Integrated Annual Report 2018

(102-1, 102-3, 102-5, 102-53)

Corporate Name: AES Gener S.A.

Tax identification (RUT) number: 94.272.000-9

Type of Company: Open Corporation

Registration with the Registry of Securities: N° 0176

Address: Rosario Norte 532, piso 19, Las Condes, Santiago, Chile

Phone: (56) 226868900

Box: N° 3514, Santiago

Web page: www.aesgener.cl

Santiago Stock Exchange Mnemonic Code: AESGENER

To make inquiries or comments about this Report, communicatewith AES Gener Communications Management, to emailcomunicaciones.aesgener@aes.com

AES Gener at a Glance

Letter from the Chairman

Letter from the Chief Executive Officer

About us

Our Neighbors

100

Our Stakeholders

136

Standard GRI Index

230

Sustainable Business

18

Our Company and Financial Performance

106

Environmental Performance

184

Appendix

238

Market Context and Energy Industry

54

Good Corporate Governance, Ethics and Transparency

118

About this Annual Report

226

Managers’ swornstatement ofresponsibility

260

Financial Statements

262

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Tableof Contents

AES Generat a glance06

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Our mission

Our vision

Corporate Values

Improving lives in Chile, Colombia and ArgentinaGenerating energy since 1981(102-6, 102-7)

5,051 MW*Generation Assets

* 52 MW storage batteries not included

3,388 MW*CHILE, National Electricity System

(SEN)

1,020 MWCOLOMBIA, National Interconnected

System (SIN)

643 MWARGENTINA, Argentine Interconnected

System (SADI)

561 MWUnder construction / Alto Maipo,

Castilla, Virtual Dam

Power by type of generation

COAL: 3,019 MW

HYDRO: 1,291 MW

GAS/DIESEL: 643 MW

DIESEL: 63 MW

SOLAR: 22 MW

BIOMASS: 13 MW

STORAGE BATTERIES: 52 MW

3%

Market Sharebased on generation

Acquired by AES Corporation in 2000, which currently

controls

66.7% of the Company

27%

7%

Argentina

Colombia

Chile

Installed Capacity

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COAL

DIESEL

HYDRO

SOLAR

BIOMASS

NATURAL GAS

INTERNATIONAL TRANSMISSION LINE

-

-

BRAZIL

PERU

ARGENTINA

CHILE

COLOMBIA

1,303Human Team

Chile, Argentina and Colombia

410 kmInternational Transmission

Line (Chile - Argentina)

Our Mission

Improving lives by

accelerating a safer and greener energy future

Our Vision

To improve lives by providing safe, reliable, and sustainable energy

solutions in every market we serve.

Corporate Values (102-16)

Throughout our history, we have been characterized by our permanent com-mitment to a charter of values that constitutes the central axis of our Code of Conduct, thus providing an appropriate support to our daily ac-tivities. In this sense, we promote the practical application of these values at work, including the development of activities and materials to promote re-flection on them. The Code of Conduct is delivered to, and accepted by, all collaborators, contractors, suppliers, and business partners. It is also avail-able on the website of the Company.

Main aspects of the Values Charter:

Put safety first. To ensure safe opera-tions in our facilities is the cornerstone of our daily activities and decisions. The members of the Company should give priority to safety and prevention of risks associated with the work for its staff, contractors, and surrounding communities. In order to maintain this safety culture, we carry out various activities on a regular basis, including monthly talks in our facilities, with the involvement of all the workers across the organization.

Act with integrity. Our people must be honest, trustworthy, and responsi-ble. Integrity is at the core of how we conduct ourselves, interact with each other, and relate with third parties at work, always respecting and honoring the commitments made.

Agility. We move with vision, speed, and flexibility to adapt to our dynamic and rapidly changing environment. Our world and our industry are chang-ing at an accelerated pace. We must be agile and continue to evolve our business to succeed. Agility means we create value by moving quickly, avoiding risks, anticipating opportu-nities, and changing the direction as necessary to grow in new ways and best serve our customers.

Strive for excellence. We strive to be the best in all that we do and to perform at world-class levels.

Have fun through work. Those who are part of the organization know that work is interesting and rewarding. We are encouraged to have fun through work and to appreciate the satisfac-tion of being part of a team that makes a positive difference.

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Letter from the Chairman (102-14)

Julián NebredaChairman of the Board

It is a pleasure for me to present the first Integrated Annual Report of AES Gener that describes our finan-cial, operational, environmental,

and social performance for year 2018.

2018 was for us a year marked by a process of transformation that will help us to become the leading supplier of energy solutions in South America, thus enhancing the satisfaction of our mission of improving lives by accelerat-ing a safer and greener energy future.

We firmly believe that the success of the companies today is guaranteed not only with good financial results, but also with the commitment to sus-tainability, technological innovation, and good corporate governance. This is why we are positioning our compa-ny to become a leader in all of these fronts. In 2018, we took specific steps to cause AES Gener to have a long-term sustainable growth, including to strengthen our balance sheet, to commit ourselves to reduce carbon intensity, co-operate with the com-munities where we operate and to implement innovative technologies in our existing markets.

Financial Performance 2018

In financial terms, 2018 was a great year for AES Gener. As a Company, we recorded the highest EBITDA of

our history, with US$887 million that represented a 12% increase with re-spect to 2017.

This was a management with positive results that in 2018 had to overcome a volatile global economic context and a slow regional growth, where a 1.2% growth rate was recorded for Latin America in 2018. Moreover, it was a year marked by uncertainty during the first half in Colombia due to the presidential elections, the starting up of the economy recovery plan of Mauricio Macri in Argentina, and the resumption of industrial growth in Chile thanks to higher prices in copper and mining production.

At a corporate level, financial results of AES Gener were sustained in the oper-ational excellence and solid business strategy that we implemented in the different markets where we operate. The variation with respect to 2017 was mainly based on an increase in contract sales and greater generation as a result of better hydrology condi-tions in Colombia; an increase in the trade margin in Argentina and larger margins related to the coming into effect of the supply contracts executed by Cochrane and Angamos in Chile.

The proceeds from the sale of the sub-sidiaries Eléctrica Santiago and Com-pañía Transmisora del Norte Grande in Chile and a reduction in the financial cost due to the prepayment of debt for

Dear Shareholders,

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Greentegra puts our customers in the center of our decisions by fostering the gradual development of a renewable energy matrix that is complementary to existing technologies.

US$528 million had a positive impact in terms of non-operating income.

This way, our good financial health was reflected in the ratification of the investment grade according to Fitch’s, S&P’s, and Moody’s ratings.

Greentegra, as an essential part of our strategy

During 2018, our parent AES Corpora-tion announced its plan to reduce 70% the intensity of their carbon emissions at a global level as of 2030. In line with this goal, AES Gener communicated the decision against building new coal plants so as to advance in the devel-opment of new renewable projects, including the implementation of tech-nological innovations that will provide greater flexibility and reliability to the system.

