AES Corp (AES) Q1 2021 Earnings Call Transcript

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AES Corp (AES -1.38%)
Q1 2021 Earnings Call
May 6, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the AES Corporation Q1 2021 Financial Review Conference Call. [Operator Instructions]

I'd now like to turn the conference over to Ahmed Pasha, Chief Treasurer and Vice President of Investor Relations. Thank you, and over to you.

Ahmed Pasha -- Treasurer & Vice President, Investor Relations

Thank you, operator. Good morning, and welcome to our first quarter 2021 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, which are discussed in our most recent 10-K and 10-Q filed with the SEC. Reconciliations between GAAP and non-GAAP financial measures can also be found on our website along with the presentation. Joining me this morning are Andres Gluski, our President and Chief Executive Officer; Gustavo Pimenta, our Chief Financial Officer; and other senior members of our management team. With that, I will turn the call over to Andres. Andres?

Andres Gluski -- President and Chief Executive Officer

Good morning, everyone, and thank you for joining our first quarter financial review call. Our first quarter results put us on track to achieve our 2021 guidance and 7% to 9% average annual growth through 2025. Gustavo will provide more color on our financial results later in the call. As we spoke about on our Investor Day in early March, we see a great opportunity for growth given the momentous changes in our sector, and we are very well positioned to capitalize on the shift to low-carbon sources of energy. Over the past five years, we have transformed our company to be a leader in renewables, and we have invested in innovative technologies that will give us a competitive advantage for many years to come. Although it has been less than two months since our Investor Day, we had a number of significant achievements to announce, including a landmark deal with Google, which I will describe in more detail later, a strategic collaboration to develop new battery technologies between Fluence and Northvolt, the leading European supplier of sustainable battery systems, and a significant increase in LNG sales in Central America and the Caribbean to support those economies in their transition away from heavy fuels.

First, let me lay out our strategic priorities for 2021 and the substantial progress that we have made year-to-date toward achieving those objectives. Turning to Slide four. Our five key goals for the year are: one, signed contracts for four gigawatts of renewables. Two, launched the first 24/7 product for carbon-free energy on an hourly basis; three, further unlock the value of our technology platforms; four, continue to improve our ESG positioning through the transformation of our portfolio; and five, monetize excess LNG capacity in Central America and Caribbean. Turning to Slide five. Last year, we set and exceeded a goal of signing two to three gigawatts of PPAs for renewables and energy storage. This year, we are increasing that goal by 60% to a target of four gigawatts. Today, I am pleased to report that year-to-date, we've already signed 1.1 gigawatts including a landmark deal with Google. As you can see on Slide six, we have a backlog of 6.9 gigawatts of renewables, consisting of projects already under construction or under signed power purchase agreements, or PPAs. This equates to 20% growth in our total installed capacity and a 60% increase in our renewables capacity. Turning to Slide seven.

We continue to increase our pipeline of projects to support our growth and now have a global pipeline of more than 30 gigawatts of renewable projects, roughly half of which is in the United States. With increasing demand from corporate customers and a much more favorable policy environment, we expect the need for renewables to grow dramatically, and we're taking steps to ensure a continued competitive advantage. Moving to Slide eight. Our second key goal for this year is to launch the first 24/7 energy product that matches a customer's load with carbon-free energy on an hourly basis. To that end, earlier this week, we announced a landmark, first of its kind agreement to supply Google's Virginia-based data centers with 24/7 carbon-free energy sourced from a portfolio of 500 megawatts of renewables. Under this innovative structure, AES will become the sole supplier of the data center's energy needs, ensuring that the energy supplied will meet carbon-free targets when measured on an hourly basis for the next 10 years. The carbon-free energy will come from an optimized portfolio of wind, solar, hydro and battery storage resources. This agreement sets a new standard in carbon-free energy for commercial and industrial customers who signed 23 gigawatts of PPAs in 2020. As we discussed at our Investor Day, the almost 300 companies that make up the RE100 will need more than 100 gigawatts of new renewables by 2030. This transaction with Google demonstrates that a higher sustainability standard is possible, and we expect a substantial portion of customers to pursue 24/7 carbon-free objectives.

