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The AES Corporation (NYSE:AES)
Q4 2018 Earnings Conference Call
Feb. 27, 2019 9:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning and welcome to the AES Corporation's fourth-quarter 2018 financial review conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ahmed Pasha, vice president of investor relations. Please go ahead.

Ahmed Pasha -- Vice President of Investor Relations

Thank you, Karie. Good morning and welcome to our fourth-quarter and full-year 2018 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 during the call.

There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Joining me this morning are Andres Gluski, our president and chief executive officer; Gustavo Pimenta, our chief financial officer; and other senior management of our management team. With that, I will turn the call over to Andres.

Andres?

Andres Gluski -- President and Chief Executive Officer

Thank you, Ahmed. Good morning, everyone, and thank you for joining our fourth-quarter and full-year 2018 financial review call. 2018 was a good year for AES, demonstrated by our strong financial results and excellent progress toward achieving our strategic goals. We delivered on all of our commitments, including our financial guidance, and hit key milestones on our strategy, positioning AES for long-term sustainable growth.

Some of our key accomplishments last year were: we reached the high-end of our expected ranges for both earnings per share and [Inaudible] free cash flow, we achieved a key investment grade financial metrics one year ahead of our plan, we met our expectation of signing long-term PPAs for 2 gigawatts of renewable capacity and increased our backlog to almost 6 gigawatts, we accomplished key milestones on our 4.4 gigawatts under construction and completed construction of an additional 1.3 gigawatts. We introduced a longer-term target to reduce our carbon intensity by 70% from 2016 through 2020. We now expect to achieve a 50% reduction by 2022. And our world-leading, battery-based energy storage joint venture with Siemens, Fluence, was awarded 286 megawatts of new projects, bringing its total to 766 megawatts.

Reflecting on our successful execution, improved visibility, and increased confidence in our ability to deliver, we are extending our longer-term outlook by two years, and now expect 7% to 9% average annual growth in earnings and cash flow through 2022. As a result of our strong performance in 2018, combined with our improved outlook, we expect to hit the high-end of our prior guidance range through 2020. Gustavo will discuss our 2018 results and guidance in more detail after I provide an overview of our strategy urning now to Slide 4. Our core strategy continues to revolve around the three themes of: first, enhancing the resilience of our portfolio and lowering risk to deliver attractive returns; second, delivering on our backlog of long-term contracted projects to ensure profitable growth; and three, investing in innovative technologies to maintain our competitive edge and market leading position.

Today, I will review the progress we've made this year in support of these things and how we have positioned ourselves well for the future. Turning to Slide 5, we are seeing the benefits of many initiatives that began several years ago to derisk our portfolio. AES today is a very different company than it was in 2011, doing business in 28 countries around the world with significant commodity exposure. Since then we have focused our portfolio on roughly a dozen markets, where we have a competitive advantage, and we have reduced our overall exposure to foreign currencies, commodities, and hydrology by 70%.

In 2018 alone, we paid down $1 billion in current debt, and we are on a path to attain investment grade rating in 2020, supported not only by our financial metrics but also by the lower level of risk and higher quality of our portfolio. Our efforts to enhance the resilience of the portfolio have led us to focus increasingly on clean technologies. As you can see on Slide 6, we are significantly decreasing the carbon intensity of our portfolio. In November, we announced a carbon intensity reduction target of 70% by 2030 versus 2016 levels.

Today, I am pleased to announce an interim carbon intensity reduction target of 50% by 2022. Our shift to renewables simply makes good business sense. It increases the longevity of our cash flows and allows us to attract a broader investor base. Another way we are decreasing the risk of our portfolio is by completing most of the large conventional projects under construction and focusing our future growth on renewable projects, which are less capital-intensive and considerably simpler to build.

Turning now to our strong backlog of projects, beginning with our projects -- progress on those under construction on Slide 7. In 2018, we completed 1.3 gigawatts of new projects, including the Eagle Valley combined cycle gas plant and IP&L in Indiana, and the AES Colon combined cycle gas plant and regasification terminal in Panama, and 254 megawatts of solar and energy storage, mostly in the U.S. We still have another 4.4 gigawatts currently under construction and expect it to come online through 2021. Our OPGC2 to plant in India is in the commissioning phase and we expect it will be fully completed in May.

Our south [Inaudible] repowering project in Southern California is approximately 80% complete, and the project is on track to come online in the first half of next year. And our Alto [Inaudible] hydroelectric project in Chile is advancing as planned and is now three quarters complete with two-thirds of the tunneling work done. The remaining projects under construction are made up of renewables across our portfolio. As you can see on Slide 9, this capacity is split equally between the U.S.

and internationally. All of these projects are going well and they are expected to come online in the next 18 months. We are particularly pleased with the speed at which we've been able to transition these projects from development to construction. Since our last call in November, we have broken ground on 731 megawatts of solar, wind, and energy storage.