We announced our transformational plan, called Greentegra, which forms the bases of AES Gener over the next few years. Greentegra puts our cus-tomers in the center of our decisions and is based on the development of a renewable energy matrix that is com-plementary to existing technologies. In this plan, hydroelectricity and energy storage play a leading role, together with the generation of photovoltaic and wind energy.

This new customer-centered strategy and vision yielded excellent results

during 2018, and allowed us to en-ter into more than 30 new medium- and long-term contracts in the with non-regulated customers, including, among the most noteworthy, the con-tract with Minera Candelaria and with one of the main retailers of the region, Cencosud.

Today we are building the AES Gener for the future: renewable energy projects

In Chile, the Alto Maipo run-of-the-river hydroelectric power plant coun-try project is an essential part of the Greentegra strategy. With more than 70% progress, at the end of 2018, once the project is completed, it will provide 531 MW of renewable capacity to the country.

We believe that the integration of re-newable energy and energy storage is key to accelerate a future with cleaner energy. AES Gener is leading in the use of these technologies through innova-tive solutions such as Virtual Dam, which provides for the integration of batteries to store the power generated in run-of-the-river plants to inject it to the system during the hours of higher consumption. Together with the 52 MW of batteries currently operated by AES Gener, Virtual Dam will facili-tate a greater penetration of variable renewable energy into the system.

Regarding solar photovoltaic and wind energy, we have analyzed dif-ferent initiatives during 2018. This has allowed us to announce, early in 2019, the construction of new re-newable energy projects for a total of 290 MW, made up of 80 MW from the expansion of Andes photovoltaic solar plant in the region of Antofagasta and 210 MW from the construction of the following wind power plants in the Eighth Region: Mesamávida (40 MW) and Campo Lindo (80 MW) in Los Ángeles, and Los Olmos (90 MW) in Mulchen.

With regard to our seawater desali-nation solution in September 2018, the Servicio de Evaluación Ambiental (Environmental Assessment Service) of Chile approved the Environmental Impact Declaration of the Guacolda Desalination Project in Huasco. This allows us to diversify our solutions by offering our customers large volumes of water for industrial processes.

In Colombia, we gave fundamental steps toward the growth in variable renewable energy.

We signed the first long-term contract with Ecopetrol. After a rigorous ten-dering process, we were chosen to build the Castilla Self-Generation Solar Plant, the largest in Colombia, that will provide energy to Campo

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Castilla of that oil company, and will have a 20 MW capacity equivalent to the consumption of approximately 16 thousand homes. Moreover, we signed a second contract with Gensa, for the supply of 876 GWh, beginning in 2023 for a period of 15 years.

At the beginning of the year we har-vested the great work performed in 2018 to complete the acquisition of Jemeiwaa Kai, the largest wind proj-ect of Colombia, located in La Guajira and with a capacity of 648 MW.

With these achievements, we can strengthen our interest in the Co-lombian energy market and advance in the diversification of our portfolio.

In Argentina we continue to operate the Interandes transmission line that connects that country with Chile and has a length of more than 400 kilome-ters and a transportation capacity of 600 MW. This line is key to energy exchanges between the two countries and supports the integration between the electrical systems.

Environmental and Social Manage-ment

We assume our work with a deep com-mitment to the people of the countries where we operate. For this reason, our projects are marked by a long-term vision that has been forging a harmonious and respectful coexis-tence between energy growth and the company. We work for the best finan-cial management hand in hand with a

delicate word-class environmental and social management. This is evidenced by the fact that during 4 consecutive years we have maintained our position in the Dow Jones Sustainability In-dex Chile. This ranking seeks to foster good sustainable practices regarding corporate governance, social aspects, and care for the environment.

Some of the environmental mile-stones that marked our management of the year were the 100% compli-ance (Guacolda, Centro and Costa complexes) in the performance of the Adaptation Plans with which the Chilean health authority governs the safety conditions for the storage of hazardous substances, which meant an investment of US$8.5 million.

In addition, we highlight the certi-fication of Chivor and Cochrane to ISO 14001, international standard related to environmental management systems, due to the incorporation of environmental risk management to the usual business practices.

With respect to our community management, as a company we con-tinue to focus our efforts on the next three scopes of action in line with the Sustainable Development Goals established in the 2030 Agenda of the United Nations: Education and Technical Training, Community Infra-structure Development Projects and Local Development.

We assume our work with a deep commit-ment to the people of the countries where we operate.

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Main Changes 2018

Last December, Bernerd Da Santos, Chief Operating Officer of AES Corpo-ration, who has been the Chairman of the Board for approximately 2 years, left the chairmanship and then this position was entrusted to me. The change was motivated by the deci-sion of the parent company to cause the Chairman of the Board to live in the country as part of the Company's transformation effort.

In the name of AES Gener and AES Corporation I would like to thank Bernerd for his commitment to the Company and its affiliates, including, among its most valuable contributions, the successful restructuring of Alto Maipo project. It is an honor for me to have been preceded by Bernerd and I am thankful for his continued participation in AES Gener Board.

In 2019, we will continue to move for-ward at a steady pace in the construc-tion of Alto Maipo, in the new renew-able projects and in the development of our desalinated water business. We will invest in innovative technologies, such as battery-based energy storage or use of drones, we will promote elec-tromobility and we will increase our portfolio of renewable projects under development that currently exceeds 3,900 MW.

I would like to thank for the support of our partners: Global Infrastructure Partners, Mitsubishi and Strabag for their great contribution to our compa-

ny and each of our collaborators who have made it possible for us to be not only a great place to work, but also the generator of electricity and electrical solutions with the largest number of projects under development in Chile today.

We face a deep transformation of the electricity markets, driven by a sustained reduction of the costs of renewable energy, the digitalization of corporate processes, the boost to decarbonization of the generation ma-trix, and the legitimate aspirations of customers for having a sustainable, re-liable and value-added energy supply. Our new strategy puts us in a special position to take the opportunities that this disruption process may present. Our focus on renewable energies, the early adoption of new technologies, our commitment towards efficiency of our processes, and the focus on the needs of our customers are the tools with which we will continue to build an AES Gener that will carry out its mis-sion of improving lives by accelerating a safer and greener energy future.

Many thanks to all for your trust.

Julián NebredaChairman of the Board

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Letter from the Chief Executive Officer (102-14)

It is a pleasure for me to present our first Integrated Annual Report, a document that, apart from con-solidating the excellence of our op-

erational, social, environmental, and economic management represents an important progress in how to deliver that information to our stakeholders.

