Operator: Our next question comes from Angie Storozynski of Seaport. Angie, please go ahead.
Angie Storozynski: So I know we talked about it in the past, but I just wanted to go back to this. How much it really costs to develop these renewables and how seemingly little of an EBITDA and cash recreation you guys are going to get from it. And even using your math, right, with this, the financing of CapEx and the amount of money that you were planning to spend on renewables from the analyst day, and you would end up with like about $2.7 billion of your equity contribution and say $350 million of free cash flow on the back of it. Just again, using the target return. Isn’t that, I’m just wondering if that’s enough. I mean, is it time to maybe add these return expectations, or is it just simply, that’s how competitive the market is and you just have to accept the terms. All I’m trying to say is that it doesn’t seem like it generates enough EBITDA or free cash flow from the amount of investment that those renewables require.
Andres Gluski: Yes. I would disagree. I mean, we can maybe go into more detail offline. But I think the way to, first of all, realize that we do renewables not only in the U.S. We do it, for example, a lot of renewables in Chile where you don’t have any of the upfront tax attributes. But it’s a different, let’s say, model. But actually our returns are better there. I would say given the tax attributes in the States, what you have is, thinking of it sort of a flow and a stock, right? So you get a lot of the tax attributes as cash, right? So you use that cash to pay down the construction debt. And then you’re left with a project with a lower amount of debt going forward. And then you also get cash immediately by selling down to minority partners who want, in the example we gave, like a solar bond.
So they’re willing to take lower returns. So on the project itself, you do have a very good cash returns for the total cost of the project because, again, you’re getting, well, almost 50% back right after you commission it. Now, when you’re looking at the EBITDA numbers, realize that we’re growing very fast. So, last year our commissioning of projects grew 100%. So, those projects are now coming online over time. So, no, I don’t think, I mean, I think returns will increase. We did increase our targeted returns for the U.S. because of what we’re seeing in the market and our increased, let’s say, maturity and efficiency. And I would remind you that, again, without tax attributes, we’re getting even better returns internationally. And another comment on it, when people talk about the competitiveness of renewables, realize that solar panels in the states are costing two to three times what they cost internationally.
So, the cost of the megawatt hours from renewables with energy storage on that is much, much cheaper. And certainly the cheapest energy in most places that we operate. So, again, we can go into more discussions about it. But, no, we feel very good about the cash profile of renewables and what they’re generating.
Steve Coughlin: Yes. I would just add, Angie, also on the EBITDA profile, the EBITDA in the U.S. is growing significantly. I think you’re not seeing it in part because of some of the things happening in LATAM around the El Niño, where we’ve had lower hydro generation, for example, in Panama, as I had in my comments. Brazil’s had very low wind in the first quarter. And then, frankly, Q1, and even in the U.S., is a very low solar irradiation quarter. So you won’t see the EBITDA growth to the same degree. But within that number, there’s substantial U.S. growth throughout this year. But it is somewhat offset by a couple of those other factors outside the U.S. So the EBITDA is strong. And the other thing I’d mention in terms of developing renewables, we’ve been perfecting this machine for many, many years.
So the development has gotten quite efficient. We are able to drive high success rates through our development process. And so that cost continues to come down relative to bringing projects successfully online. So we can go into more detail, perhaps, separately. But it is a very attractive profile for this business.
Angie Storozynski: And then just separately, so you mentioned all of these projects that you develop, the hyperscalers. I mean, those are virtual PPAs, right? So they’re not directly feeding into these data centers. And I’m just wondering, I mean, is it like in a close geographic proximity, given that I think that there’s more and more discussion about the reliability of the grid and transmission congestion? Again, I understand that hyperscalers have the net zero goals. But at the end of the day, they have to have access to reliable power in the sort of proximity of these facilities. So again, I’m honestly trying to understand how renewables just built somewhere far will help keeping the lights on in these 24-7 demand machines.
Steve Coughlin: Yes, Angie, it’s all good points. And so you’re absolutely right that the proximity is important within the region. Now, the co-location, I think, is overblown in terms of you’re adding a new load to the interconnection and approval, regardless of where this data center is. But what are they really looking for? As Andre said, they’re looking for renewables, and they’re looking for additionality, meaning new renewables. And so you do want to do that in a smart way by minimizing your transmission charges. So you want them to be within a region of the data center. And then you want to be able to add batteries in many cases. And we see tremendous upside. We’ve been developing battery storage, both technology and Fluence, as well as battery storage projects in our portfolio for a very long time, a decade plus.