As can be seen on Slide 10, in 2018, we signed new PPAs for approximately 2 gigawatts of renewables, and we're on track to sign between 2 gigawatts and 3 gigawatts annually in the coming years. Turning to Slide 11, combining our capacity under construction with our long-term PPAs that are not yet under construction, yields our total backlog to 5.8 gigawatts. As we execute on our plan to sign 2 to 3 gigawatts of new PPAs every year, we expect to bring a total of 12 gigawatts online by 2022. By then, we project that the U.S.

will represent almost half of our earnings versus about one-third today. As can be seen on Slide 12, our renewable investments are expected to produce low to high teen IRRs across all our markets, assuming conservative terminal values. We have some unique advantages that allow us to earn these attractive returns, which I will discuss in the next few slides, beginning on Slide 13. First, we have existing commercial relationships that we can leverage to drive new growth.

For example, our green blend-and-extend strategy allows us to negotiate new long-term PPAs with existing long-term thermal customers. Through this win-win strategy, we preserve the value of our existing thermal capacity contracts while replacing a portion of thermal energy with long-term contracted renewable energy. In exchange, our customers receive carbon free energy at less than the marginal cost of thermal power while still benefiting from reliable capacity provided by thermal generation. In 2018 alone, we negotiated green blend-and extend-contracts for 576 megawatts in Chile and Mexico.

A second advantage that we have for renewable growth is deep market intimacy. For example, AES Distributed Energy recently inaugurated the largest solar storage facility in the world, the island of Hawaii. The deposit was made possible by AES' long history in Hawaii and willingness to work with local stakeholders to meet their needs and goals. The project, which includes 100 megawatt hours, a 5 hour duration energy storage will essentially serve as a source of base load power for the island and deliver roughly 11% of its power.

We recently broke ground on a similar second project also on the Island of Hawaii with 14 megawatts of solar and 70 megawatt hours of 5 hour duration energy storage. Third, our work with partners provides us with an important competitive advantage. We bring in partners to achieve economies of scale, fine-tune our portfolio, and improve our returns on invested capital. Our recent sell-down of sPower is a good example, where we agreed to sell 48% of our stake in sPower's operating portfolio, which along with operational improvements and refinancing, have increased our returns to 13%.

The sell-down also provides us with funds to invest in sPower's 10 gigawatt development pipeline to earn similar attractive returns. Turning now to Slide 16. In addition to our growth in renewables, we continue to increase our LNG business, which is displacing heavy fuel oil and diesel with cheaper and cleaner natural gas. As you may know, in 2018, we inaugurated our AES Colon combined cycle gas plant and LNG regasification facility in Panama, which will play a key role in supplying natural gas for the entire Central American region.

Our LNG facilities in Panama and the Dominican Republic represent a total install capacity of 150 tera BTUs to serve local and regional markets. The majority of this capacity is now under contract and the remaining 55 tera BTUs are still available to drive future growth. As I mentioned on our last call, we are capitalizing on the expertise we have gained in the Dominican Republic and Panama by developing a similar LNG regasification facility and associated combined cycle power plants in Vietnam. Although this long-term U.S.

dollar denominated 450 tera BTU facility is in its early stages, we are making very good progress and it has the potential to contribute significantly to our longer-term growth for 2023. Turning to Slide 17. The third component of our core strategy is to invest in innovative technologies to maintain our competitive edge and market-leading position. As an example, in 2007, AES launched a small energy storage group that was the first of its kind.

Today, energy storage is beginning to revolutionize the sector and AES is at the forefront. Fluence, our joint venture with Siemens, was recently named the No. 1 utility scale energy storage integrator in the world by Navigant Research for the third time in a row. In 2018, Fluence was awarded 286 megawatts of new projects and is now the largest global energy storage provider by capacity in the world with a total of 80 projects in 17 countries.

Turning to Slide 18. We're also implementing a corporate wide digital transformation, including becoming a strategic investor in Simple Energy. Simple Energy provides a digital platform that allows our IP&L and DP&L utilities to accelerate energy efficiency and demand response program, all the while improving customer experience. Simple Energy's digital platform serves not only AES' utilities, but 40 other utilities in the U.S.

with access to over 40 million end customers. Although not in our guidance, we expect our new digital initiatives to materially benefit both our top and bottom lines. We will provide more color as our digital strategy matures on future calls. Now, I will turn the call over to Gustavo to discuss our financial results, capital allocation, 2019 guidance, and longer-term expectations in more detail.

Gustavo Pimenta -- Chief Financial Officer

Thank you, Andres. Today, I will cover our 2018 results, including credit profile and capital allocation. I will conclude by addressing our guidance for this year and expectations through 2022. As Andres mentioned, we finished 2018 on a strong note, achieving the upper end of our expected ranges for all metrics and setting a solid foundation for growth through 2022.

As shown on Slide 20, adjusted EPS was $1.24, reflecting higher margins from our businesses, particularly in the U.S. and utilities and South America strategic business units or SBUs as well as debt pay down at the current. These positive drivers were partially offset by asset sales in the Philippines and Kazakhstan. Turning to Slide 21, adjusted pre-tax contribution or PTC was $1.2 billion for the year, an increase of $160 million.

I will cover our results in more detail over the next four slides, beginning on Slide 22. In the U.S. and utilities SBU, higher PTC was primarily driven by DPL, which benefited from higher rates following the resolution of its rate case. Results also reflect high contributions from our U.S.

solar business and an extended summer run at our Southland plant in California. Increased PTC at our South America SBU reflects higher contracted pricing in Colombia as well as higher tariffs in Argentina following the 2017 reset. Results also benefited from higher contracted sales and lower interest expense at AES [Inaudible] in Chile. Higher PTC at our Mexico, Central America, and the Caribbean, or MCC SBU reflects our full year of operations at the DPP combined cycle expansion and higher spot energy prices in the Dominican Republic.