As noted by our Chairman in his let-ter to our shareholders, the strategy of AES Gener is to accelerate a safer and more sustainable energy future. Moreover, our role is to continue to be an ally of Chile in its decarboniza-tion process, an ally of Colombia in its energy matrix diversification process through the incorporation of variable renewable energy, an ally of Argenti-na in its path toward an efficient and robust electric sector that supports economic growth, an ally of the region through the interconnection between Chile and Argentina, and an ally of our customers in their efforts to be every day more competitive and sustainable.

With this firm commitment we were an active part in the decarbonization desk driven by the Ministry of Energy and we are leading the process for a more sustainable Chile. This is consis-tent with the announcement made by The AES Corporation to make a 70% reduction in the intensity of carbon dioxide emissions of its portfolio for 2030.

This is not only a declaration of good intentions, but a commitment that we

are already taking. In early 2018, we announced the decision not to build more new coal-fired plants. Moreover, we committed ourselves to move for-ward in the development and inte-gration to our portfolio of renewable projects as part of a transformational strategy that we have called Greenteg-ra, whose implementation will turn us into the preferred supplier of energy solutions in South America.

Greentegra strategy is based on five business solutions that are centered on our commercial partners (custom-ers) and their needs. Our commitment is to cause your electricity supply to become greener and greener, increas-ingly reliable, and more and more com-petitive. For this purpose, we have pro-posed to put into action an aggressive plan of renewable energy projects to integrate them into our current asset portfolio that is the most efficient and flexible of the system.

We believe that the integration of re-newable energy and energy storage is key to accelerate a future with cleaner energy. With the 52 MW batteries currently operated by AES Gener, we have been the pioneers in the develop-ment of this technology, and we hold a leading position in Latin America.

A key component of our strategy is to continue to expand our battery busi-ness to support intermittent gener-ation sources, turn run-of-the-river hydroelectric plants into virtual res-

Dear all,

Ricardo FalúChief Executive Officer

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ervoirs, relieve transmission conges-tions, and allow a 24/7 emission-free supply offer. For example, through our Virtual Dam, a battery solution of 10 MW for 5 hours, our run-of-the-riv-er hydroelectric power plants will be able to store energy and inject it into the system during the hours of higher consumption.

It is also a priority to expand our wa-ter desalination business both for in-dustrial and residential purposes by leveraging our existing infrastructure.

As part of the adoption of our strate-gy, in May of last year we completed the successful restructuring of Alto Maipo project that will provide 531 MW of hydroelectric capacity to the energy matrix. With deep pride, at the beginning of 2019, we celebrat-ed the milestone of 50 kilometers of tunnels excavated by Alto Maipo that accounts for the firm step towards the construction of what today is the most important ongoing energy initiative in Chile.

In this path that we have set for our-selves, we have a more than 3,900 MW renewable energy project portfolio un-der development in the region. During 2019, we will initiate the 80 MW ex-pansion of Andes Solar, totaling 101 MW of solar power in the Region of Antofagasta. In the scope of wind en-ergy, we will complete three projects:

Mesamávida of 40 MW, Los Olmos of 90 MW and Campo Lindo of 80 MW, all of them in the Region of Biobío. AES Gener, through AES Chivor, has become the main developer of wind power projects in Colombia after ac-quiring 648 MW in Alta Guajira, one of the best wind resource regions in the world.

Another one of the most relevant milestones of 2018, was the award to AES Chivor of the development, construction and operation of the largest self-generation solar plant in Colombia for Ecopetrol. The project, which considers a 20 MW capacity, is a particularly important step toward the implementation of our strategy to generate long-term relationships with our commercial partners.

In this sense, in Chile, the Company executed a renewable energy con-tract with Minera Candelaria for 1,100 GWh/year, with agreed terms for up to 18 years, as from 2023.

As always, we continue to innovate to provide greater flexibility and reliabil-ity to the system. As we operate with the lowest minimum technical require-ments in our generation units, we are able to have greater penetration of cleaner and more competitive variable renewable energy into the system. The case of Guacolda is noteworthy since,

thanks to its operational flexibility, it has allowed the input of hundreds of mega-watts of variable renewable energy without affecting the system.

AES Gener is the owner of the only international interconnection line that connects Chile and Argentina and that will play a crucial role in the decarbonization process to ensure system reliability.

The success of our customers is the success of our company. Our role as a supplier of energy solutions not only includes the supply of energy through the grid, but also the continuous search for energy efficiency, the op-timization of electricity consumption in our operations, the development of self-generation projects, and the boost of transition to electromobility.

The business strategy is leveraged by our brand strategy, where we have heavily worked throughout the year. Part of this work allowed us to define the attributes by which we recognize our stakeholders. This is reflected in this integrated report, the new AES Gener's website and the opening up to social networks since 2019.

This transformational process has re-quired us to perform the necessary organizational structure improve-ments in order to be able to respond

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in the best possible way to the goals we have set for ourselves. This way, during the past year we have made changes in the different teams to be more efficient in our operations, and to approach and answer in a better way to the needs of our business partners and successfully run the projects we have in our growth plan.

As in previous years, our Company was recognized in the Great Place to Work ranking. This recognition keeps us motivated and working day by day for AES Gener to continue to be the company that allows each and every one of our collaborators to develop their maximum potential, grow as persons, and fulfill their professional dreams.

Toward the end of the year, we launched our Diversity and Inclusion program, honoring our commitment to value and respect all our workers, our business partners, and the com-munities where we do business. In this context, we developed a training pro-gram on Prevention of Discrimination and Harassment, putting emphasis on the importance of diversity, respect in workplace, different forms of discrim-ination or harassment, and how to re-port situations such as these. All of this is accompanied by our Discrimination and Harassment Prevention Policy.

Undoubtedly, the development of our strategy is strongly based on our so-cial and environmental performance, through which we seek to expand the

benefits that our work delivers to the quality of life of the neighbors of the different communes and locations where we do our business.

In this regard, last year we witnessed the environmental crisis that affected the communes of Quintero, Puchun-caví, and all surrounding areas, where we feel as if we are another neigh-bor. In addition to providing all the information required by the authority, which evidences that our Company has fully complied with the applicable environmental standards, we start-ed implementing a plan to improve the quality of life of our workers and neighbors, including electric buses for transportation of our own staff and connectivity of the community, a power desalination plant to solve the problem with water in the area, and solar panels for self-consumption in schools and government buildings.

One of the most important achieve-ments of the year was that, for the fourth year in a row, AES Gener was selected as part of the Dow Jones Sus-tainability Index of Chile. This ranking brings together the 29 companies that are leaders in sustainability for their economic, environmental and social management and performance.

Our values are, and have always been, in the heart of our operations. As our first value, we always put safety first for our people, contractors, and com-munities. During 2018, we had no accidents with fatal consequences

As in previous years, our Company was recognized in the Great Place to Work ranking. This recognition keeps us motivated and working day by day for AES Gener to continue to be the company that allows each and every one of our collaborators to develop their maximum potential, grow as persons, and fulfill their professional dreams.

