Executive Summary / Key Takeaways

• Strategic Inflection Point: The AES Corporation is at a pivotal moment, transitioning to a leaner, more U.S.-centric, and renewables-focused business model. This strategic shift, marked by significant asset sales and a comprehensive restructuring, is driving an expected over 60% year-to-year growth in Renewables EBITDA for 2025.
• Data Center Demand & Renewable Leadership: AES is uniquely positioned as a leading provider of clean energy solutions to data center companies, with 8.2 GW of projects in operation or backlog for this segment. This addresses the unprecedented demand for electricity, where renewables offer the fastest time to power and competitive Levelized Cost of Energy (LCOE).
• Robust De-risking & Supply Chain: The company has substantially de-risked its U.S. renewables backlog of 7.5 GW through "Safe Harbor" protections for tax credits and a robust domestic supply chain, largely insulating it from potential tariffs and policy changes.
• Financial Strength & Outlook: AES reaffirms its 2025 Adjusted EBITDA guidance of $2.65 billion to $2.85 billion and Adjusted EPS of $2.10 to $2.26. The company projects a 5% to 7% long-term Adjusted EBITDA growth through 2027, with a self-funded capital plan and no new equity issuance planned, aiming for improved credit metrics.
• Technological Edge: AES leverages innovative technologies like Maximo, its AI robotic solar installation system, to enhance construction speed and cost-effectiveness, providing a competitive advantage in project execution.

The Future of Energy: AES's Diversified Powerhouse in a Transforming Landscape

The AES Corporation, a diversified power generation and utility company, is strategically reshaping its portfolio to capitalize on the global energy transition and surging electricity demand. From its origins as Applied Energy Services, Inc. in 1981, AES has evolved into a global player, now concentrating its growth in renewables and U.S. regulated utilities. This strategic pivot positions AES to compete effectively against industry giants like NextEra Energy , Duke Energy (DUK), Southern Company (SO), and American Electric Power (AEP), who are also navigating the evolving energy landscape. AES differentiates itself through its global operational scale, diversified energy portfolio, and a proactive approach to technological innovation and supply chain resilience.

The company's business model spans four Strategic Business Units (SBUs): Renewables (solar, wind, energy storage, hydro), Utilities (AES Indiana, AES Ohio, AES El Salvador), Energy Infrastructure (natural gas, LNG, coal, pet coke, diesel, oil), and New Energy Technologies (investments in Fluence , Uplight, Maximo, and other initiatives). This broad operational base allows AES to offer a comprehensive suite of energy solutions, adapting to diverse market needs and regulatory environments. While competitors like NextEra Energy (NEE) are highly focused on renewables, AES's diversified approach provides greater flexibility and resilience in volatile markets, allowing it to leverage both traditional and clean energy sources to meet customer demands.

Technological Edge: Maximo and the Future of Construction

A key differentiator for AES, particularly in the highly competitive renewables sector, is its commitment to technological innovation. The company is actively deploying Maximo, its proprietary AI robotic solar installation technology. This advanced system offers significant, quantifiable benefits over traditional construction methods. Maximo enables construction to be "2x to 3x faster" with the same amount of labor, drastically reducing project timelines and labor intensity. This speed is particularly critical in desert environments where work hours are limited, as Maximo allows for extended operational periods, potentially up to 18 hours, by reducing the physical strain on workers.

The tangible benefits of Maximo include enhanced operational efficiency, reduced working capital requirements due to faster project completion, and improved cost-effectiveness. While currently in beta testing and not yet contributing financially to the plan, AES intends to use Maximo internally for a couple of dozen projects next year, aiming to perfect the product before potential third-party commercialization in 2027 or beyond. This technological leadership is expected to strengthen AES's competitive moat, contributing to better margins and faster project delivery, a critical advantage in meeting the urgent "time to power" demands of its corporate clients.

Strategic Transformation and Financial Discipline

AES's current strategic narrative is one of disciplined transformation. The company has undertaken a comprehensive restructuring program, initiated in February 2025, to streamline its organization and right-size its development efforts. This initiative, which includes a 10% workforce reduction and the elimination of certain management layers, is projected to generate approximately $150 million in cost savings in 2025, ramping up to over $300 million annually by 2026. These actions are already implemented, providing high confidence in their realization.