Results also reflect the commencement of operations at the AES Colon CCGT and regasification facility and improving hydrology in Panama. Finally, in Eurasia, our results primarily reflect the sales of our businesses in the Philippines and Kazakhstan. Turning to our improving credit profile on Slide 26. Since we first established our goal of reaching investment grade in 2016, we have reduced the current debt by $1.3 billion or 26%.

This includes an additional $150 million repayment in December 2018, which is an acceleration of the debt reduction we had anticipated through 2020. As a result, we achieved a key investment grade financial metric of 3.95 times to current leverage, one year ahead of plan, providing us additional confidence in our ability to attain investment-grade rating in 2020. We believe this improvement in our credit profile is helping us, not only to reduce our cost of debt and improve our financial flexibility, but also to enhance our equity valuation. Over the next few years, we expect that our credit metrics to show further improvement through growth in our current free cash flow as well as modest additional delivering.

Now to our 2018 current capital allocation on Slide 27. Sources on the left-hand side reflect $1.9 billion of total discretionary cash generated in 2018, consistent with our prior expectations. This includes $689 million of current free cash flow just above the high end of our expected range. Uses on the right-hand side of the slide are also largely in line with our prior disclosures.

The one notable exception is our $1.3 billion of cash allocated to current debt reduction, which reflects the additional $150 million paid down in the fourth quarter. Now turning to our guidance on Slide 28. Today, we are initiating guidance for 2019 adjusted EPS of $1.28 to $1.40. Growth this year will be largely driven by contributions from our new projects and the cost savings.

More specifically, we expected to benefit from the completion of most of our large thermal construction projects with expected commencement of operations at OPGC2 in the next few weeks and the first full year of operations at AES Colon in Panama; continued growth in renewables, including 1.4 gigawatts scheduled to reach commercial operations this year; a full-year of contributions from the cost savings implemented in 2018; lower currency and interest expense due to completed and continued debt reduction; and a slightly lower effective tax rate of 29% to 31%. This growth will be partially offset by announced business exits in the Philippines, the Netherlands, and Oklahoma. Today, we are also providing our outlook of 7% to 9% EPS and cash flow growth through 2022. We have extended this outlook by two years, which reflects improving confidence in our backlog and increased visibility of earnings and cash flow.

One additional point regarding our longer-term outlook, the 7% to 9% growth rate, which is off a 2018 base, is in line with hitting the high end of our previous 8% to 10% growth of a 2017 base through 2020. Consistent with our prior expectations, growth in the outer years is expected to be driven by projects currently under construction, such as Southland, the allocation of current cash to global renewables growth, and increased LNG sales in MCEC. I would also note the couple of additional business-related assumptions embedded in our longer-term outlook. First, regarding [Inaudible] in Bulgaria.

The plant continues to be dispatched in pace in a timely manner. Discussions related to our PPA are still in early stages and we are working to reach a mutually acceptable resolution. As we discussed before, our outlook is resilient to any reasonably likely outcome. Second, we continue to see our U.S.

utilities well-positioned for future rate-based investment in T&D infrastructure. IPL has grown it's rate base over the last few years. And going forward, there are these two opportunities for growth in the mid-single digits. At DPL, where the focus has been on restructuring the business, we can see growth in the high single-digits.

To that end, since our last call, DPL has filed both its grid modernization plan and BMI extension. Together these filings aim to maintain DPL's financial integrity while bringing its customers the substantial benefits associated with the robust modernized electric grid. Our guidance assumes that BMI is extended for two years from late 2020 through late 2022, allowing the company to meet its financial obligations while retaining the ability to grow its asset base through its marketable investments. Turning to Slide 29, current free cash flow is expected to be from $700 million to $750 million this year, and it is also expected to grow 7% to 9% per year through 2022.

Now to 2019 current capital allocation on Slide 30, beginning on the left-hand side, sources reflect $1.1 billion of total discretionary cash, including $725 million of current free cash flow. Sources also include $320 million in asset sales proceeds with 107 in proceeds to the current from announced sell-down of sPower's operating portfolio, and a placeholder for an additional $150 million this year. Now to the uses on the right-hand side, including the 5% dividend increase we announced in the December, we'll be returning $361 million to shareholders this year. We expected to allocate another $150 million this year to current debt, largely to strengthen our investment grade metrics, and we plan to invest over $400 million in our subsidiaries, leaving about $100 million of unallocated cash.

Finally, moving to our capital allocation from 2019 through 2022, beginning on the Slide 31. We expected our portfolio to generate $4 billion in discretionary cash, which is more than 35% of our current market cap. About 80% of this cash is expected to be generated from current free cash flow. The rest comes from our $2 billion asset sales target, $1.4 billion of which is completed or announced.

Turning to the use of the discretionary cash on Slide 32. Roughly 40% of this cash will be allocated to shareholder dividends. Looking forward, subject to annual review by the board, we expected the dividend to grow 4% to 6% per year in line with the industry average. We expect to use $300 million for debt reduction, including a portion to maintain credit neutrality as we pursue the final asset sales.