Based on our leadership position, we are well placed to serve this growing market. And in fact, we've already seen significant interest from a number of large clients. Turning to Slide nine. Our third key goal is to further unlock the value of our technology platforms. One of these platforms is Uplight, an energy efficiency software company that works directly with the utility and has access to more than 100 million households and businesses in the U.S. Uplight is at the forefront of the shift to low-carbon and digital solutions on the cloud. In March, we announced a capital raise with a consortium led by Schneider Electric, valuing Uplight at $1.5 billion. Now to Slide 10. We're seeing increasing value in many of our other technology platforms as well. Fluence, our joint venture with Siemens, remains a global leader in energy storage, which is a key component of the energy transition. This dynamic industry is expected to grow 40% annually, and Fluence is well positioned to capitalize on this immense opportunity through its distinctive competitive advantages, including its AI-enabled bidding engine.

Turning to Slide 11. As you may have seen, last month Fluence announced a multiyear agreement with Northvolt, the leading European battery developer and manufacturer, for assured supply and to co-develop next-generation battery technology. This is an example of Fluence's continued innovation, which has been validated by their consistent rank as the number one utility-scale energy storage technology company according to Guidehouse insights. Similarly, we see the rapid progress of our prefab solar solution, 5B, as you can see on Slide 12. This technology doubled the energy density and cuts construction time by 2/3. We now have 5B projects in Australia, Panama and Chile. We will be including 5B technology in our bids in Puerto Rico, where it's proven resilience to category four hurricane winds will provide greater energy security, proving out the unique value proposition of 5B could significantly speed up the adoption of solar in cyclone prone areas. Lastly, we continue to work toward the approval of the first large-scale green hydrogen based ammonia plant in the Western Hemisphere, in Chile.

Moving to Slide 13. We have undergone one of the most dramatic transformations in our sector. Over the past five years, we have announced the retirement or sale of 10.7 gigawatts of coal, or 70% of our coal capacity, one of the largest reductions in our spectrum. We recognize that we have more work to do and have set a goal of reducing our generation from coal to less than 10% of total generation by 2025. Furthermore, we expect to achieve net-zero emissions from electricity by 2040, one of the most ambitious goals of any power company. As we achieve these decarbonization targets and continuing our near-term growth in renewables, we anticipate being included in additional ESG-oriented indices. Finally, turning to Slide 14. We see natural gas as the transition fuel that can lower emissions and reduce overall energy costs as markets work toward a future with more renewable power. Last month, we reached an agreement to provide terminal services for an additional 34 tera BTUs of LNG throughput under a 20-year take-or-pay contract. This will bring our total contracted terminal capacity in Panama and the Dominican Republic to almost 80%. There are 45 tera BTUs of available capacity remaining, which we expect to sign in the next couple of years. Our LNG business is focused on providing environmentally responsible LNG or green LNG as soon as feasible, which ensures the lowest levels of emissions throughout the entire supply chain.

Now I would like to turn the call over to Gustavo Pimenta, our CFO.

Gustavo Pimenta -- Executive Vice President and Chief Financial Officer

Thank you, Andres, and good morning, everyone. As Andres mentioned, we are off to a good start this year, having already achieved significant milestones toward the strategic and financial objectives that we discussed on our Investor Day. We are also encouraged by the continued economic recovery across our markets, with Q1 demand in line with pre-COVID levels. Turning to our financial results for the quarter. As you can see on Slide 16, adjusted pre-tax contribution, or PTC, was $247 million for the quarter, which was very much in line with our expectations and similar to last year's performance. I'll discuss the key drivers of our first quarter results and outlook for the year in the following slides. Turning to Slide 17. Adjusted EPS for the quarter was $0.28 versus $0.29 last year. With adjusted PTC essentially flat, the $0.01 decrease in adjusted EPS was the result of a slightly higher effective tax rate this quarter.