A significant aspect of this transformation is the de-risking of its portfolio. The sale of AES Brasil in October 2024, a 5.2 GW portfolio of renewable energy facilities, eliminated substantial exposure to hydrology, currency, spot price, and floating interest rate risks. Concurrently, AES has strategically reclassified 2.5 GW of Chilean renewable assets from its Energy Infrastructure SBU to the Renewables SBU, reflecting the evolving nature of its core growth drivers. The company also completed the sale of a 50% interest in Dominican Republic Renewables in June 2025, recording a pre-tax gain of $70 million. These strategic divestitures, alongside partnerships like the sale of a 30% indirect equity interest in AES Ohio to CDPQ for $544 million in April 2025, are crucial for funding growth and strengthening the balance sheet without relying on new equity issuance.

Performance at an Inflection Point: Renewables Drive Growth

AES's financial performance for the nine months ended September 30, 2025, reflects the early benefits of its strategic pivot, despite some headwinds. Net income attributable to The AES Corporation for Q3 2025 increased by $135 million (27%) to $639 million, driven by a $334 million higher income tax benefit, $23 million higher margins from the Renewables SBU, and $16 million higher margins from the Utilities SBU. This was partially offset by lower contributions from renewables projects and a $32 million other non-operating expense related to an impairment of the Uplight equity method investment. For the nine months ended September 30, 2025, net income attributable to The AES Corporation decreased by $622 million (51%) to $590 million, primarily due to lower margins from the Energy Infrastructure SBU and higher day-one losses on sales-type leases at AES Clean Energy Development.

The Renewables SBU is indeed at an inflection point, with Adjusted EBITDA increasing by 46% to $697 million for the nine months ended September 30, 2025, compared to the same period in 2024. This growth is primarily fueled by 3 GW of new capacity brought online since Q3 2024, with the U.S. business expected to be almost 60% larger by year-end 2025 than two years prior. The company is realizing higher returns from projects due to increasing economies of scale, with the average project size growing by over 50% in the last five years.

The Utilities SBU also demonstrated solid performance, with Adjusted EBITDA increasing by 6% to $659 million for the nine months ended September 30, 2025. This was driven by $1.3 billion in rate base investments over the past four quarters, aimed at improving reliability and customer experience. AES Indiana, a key utility, expects its residential rates to remain at least 15% lower than the state average, a competitive advantage. In Ohio, data center-related transmission investments are supported by FERC formula rates with no regulatory lag, and transmission is expected to represent 40% of the total rate base by 2027.

The Energy Infrastructure SBU, while experiencing a 15% decrease in Adjusted EBITDA to $809 million for the nine months ended September 30, 2025, continues to provide a stable base of earnings and cash flow. The completion of a new 670 MW combined cycle gas plant in Panama in Q4 2024 enhances the utilization of its existing LNG terminal. Furthermore, AES is delaying the closure of a few coal plants beyond 2027 due to increased market demand, as these largely depreciated assets still contribute meaningful EBITDA and cash flow.

Outlook and Guidance: A Clear Path to Growth

AES reaffirms its full-year 2025 Adjusted EBITDA guidance of $2.65 billion to $2.85 billion and Adjusted EPS guidance of $2.10 to $2.26. The company also expects to achieve the upper half of its 7% to 9% long-term Adjusted EPS growth target through 2025. For the long term, AES projects a 5% to 7% Adjusted EBITDA growth rate through 2027, with renewables growing at an average annual CAGR of 19% to 21% and utilities at 13% to 15%.

Operational milestones underpin this guidance. AES is on track to complete 3.2 GW of construction projects in 2025, with 2.9 GW already completed year-to-date. The company expects to sign 4 GW of new PPAs in 2025, having already secured 2.2 GW year-to-date, with advanced negotiations for an additional 1.8 GW. The 11.1 GW PPA backlog, including 5 GW under construction, provides clear line of sight to EBITDA growth. Notably, 8.2 GW of this backlog is dedicated to data center customers, with 4.2 GW already operational and 4 GW in backlog, nearly half of which will be added to the fleet in the next 18 months.