We are planning to use $1.5 billion for our equity investments in our backlog and projected PPAs. Once completed, all of these projects will contribute to our growth through 2022 and beyond. The remaining $670 million of unallocated cash will be used to create shareholder value. With that, I'll turn the call back over to Andres.

Andres Gluski -- President and Chief Executive Officer

Thank you, Gustavo. Before we take your questions, let me summarize today's call. 2018 was a very good year for AES as demonstrated by our strong financial results and excellent progress toward achieving our strategic goals. We are on track to attain investment-grade ratings in 2020.

We are completing our conventional construction projects. We are signing long-term PPAs for renewables, including successfully implementing green blend-and-extend through our backlog. Going forward, we will invest our growing free cash flow in a robust growth pipeline while maintaining the strength of our balance sheet and our competitive dividend. Accordingly, combining our annual growth and current dividend yield, we expect to deliver double digit total returns to our shareholders through 2022.

Operator, we're ready to take questions. 

Questions and Answers:

Operator

We will now begin the question-and-answer session [Operator instructions] The first question will come from Ali Agha of SunTrust. Please go ahead.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Thank you. Good morning.

Andres Gluski -- President and Chief Executive Officer

Good morning, Ali,

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Good morning. First question, Gustavo or Andres, just again coming back to the basic assumptions underlying your '18 through '22 growth, to be clear on some of the comments you've made with regards to Bulgaria. Are you assuming that you continue to own that project through the full-year period and that the current economics stay where they are? Or -- it wasn't quite clear what's baked into the assumption with Bulgaria. And then also related to that on the Ohio distribution rider, can you give us some further thinking and your confidence level on why you think you will get the extension beyond 2020? Just in terms of any commentary or any conversations with the commission.

That would be helpful.

Andres Gluski -- President and Chief Executive Officer

Sure. On Bulgaria, Bulgaria is in our forecast. As we said, we -- our guidance is robust to any reasonably likely outcome there. So we feel confident in our guidance.

It does include Bulgaria. As been said, conversations are in the very early stages. We think we have a very strong case. And certainly the plant is necessary for Bulgaria.

It provides a lot of jobs locally, especially if you include the mining sector. So, yes, it's included. But our guidance is robust to any reasonably likely outcome. Regarding DP&L and the rider, I mean, basically what I can tell you is that this has to do with our company achieving investment grade.

The company has plans for grid modernization, grid resilience. And we think those elements are necessary and likely to remain. So basically, the outlook for DP&L in terms of improving the quality of new services is good and the monetization rider is part of that.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

OK. And then second question, just to clarify, the fact that you're running at the higher end of your near term '17 through '20. Would you attribute that to a faster-than-expected success in your renewable strategy? Or what's driving you to that higher end at least in the near term?

Andres Gluski -- President and Chief Executive Officer

I would say all of the above. I think we've been very successful on cost cuts. I think we've been very successful on the green blend-and expense-strategy. And as I mentioned in my speech, we're very pleased by how we've been able to transition projects from development into construction on the renewable side.

So it's all of the above.

Gustavo Pimenta -- Chief FInancial Officer

[Inaudible] Ali, the LNG sale which is accelerating, so that's another important element of that guidance that we are providing.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Thank you. And last question. I just wanted to be clear on the sources and uses that you've laid out as you fund this CAPEX through 2022. Just to be very clear, you're not assuming or you don't see a need for external equity to support this program.

The internal cash flow and asset sales should fund all your needs to support the backlog and the growth through 2022. Am I correct in that?

Andres Gluski -- President and Chief Executive Officer

You're correct. So this is an unambiguous, yes. The program is such that between our internally generated cash flow, including some asset sales, we fully fund our program and pay the dividends and also some modest debt paydown as well. So this does not assume any additional equity.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Got you. Thank you.

Operator

The next question will come from Julien Dumoulin-Smith of Bank of America. Please go ahead.

Julien Dumoulin-Smith -- Bank of America -- Analyst

Hey, good morning. Congratulations.

Andres Gluski -- President and Chief Executive Officer

Hey, Good morning, Julien.

Gustavo Pimenta -- Chief Financial Officer

Good morning, Julien.

Julien Dumoulin-Smith -- Bank of America -- Analyst

Hey, good morning. So I just wanted to follow up a little bit more on the backlog and the capital allocation commitment. Just want to be a little clearer about this or perhaps quite clear. Both '19 and through the '22 outlook, how are you thinking about the net income contribution from the renewables growth as it stands today? You've got $1.5 billion and broadly allocated, and again, I know that's not necessarily all for the renewables business.

But how are you thinking about renewables' contribution specifically year over year into '19 and through '22 from the plan and/or what you've contracted today? However you want to characterize that.

Andres Gluski -- President and Chief Executive Officer

Well, let me stand back in big picture. Big picture is we have considerable capital tied-up in construction projects, which we will be cutting the ribbon from now through 2021. In many cases, we've contributed all of the capital that we need to contribute. So, most of our growth is coming from organic projects and just cutting the ribbon.

So I want that to be perfectly clear. Second, you have to remember in our renewables program, half of this is outside the U.S. And the half that's in the U.S., about 40% is win. So the contribution, for example, of HLBV is so far negligible, and it's not as big for us as it is for other people going forward.