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in AES Gener. This way we achieved our main goal of zero fatalities for our workers and contractors.

Our companies are much more than simply energy providers. Our mission has always been to improve lives and support the development of each of the communities we serve. This is why AES Gener implements a strate-gy based on three scopes of action in line with the Sustainable Development Goals established in the 2030 Agen-da of the United Nations: Education and Technical Training in line with our business strategy, Community Infra-structure Development Projects to improve the quality of life of each of the communities through the recovery of public spaces, and Local Develop-ment focused on contributing to new developments of mutual interest.

Year 2018 will be remembered as the year where AES Gener began the im-plementation of a transformational strategy to become the main supplier of energy solutions in South America.

I would like to thank each and every one of our collaborators for the im-portant achievements of year 2018, and encourage them to continue to deploy all our resources to fully comply with our mission of improving lives by accelerating a safer and greener en-

ergy future. With you, we are writing a new chapter in the successful story of AES Gener.

Thank you very much.

Ricardo FalúChief Executive Officer

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1889Founding of Chilean Electric Tramway and Light Company, whoseassets were merged in 1921 with those of Compañía Nacional deFuerza Eléctrica, created in 1919, and gave origin to Compañía Chilena de Electricidad (Chilectra).

1970Nationalization of Chilectra,

which was taken over by Corporación de Fomento de

laProducción (CORFO).

1981Chilectra is restructuredand its generation andtransmission assets aretransferred to ChilectraGeneration S.A.

1989Change of our name to Chilgener S.A., after completing the privatiza-tion process.

1998Change of name toGener S.A.

2000AES Corporationacquires 95.67% of the shares of the Company (including ADRs).

2001The Company changedits name to AES GenerS.A. and started aprocess for the sale ofassets to concentrate onthe electricity generationbusiness, mainly in Chile.

2007Beginning of the firstexpansion phase, whichinvolves the constructionand commercial operation of 1,677 MW, with an investment of about US$3,000 million.

2012Beginning of the second expansion phase, which involves the construction of five 1,256 MW power generation projects and an investment of about US$4,000 million.

2013Beginning of the construction of Cochranethermoelectric project (550 MW) in the north of Chile and Alto Maipo Hydroelec-tric Power Project (531 MW). The coming into commercial operation of Ventanas IV in Central Chile turns AES Gener into akey player in the market since it success-fully meets the growing demand of energy in Chile of 1,256 MW and an investment of about US$4,000 million.

2015Consolidation of the second

expansion stage for 1,256 MW, which includes a portfolio of electric

energy generation projects with different technologies and more

than 8,000 workers, and initiation ofdesalination projects as new line of

business.

2016Consolidation as the main producer of energy in Chile, contributing 31% of the total generation in the country, after the completion of the construc-tion and the entry into commercialoperation of Cochrane (550 MW) and Andes Solar (22 MW). In Colombia, Tunjita (20MW) enrtries into commercial operation.

2017AES Gener maintained its predominant place as the largest producer of electric power in Chile thanks to a full year ofoperation recorded in its new Cochrane andAndes Solar power plants, generating 29% of thetotal energy produced in 2017. In December, weannounced the contract for the sale of SociedadEléctrica Santiago SpA to Generadora Metropolitana SpA.

2018Launch of our new Greentegra strategy to become the leading supplier of energy solutions in South America. As part of our commitement with the Country to reduce carbon emissions, the Company announced its decision against building new coal plants, to continue including the implementation of technological innovations to providegreater flexibility and reliability to the system and to advance in the develop-ment of new renewable projects.

AES Gener recorded the highest EBITDA of its history, reaching US$887 million.

In July, the sale of Sociedad Eléctrica Santiago SpA to Generadora Metropolitana SpA was concluded and in December, we sold Compañía Transmisora del Norte Grande S.A. to Chilquinta Transmisión S.A.

Beginning of the commercial operation of Guacolda Unit 5 and

the desalination plant in Angamos

* The complete story of AES Gener is available in our corporate web site.

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OurHistory

1SustainableBusiness19

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1.1 Our strategy, towards a more sustainable business

1.2 Business Model

1.3 Risk Management

1.4 Sustainability Strategy and Management

1.5 Projects

1.6 Acknowledgments and interests

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AES Gener has raised the challenge of integrating sustainable management in the decisions made under,

and in the implementation of, its new strategy. We want to be the “energy solution provider of choice in South America” by working with our custom-ers in the design of sustainable energy solutions through the incorporation of renewable energy generation and through the commitment not to build any more coal-fired power plants.

In addition, our strategy considers the needs and concerns of the stakeholders and both national and international agendas in the field of clean energy and contributes to the reduction of environmental and social impacts. This is consistent with our corporate mission of improving lives by accelerating a safer and greener energy future.

1.1 Our Strategy towards a more sustainable business (102-2)

TODAY

TODAY + PROJECTSUNDER CONSTRUCTION

5.1 gw

5.9 gw

27%

13%

1%

59%

37%

11%

1%

51%

59%INCLUDINGPROJECT PORTFOLIO

Renewable energy and batteries

Natural Gas

Diesel

Coal

Installed capacity by technology

For that purpose, we rely on the defini-tion of a five-year strategic framework (2018 to 2023), which sets out the essential elements to carry out the strategy.

We have the opportunity to transform our portfo-lio by increasing the generation capacity from the current 27% to 59% with the completion of our current portfolio of projects under development.

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1.1.1 Strategic Framework 2018 - 2023 To achieve our purpose to be the energy solution provider of choice in South America, we focus on working with our business partners to develop projects based on five business solutions grouped under our Greentegra strategy (Coal to Green, Blextend, TransFlex, GenerFlex, and WPA). These solutions will allow us to sustainably meet the needs of our customers.

The main driving axes that makes it possible to develop the projects intended to transform our genera-tion asset portfolio intersect the five solutions. The first is technological diversification of our assets in five technologies, which include thermal generation, hydroelectric generation, solar and wind generation, batteries and water desalination. The second is the digital transformation of our op-erations, which will allow the analysis of data integrated into search for effi-ciency, flexibility and improvements in our processes and operations.

How will we measure the success of our strategy?

To measure the success of our strategy we have defined objectives for the period that are materialized in goals

for senior management, the executive line, and the corresponding transfer to the operational areas of the Company. The objectives are:

• CO² intensity reduction through the incorporation of renewable energy projects to the AES Gener portfolio, and the commitment to stop building more coal-fired plants.

• Value creation by maximizing the return to shareholder and investors.

• Market share by maintaining our lead-ership and relevance as an actor in the markets where we participate.

• Brand value by improving the percep-tion of AES Gener brand attributes.

