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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, an S&P Global podcast, where Esther and I take you inside the environmental, social and governance issues that are shaping the rapidly evolving sustainability landscape.

Esther Whieldon: On this podcast, we've heard multiple times how reaching net-zero emissions will require action by many different stakeholders across the private and public sector. It’s all hands on deck. 

Well in the coming episodes we'll be taking a deep dive into the many dimensions of the low-carbon energy transition. 

Lindsey Hall: That's right and we're doing this by taking the ESG Insider podcast on the road to Houston, Texas, for S&P Global's annual energy conference CERAWeek. 

At CERAWeek thousands of executives and government leaders gather to discuss the biggest challenges and opportunities for energy. And that includes for sustainability issues such as climate change and enabling the low-carbon transition. The conference convenes leaders from global energy companies and utilities, as well as from the automotive, manufacturing, tech, policy and financial space.

Esther Whieldon: And as you might guess from the background noise, Lindsey and I are on the ground at CERAWeek and over the next couple days, we'll bring you short interviews from the sidelines of the event. 

A quick note on two terms you'll hear today. One is PPA, that stands for Power Purchase Agreement. Another is IRA and that's the Inflation Reduction Act.  

Okay. Let's dive into today's interview.

Phil Nevels: My name is Phil Nevels, I'm the Senior Director of Corporate Strategy at AES.

Esther Whieldon: For listeners who may not be familiar with AES, c  you tell us a little bit about it?

Phil Nevels: Yes. So AES is a large diversified energy company. We have 4 main lines of business. One is our renewables business. We have significant renewals footprint both in the U.S. and in Latin America. Our second business is our, we call it our energy transition business. So it's our coal generation and our gas generation business. Our third business is our utility business. So we have 2 large utilities in the U.S., AES Indiana, AS, Ohio. We have utility in El Salvador as well. 

And then our last line of business is our, really it's our innovation arm. We have a JV with Siemens called Fluence Energy, which is an energy storage company, providing energy storage solutions to large corporate customers. We are a significant shareholder of Uplight, which is a consumer engagement platform for electric utilities in particular. And we also, through that arm, have an investment in 5B, which is a solar company. So we're exposed to a lot of different elements of the energy sector. 

When we talk about the energy transition, we plan on both sides of the renewable side as well as on the fossil side. But definitely, we are making the transition, our strategies are about making that transition from the fossil side to the renewable side. 

Esther Whieldon: So you talked a little bit about the different divisions or components of your company. What is AES's approach to the low carbon transition? Like what kind of goals have you set? And how does that fit into this structure? 

Phil Nevels: Yes. Sure. So perhaps the most important short-term goal that we've been very public about. I mentioned that we do have some coal assets as a part of our portfolio now. We've announced that we're exiting all of our coal assets by 2027. 

Right now, we have about, call it 7 gigawatts of coal assets. We anticipate by the end of 2025, by the end of next year we would have exited about half of those assets, so about 3.5 GW of assets. When I talk about exiting, either we're selling, we're converting or we're shutting down entirely. So those are 3 options we're pursuing across the portfolio of our coal assets. 

We've also, in previous announcements now sort of transitioning to the gas part of our business. That's a little trickier. I think many of us you hear the talking point here that gas is anticipated is going to be part of the energy transition for the foreseeable future. We're no different. We think it's going to be an important part of the energy mix. We have said that our aspiration is to be net zero from an energy production standpoint by 2040. So we're going further out to the future. We haven't published any formal plans of that as yet. But our objective, our goal is toward decarbonizing our business in the long time. 

Esther Whieldon: And although you haven't published a specific plan on how you're going to get to that by 2040, generally, kind of what are the goalpost or concepts behind how you could get there?

Phil Nevels: Well, I think it's all -- it's everything, all of the above. So I think offsets is a part of it. We're not doing anything significantly on the carbon capture side as of right now, but that's likely a part of it as well. Coal is, I think, an area that many of us can agree on. Because there's another option, another fossil baseload option, which is gas. But once you get out of gas, there's not a ton of baseload options out of that are non-fossil baseload options. And so just it gets trickier. And so we're going to have to be creative as a lot of our competitors, a lot of other companies, we have to be very, very creative. But we believe we can get there, and we have already set it as an aspiration. We've said it as an objective. And one way or the other, we're going to figure out how to do it. 

Esther Whieldon: Now for our listeners who may not know what baseload is, how would you describe it?

Phil Nevels: Well, one of the criticisms you hear about renewables is that it's intermittent. Solar is only generating when the sun is shining. The wind turbines are only generating when the wind is blowing. When I think of baseload, I'm thinking about 24/7 power. And right now, we do that with gas and coal, these fossil assets. 