In the U.S., in utilities, strategic business unit, or SBU, PTC was down $27 million, driven primarily by a lower contribution from our legacy units at Southland and higher spend in our clean energy business as we accelerate our development pipeline given the growing market opportunities. These impacts were partially offset by the benefit from the commencement of PPAs at the Southland Energy combined cycle gas turbines, or CCGTS. At our South America SBU, PTC was down $31 million, mostly driven by lower contributions from AES and is formerly known as AES Gener, due to higher interest expense and lower equity earnings from the Guacolda plant in Chile. These impacts were partially offset by higher generation at the Chivor hydro plant in Colombia. Lower PTC at our Mexico, Central America and the Caribbean, or MCAC SBU, primarily reflects outages at two facilities in Dominica Republic and Mexico, with both already back online since April. Results also reflect the expiration of the 72-megawatt barge PPA in Panama. Finally, in Eurasia, higher PTC reflects improved operational performance and lower interest expense in our Bulgaria businesses.

Now to Slide 22. With our first quarter results, we are on track to achieve our full year 2021 adjusted EPS guidance range of $1.50 to $1.58. Our expected 2021 quarterly earnings profile is consistent with the average of the last five years. Our typical quarterly earnings is more back-end weighted with roughly 40% of the earnings occurring in the first half of the year and the remaining in the second half. Growth in the year to go will be primarily driven by contributions from new businesses, including a full year of operations of the Southland repowering project, 2.3 gigawatts of projects in our backlog coming online during the next nine months, reduced interest expense, the benefit from cost savings and demand normalization to pre-COVID levels. We are also reaffirming our expected 7% to 9% average annual growth target through 2025. Now turning to our credit profile on Slide 23. As discussed at our Investor Day, strong credit metrics remain one of our top priorities. In the last four years, we attained two to three notches of upgrades from the three credit rating agencies, including investment-grade ratings from Fitch and S&P. These actions validate the strength of our business model and our commitment to improving our credit metrics.

We expect the positive momentum in these metrics to continue, enabling us to achieve BBB flat credit metrics by 2025. Now to our 2021 parent capital allocation plan on Slide 24. Consistent with the discussion at our Investor Day, sources reflect approximately $2 billion of total discretionary cash, including $800 million of parent free cash flow and $100 million of proceeds from the sale of Itabo in the Dominican Republic, which just closed in April. Sources also include the successful issuance of the $1 billion of equity units in March, eliminating the need for any additional equity raise to fund our current growth plan through 2025. Now to uses on the right-hand side. We'll be returning $450 million to shareholders this year. This consists of our common share dividend, including the 5% increase we announced in December and the coupon of the equity units. And we plan to invest approximately $1.4 billion to $1.5 billion in our subsidiaries as we capitalize on attractive growth opportunities. Approximately 60% of the investments are in global renewals, reflecting our success in renewables origination during 2020 and our expectations for 2021.

About 25% of these investments are in our U.S. utilities to fund rate base growth with a continued focus on grid and fleet modernization. In the first quarter, we invested approximately $450 million in renewables, which is roughly 1/3 of our expected investment for the year. In summary, 85% of our investments are going to the U.S. utilities and global renewables, helping us to achieve our goal of increasing the proportion of earnings from the U.S. to more than half and from carbon-free businesses to about 2/3 by 2025. The remaining 15% of our investment will go toward green LNG and other innovative opportunities that support and accelerate the energy transition.

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. As I have noted, we have made great progress on our 2021 and long-term strategic goals, and we are reaffirming our 2021 guidance and expectations through 2025. We see a tremendous opportunity for growth, and further increasing our technological leadership as the industry transition unfolds. From advancing our renewables to unlocking the value of our new technology businesses, we have a competitive advantage that will continue to benefit our customers and investors. With that, I would like to open up the call to your questions.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Richard Sunderland from JPMorgan.

Richard Sunderland -- JPMorgan -- Analyst

Hi. Good morning. Thanks for taking my questions. I just want to start off -- just wanted to start off on the Northvolt agreement and what it could mean to Fluence and maybe the energy storage market more broadly, and kind of curious on the development front itself, is this more sort of iterative development work or further up the development curve?