1.1.2 Walking towards transformation Today, thermal power plants are pre-dominant within the energy matrix of the region. Within the thermoelectric matrix, the coal has historically been one of the relevant sources for inter-mittent and low-cost electric power generation. However, given the inten-sity of CO² in the production process of this type of generation, and despite all the initiatives that have made it possible to reduce emissions, the trend is to reduce their use and replace them with cleaner energy sources.

Decarbonization is part of this ener-gy transition and has been gradually taking root in the world, at different speeds in each country. In AES Gener

we are working with this purpose as part of our strategy. Decarbonization consists in reducing carbon intensity of generated energy, which is differ-ent than simply closing plants. The key to decarbonization is to facilitate the coming into operation of larger renewable capacity in the electrical systems. To accelerate this process, it is crucial that the current generation portfolio becomes more flexible to support this transformation. As we gradually advance in this process, the oldest thermal assets will be replaced in the dispatch curve with the ensuing reduction in energy production and transformation of the new plants into more reliable back-up capacity. The combination of these two effects per-mits us to achieve both a substantial reduction of CO² emissions and an environment-friendly and competitive energy source.

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Measurement of Success

Greentegra(5 Business Solutions)

Technological Diversification

(5 technologies)

Digital Transformation

REDUCTIONOF CO

2

CREATION OF VALUE

MARKETSHARE

TRADEMARKVALUE

Supplier of energy solutions of

choice in South America

Customerat the core

Thermal

NCRE

Hydro

Batteries

Desal

Greentegra

1. The purpose of Coal to Green is to sup-port the mining sector so that it can be greener by replacing the supply of coal with renewable energy.

2. Blextend seeks to incorporate the de-livery of renewable energy to our custom-ers, thus extending the life of our current contracts through 24/7 energy solutions at competitive prices.

3. GenerFlex is aimed at new customers by integrating energy supply agreements and state-of-the-art technology, including energy management, storage, and distrib-uted energy.

4. Transflex seeks to integrate energy storage solutions to improve and stabilize the transmission system, and to provide support to intermittent generation sources in order to deliver uninterrupted energy.

5. WPA seeks to develop seawater de-salination technologies to provide water solutions to industrial and residential customers.

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How have we made progress in our project portfolio?

More than 3,900 MW of renewable projects in the portfolio

561 mw under construction

290 mw

to be built in 2019

3,127 mw

under development

Hydro 531 MW — —

Wind — 210 MW 2,717 MW

Solar 20 MW 80 MW 170 MW

Battery 10 MW — 240 MW

Desalination

Plants

— — Projects in Angamos,

Ventanas and Guacolda

Leading carbonization

INCORPORATION OF

RENEWABLE

ENERGY

GREATER

SYSTEM

FLEXIBILITY

ALTO MAIPO531 MW

BATTERIESvirtual dam

INTERCONNECTIONchile - argentina THERMAL FLOAT

flexible and state-of-the-arttechnology

ANDES SOLAR II80 MW

CAMPO LINDO80 MW

LOS OLMOS90 MW

MESAMAVIDA40 MW

Metropolitan RegionCOD: 2020

Region of AntofagastaInitiation of construction

in 2019

Region of Bío-BíoInitiation of construction

in 2019

PATH TOWARD THE REDUCTION OF CO² INTENSITY

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Brand Strategy

We want people to know AES Gener brand and to recognize its attributes in our actions.

We have established the important goal of strengthening our brand in the perception of the people and the com-munities where we operate. In answer to our strategic intent to maintain our position of relevance in the markets where we operate, we assume the challenge of being recognized by the attributes that maintain our identity as a company.

With AES Gener brand we seek to promote our qualities as a compa-ny that is committed to, and reliable for, our customers, communities, au-thorities, and investors. We value our attributes as an empathetic, flexible, innovative, and authentic company in the relationship with our stakehold-ers, and this is where we hope to be recognized.

Projects in Angamos,

Ventanas and Guacolda

1.1.3 Transformation and innovation applied to Improve lives

In AES Gener, we understand inno-vation as the creation and capture of value for our business through the development of new solutions for our customers and the markets where we operate, and the improvement of pro-cesses and introduction of technolo-gies to increase the efficiency of our operations. This way, the innovation practice is carried out on a cross-sec-tional basis within the company.

We have an Innovation Policy that sets forth its centrality in the busi-ness strategy of the Company. For this purpose, we adopt an approach of applied innovation based on ma-ture technologies that enhance the creation of value for our business. For AES Gener, innovation is one of the main vehicles that embodies the trans-formation that will allow us to lead a changing energy sector in continued progress. To that end, we rely on the following principles:

• Our purpose is the sustainable growth coupled with innovation for our cus-tomers and communities with respect to what is economic, environmental, and socially viable.

• Focus on customers to become their preferred supplier of energy solutions.

• To promote the digital transformation for the development of digital, intelligent and mobile solutions at the service of energy.

• Open innovation to increase our cre-ative and innovative capacity and to contribute with our expert knowledge to the innovation and entrepreneurship ecosystem.

• To promote and foster an innovation culture in all AES Gener people through involvement stages.

• Continued improvement, as the cen-ter of our operations to be increasingly efficient, safe and eco-friendly, in the generation of electric energy.

The Board of Directors of AES Corpo-ration has an Innovation and Technol-ogy Committee, whose purpose is to:

• Oversee the AES Corporation’s efforts to foster growth through innovation and evaluate its efforts to identify and address risks and opportunities in the power industry (and adjacent industries) arising from technological transforma-tions, including changes in business con-ditions or new business models.

• Review technologies and innovations deployed or contemplated by AES Cor-poration for use in the power industry and adjacent industries.

The scope of the Committee includes issues related to innovation that are developed in all the AES Group com-panies, including among them AES Gener and its affiliates.

In addition, AES Gener participates in the innovation efforts of AES Corpo-ration by actively collaborating with AES Next, new business incubation unit, and promoting the APEX Program (AES Performance Excellence).

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AES Next is a company of AES Cor-poration created in 2018 to develop new intensive technology businesses in the portfolio of AES Corp. Some areas of interest of AES Next are the digitalization and application of clean energies in the industries. AES Next has an Incubation Committee that defines innovation focuses and stra-tegic priorities, where AES Gener is represented by the Chairman of the Board. Moreover, the local team of Transformational Solutions works with AES Next to ensure the introduction of new businesses in the markets where we operate.

In AES Gener, we adhere to the APEX program and method, which brings to-gether a set of methods and tools that enable our partners to innovate and contribute to the business strategy through problem solving and process improvement. Through APEX, we seek to build a collaborative and systematic process that will make it possible to:

The Company was distinguished as one of the 50 most innovative companies in the country in the fifth edition of the Best Place to Innovate ranking. This is a joint ini-tiative of GFK Adimark, the Center for Innovation, Entrepreneurship and Technology (CIET) of Univer-sidad Adolfo Ibáñez (UAI), the UAI Business School and Best Place to Innovate. All the participating in-dustries were measured for their capacity to innovate and act toward the achievement of their business goals by transforming innovation in a constitutive practice. This hon-or proves that we are a company that, apart from being a good place to work, is recognized by third par-ties for developing innovation and a forward-looking approach.