So in terms of the growth, as I said, a big contributor to this is the organic growth coming from the projects we have completed. In addition to the megawatts that I've mentioned, for example, we have completed the storage tank in Panama, Colon, which is going to happen about the middle of this year. So we have additional projects that are coming online from there. So with that, I can pass it off to Gustavo but I want to make absolutely unambiguous that we have very strong organic growth coming on.

And given the distribution of our growth, you don't have things like HLBV outside of the U.S.

Gustavo Pimenta -- Chief Financial Officer

Yes, that's right, Andres. So if you look at our 7% to 9%, approximately 60% of that is just the materialization and reaching COD on the large -- especially the large thermal projects, Southland, OPGC, full year of Colon and so on. The other 40% is on the renewable space, out of which half is internationally, half is in the U.S. So it's not a major contributor yet for earnings.

And I think one way to see that is our proportional -- our current free cash flow is also growing at the similar rate, right, 7% to 9% for the same period.

Julien Dumoulin-Smith -- Bank of America -- Analyst

And just to make sure I understand this, so for '19, though, right, because I appreciate that HLBV nuance and just the timing of in-service. Renewable contribution is fairly limited to growth, right, but as you say 40% of the overall 7% to 9% roughly, call it, may be little bit less than $150 million of net income growth is coming from renewables by the end of the '22 period?

Gustavo Pimenta -- Chief Financial Officer

Yes, and that's global renewables, right? So as Andres mentioned, half of that 40%, call it, 20%, is internationally, which doesn't have that effect. And the local one then you have 40%, which is win and then the rest is solar. So it's a subset of the 40% at the end.

Julien Dumoulin-Smith -- Bank of America -- Analyst

Got it. And sorry to clarify one more nuance detail here, that 40% for renewables, that's relative to what investment in renewables? What you've contracted thus far or what the cumulative plan entails? I just want to make sure we're specific there.

Gustavo Pimenta -- Chief Financial Officer

It's the cumulative, yes. What we have expected throughout the period.

Julien Dumoulin-Smith -- Bank of America -- Analyst

All right. Well, thank you very much. Best of luck.

Andres Gluski -- President and Chief Executive Officer

Thank you, Julien.

Operator

The next question will come from Angie Storozynski of Macquarie. Please go ahead.

Angie Storozynski -- Macquarie Research -- Analyst

Thank you. So first on your credit metrics, can give us a sense where credit agencies are now that you have reached the investment-grade metrics? And also, you're just showing us this one metric. I mean, can you comment about FFO to debt or net debt-to-EBITDA, what those metrics are? And again, mostly because I'm trying to gauge when we should expect upgrade to the current rating?

Gustavo Pimenta -- Chief Financial Officer

Sure. Sure, Angie. Gustavo here. Good morning.

So our base case is to get the metric in 2020, right. So it continues to be the case. We just started our process with the agencies. They are supportive.

They've seen all of the efforts that was done in terms of reducing the leverage. From an FFO to debt, we are closing '18 at 18.8%, 20% is above the threshold. So that is why you see in our capital allocation another $150 million. I think what is more important is that from a capital allocation standpoint, most of the heavy lifting has been done, right.

So we've paid down close to $1 billion of debt last year. So what is remaining in the plan is it's a relatively small amount, but rate agencies will take their time. So we are still expecting the actual action on the rating to be taken early next year, 2020.

Angie Storozynski -- Macquarie Research -- Analyst

OK. Thank you. Secondly, so in you press release, you talk about this additional sell-down of your stake in sPower. Is this -- I mean, I remember that you guys mentioned that Tom is working on some systemic or structured relationship with a party that could take future ownership of operating assets.

Is this what it is? Or are we still waiting for that announcement and it's still scheduled for roughly mid of this year?

Andres Gluski -- President and Chief Executive Officer

Yes, so -- hi, Angie. This is Andres. No, this is not part of that. And as I -- as we've said in the past, Tom will be working on the more systematic way of getting partnership money into our projects, and stay tuned.

At the right time, we will explain this. But this is -- as I said, we've done $3 billion of partnership capital over the past five years, and so this is an extension of that.

Angie Storozynski -- Macquarie Research -- Analyst

And then my last question, I remember you made comments about your dividends, the competitive dividend. Once you actually pay down all the debt that is required to the people of the credit agencies. I mean, should we expect that the dividend growth will be commensurate with the earnings growth?

Andres Gluski -- President and Chief Executive Officer

I think again sort of stay tuned. We said that we would have competitive dividend growth. And so this is approved annually by the board, so stay tuned. But we're sort of in that 4% to 6% ranges is -- which is the --

Gustavo Pimenta -- Chief Financial Officer

Yes, what we expect. Exactly, which is the industry average. So, we should expect this to be within the 4% to 6% range within the site. All right, within the four-year period, and really approved as validated by the board, 4% to 6% is what we should expect.

Angie Storozynski -- Macquarie Research -- Analyst

Great. Thank you.

Andres Gluski -- President and Chief Executive Officer

Thank you, Angie.

Operator

The next question will come from Greg Gordon of Evercore.

Greg Gordon -- Evercore ISI -- Analyst

Thanks. Good morning.

Andres Gluski -- President and Chief Executive Officer

Good morning, Greg.