So that’s a huge advantage for us in being able to meet their carbon-free needs throughout the entire day. And so being able to have those battery sites in the region with the solar, with the wind sites is key. And having that flexibility. So it’s not a market you can tap into just by jumping into this. You have to have had foresight for five years plus to be advanced in developing all these technologies within these regions to do that. And then, the other thing I would say is that because and we’ve talked about this, the data center locations are expanding more towards the middle of the country. And so it’s opening up many more locations, which have much more land availability for solar, for wind, into regions like MISO, into ERCOT, less congested in the coast.
And so that’s an advantage in terms of ensuring you’re locating your data centers close to your generation sites as well.
Andres Gluski: Yes. Angie, these are really good points. Because the other thing is that the new AI requires less latency, immediacy than traditional data centers. So it opens up the geographic possibilities. But, we’ve always felt, for example, on green hydrogen as an example, that, first it has to be regional to minimize transmission. Second, that it should be additional. And the fact that it already matches something we can do. So in the particular case of our green hydrogen project, that one’s actually pretty much co-located. It’s like across the street. So that’s a particular case where that works. But, I think that, it very much depends on the transmission conditions. But this opening up of more geographies is very favorable.
Operator: Our final question comes from Michael Sullivan of Wolfe Research. Michael, please go ahead.
Michael Sullivan: Hey, I wanted to just circle back on the utility side and the data center angle there. I think you alluded to it a little bit. But can you give a little more color on what you’re seeing, I guess, particularly in Indiana? And do you think the IRP you have out there is enough to cover any, particularly large announcements that have been made? How should we be thinking about that?
Andres Gluski: Let’s see. What I had mentioned in my speech is that certainly that as we’re involved in these negotiations with hyperscalers due to transmission and other attributes that, there is interest in our two utilities for possible locations. Now, this would be outside of the IRP, per se, because this would be an additional demand that would be put onto our systems.
Michael Sullivan: Okay. But nothing specific in the works?
Andres Gluski: We have nothing specific to announce at this time. We just thought it was important because when we talk about it, we’ve talked about what we’ve done purely. We haven’t talked about, well, this is the first time we mentioned, for example, the megawatts that we’re doing and actually providing that energy for other utilities to four data centers, and we might be able to do some for ourselves.
Steve Coughlin: So I would look at it as the plan has upside, really, is what it is about, Mike. So we have assumed sort of line of sight to what we know in industrial development, in Ohio, but they are becoming very attractive places, not only for data centers, also chips manufacturing, battery manufacturing, we’ve talked about. So there will be some discrete additions that I think will be upside to our plan down the road.
Andres Gluski: In closing, Steve brought up a very good point that, what we’re seeing is growth in corporate demand. It’s not just data centers. So what you’re seeing in our service areas is, for example, a reindustrialization of the U.S. So you have on-shoring, whether it be EVs, battery manufacturing, panel manufacturing, other things, which is growing very substantially. And then, you have to add in the load for electrification, because people have been talking about, EVs as if they’re not selling. But the fact is they’re growing very fast, charging stations are growing. They’re just growing less than some of the forecasts that people had put out there. But if you look at, for example, China, 50% vehicles sold are EVs. So what we see is an increased demand from corporations, from all of these sources.
We have particularly focused on tech companies and data centers as really our sweet spot. But, internationally, it’s the same. What we want is long-term, dollar-denominated contracts with investment-grade offtakers. And, again, we’re doing well on both. So very optimistic about the sector.
Michael Sullivan: Okay. Thank you. If I could just squeeze one last one in. Just latest thoughts on using Fluence as a funding source.
Andres Gluski: We don’t comment on that, quite frankly. And, Fluence has its call later in the week, or next week. So we can’t give any further color on that.
Operator: With that, I’ll hand back to Susan Harcourt.
Susan Harcourt: All right. We thank 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. Thank you and have a nice day.
Operator: Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines.