AES Gener, distinguished for its capacity to innovate

• Improve the performance of our busi-nesses in a consistent and definitive manner.

• Cause the continued improvement prac-tices to be followed in all levels of the organization.

• Make a continuous assessment of possi-ble problems or existing opportunities.

• Exchange knowledge and best practic-es at the level of AES Gener and AES Corporation.

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High Impact Innovations for Sustainable Growth

In the markets where we operate, we introduce technologies to favor inte-gration of renewable sources to the energy matrix and we provide key re-sources to support sustainable growth in the region.

Virtual Dam

We continue to innovate in energy storage applications by giving birth in 2018 to the Virtual Dam project. This project seeks to provide our run-of-the-river hydroelectric plants close to Santiago with energy storage capacity to operate as a reservoir and store 5 hours of energy. With this innovation, we seek to replace diesel consumption during peak hours and lower the op-erating costs of the electrical system. This innovative solution will be devel-oped in stages, with an initial pilot of 10 MW for testing purposes.

The capacity added by the batteries brings about a greater penetration of renewable energy into the system.

Extension of Chivor plant useful life

Chivor hydroelectric power plant has more than 40 years of operation and,

upon having renewed the water con-cession for 50 years in 2016, we are focused on extending the useful life of the reservoir. The project involves the construction of additional intakes in three levels higher than the cur-rent one, which will make it possible to continue to feed the plant with water from the same reservoir, as the natural accumulation of sediments disable the operation of the current intakes.

In 2018, we entered into a construc-tion contract. The project was op-timized to make it safer during the construction stage and the environ-mental license was updated. The un-derground excavation work site of the Civil Contractor was installed and a 60% progress in the manufacturing of project hydro-mechanical equipment was achieved.

Desalination Plants

The desalination projects adjacent to our plants in Chile generate value by providing a new source of available water. This way, the hydric stress re-sulting from the drought suffered by the areas where our facilities are sited is relieved. We also achieve synergies through the use of the existing and operational infrastructure of the ther-mal power plants, including industrial estate and seawater capture systems.

This way, we minimize social and envi-ronmental impacts as compared with a desalination project that is built from scratch.

Innovation is focused on maximizing the use of existing and operational electric infrastructure to develop a new business line and to help at the same time to cope with the challenges of water shortage at a country level.

In 2018, we strengthened the mar-keting tasks and entered into the first sales of water to third parties from the Angamos Desalination Plant. This gave a strong validation to this new line of business.

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With the mission to transform the way in which we energize our world to create a more sustainable future, AES Corporation and Siemens joined together to create Energy Fluence, a global leader in energy storage solutions that combines the agility of a fast-growing technology company with the experience, vision, and financial support of two industry referents.

Since this year, AES Gener incorporated Fluence technology and innovation to its portfolio of energy solutions to support the integration of renewable energies.

Fluence Energy, an alliance between AES and Siemens, started operating in 2018

Digital Transformation, Continued Improvement and Innovation in our Operations

Digital Transformation

With a view to have a world-class Remote Operations Center, we will continue to incorporate in the coming years new digital platforms into our systems. This will help us to increase the capacities of our workers and the efficiency of our operation through the use and application of top-level technologies. Thanks to this program and the starting up of some tools and digital platforms in our plants (such as EtaPRO, Meridium, Boiler Opt), during 2018 we incorporated the integrated real-time data analysis of our opera-tions as normal practice to make them increasingly efficient.

Among other benefits, this allowed the plants to detect efficiency losses and establish recovery measures, and to optimize the maintenance cycles of the main equipment to add value to the asset life cycle.

Since 2015, the environmental area has been working in an ecosystem of digital tools to support the environ-mental compliance management and

its reporting to the authority. Through this work, we seek to improve in the follow-up of environmental goals and objectives, to centralize access to ev-idence of compliance, and to provide information in a quick, timely, and re-liable manner.

In 2018, we continued to work to en-hance the following service modules: SISQUIM for management of chemical substances, MINIMIZA for the satis-faction of the requirements of solid hazardous and non-hazardous waste and CERO FALTAS for the optimiza-tion and streamlining of the process of compliance with all the requirements applicable to our businesses and proj-ects. Moreover, we have worked in the development of the Water Resources Management module, which will come into operation in 2019.

To enhance our commercial strategy based on a customer-centered orga-nization, during 2018 we promoted the adoption of a tool for customer relationship management (CRM) to support our processes and practices. Additionally, to speed up our deci-sion-making processes and reporting capacity, the commercial area head-ed and launched the operation of a platform for energy trading and risk management (ETRM).

Continued improvement and innovation in our operations

We have continued to incorporate drones and ROVs (Remotely Oper-ated Vehicles) into our operations to support routine inspection and maintenance duties with the ensu-ing reduction of costs and time and exposure of people to risky activities. In 2018, we used these remotely op-erated vehicles to:

• Inspect the cooling systems.

• Inspect difficult access areas, such as stacks and boilers.

• Collect information for the ther-mographic analysis of a solar power plant.

• Inspect transmission lines and substations.

Given the satisfactory results obtained in the pilot program, in 2019 we expect to incorporate these activities as a regular practice for the maintenance and operation of our generating units.

During this period, we started im-plementing a novel design of Pelton runners for Queltehues Plant. This will improve turbine maintenance capacity since it makes it possible both to replace only those buckets

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that are damaged by the effects of erosion and cavitation, and to achieve an optimal coating projection. This will also allow us to reduce repair costs in proportion to the number of dam-aged buckets, and to avoid the total disassembly and repair of the runner. Finally, we eliminate a critical area of effort concentration that could finally produce fatigue in the bucket root section. Therefore, as the likelihood of bucket loosening due to fatigue is eliminated, the residual life of these runners is increased.

With regard to initiatives related to efficiency and reliability, in Ventanas plant we are performing a specific analysis called EMI (Electro Magnetic Interference), which made it possi-ble to displace the maintenance of a generator, and carry out the initiative called “Steam Path Audit”, where tur-bine efficiency losses were detected and thereafter recovered through proper maintenance.

Moreover, the area of Environment and Sustainability headed the project intended to strengthen the capacities of quality assurance and control for the measurement of airborne pollut-ants in our country, together with SO-FOFA, Finland VTT, and the Ministry of Environment. This project consisted in

making a comparison round among the main isokinetic measurement labora-tories working in Chile under the su-pervision of experts from Finland VTT (Finland Technical Research Institute). In 2018, experts visited the plants of ENAP, CODELCO and AES Gener in Ventanas and decided to run the pilot project, which was finally conducted in November at AES Gener plant. An international seminar is expected to be held in 2019 to communicate the outcomes and offer feedback to lab-oratories and authorities.