Greg Gordon -- Evercore ISI -- Analyst

Just to circle back to couple of the original questions. You said that -- is your plan also resilient to potentially not getting the DMR extended by two years? So as we think about that 7% to 9% growth rate while you're assuming that you do get the extension if you were to not get the extension, would you still be inside the growth rate?

Andres Gluski -- President and Chief Executive Officer

Look, what I'd say is look, we have a -- we think a very robust plan. We -- it's taking any potential downside. We have a number of potential upsides. So certainly, we could have faster growth, for example, of our LNG sales, which are very attractive because we basically made the capital investments.

So there's certainly a potential market there for that. Second, as I mentioned in my speech, we really haven't incorporated all of the potential benefits from our digital transformation. So that has significant amount of cost cuts. I think we have a very good track record of overdelivering on cost cuts.

But it also has significant revenue potential. So as we don't like to talk about these things until we really have them in hand. So when I look at that, this is a robust plan given I think that any potential downsides or offset with potential upside and these potential upsides are quite concrete, we feel. So stay tuned.

Greg Gordon -- Evercore ISI -- Analyst

OK. And there was no mention of the pre-existing cost-cutting initiatives in this slide deck. I shouldn't presume that means there's been any change?

Andres Gluski -- President and Chief Executive Officer

No, there hasn't. And in fact, we remain on track.

Gustavo Pimenta -- Chief Financial Officer

Greg, Gustavo here. So the plan has been fully executed last year. So we are getting in '19 run rate savings of $100 million, which was with what we had disclosed before, so in line with prior disclosures.

Greg Gordon -- Evercore ISI -- Analyst

OK. And the $2 billion asset sale target is still in place, but you extended the overall guidance framework to '22. Does that imply that the asset -- the pace of the asset sales is slowed or do you still expect to have the majority of those asset sales completed by 2020?

Andres Gluski -- President and Chief Executive Officer

I'd say by 2020 we'll complete the $2 billion is what we expect as part of this plan. Going forward, we will continue to fine-tune our portfolio. So there may be additional sales but as part of the portfolio. So they may not be sort of wholly exiting.

They may be, like we did it at sPower selling down a portion and reinvesting that money at higher return. So that remains part of our modus operandi going forward.

Greg Gordon -- Evercore ISI -- Analyst

No, no, I get that, completely understood. I just wanted to make sure the pre-existing targets were still -- hadn't slipped. And the answer to that is no, they haven't, right?

Andres Gluski -- President and Chief Executive Officer

No, no, no. Pre-existing targets, not at all. We feel very confident about them and we expect to execute on that.

Greg Gordon -- Evercore ISI -- Analyst

Great. And then you sort of -- on the targets for the renewables growth, they're quite robust and -- it's a little bit of a blend and extend in that in your prior guidance, you had targeted 3,000 megawatts for '19. Now you're targeting 2,500 but you're targeting consistent execution over a longer period of time and you have a higher-end exit rate, exit number in terms of total aspirational growth in renewables. What should we look for over the course of this year to see that you're hitting your targets because there was a bit of a deceleration in wins when we look at what you executed in Q3 and Q4 of '18?

Andres Gluski -- President and Chief Executive Officer

Greg, this has to do just with the timing of the signing of the PPAs. There has been no, from our point of view, no let's say feeling that we're going slower than we were previously. It's just a little bit of timing and making sure that we have these PPAs signed before we commence construction. So the way you can make sure that we're on track is just we will have the announcements of the growth, the milestones that we hit throughout the quarter.

So again, green blend-and-extend has shown itself to be very robust, and we're actually doing very well there. And certainly our distributed Energy as the announcements we've had in Hawaii and other places, it is very robust. So, no, we really don't feel that we're sort of decelerating. It's just a question of the timing, which these projects are going to come in.

Greg Gordon -- Evercore ISI -- Analyst

Fantastic. Good outlook. Thank you.

Andres Gluski -- President and Chief Executive Officer

Thanks, Greg.

Operator

The next question will come from Christopher Turnure of JP Morgan.

Christopher Turnure -- J.P. Morgan -- Analyst

Good morning. I wanted to follow up on some of the renewable financing comments that you've made so far. Just overall, could you give us thoughts on how that effort is going? I don't know if Tom is on the call or not but kind of where you're seeing the lowest costs, both in the U.S. and globally? And then your slide on the IRRs for renewables, does that assume that you are tax efficient or does that take into consideration any tax inefficiency that you have?

Andres Gluski -- President and Chief Executive Officer

OK. Let me see, so that's multiple questions. Let' see. So first, no, Tom is not on the call.

And what is assumed in these numbers is that we -- tax efficiency, there's no -- and what is assumed is, for example, I'd say mainly in the U.S. where we actually sell down a portion once it reaches operations and optimize it for operational and financial efficiency. So that's, I would say, basically it. I think in the rest of the world, what we're seeing especially for example in South America and in Mexico is really the green blend-and-extend projects themselves.

Again, you don't have a HLBV, you don't have ITC, you don't have some of the other elements that you would have in the States that make it, let's say, a little bit more complicated accounting and less transcurrent to see through. So I would say it's basically that. We will continue to do what we've done. So we think this is very credible.