Andres Gluski -- President and Chief Executive Officer

Yes. That's a great question. Look, this is really a landmark agreement. As we move to essentially have strategic relationships with battery manufacturers. So Northvolt is building a new plant in Sweden and in Poland, and we will have one train of the plant in Poland producing batteries for us. So as this market expands and as you have a real growth in demand, this assures battery supply for one of our markets, so I would say, Europe, Middle East, Africa. And in addition, we will not only have supply of batteries, and again, a dedicated train to us, but we will also be working with Northvolt to have new developments in battery.

So in terms -- as battery technology develops, as you have better chemistry, as we, say, fine-tune our cube-stacked design, we will have joint development of additional improved batteries on multiple fronts. So this is, I think, a very interesting development of getting a little bit more involved, let's say, one step prior to just being the integrator and providing the control software.

Richard Sunderland -- JPMorgan -- Analyst

Got it. Thank you for the color. And then separately, thinking about this Google deal, what is the ability to replicate that with other C&I customers? I know you mentioned some interest already, and I guess, curious alongside that some aspects around the agreement itself whether this is about having the right assets and the right locations to procure or about the energy kind of management angle as well?

Andres Gluski -- President and Chief Executive Officer

Well, it's both, in a sense. So let me take the second part first, to explain a little bit what the product is. So the product, really, the key point is that we're netting on an hourly basis a carbon free energy. So this is -- most contracts prior to this, virtually all, are really netting, it could be on a yearly basis, could be, etc. So you have an excess purchases of renewables during certain hours, but you're actually using nonrenewables during other hours. Obviously, when you don't have peak production of the renewables. This is actually saying, on an hourly basis, the energy that I'm getting is carbon free.

So you asked the right question. It's not just a question of having overbuilt solar or overbuilt wind, it's really how do you manage these different sources of energy. Not only to ensure that it's carbon free, but to minimize the cost. So when are you buying -- when are you using wind? When are you using solar? And the real key to make this happen is adding hydro, small hydros and adding, of course, battery storage. So it's really how do you optimize multiple uses of -- multiple sources of renewable energy to provide the lowest cost guaranteed carbon-free energy netted on an hourly basis.

So behind this offer, there's a lot of math, a lot of algorithms, a lot of risk management. And we think that this is a deal that with Google itself, we had a one billion -- sorry, one gigawatt agreement, and this is the first 500, and we expect it to grow as demand in these data center grows. But of course, there are other corporate clients that are interested in this. And we've seen interest from them. So as people, I would say, up their environmental goals. From saying, well, we're going to be net-zero carbon emissions on a global scale and really having an hourly netting, this is really the only product on the market. So of course, those companies that have the highest environmental standards are interested in this product. So it's -- we think, a very interesting development and one that we expect to replicate with multiple clients.

Richard Sunderland -- JPMorgan -- Analyst

Okay. Thank you for the time today.

Operator

Thank you. The next question comes from Durgesh Chopra from Evercore ISI.

Durgesh Chopra -- Evercore ISI -- Analyst

Hey. Good morning, team. Thanks for taking my question. Maybe just I wanted to start with the 2021 target. Analyst Day, you guys were targeting three to four gigawatts of PPAs this year and now it sort of seems like it's more. I just want to make sure I'm sort of understanding that correctly. Is that just because you had a strong start, and now you're expecting four instead of two to four at the Analyst Day?

Andres Gluski -- President and Chief Executive Officer

Yes. I mean, we did three in 2019 and 2020. We're seeing a strong start, not only in signed PPAs, but the deals we have in progress. So we feel sufficiently confident to say that we expect to be at the upper end of our initial guidance range of three to four. So we expect to be at four gigawatts of new renewable PPAs signed in 2021.

Durgesh Chopra -- Evercore ISI -- Analyst

That's perfect. Thank you for clarifying that, Andres. Maybe just can I get your thoughts on competition, Andres. Obviously, there's a lot of U.S. sort of domestic players in the market, you're seeing a lot of international competition. Maybe just any thoughts as you sort of compete for these PPAS, what's the competition like? And sort of what's your competitive advantage?