APEX

Throughout 2018, the number of im-provement projects was tripled, as compared with the previous year, and we managed to engage 160 persons in them. In addition to the above, we defined the processes required to manage the APEX program in terms of communications, recognition, man-agement of improvement projects, long-term strategy and knowledge management.

We expect to continue promoting a culture of continuous improvement during 2019 through training sessions at various levels and to implement the “Day of Continuous Improvement” in

all the complexes, among other activi-ties established in the Strategic 5-Year Continued Improvement Plan.

Our transformation to become the energy solution provider of choice in South America

During this period, we strengthened our relationship with other group com-panies in South America by joining efforts toward the conceptualization and implementation of new solutions at a regional level. This way, we began to become involved in initiatives aimed at providing advisory services on en-ergy efficiency and management, dig-ital platforms, and new business lines concerning transport electrification.

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Integration with Innovation Ecosystems

As approved during last year, we start-ed with the development of our open innovation program to become the interface with external innovation ecosystems in the pursuit of solutions to the problems confronted by our company and the energy challenges faced by the industries we serve.

Together with iF, one of the most im-portant local entrepreneurship and innovation communities, where we develop a pilot working space in iF Barrio Italia, we carried out an open in-novation program in pursuit of energy solutions for the mining and industrial sectors. We received a total of 35 ap-plications, and the finalist projects will be defined in 2019.

We participate in the Latam Innova-tion Circle of Imagine Lab, an annual program to address issues concerning digital transformation and relationship with startups, and we have been mem-bers of the Innovation Club, which brings together companies around Corporate Innovation.

1.2 Business Model

• Diversification: AES Gener operates a diversified portfolio of assets in terms of markets, geography, customers, and technologies.

• Flexibility: The diversification of assets and the implemen-tation of state-of-the-art technologies provides operational flexibility to meet the energy supply commitments in a reliable manner and using varieties of energy sources.

• Innovation: We put innovation at the core of our corporate culture, which has allowed us to make significant progresses, such as the installation of the first battery energy storage solution for commercial use in electric power generation in Chile. We have also been pioneers in our industry in exploring the business of water desalination.

• Agility: The wide experience and deep knowledge of the markets where we operate allows us to offer value-added solutions to the new business opportunities and market challenges. This agility has been translated, for example, in the rapid development of new business opportunities, such as energy exports from Chile to Argentina.

• Reliability: AES Gener baseload plants are key to provide efficient, reliable and highly available energy to the systems where we operate.

• Excellence: The experience, path, and commitment to excel-lence and the best practices of AES Corporation are trans-ferred to our Company. This constant strive for excellence has been recognized with several awards from prestigious institutions.

The business model of our Company is based on the fol-lowing axes.

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No

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enew

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mat

eria

lsR

enew

able

mat

eria

ls

Mat

eria

l Fac

ts

Adaptation to climatic change

Development and involvement with local communities

Economic performance, profitability and value creation

Health and safety of workers

Operational excellence and efficiency

Business model and regulatory environment

Environmental regulation

Investors and shareholders- EBITDA 2018 US$ 887M- Credit Rating: Baa3 / BBB- / BBB- by Moody’s, S&P & Fitch- Distributed dividends US$189M (2018)- 2018-2023 goals: Increase from 27% to 37% the renewable energy generation capacity in our portfolio

Workers- Salary and benefit payments US$87.8 million- Accident rate 0.08%- Seriousness rate 14.98%

Customers- Energy sold to customers 19,405 GWh- Customers amount +300 Chile, Argentina, Colombia- Desalinization plants projects (4)

Communities- Social investment US$ 3 million- Participants: 73,657- Public accounts

Suppliers- Payment to suppliers AES Gener: US$ 1,881 million- Suppliers amount AES Gener: 2,776- Track compliance to 100% contracts >US$100.000

Air emissions and quality

Diversification of renewable energy and decarbonization of the energy matrix

New solutions

Responsibility in the supply chain

Availability and management of water

Customer relationship and customer-centered management

1 8

9

10

11

1 10 11

12

13

2

3

4

5

6

10 11 133 6

7

1 10 114 5 6 71 2 3 4 5 6 8 9 10 11 127

Flexibility

Batteries integration (improvement of

transmission system and stabilization of intermittent

generation sources) and energy storageInterconnec-

tion Line Argentina-

Chile

Water Solutions (Water solutions

for industrial and re-sidential customers).

Electro Mobility

Out of AES Gener's reach

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Business ModelImproving lives by accelerating a safer and greener energy future.

Raw materials Generation Development - Innovation Transmission Distribution Customers

Input Key process Outputs Outcome

Impacts (outcome)

Raw materials Generation Development - Innovation Transmission Distribution Customers

Input Key process Outputs Outcome

Impacts (outcome)

HumanComprises the competencies,

experiences and capabilities of ourworkers, collaborators and the

operational history of the operating units of the group.

OperationalComprises the facilities and equipment

of our operations, generation plants, transmission infrastructure and renewable

energy structures.

FinancialComprises the generation ofcash of our business, capital

contributed by our shareholders,issuances in the capital market

and bank loans.

EnvironmentalComprises natural sources, renewable and

non-renewable, used / consumed by our opera-tions. The natural sources are fundamental and we understand that they are part of an ecosys-tem (water, coal, fuels, sun, etc.) Our operations

generate waste, including greenhouse gases, which in turn contribute to global warming.

Social and RelationalComprises ethical commitment

and transparent relationship between the company and its stakeholders,keys to growth, development and

continuity of AES Gener, representingour social license.

Intellectual

Comprises the reputation of thebrand, deep knowledge of the

businesses in which we operate, knowledge and ability to develop new

technologies, products and services that generate competitive advantages

and business improvement.

Batteries

nnovative ecosystem

Energy and energy solutions

Desanilization plant

Batteries

Cap

ital

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Distributed Value (201-1)

Items 2017 2018

Operating income 2,736,847 2,953,160

Financial income 605,400 546,962

Other Income/other profits 91,266 565,512

Direct economic value generated and distributed (EVG&D) 3,433,513 4,065,634

Payments

Payments to suppliers for goods and services -1,798,235 -2,108,707

Payments to suppliers of financing -879,732 -951,302

Payments to shareholders -261,009 -188,908

Payments to the State (income tax paid) -101,453 -89,344

Salaries and allowances/employee benefits -81,695 -87,767

Investments in fixed assets -497,502 -566,072

Other operational payments -9,020 -18,378

Total economic value distributed (EVD) -3,628,646 -4,010,478

Economic value withheld (EVW) 82,336 368,798

Withheld Economic Value = Direct Economic Value Generated - Economic Value Distributed

The values of this table represent the cash flows of the Company

DIRECT ECONOMIC VALUE GENERATED AND DISTRIBUTED (TH OF US$)

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1.3 Risk Management(102-11, 102-29, 102-30, 201-2)

Our Risk Management strategy is de-signed to safeguard the stability and sustainability of the Company in rela-tion to all relevant uncertainty com-ponents, both in normal and special circumstances. Our risk management is consistent with the best practices adopted by The AES Corporation.