We've done this and we will going forward. And different markets are progressing at different speeds. We certainly see that the combination of solar energy storage is coming into being and that's an area where we have, we think, a real competitive advantage.

Christopher Turnure -- J.P. Morgan -- Analyst

OK. And then just going back to the IRR comment that you made, does that mean that the numbers on that particular slide are kind of hypothetical and your actual returns are lower than that? Or do those numbers take into consideration everything?

Gustavo Pimenta -- Chief Financial Officer

This is Gustavo. This is actual IRR. So cash-on-cash, so this is not ROE, it's actually IRR. So that's cash-on-cash real return.

Christopher Turnure -- J.P. Morgan -- Analyst

Gotcha. OK. And then just to follow up too on, I think, one of the earlier balance sheet questions, you mentioned that a year from now roughly is when you're thinking agencies might come back to the table here and revisit your ratings. Could you give us any color on how your discussions on business risks are going within that overall discussion?

Gustavo Pimenta -- Chief Financial Officer

Yes, sure. That's I think one of the upside and one of the positive feedback that we get. I think we continue to be a diversified portfolio, which is important for them but more focused on markets with lower risk. So I think from that perspective, we get very good feedback from the agencies and it's an important component of our trajectory here.

Andres Gluski -- President and Chief Executive Officer

It's not only a question of [Inaudible] it's the quality of our portfolio. So I did mention in my speech that, measurably, our risks are down 70% over the last five years. To make sort of very tangible [Inaudible] something like Panama, where we have 777 megawatts of hydro. In a dry year, we would be forced to buy in the market, and therefore, energy would be high, energy to supply our contracts that are contracted.

And now with Colon in place and natural gas coming into Panama, we have stopped that particular risk by about 80%. So the quality of the portfolio is backing up the numbers. I think that's very, very important. The fact -- what's underlying the subsidiaries our investment grade as well and we feel the total hydrology commodity FX risk is very much [Inaudible].

So it's not just the metric itself, I think it's a quality of those metrics.

Christopher Turnure -- J.P. Morgan -- Analyst

Gotcha. So it sounds like you're pretty much there in terms of the business mix and your improvement, you just need to maybe execute for a couple more quarters to get that recognized?

Gustavo Pimenta -- Chief Financial Officer

That's exactly right.

Andres Gluski -- President and Chief Executive Officer

Yes, we think there's a seasoning that the agencies will require, but we feel pretty good of the path we're on. And we feel very good that our business mix continues to improve the quality of the portfolio.

Christopher Turnure -- J.P. Morgan -- Analyst

Great. Thanks, guys.

Andres Gluski -- President and Chief Executive Officer

Thank you.

Operator

The next question will come from Gregg Orrill of UBS.

Gregg Orrill -- UBS -- Analyst

Yes, thank you. Good morning.

Andres Gluski -- President and Chief Executive Officer

Good morning, Greg.

Gustavo Pimenta -- Chief Financial Officer

Good morning, Greag.

Gregg Orrill -- UBS -- Analyst

Regarding the 24% sell-down at sPower, what's the impact there on returns or earnings of sPower? How are you thinking about that?

Andres Gluski -- President and Chief Executive Officer

I don't think we want to specifically discuss that amount. But obviously, the -- once you have operating assets up and running under long-term contracts, there are other people who are willing to or interested in owning those assets for the long-term at less returns than you'd get when you are the originator, developer, and constructor of those projects.

Gustavo Pimenta -- Chief Financial Officer

I think what I've been saying, Greg, is when we bought sPower, we bought at high-single digits. So after the acquisition, with a series refinancing, operational improvements, and so on, plus those sell-downs, we've brought this to 13%. That is a part of that value creation that we're able to conduct.

Gregg Orrill -- UBS -- Analyst

OK. Thank you.

Operator

The next question will come from Steve Fleishman of Wolfe Research.

Steve Fleishman -- Wolfe Research, LLC -- Analyst

Yes, good morning. Sorry if some of these were asked. But just on the Ohio DMR, could you just remind me how much earnings come from that?

Gustavo Pimenta -- Chief Financial Officer

Today we have $105 pre-tax, so $105 million per year.

Steve Fleishman -- Wolfe Research, LLC -- Analyst

And are you kind of tying the two cases such that if you're not going to be getting that in the future, if they don't extend it, you're not going to be able to commit to grow the investment in the grid?

Gustavo Pimenta -- Chief Financial Officer

That's right. I mean, the two work together so we need -- we believe it's important to have the DMR for us to be able to continue the transformation of DPL, including these smart grid investments.

Steve Fleishman -- Wolfe Research, LLC -- Analyst

OK. And the just on your -- you might have answered this, but just how would you kind of characterize your returns on new renewable growth projects in U.S. relative to that 13% that you're now up to on sPower acquisition?

Gustavo Pimenta -- Chief Financial Officer

That's a good question. I think we have a different project in the U.S. We have projects -- for example, AES Distributed Energy projects then we have sPower projects, we have C&I customers, we still have some [Inaudible] deal in the works. We have deals where we're really combining energy storage in new ways.

So there is a range depending on the particular niche, let' say, I would say that we're addressing. I would say to -- and again, I would also say that you when we characterize these returns, this is just the sort of project return that we're looking at and not any sort of leverage at corp or anything above. And we were very conservative I'd say about terminal value. But obviously in the plain-vanilla in the U.S., it does involve that we would, let's say, flip portion of the operating assets to some long-term holder other than ourselves.

