Hello, everyone, and welcome to Data Centers and Demand for Renewable Energy. My name is Emily, and I'll be facilitating your call today. I will now turn the call over to Susan Harcourt, Vice President of Investor Relations.
Good afternoon, everyone, and thank you for being with us. Joining me today is Kleber Costa, who leads our U.S. commercial team for our renewables business, who will be giving the presentation, as well as James Marshall, the CFO of our U.S. renewables business. The intention of today's presentation is to provide more background on the nexus between data center growth and renewable energy, and how we see the market evolving from here. We will not be providing any financial results or financial forecasts, but please join us for our Q4 financial results call next month, which we will be announcing in the coming weeks. With that, I'll turn it over to Kleber.
Thanks, Susan. Hi, everyone. Thanks for having me here today as we finish another strong year for the AES renewables business, and also are starting 2024, full steam ahead. First, let me give an overview of why we're here and what we're covering today. As you all know, our business model relies on long-term contracted revenues with credit-worthy counterparties to support the capital structure of our projects. Our commercial strategy focuses primarily on customers to provide those long-term contracted revenues, and for the past five years, our focus has been on the corporate customer segments. They have been key partners in our, in the strategic transformation of AES. Today, we'll go a little deeper into a very important customer segment for us, the technology sector. More specifically, the data center owners and operators.
First, data center demand is forecasted to at least double by 2030. That means an additional 15 GW of demand, which if you convert that into installed capacity for renewables, it's about 45 GW. Two, AES is the leading provider of clean energy solutions to those customers. About half of our U.S. backlog is contracted with the segment. Three, we believe AES has unique and harder to replicate competitive advantages that put us in a position to continue capitalizing on the exponential growth of this sector. Please note here that I'm using the word solutions. We are the leading provider of solutions, not projects. These aren't just semantics, it's an important mindset that differentiates us from the competition. We'll get back to that later on.
Over the next few minutes, I'll walk you through our view of the data center business, the strong nexus, as Susan said, between data center and renewable energy, and finally, how we work with these customers and how we've arrived at a position of leadership with them. Let's first talk about the new wave of growth projected for data centers in the coming years. McKinsey forecasts U.S. data center demand growing from the current 17 GW to almost 35 GW of demand in 2030. BCG has even more aggressive growth, growth projections, going all the way up to 45 GW. That's up to 7.5% of the total U.S. electricity consumption by 2030. What is driving all this growth? Generative artificial intelligence is a major driver, with new use cases for large language models or LLM.
This could represent up to 7 GW of that growth only coming from generative AI. This new wave of data center growth could be comparable or even surpass the cloud business, which has been the primary driver of data center growth over the past few years. Companies are scrambling for more data center capacity, looking for first-mover advantage in an industry where data center operators are already struggling to meet existing demand. This massive growth is not evenly spread across the U.S. About 60% of new data center capacity is expected to be deployed in CAISO, PJM, MISO, and Southeast regions. We'll get back to that on why that is important. Let me now spend a few minutes here drawing a direct nexus between data center and renewable energy. Next slide, please, Amy. Yeah, thank you. These are some of the world's largest technology companies.
They have all been hard at work to reduce their carbon footprint, to using renewable energy, and also minimize waste. They are also some of our most valued customers. To support their rapid growth, buying renewable energy is one of the main pillars of their commitments, addressing supply, reliability, and most importantly, stakeholder pressure. On the other hand, there are very important nuances here in each company's sustainability goals. This is not a one-size-fits-all approach, even within the same customer segment. Some companies focus on matching their load with renewable energy on an hourly basis, while others on an annual basis. Some look for Additionality, which means new projects, new renewable projects in the markets where they add new load, while others look for emissionality, which really means let's look for the dirtiest grid, where we can deploy renewable energy and have a bigger decarbonization impact.
But again, the common denominator across the board, no matter what their sustainability goals are, is a new renewable energy project. This is indeed an opportunity of a lifetime for renewable energy. Now we've reviewed data center growth, the growth in the data center business, and the role that renewable energy plays in their development. Let's now turn our attention to our strategy, how we work with our customers, more specifically, our corporate customers, and why we believe we're well-positioned to continue capitalizing on this massive growth opportunity. These are the things that make us unique, in my opinion. We are in the customer inner circle. We use customer insights to create and structure and sell differentiated solutions, in essence, de-commoditizing our project. We deliver on our projects.