But there are non-fossil options there as well. One in particular that we've had a lot of discussion about internally, though, we're at a very nascent stage is geothermal. And you're hearing a lot about -- I think people like to differentiate geothermal from advanced geothermal. You hear about new techniques for geothermal that leverage some of the same technologies that they use with fracking, with horizontal drilling. And so you can drill in different ways to get at hot water resources that were previously very, very difficult to get to. Also to get to resources within a single footprint and not having to move assets around or to access those different resources. And that's a clean source of power potentially. 

We are a leader on the corporate PPA customer side, particularly with the big tech customer segment. Something like 30% or plus of ... PPAs that big tech corporate customers in the U.S. have signed have been with AES. And so they are an important segment for us, and we work very closely with them. 

With that said, there are a lot of challenges to getting renewables in the system right now, whether it's permitting, whether it's transmission interconnection , whether it's supply chain, its a lot of different challenges, and they have slowed down the installation of renewable capacity. 

And so many of our customers are saying, wait, I'm going to need other options. I need other options because I want to get there, but renewables might be slower than it should be, but it's just the fact of the matter. And geothermal is one of those options that many of our customers are talking about. So we're considering learning more about that as well as we consider what our customers are looking for.

Esther Whieldon: Okay. So one big topic around the transition is how do you do it in a just an equitable way. How is AES thinking about that social side of the transition?

Phil Nevels: Yes. That's a great question. Much of that, so with Biden's IRA, there are credits as a part of that for energy communities and putting projects in those communities. So that's a low-hanging fruit. That's one area that we've considered for sure. 

When we're mapping out all of our different projects and we're thinking about where we can develop that's part of that development process. We're considering from a job standpoint. We're considering from an environmental impact standpoint for local communities. We're trying to understand every angle of what our impact, what the impact of our projects are, as we're developing those projects around the country.

Esther Whieldon: Has that always been something you've done? Or has it changed in any ways in recent years? 

Phil Nevels: I think it's always been part of our DNA. I've been at the company 3 years. It's been important since day 1, and I've only seen it grow in importance since I've been there. One of our values at our company at AES is "all together". And when I started at AS, I thought that was like kind of a cheesy thing, like it's one of those things that every company says, but it has been absolutely true. When we talk about "all together", first, it means altogether employed like we're all working together to achieve what it is we need to achieve. 

But as important or more importantly, it's about partnership, not just employee partnership, partnership with our customers, partnership with communities in which we operate, working together with the communities in which we operate to ensure that we're moving towards a decarbonized future.

Esther Whieldon: At CERAWeek, a big focus has been on AI, including how it is driving up customer electricity use. So I asked Phil whether AES has noticed this trend. And if so, how that has affected the company's strategy?

Phil Nevels: Gen AI is going to have an outsized impact on that big tech customer segment. The ones who are building these big data centers that are behind Gen AI are these big tech customers, Amazon, Google, Microsoft, and we're the leader in that customer segment right now. 

As I mentioned before, over 30% of the PPAs that these customers are signing are with AES. As we look at all the PPAs that we're signing, they represent something like 1/3 of those PPAs for us. So it's a really, really important customer segment for us. 

So as we see Gen AI, it's still relatively nascent. We're anticipating that it's going to explode over the next several years. And that's going to be significant power demand needs for all the data centers that all these customers are putting into place. And so we're excited about that.

Now with that said, and there was an article that came out about this very recently, there is potentially not enough supply of power to meet this ongoing, the explosion of demand, whether it's AI, whether it's EVs, et cetera. And some would say, well, all that means we need to build new gas facilities or whatever. Maybe that's part of the mix, but that's a very dangerous proposition, given that it's been committing us to 20 years plus of new gas infrastructure. 

And so we're exploring ways as part of our strategy — to your second point, how has it changed our strategy — we're exploring ways that we can think about co-developing alongside our customers, where you have renewables being developed alongside these data centers like behind the meter. And so that's one thing that we're exploring, right? We have this significant leadership position with these big tech data customers, how can we partner with them in a way that we can develop renewables alongside all this new data center infrastructure that they're putting into place.

Esther Whieldon: Interesting. Let's talk about here at CERAWeek, so you said this is your first time here. 

Phil Nevels: Yes, very intense.  

Esther Whieldon: That's a fair description of it. And I would say beyond just like the fire hose experience of the first day at a conference like this, were there any moments or discussions or things that stood out to you? 

Phil Nevels: Yes. I was just on a panel right before this. And I borrowed a line that I heard from the CEO Engie. She was on a panel earlier were talking about -- there's all this geopolitical volatility that's happening. It's only going to get worse. There's all these potential challenges to the energy transition, et cetera. And she just made a comment that we have to make the, we have to all get on the same page and make the commitment that we're going to decarbonize our planet. And it starts there. 

And it just struck me as despite of all the complexity of the world and these -- the challenges, that's just a very simple concept, like let's all jus,  maybe we disagree, let's all just give them the same page that climate is changing that decarbonization is necessary, and we all need to work together to get there. And I think we get so caught — everyone here is representing like different parts of the ecosystem. 

