (Indianapolis, Indiana), a subsidiary of AES, is designed to utilize two 195-MW combustion turbine generators, from General Electric (NYSE:GE), Siemens AG (NYSE:SI), Mitsubishi Heavy Industries or an equivalent; two heat-recovery steam generators; and a 270-MW steam turbine. Chicago Bridge & Iron Company (NYSE:CBI) (The Hague, Netherlands) is performing engineering, procurement and construction services.

Total revenues stood at $3.98 billion, a 6.52% decrease from the same period last year. In addition to the stronger U.S. dollar, which diminished international sales, AES was negatively affected in Brazil by lower sales, higher fixed costs and the devaluation of the Brazilian real; in the Dominican Republic by lower margins; and in Europe by decreased contributions due to recently sold assets, including the U.K. wind business. But in the U.S., the company benefited from improved availability at Dayton Power & Light (Dayton, Ohio).

During the quarter, the company inaugurated the 72-MW, fuel oil-fired Estrella del Mar power barge in Panama, which has a five-year power-purchase agreement with a state-owned generation company. AES also re-secured coal allocations for its 1,320-MW OPGC 2 project, which is under construction in India. Capital expenditures were reported to be $619 million, compared with $399 million in the first quarter of 2014.

"We have taken steps to mitigate the impact of adverse hydrology in Latin America, and this year that risk is mostly limited to Brazil," said Andres Gluski, the chief executive officer, president, director and chairman of the Strategy & Investment Committee for AES, in a conference call. "We also have a rolling, 12-month hedging strategy to help mitigate the impact of fluctuations in foreign currencies, especially the Brazilian real, the Colombian peso and the euro. Although these currencies have weakened against the U.S. dollar, energy demand has remained robust at 3% to 10% our markets except in the U.S., while we are experiencing flat demand and in Brazil where demand growth is slightly negative."

At the start of the second quarter, AES began commercial operations six months early at its 1,240-MW, coal-fired Mong Duong 2 power plant in Vietnam. The new facility has a 25-year power-purchase agreement with a state-owned utility; Vietnam's power demand is expected to grow 10.5% over the next five years, according to the Vietnam institute of Energy and the National Center for Socio-Economic Information and Forecast. AES has a 51% equity interest in the $1.95 billion plant, while PSC Energy Global Company Limited, a subsidiary of POSCO Power Corporation (Seoul, South Korea), and Stable Investment Corporation, a subsidiary of China Investment Corporation (Beijing), own 30% and 19%, respectively.

AES has 5,819 MW of projects under construction and slated to begin operations through 2018.

"From 2015 through 2018, we expect the commission 7,131 MW of new capacity, which is a high multiple of the roughly 600 MW we've brought online in the three previous years from 2012 to 2014," Gluski said in the conference call. "In fact, already this year, we've brought online 1,312 MW, which is 87% of the capacity we expect to commission this year."

He later added: "The total [capital expenditures] for our projects currently under construction is $7 billion, but AES' equity commitment is only $1.3 billion, of which all but $400 million has already been funded. Roughly 80% of this new capacity is in the Americas."

The company also agreed to sell all of its interest in the Armenia Mountain wind project in Pennsylvania and 40% of its interest in Jordan's IPP4 power plant for equity proceeds of about $105 million.

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