Whether the renewable solution is a virtual PPA or a highly customized 24/7 load matching, and I'll get back to some of these solutions in more details, all these solutions are comprised of renewable projects. Getting them done on time and on budget ensures that we create a reputation that we deliver on our projects. In essence, we have become the trusted partner of choice for the technology segment. We did not get here overnight. This was a lot of work. But let me spend a few minutes here sharing our trajectory on how we developed these inner circle relationships. What a journey! When we started AES Clean Energy a little over three years ago, we formed a partnership with Google to develop a 24-hour, 24/7 hourly matching solution for their Virginia data center needs.
Since then, our teams have been working hard with our customers and partners, expanding and creating new renewable solutions for their needs. Innovation is indeed in our DNA. One common theme here, if you look at year after year, is that we try to have new, scalable and repeatable solution almost every year to meet our customers' needs. In 2021, we executed on the Google partnership, and we announced the 24/7 retail agreement in Virginia. We also executed a load following agreement with Microsoft in PJM for their Virginia data centers. Later, 2022, we executed a number of energy shaped solutions with our customers, primarily 7x16, but also green tariff sleeve PPAs, which are PPAs, where the utility or another load serving entity sits between our projects and the customers.
More recently, we have supported customers with Scope 3-only needs and also targeted M&A, specific M&A projects to supply specific customer needs. These solutions have supported our sustainability, have supported our sustainable growth in the sector. As you can see, our signings on the bar chart here on the right-hand side of the slide, we went from basically nothing to almost 5 GW in three years, and we continue to grow. Please, Amy This is where our U.S. renewable portfolio for technology firms stand today. This includes backlog and operating assets. Half of our U.S. backlog, as I mentioned earlier, is contracted with technology companies. As you saw on the previous pages, some of our most customized structures are in PJM to supply the Virginia Data Center Alley, where over half of the U.S. internet traffic goes through. That is a core market for us.
CAISO is another organized market which is favorable to structured solutions and also with a large data center presence, core market for AES. We have started expansions in new markets, primarily driven by customers and where they want us to be. We already have projects in MISO, and we are actively looking at select new markets such as ERCOT and also the Southeast. As I mentioned earlier, about 60% of data center growth is projected to be in CAISO, PJM, MISO, and Southeast. Those are our core markets for us. One thing that I would like to notice, to note here is that while these figures represent projects associated with a diversified portfolio of solutions... and across different markets, they do not include green tariff sleeve PPAs, as those fall in the utility category.
And we have also hundreds of megawatts in that category of PPAs that ultimately supplies our data center. I would like to take some time here now to walk you through select examples of these so-called differentiated solutions. First, why do we have them? Why do we have different solutions here? Why bother? Because we do not sell widgets. We want to provide solutions to our customers. Our competitors are mostly pushing out projects. We want to focus on solutions. Also, because we segment our customers, even within a certain segment, we look at differentiated customer needs. As I mentioned before, even within the technology customer segment, this is not a one-size-fits-all approach. Customers are different. They have different goals and different needs.
They also operate in different markets, specific regions, and also lead to specific needs and specific solutions. Let's go into the examples here. By the way, these are all front-of-the-meter solutions for data center customers, as opposed to behind-the-meter, co-located with the load. So these are connected to the grid. Let's put it that way. First, let me spend a few minutes here talking about the traditional PPAs and the virtual PPAs. Those are basically the most common structures out there. This is, in essence, where a customer pays a fixed price for the output of a renewable project, whether it's bundled or unbundled, meaning whether you bundle energy capacity in RECs, or you break them apart and sell them separately.
The difference between a traditional PPA and a virtual PPA is where the output is delivered or financially settled. The traditional PPA is at the busbar of the project, where the project injects energy into the grid, whereas the virtual PPA is at the market trading hub. Moving on to green tariff sleeve PPA. Those are same as the PPAs, the traditional PPAs. The only difference here is that there is a utility between the project and the ultimate customer. The reason for that is there are several reasons for that, but primarily, this is a prevalent structure in regulated markets, where the project cannot contract directly with the corporate customer. The third bubble here is shaped energy.
Shaped energy, as the name says, is we have the commitment, the commitment to deliver a certain shape, intra-day and intra-year, and we do that by combining different technologies. Otherwise, you would only be delivering solar or wind or, w e combine different technologies with different generation profiles, and we deliver that fixed shape also at a fixed price. Why do customers want fixed shape? That depends on their needs for a specific load, for their portfolio, or, or, or also how they want to value the energy exposure associated with that PPA. The last bubble here on the right is the load following agreement solutions, also called 24/7 hourly matching. These are some of the most highly customized solutions that we have with customers. Each one of them is different. Each one of them meets a certain specific need.
