AES Corporation: Bright Path Ahead
Summary
- AES Corporation is still one of the most promising power companies despite a tepid Q4.
- AES Corporation's focus on renewables and energy storage will be key to the company's long-term success.
- The company's doubling down on renewables does not come without its risks.
AES Corporation (NYSE:AES) is fully embracing the shift towards renewables in the electricity industry. This transition towards renewable energy solutions is already starting to give the company a competitive edge over competitors. AES Corporation is building a clean energy infrastructure that should help drive growth over the long term.
AES Corporation recently reported Q4 revenues of $2.43 billion, missing expectations by ~$500 million. However, the company beat EPS expectations by $.02 with an EPS of $.35. While AES Corporation clearly did not blow past Q4 targets, the company is on a solid growth path.
Doubling Down On Clean Energy
AES Corporation is building an impressive renewables portfolio. In 2019 alone, the company signed 2.8 GW worth of renewable contracts. These contracts bring AES Corporation's total backlog to 6.1 GW, most of which consists of renewables. The company's major moves in renewables are going a long way in reducing the company's carbon intensity.
AES Corporation's backlog reflects the company's growing interest in renewables.
Source: AES Corporation
Given that global environmental regulations are trending in a stricter direction, AES Corporation's decision to reduce its reliance on fossil fuels is incredibly smart. This transition to renewables is further bolstered by the company's goal of reducing its coal-fired generation to below 30% by the end of 2020. Renewables like solar and wind are becoming cost-competitive with fossil fuels and is set to supplant more traditional energy sources in a growing number of regions.
The company's growing focus on solar is particularly promising given how fast solar technology is advancing. In fact, solar is now regularly cheaper than fossil fuels even without financial assistance. With no end in sight for the exponentially decreasing solar cost trend, AES Corporation's investments into this space are highly promising.
Subsidiary AES Gener is expected to more than double its renewables portfolio by 2024. With how cost-effective energy storage has become, promising renewables like solar and wind will only become more viable over time. Energy storage could become an integral part of the power industry as the technology matures over time. Growing EV demand has already started to catalyze technological advancements in energy storage.
At The Forefront Of Energy Storage
Energy storage is rapidly becoming a key technology in multiple emerging industries. The innovation occurring in the energy storage space, largely being driven by EV companies like Tesla (TSLA), is benefiting the energy industry as well. AES Corporation has seized upon this fact and is investing heavily in its own energy storage business.
AES Corporation has one of the largest energy storage businesses in the world. AES Corporation, along with Siemens (OTCPK:SIEGY), launched Fluence in order to cement a foothold in energy storage. Fluence has and continues to launch some of the largest energy storage projects in the world. In fact, Fluence was awarded to manage 961 MW of projects in 2019 alone.
Energy storage is particularly important for solar and wind, which are perhaps the two most promising renewable technologies. Given these renewables' lack of baseload power, energy storage is a perfect complement for these technologies. It is clear that AES Corporation is fully equipped to deal with the change in the energy landscape. The company is leading the charge in many respects with its rapidly-growing renewable and energy storage businesses.
AES Corporation's Fluence is one of the largest energy storage businesses in the world and is even competing with Tesla Energy for dominance in the industry.
Source: Fluence
Risks
AES Corporation's large investments in emerging technologies like solar and storage also come with many risks. While the evidence currently suggests that these emerging technologies will play a huge role in the future energy landscape, nothing is certain. If these emerging energy technologies do not live up to expectations, AES Corporation will have invested billions into an infrastructure that may not ultimately pay off.
There have also been some concerns over the safety of energy storage technologies like lithium batteries. In fact, Fluence was actually involved in a battery explosion incident that injured several firefighters. However, such incidents are rare and energy storage does not seem to pose any significant risks so far. Moreover, energy storage technology is still relatively immature and will likely become safer over time.
There are still some questions surrounding the safety of energy storage systems. Battery explosions and fires occasionally occur and could remain a problem moving forward.
Source: UL
Conclusion
AES Corporation shows no signs of slowing down and is expecting 7%-9% annual growth through 2022. The company could easily hit the high end of this growth target with its focus on high-growth emerging industries like solar. Whereas many competitors are still clinging onto traditional fossil fuel businesses, AES Corporation clearly sees the writing on the wall.
AES Corporation definitely has more upside at its current valuation of $11.6 billion and forward P/E ratio of 12. The growing adoption of renewables and increasing cost-effectiveness of energy storage will play to AES Corporation's favor moving forward. AES Corporation is successfully seizing upon an opportunity to lead the new energy landscape.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Recommended For You
Comments (6)
This is in conjunction with their "junk" credit (Ba1/BB+), while the above companies all have investment-grade credit rating (BBB+ to A-)
Thanks