Andres Gluski -- President and Chief Executive Officer

Well, look, we do see a lot of competition out there in the market. Our strategy has been to offer more value to our clients. So we don't want to just compete for commoditized busbar renewable PPAs. So we have several competitive advantages. And of course, with our knowledge of energy storage, we have been really a leader in the new applications for energy storage, not only through Fluence in terms of the new design, but AI bidding-enabled bidding engines and how do we combine them?

So the Google deal is a perfect example of how we brought together multiple energy sources, renewable energy sources and provided a unique product to a very demanding client. So that's our angle. Our angle is really how we bring these things together, how we create more value for the client. And I think very importantly is that we co-create with our clients. So this was a joint project with Google that reflects more than a year's work. It's just like what we did in Kauai. What was really sort of the first sort of 24/7 solar energy storage product offering, we co-developed it with the Kauai Island Utility Cooperative. So that's our unique angle.

So again, we see more deals like this Google deal. And more ways of working with clients to provide more value in just not a commoditized product. So the other advantage we have is, look, we started working on our pipeline. So we have a pipeline of 30 gigawatts globally. We have a pipeline of more than 15 gigawatts in the U.S. And pipeline is not equally defined term across all players. What we mean in pipeline, these are projects that we can execute on. So we have a land bank.

We've been buying land. We've been buying land rights. We've been getting interconnection rights, looking really at the overlay of like best solar irradiation, best interconnections with the grid. And in addition, best wind sites. So we feel very good. I mean, putting something together like we did for Google in Virginia, something that we can replicate in other markets, where we have big presence, whether it be New York, whether it be California, that we don't think other people can at present. So I think we're very well situated. And we also have some other angles that people don't have that are very new.

One I would mention is 5B. 5B allows us to double the energy density. So think about that. If you need to locate 100 megawatts of energy, we can do it in the space, other people can do it in 50. We can build it in 1/3 of the time. Now 5B, the maverick product is still early in its stage of development. We still have to massify it to drive down costs and prove it out. But it has unique characteristics, not only the ones I've mentioned, but in Australia, it has been tested in actual life situation by category for hurricane winds. And that's something that conventional solar cannot do. So we feel very optimistic of offering this suite of technologies. And also a unique way of bringing them together and also a unique way of working with clients.

Durgesh Chopra -- Evercore ISI -- Analyst

That's great. Thank you for that color, Andres. I'll get back into the queue. Thanks for the time.

Andres Gluski -- President and Chief Executive Officer

Thank you.

Operator

The next question is from the line of Stephen Byrd from Morgan Stanley.

Stephen Byrd -- Morgan Stanley -- Analyst

Hey, good morning. Wanted to talk through supply chain stresses. We regularly get questions just throughout the whole renewables value chain about shortages, cost increases, etc, and I respect that sort of the Northvolt agreement is one example of many ways that you've insured availability. But I guess, broadly put, across solar, across the balance of system, across storage, etc. Are you seeing any stresses on supply chain for you all, any impacts from that broadly?

Andres Gluski -- President and Chief Executive Officer

Yes, that's a great question. And as you know, we've been, I think, always very concerned about this. When we talked beginning of last year about COVID at the time, and we said, look, we were concerned about supply and the possible effects of COVID on the supply chain even here in the states. So we've been on top of this. Right now, we're not seeing any real supply constraints, whether it be on batteries, whether it be on solar panels, whether we see on wind turbines. However, if you look at the growth plans that are reflected in, for example, the Biden's renewable energy agenda and you see what utilities are talking about, you're seeing dramatic increases in demand.

And we think that, that could be a problem in the future. So we're getting out ahead of this. And I think it's not only the physical supplies that we're talking about, but it could be things like land, for example, how many megawatts of readily available land is there to meet this great need. So right now, we're not seeing it, Steve, but we're on top of it, and that's where we're making the kind of strategic agreements like Northvolt. Expect more, I would say, because that, we think, is a key element. I mean, we expect this market to grow very rapidly, and we think you have to be thinking about that now at all angles, whether it be people, land, interconnections.