So we basically work with the customer, sometimes for a long period of time, to combine different technologies, find the right portfolio, the optimal portfolio, that try to match as close as close as possible, their load with clean energy. On the next page, we have a couple of examples here of some of these structures. The right-hand side, we have the Westline Solar Project, which is an example of a Green Tariff Sleeve PPA, where we contract with SRP in Arizona, and Apple is the ultimate customer. The right-hand side, this beautiful picture here in the California desert, is Baldy Mesa. That's a solar plus storage project supplying a 7x16 energy shaped structure to Amazon in CAISO. Next, I'm going to spend a few more minutes here explaining the 24/7 or load following solutions.
This is how our PJM solutions work. Let me do that by going through a day in the life of this solution or by using a typical or a theoretical portfolio profile. We work with customers to design the right portfolio for their specific needs, for their specific load. They rely on our project and market expertise, and we go through several iterations until we find the optimal portfolio that meets their needs. There is this: heavy analytics and heavy knowledge and experience put at work here. You see here on the yellow bars and the light blue bars, those represent generation profiles of a portfolio of wind and solar. In the non-solar hours, generation is filled by wind and also by discharging the batteries that we charged during solar hours.
The batteries here both discharge and charge in the dark and light purple. We also have residual energy here that is balanced with the grid. Basically, whether we have a surplus of energy or a shortfall, we buy from and sell to the grid on a certain given hour of a certain given day. Now, what happens when the day is not a typical day? Like, it is here on this beautiful graph. When the sun is not shining or the wind is not blowing, well, we supply from the grid. These, the difference that these market balances here are a little bigger. Customers may also choose their demand, respond to a lower generation day by adjusting their demand.
The drivers of how much can be bought from the grid versus demand reduction are very much established by the customer's goals in terms of percentage of carbon-free energy. If it's a cleaner grid with sufficient hydro or nuclear power running base load, we may buy more from the grid than if it's a dirtier grid. As you can see here, this is a much more sophisticated solution than if we were to simply sell projects to customers. In essence, again, decommoditizing the project. Now, let's go back to why AES? Why do we think we have unique competitive advantage? We mentioned, one, customer centricity. Taking the time to understand the customer and working our way through their inner circle of trust.
We also mentioned innovation being in our DNA and our ability to co-create solutions for these customers. Now, I would like to review here a very, very important one. It's great to be in the customer's inner circle. It's great to be innovative. At the end of the day, our solutions are comprised by projects. Our project execution capabilities is a very important element of our secret sauce. As you saw in our press release this morning, we delivered 3.5 GW last year. That was a great year for AES. We have, over the past few years, honored our PPAs. This is clearly a competitive advantage, particularly given the large post-PPA project attrition that we have seen during this time with supply chain issues and others.
So on the one hand, we highly customize our solutions for data centers and corporate customers in general. On the other hand, we have highly standardized processes to develop, build, to develop, buy, and build projects at massive scale. How do we do that? We bring that same partnership approach that we have with customers to our relationship with suppliers, EPC firms, and financing institutions, allowing for preferential access and terms. We have rigorous estimation processes and team expertise to de-risk our projects at the time that we sign the PPA or structured solution. At that same time that we sign those PPAs, we also secure major equipment and construction contractors, as well as hedge our long-term financing costs. We have developed a reputation for that we deliver on our commitments. Now, here's what I would like for you all to walk away with from today.
Data centers and generative AI are driving enormous power demand. That power demand will be met by renewable energy, given the major technology firms' ambitious clean energy goals. AES is the premier provider of renewable solutions for those customers and others, and we also have unique competitive advantage that lead to outsized and sustainable returns. With that, we will open for a Q&A. Thank you, all.
Thank you. If you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind and would like to be removed from the queue, please press star and then two. Our first question today comes from the line of David Arcaro with Morgan Stanley. David, please go ahead. Your line is now open.
Oh, hey, thanks so much for taking my question. Thanks for doing this call. You know, I had a quick question. I know tech companies represent a big proportion of your backlog already, but do you see incremental upside in terms of how fast the data center market is growing? You know, the appetite for generative AI-related data centers. You know, is there the potential for even faster or bigger additions to the backlog from this customer group?
Hi, Dave. Thanks for your question. Yes, yeah, the short answer is yes. I think, when you see, depending on which projection you use, we either grown from 17 GW to 35 or 45. That's a massive growth potential over the next six years. And, given where we are in the market, our core markets, and where we see that data center growth being developed, we see the data center, or the technology, customer segment in general, being a very important and a key part of our, of our growth. So the answer is yes, I do see that customer segment helping us grow in the core markets, as well as, enter new markets in order to support their needs.