So there is that combination. But we do have this mix, so it's not like a uniform product that we're selling across the states.

Steve Fleishman -- Wolfe Research, LLC -- Analyst

OK. And then one last question just on -- I thought I saw somewhere that you might have won a storage project with Arizona with APS. And I don't know if -- I didn't see that in your -- could you talk about that, and it seem to be pretty big?

Andres Gluski -- President and Chief Executive Officer

Sure. It is. It's a 100 megawatt four hour energy storage, so it's 400 megawatts hours. This is quite, frankly, exactly the size of the one that we have on Alamitos that we're building today.

And so as you put those two together, we have two projects of 100 megawatts to four hours each. That would be 200 megawatts, 800 megawatts hours between the two projects.

Steve Fleishman -- Wolfe Research, LLC -- Analyst

But that's not in what you announced as of the year end or -- that would be additive?

Andres Gluski -- President and Chief Executive Officer

That's correct. That's not in 2018 numbers.

Gustavo Pimenta -- Chief Financial Officer

Yes.

Steve Fleishman -- Wolfe Research, LLC -- Analyst

OK. Thank you.

Andres Gluski -- President and Chief Executive Officer

Thank you.

Gustavo Pimenta -- Chief FInancial Officer

Thank you.

Operator

The next question will come from the Charles Fishman of Morningstar Research. Please go ahead.

Charles Fishman -- Morningstar Research -- Analyst

If I can just follow up on Steve's question. So with Fluence, end of the year award and delivered 766, if I my math is right, versus I think at the third quarter it was 701. So 65 megawatts were added during the fourth quarter. What specifically was that?

Andres Gluski -- President and Chief Executive Officer

This is -- Fluence is a JV between us and Siemens but Fluence own sales team is doing quite a lot. So they're in 17 countries with 80 projects. The projects vary from smaller projects. It can be 500 KV or a multiple of them, smaller units, 500 KV one megawatt but the larger units as large as the 800 megawatt hours.

So honestly, I don't have off the top of my head, which of those projects are. But realize we're hitting everybody from C&I customers to the very largest utilities and everything in between. So it's a mix of product. And the large ones tend to be a bit lumpy, but we like very much of the smaller projects that come in.

And we increased the number of countries around the world. One thing that's probably -- we at AES together with Mitsubishi inaugurated India's first energy storage project last week in Delhi, and this together with Tata Power. And this project is I think very important for India because it's sort of establishing how energy storage would work on that grid and getting the regulations in place. And as you know, India has -- it is actually building out 200 gigawatts of renewables, probably 80 I think are in the bag.

And they're going to need a whole lot of energy storage to be able to accommodate that much renewables on their grid. So there's a lot of interesting markets opening up.

Charles Fishman -- Morningstar Research -- Analyst

And we'll see this number, award and delivered, jump when you report first quarter because of APS?

Andres Gluski -- President and Chief Executive Officer

Yes, there will be lumpiness as these projects come in.

Charles Fishman -- Morningstar Research -- Analyst

OK. And one other question, Andres, just I want to make sure I got this right. You said that by -- I believe you said that by 2022, 50% of your PTC coming from the SBUs will be U.S. generated.

Was that correct?

Andres Gluski -- President and Chief Executive Officer

Yes. I mean, look, there is, of course, especially when you have renewables with shorter time frames that are rolling in terms of -- this will be rolling over time and we have to win some of those bids. But yes, given our current expectations, is that little less than half will be U.S. and that's up from about a third today.

So the proportion of our pre-tax contributions coming from the U.S. should rise over time, given our expectations for where that growth is coming from. Obviously, we have like Southland coming online, we have a number of projects in Hawaii. You mentioned the APS, so yes, in terms of -- certainly in terms of megawatts.

A lot of big projects in the state. You also have the investments -- future investments in DP&L as well. So we have great visibility into a strong pipeline of growth in the U.S.

Charles Fishman -- Morningstar Research -- Analyst

That's interesting. You're right. It certainly improves the visibility. Thank you.

That's the last question I have.

Andres Gluski -- President and Chief Executive Officer

OK. Thank you very much.

Operator

And this concludes the question-and-answer session. I would now like to turn the conference back over to Ahmed Pasha for any closing remarks.

Ahmed Pasha -- Vice President of Investor Relations

Thank you everybody for joining us on today's call. As always, the IR team will be available to answer any questions you may have. Thanks again and have a nice day. Bye bye.

Operator

[Operator signoff]

Duration: 56 minutes

Call Participants:

Ahmed Pasha -- Vice President of Investor Relations

Andres Gluski -- President and Chief Executive Officer

Gustavo Pimenta -- Chief Financial Officer

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Julien Dumoulin-Smith -- Bank of America -- Analyst

Angie Storozynski -- Macquarie Research -- Analyst

Greg Gordon -- Evercore ISI -- Analyst

Christopher Turnure -- J.P. Morgan -- Analyst

Gregg Orrill -- UBS -- Analyst

Steve Fleishman -- Wolfe Research, LLC -- Analyst

Charles Fishman -- Morningstar Research -- Analyst

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