The company's capital allocation plan for 2025 includes $2.7 billion in total discretionary cash sources, with parent free cash flow expected in the upper half of the $1.15 billion to $1.25 billion target. AES plans to return over $500 million in dividends to shareholders and invest approximately $1.8 billion in new growth, primarily in renewables and utilities. The company is "self-funded through 2027" and has "no plans to issue equity in this horizon," a testament to its financial discipline and strategic focus. Beyond 2027, AES anticipates an incremental $400 million of run-rate EBITDA from projects already under construction or coming online in 2027, without requiring additional project development or PPA signings.

Competitive Positioning and Market Dynamics

AES's competitive advantage is deeply rooted in its ability to meet the urgent and growing demand for electricity, particularly from data centers. The U.S. is projected to require over 600 terawatt hours of additional power by the end of the decade, equivalent to the current ERCOT system, with Bloomberg New Energy Finance forecasting a need for at least 425 GW of new capacity. AES has signed agreements for over 11 GW with data center companies, more than any other player in the sector, demonstrating its market leadership.

The company's "best-in-class record of on-time and on-budget delivery of renewable projects" is a critical competitive differentiator, valued highly by customers. This is further bolstered by its robust domestic supply chain, with nearly all equipment for U.S. projects through 2027 either in-country or domestically produced, mitigating risks from tariffs and supply chain disruptions. This contrasts with competitors who may face greater exposure to international trade policies. AES's 7.5 GW U.S. backlog is "entirely safe harbor," ensuring eligibility for existing tax credits and providing a competitive edge as the industry moves towards the end of the decade.

In the utilities sector, AES Indiana and AES Ohio maintain competitive positions as "among the lowest cost providers in each state." Their growth is supported by regulatory frameworks that allow for near real-time recovery of investments through growth riders and FERC formula rates, reducing regulatory lag. This is a significant advantage over utilities facing slower cost recovery mechanisms.

Risks and Mitigation Strategies

Despite a strong outlook, AES faces several risks. Policy uncertainty surrounding U.S. renewable energy tax credits, particularly the 2025 Act and potential Foreign Entity of Concern (FEOC) restrictions, could impact future project economics. However, AES has proactively mitigated this through "Safe Harbor" protections for its backlog and a diversified supply chain, with most projects not exposed to FEOC restrictions due to early construction starts or domestic sourcing.

Operational risks include sensitivity to dry hydrological conditions in regions like Panama, Colombia, and Chile, which can affect hydro generation and increase electricity prices. AES mitigates this by investing in a complementary mix of thermal, wind, and solar assets. Macroeconomic factors like inflation and rising interest rates also pose challenges, potentially increasing project costs and financing expenses. AES addresses this by contractually locking in major capital costs, EPC arrangements, and hedging long-term financing at the time of PPA signing.

Legal and regulatory proceedings, such as the ongoing lawsuits related to Coal Combustion Residuals (CCRs) in the Dominican Republic and the securities class action against Fluence (FLNC), present potential liabilities. AES maintains accrued liabilities for claims and believes it has meritorious defenses. The review of AES Maritza's PPA by DG Comp for State Aid compliance also introduces uncertainty, though AES believes its PPA is compliant.

Conclusion

The AES Corporation is executing a compelling investment thesis centered on strategic transformation, technological leadership, and disciplined growth in the burgeoning renewables and utilities sectors. By proactively de-risking its portfolio through asset sales, optimizing its cost structure, and securing its supply chain, AES is well-positioned to capitalize on the unprecedented demand for electricity, particularly from data centers. The company's robust backlog of safe-harbored projects and its innovative use of technologies like Maximo provide a distinct competitive advantage in a rapidly evolving market.

With a clear path to achieving its 2025 guidance and long-term growth targets, supported by a self-funded capital plan and a commitment to strengthening credit metrics, AES offers a compelling value proposition. While risks related to policy, market dynamics, and legal challenges persist, the company's proactive mitigation strategies and diversified business model underscore its resilience. Investors should recognize AES's strategic execution and technological prowess as key drivers for sustained financial performance and long-term shareholder value creation in the accelerating energy transition.