Got it. Understood. I was also curious, just what's the typical size of a new data center contract, in terms of, you know, the number of megawatts that you might sign, on a one-off deal?
That depends very much on the markets where we are. In markets like PJM or in most of the Northeast markets, projects have become smaller. The large tracts of land and the large interconnection issues that we have in permitting, projects have become smaller. So we have the largest solar project east of the Rockies, or one of the largest, the Spotsylvania projects. But we are seeing recent projects that we're signing with them in the 100-200 MW. Now, when you go out to the west and in ERCOT, you still see the projects in the hundreds of megawatts size, both for solar and wind.
Yeah. Got it. That makes sense. That's helpful. Thanks so much.
You're welcome.
Our next question comes from Steve Fleishman with Wolfe Research. Steve, please go ahead. Your line is open.
Yeah. Hi, good afternoon. Thank you. Maybe just turning to slide 11, back to the how you serve the 24/7. I'd be curious just on these customers, I assume, they have very high reliability requirements. And then this seems to be a day where the solar is running and the wind is running, but obviously, there are probably days when there is no solar availability and no wind availability. How does, h ow do you deal with that, and how do you meet these customers' reliability requirements on days like that?
Thank you, Steve. Thanks for that question. As I mentioned, the days that the sun is not shining, the way they are here in a theoretical typical day, or the wind is not blowing, in that day, we basically buy from the grid. And you are right, in the sense that those and many other customers have high reliability requirements. That's and they are connected directly to the grid. So in those days, we either supply directly from the grid or they buy themselves directly from the grid and fill that gap. So reliability is not a factor here.
Oh.
Remember that the examples that I gave here are mostly front-of-the-meter solutions. They are behind-the-meter solutions; now we can start talking about backup power with co-located backup power. You could potentially deploy energy storage to do that, but in the example of front-of-the-meter solutions, you just buy more from the grid. The customer just buys more from the grid.
Okay, that makes sense. And, I guess the, maybe just going back to part of that question, which is just the reliability aspect, because I think there's some concern, whether you can always count on the grid for those days, because in theory, on days like that, the grid, if the more it becomes reliant on renewables, will also have less available power. Could you just talk to kind of how you're thinking and dealing with that then? And, and just also, how high is, like, reliability aspect as part of the, the customer, equation here as well? Yeah. Thank you.
No, I appreciate that. Let me start by saying that if you're referring to a euro storm kind of scenario, we do not take that kind of risk, right? That's not the these this project these solutions here are not designed to take that type of risk. But we do work with those customers to help them address reliability when the grid is not available, too. I mean, we are one of the largest providers of battery storage in the United States, and we also have other solutions that help them meet reliability while meeting their clean energy needs. But on these types of contracts here, we do not take that risk.
Okay. No, that's good to know. Great. And so just as you go forward, I assume you believe you can kind of match up the clean and the reliability with these solutions and just, yeah, so, and it, you know, just how are you, 'cause obviously the clean aspect is very clear here. It's just the other part of it's gonna be these customers with, given the business they're in, are gonna need 100% reliability. And so I just wanna kind of make sure. I guess it sounds like they're taking on the risk for that, not you.
On the supply side, yes. On the clean energy side-
Yeah.
We share some of that risk, right? I think, again, as I said earlier, these contracts are designed contract by contract, highly customized. The higher percentage of clean energy that a customer may want, the more optimal the portfolio needs to be. And depending on what sort of portfolio mix we have, and depending on which grid we have, if the grid is a little cleaner, then you would be allowed to buy more energy from that grid while maintaining the carbon-free demand, the carbon-free goals that the customer has. But we do share some of that risk with the customers, but we do have a buffer, right?
Between, to your point, what if a day is, s o we have a cap on the risk that we take, in some of these contracts. But again, it's mostly clean energy risk. So if you ask me, are we penalized if we commit to a certain amount of clean energy and the clean energy is not there? We are penalized up to a cap.
Okay. No, that's helpful. I appreciate this is helpful to... I appreciate you doing this call. Thank you.
Those are all the questions we have, so I'll hand the call back over to Susan.
All right. Thank you everyone for joining us today. As always, the IR team is available if you have any questions, and otherwise, we will look forward to speaking with you on our Q4 call next month. Thank you.
Thank you all.
Thank you everyone for joining us today. This concludes our call, and you may now disconnect your lines.