I do see -- and I think we've spoken about it in the past, energy storage playing a role in eliminating transmission constraints. So that's an exciting new area that needs to be developed, and it really isn't tapped. So getting to your answer, we're not seeing it today. We're on top of it. I do expect there to be a pinch at sometime in the future. When? I don't know, it could be 12 months, it could be 18 months, but we're preparing for that possibility.

Stephen Byrd -- Morgan Stanley -- Analyst

That's really helpful. And then maybe shifting gears to 5B. You've spoken about this before, you laid it out again today. And I was just curious your latest thoughts in terms of as you think about the growth of 5B, whether this is going to be -- is there a potential, given just how beneficial this approach is that this is something that's similar to other technologies you developed that you can broadly monetize, broadly market and sell? Or is this something more for your own purposes over time? How broad could this be? And is this another candidate that could be monetized over time?

Andres Gluski -- President and Chief Executive Officer

Yes. I love the question. So we've had, my counting four unicorns, small companies that can do more than $1 billion valuation. I think our secret sauce has been to buy small companies. I mean, some of them we bought for $20 million, $30 million initial investment and now are worth more than $1 billion. And what's the secret sauce? Secret sauce really is, one, we give them a platform for massive expansion. Two, we work with them to create new applications. So we're not just a client. It's like we are co-developing and creating new uses for this technology. So we allow it to grow fast, we allow it to grow new areas.

But equally important, we're able to keep the entrepreneurial spirit of these businesses. So in other words, even though we're a big company, we make a real effort not to smother them and let them run as much as possible on their own. Now we made a philosophical decision years ago that just to use it on our own platform, while that gives us a temporary advantage limits the growth of this new technology. And quite frankly, a lot of this has to do with massifying them to really drive down costs. Energy storage is a lot cheaper today because we massified it. We're in 29 countries.

We have 5.6 gigawatts in 29 countries that we either built or we're providing control systems, bidding platforms. So that's quite large and allows us to learn from that. So with 5B, it's the same. We will have certain time of exclusivity in certain markets. But now this will be available to the broader market over time. So what we're doing with 5B is, again, massifying it, putting it out. And then eventually, it will be available to other players as well. So for example, today in Australia, other people are using 5B technology.

And I see it very similar to our prior ventures, whether it be Fluence, whether it be Distributed Energy, that we have, whether it be Uplight, that our philosophy is not to keep it to ourselves, just keep it to our own platform, but expand it more broadly. So it's interesting. We make money. I was thinking about, we make money for our shareholders in two ways. One is our platforms, which we are shifting from fossil fuels to renewables. And there, you can value us on cash flow, earnings per share, etc.

But at the same time, we're creating value in these new technological -- technology companies. And those have a different valuation and a different value creation. And that's why selling to third parties is so important to maximize the value of them. Now the fact is that having the link between AES and these start-ups is key because, as I said, we're mutually beneficial to create value. We help them grow. They help us to really be a leading-edge technology provider. If we didn't have the knowledge of batteries that we have, we wouldn't have done the Google deal. So there are two ways that we're creating value here with these new companies.

Stephen Byrd -- Morgan Stanley -- Analyst

Really helpful. Thank you so much.

Andres Gluski -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] The next question is from the line of David Peters from Wolfe Research.

David Peters -- Wolfe Research -- Analyst

Yes. Hey, good morning, guys.

Andres Gluski -- President and Chief Executive Officer

Good morning, Dave.

David Peters -- Wolfe Research -- Analyst

I was just curious on the strategic alliance with Google, are you guys still working on similar agreements in locations beyond Virginia. I guess I'm just wondering how far you expect kind of the scope of that particular alliance to reach?

Andres Gluski -- President and Chief Executive Officer

What would I'd say is -- what I can say is really that we had an initial agreement, which we had talked about. It was really the sort of RFP for one gigawatt. That has, I would say, developed, if you will, into the deal that we have announced. We expect to expand some of that energy provided over time as their needs grow. And again, we will -- we have this unique product that we will offer to them and other clients at this stage and time. So that's all I really can say at this stage of the game.

David Peters -- Wolfe Research -- Analyst

Okay. And then maybe just on some of the other projects you have in the works. Has there been any updates on the hydrogen study in Chile or in Vietnam with the LNG and CCGT projects, I guess, since Investor Day?