And we get, we get so caught up in like the individual things that we're pursuing or net when it doesn't have to be zero sum, we can all participate in our respective ways and we should focus less on how we're different, how my technology can win over your technology. Just focus more on how we can just coordinate all the different things we're doing in a way that's optimized for everyone.

There's a huge opportunity for us to why not with one another. If we were to do that, we could definitely achieve that outcome that I think many of us, if not most of us want, which decarbonization of the planet. 

Esther Whieldon: You operate in multiple regions. Can you talk a little bit about how it's different in different areas and sort of how you think about that? 

Phil Nevels: Yes. I think one area that I would just point to, I've talked a lot about how we're trying to grow in renewables. Most of that growth we're looking to the U.S. The U.S. is in a better position to start to integrate and incorporate more renewables into the system. 

We operate significant regions in Latin America. They're not ready for as much renewables as we're trying to grow in the U.S. And in many cases, low-hanging fruit is transitioning from coal or fuel oil to natural gas. And so a lot of our focus in many of our gas assets are in Latin America, and a lot of our focus has been starting with that as a transition. That doesn't mean we're not doing renewables in those places as well. 

When we think about the energy transition, there's not like one global transition that's happening. Every country is going to be transitioning at different speeds, phases, stages, and we have to appreciate that and recognize that the approach is going to look different in every country. And so -- that's certainly what we're experiencing. 

Even as we consider and think about Asia, we have assets in Vietnam as well. And it's maybe somewhat ironic that we're building a gas facility in Vietnam, even as we're talking about decarbonizing. Well, the policy there, the land availability there, there's significant challenges to having renewables in Vietnam or in Southeast Asia. These are smaller islands and smaller countries where land is much more scarce than, say, in the U.S. And so that prospect is just much, much more difficult there. And you have to appreciate that and think about "Okay, let's get them here and then we can make future transitions to a more decarbonized future." 

Esther Whieldon: For Latin America, what would be the challenges? You say they're not ready yet for massive buildup of renewables. What do they need to be ready? Like what would it take to get them ready for that? 

Phil Nevels: I think in some cases, it's policies that make the make renewables more affordable in those areas? 

Esther Whieldon: So like incentives or? 

Phil Nevels: Yes. Exactly. I think in many cases, the economics make it more difficult to deploy renewables in certain regions. In some places, I don't know necessarily in our markets, it's cultural. Just even -- I'll just speak to the U.S., it may be obvious to some that we should move towards renewables, but that's not without cost. So you put a wind turbine up or you put a solar panel up, it's changing the topography. It's changing a look at the community and the environment. There's this intermittency. That is an issue. The sun doesn't -- solar panels aren't generating power when the sun isn't shining. 

So these are all real real issues. Though I would love for the future to be completely decarbonized tomorrow, we'd just have renewables everywhere. That's just not the reality. There are costs to renewables as well that we should acknowledge. And we should acknowledge the strengths of those things like Fossil that even as we're trying to transition away from those, we can acknowledge the strength of those. And so there's a perceived strength of some of those technologies in some of those markets as well. And so some of it is cultural, some of this policy, some of it is economic.

Esther Whieldon: So was there anything I didn't ask about it or we didn't get to talk about that you wanted to mention?

Phil Nevels: Yes. Another area that we're just generally excited about that maybe we don't talk enough about is the grid itself at the distribution level. We tend to -- because we're operating -- AES is operating utility scale.  

Esther Whieldon: And real quick for people don't know what that means, distribution level means like household?

Phil Nevels: Yes, yes. So you have your transmission network, which is the super highway that's simply connecting central generation resources, whether they're gas or renewables or whatever or coal. And they are many, many miles away from densely populated urban centers. The wires, the high-voltage wires are hundreds of thousands of volts, those are going along the transmission network. 

But as they get into the city, close to the businesses that we go to the homes in which we live, voltage step down to lower voltages and that's your distribution network. So that's the local poles and wires. 

And there's immense opportunity there for how do we integrate renewables in households and small businesses. How do we integrate more energy-efficient appliances and equipment behind the meter? That's like in customers' homes, et cetera. And so there's a lot of dynamic stuff happening at the distribution level. There is so much opportunity within the distribution network, not only to decarbonize, but to ensure that we can integrate all these renewables that's coming into the system.

Esther Whieldon: So today, we heard how AES is moving to lower emissions by building more renewables and transitioning away from coal to natural gas plants. And we heard how developing renewables may be harder in some regions than others. And we heard Phil say how AES is exploring how it can partner with big tech companies to develop renewables along to these new data centers that are being built to handle this increased use of Gen AI. 

Lindsey Hall: We have so many more insights to share from CERAWeek. 

Esther Whieldon: So please stay tuned for more key takeaways. 

Lindsey Hall: Thanks so much for listening to this episode of ESG Insider. If you like what you heard today, please subscribe, share and leave us a review wherever you get your podcast.

Esther Whieldon: And a special thanks to our agency partner, The 199. See you next time.

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