Andres Gluski -- President and Chief Executive Officer

Look, regarding, first, the green hydrogen really green ammonia project in Chile, we continue to work with our partner on the feasibility study. So work goes on. And as I said, we'll probably have news before the end of the year one way or the other. It's really a matter, can we get the costs down to be competitive with gray or blue hydrogen products. So I'm optimistic. We're working hard and stay tuned. Regarding Vietnam, it's the same thing. We continue to work toward a new LNG terminal, which would be 450 or so tera BTUs. So more than double what we have between Panama and the Dominican Republic. And there's an associated 2.2 gigawatts of combined cycle gas plants.

So note that progress continues on that. We're part of the government's plan, realize that this facility will avoid the construction of many, many co-plants. And I also mentioned that we will be, as soon as feasible, moving toward providing green hydrogen. Which basically means that it's certified that it doesn't -- it has less than a certain amount of leakage from production to delivery. And we think that's very important to really reap the climate advantages of natural gas versus, say, other heavy fossil fuels.

David Peters -- Wolfe Research -- Analyst

Great. Thank you for the time.

Andres Gluski -- President and Chief Executive Officer

Thank you.

Operator

The next question is from the line of Charles Fishman from Morningstar.

Charles Fishman -- Morningstar -- Analyst

Good morning. Andres, I wanted to follow-up on that Vietnam question. Does the recent strength in crude oil prices help you in the development of that project in Vietnam? I would think -- I appreciate there's some coal plants there, but isn't a lot of a competition or at least that you'd be replacing residual fuel that's used for power generation in that region and the strength of the crude oil price help in that perspective.

Andres Gluski -- President and Chief Executive Officer

Our LNG business is really tolling, for example, in Central America and the Caribbean. So we get a tolling fee. We're not taking direct commodity risk. Now, of course, the bigger spread between Henry Hub and world oil prices, especially WTI, the more tolling we'll do at the margins. A lot of these are take-or-pay agreements. So what we've announced is take-or-pay.

So we're not so directly effective. But all things being equal, a bigger spread between natural gas and oil is favorable. We'll do at the margin some more. In Vietnam, this is a project which is very much needed because they had been relying on offshore gas, and that's running out. So this will -- it has an immediate demand. Unlike say, Dominican Republic or Panama, where we had to develop the demand. This is a situation where you have a pent-up demand. And you will be relieving a bottleneck because there just aren't -- those fields are basically exhausted.

So you have to bring in gas to feed the existing combined cycles. So I really don't see it as much as a -- direct as a oil price gas play. Again, at the margin, you could have more industries convert or more transportation convert to compressed natural gas or other forms. But not really, these are tolling agreements. And in Vietnam, the demand is there, it doesn't have to be created. But again, as is expense, for example, the new combined cycles, yes, those will definitely be displacing coal plants.

Charles Fishman -- Morningstar -- Analyst

And then Andres, as I recall, the Vietnam project doesn't enter into the 7% to 9% through 2025. That's really a 2025 event and beyond, correct?

Andres Gluski -- President and Chief Executive Officer

That's correct.

Charles Fishman -- Morningstar -- Analyst

Okay. That's all I have.

Andres Gluski -- President and Chief Executive Officer

Thank you.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the conference back to Mr. Ahmed Pasha for closing comments. Please go ahead.

Ahmed Pasha -- Treasurer & Vice President, Investor Relations

Thank you, 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. Thanks again, and have a great day.

Operator

[Operator closing remarks]

Duration: 43 minutes

Call participants:

Ahmed Pasha -- Treasurer & Vice President, Investor Relations

Andres Gluski -- President and Chief Executive Officer

Gustavo Pimenta -- Executive Vice President and Chief Financial Officer

Richard Sunderland -- JPMorgan -- Analyst

Durgesh Chopra -- Evercore ISI -- Analyst

Stephen Byrd -- Morgan Stanley -- Analyst

David Peters -- Wolfe Research -- Analyst

Charles Fishman -- Morningstar -- Analyst

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