Risk refers to situations where there is a possibility of suffering a variation with respect to an expected outcome. For this reason, the Management has assessed that it was strategic to man-age with responsibility and effective-ness all the relevant risks that could affect the profitable growth and ad-dition of value for our stakeholders.

Our risks are managed from each area of the Company and reported to each General Management.

There is a Risk Management Com-mittee that is responsible for risk identification and assessment, with the permanent involvement of the Chief Executive Officer of AES Gener and risk officer of the Company. The Risk Committee reports the risk man-agement results to the Senior Man-agement and Directors of AES Gener, where the overall risks are identified and assessed. Our risk unit pursues the following goals:

• Establish, manage and govern our risk management policies and procedures.

• Implement guidelines and standards to identify, study, measure, manage, and report all inherent and residual risks of the businesses and markets where we operate.

1.3.1 Risk Governance

• Establish the controls required to regularly anticipate any variation in the expected profits or losses and be able to make both strategic and tac-tical decisions necessary to mitigate any impact.

• Set the risk management roles and responsibilities of each business and in every area where we do business.

• Promote a risk culture where the un-derstanding and manner of mitigating such risks is part of our daily work, with discipline and excellence in each of the businesses.

• Manage our Enterprise Risk Manage-ment program.

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Sensitivity Analyses and Stress Tests

The aspects of exposure to water stress and possible related impacts on climate are being monitored on a continuous basis by The AES Corpo-ration for all its businesses, including AES Gener and the countries where we do business.

An example is that during 2018, AES Corporation published a report of cli-mate scenario analyses in order to provide the stakeholder groups with an understanding of the strengths and resilience of the business portfolio at a global level, under various climate change scenarios using the recommen-dations issued by the Task Force on Climate Financial Disclosures (TCFD). The report includes a discussion of the strategy of AES Corporation and an approach of risk management re-garding the treatment of uncertainties and opportunities related to climate change. The study presents the results of the stress analysis for the global portfolio of AES Corporation in three main scenarios.

To access the study, please visit: https://www.aes.com/sustainability/sustainability-overview/default.aspx

We have methods to measure the effectiveness and efficiency of risk strategies both prospectively and ret-rospectively.

Various risk measurement market qualitative and quantitative meth-odologies are used and documented for such analysis in order to adjust risk and mitigation strategies and to assess their impacts. Within the quantitative methodologies, we have:

• Maximum Potential Exposure (MPE)

• Conditional Value-at-Risk (CVaR)

1.3.3. Risk Measurement

We have guidelines and systems that seek to handle, mitigate, and trans-fer the potential risks to which our business is exposed. Our model is made up of three defense lines. The first line is made up of our risk area, which establishes the policies and procedures and gives advice to the areas for the creation of a risk culture. The second line is Internal Auditing as an independent area that evaluates the design and effectiveness of the action plans to mitigate these risks and to establish recommendations to improve processes. And the third line is the managerial control of each area with their respective risk monitoring and follow-up resources during our regular business.

The transition to a new business model within our company, aimed at increas-ing renewable capacity in our port-folio, has allowed us to reassess our externalities by adding sustainability risk in our comprehensive risk analysis.

Our risk unit conducts qualitative and quantitative scenario analysis through our business risk management pro-cesses called Xtrategy and Multiple

1.3.2 Risk ModelViews of the Future. Some of these scenarios are related to the impact of geo-economic partnerships, political trends, and government regulations, in the fields associated with the elec-tricity sector, which includes environ-mental, social and governance (ESG) issues that could affect its business.

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http://https://www.aes.com/sustainability/sustainability-overview/default.aspxhttp://www.aes.com/sustainability/sustainability-overview/default.aspx

SELECTED SCENARIOS FOR STRESS TESTS

AES Scenario Convention

Transition Risk (IEA WEO 2017

scenarios)

Physical Risk (IPCC AR5 scenarios)

Implications for the Business

Indications as to what the world

might look like in 2040)

HIGH PHYSICAL RISK HIGH TRANSITION RISK

• Global Carbon Level grows

30%

• Fossil fuels continue to gener-

ate 60% of global energy

• Sea-level trajectory grows 0.5

to 1.0 m, larger storm surges

and changes in rainfall patterns

at 2100

• Fossil fuels are modestly re-

duced to half the world gen-

eration

• The portion of generation with

renewable energy increases

from 30% to 40% in no change

operation.

• Sea level trajectory increases

0,32 m to 0,63 m

• Global carbon level decreas-

es 55% as compared to no

change operation

• Generation with renewable

energy increases to 63% of

global generation

• Energy efficiency reduces

total coal emissions in 44%,

as compared with a greener

scenario

No Change Operation Scenario

3-6 °C

Current Policies Scenario

(CPS) | 6.0°C

RCP 8.5 | 3.2 °C - 5.5 °C

Greener Scenario

2-3 °C

New Policies Scenario

(NPS) | 2.7 °C

RCP 6.0 | 2.0 – 3.7 °C

Scenario

1.5 °C – 2.0 °C

1.5 °C – 2.0 °C

Sustainable Development Scenario

(SDS) | 1.5 °C – 2.0 °C

RCP 2.6 | 0.9 – 2.3 °C

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1.3.4 Strategic Risk Analysis in our Value Chain

Risks1. Technological Change Risk2. Regulatory Risks3. Risk of Natural Disasters4. Foreign Exchange Risk5. Interest Rate Risk6. Commodities Price Risk7. Credit Risk8. Liquidity Risk

9. Other Risksa. Potential Litigationb. Market Negative Externalitiesc. Unfavorable Economic Cyclesd. Terrorism and Accidentse. Adverse Financing Conditionsf. Hydrologyg. Adverse Government Decisionsh. Group Opposition that can delay Projectsi. Impossibility to reach agreements with trade unionsj. Safety of computer systemsk. Failures in external dispatch facilities

7

6

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3

3

3

2

5

2

2

4 5

8

ea

i

c b d

g j

ah

i

k

h

d

f

i

i h

a

hydroelectric generation

communities

desalination plant

d

storage batteries

thermoelectric generation

industrial customers

suppliers

suppliers

customers

innovation center

distribution companies

mining customers

NCRE generation

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Technological Change Risk

We are exposed to the development of new technologies that can reduce the sales prices or make fundamental changes to the generation business. To mitigate the above, where possible, we execute long-term Power Purchase Agreements or PPAs that ensure an income flow that makes it possible to cover financial obligations and gener-ate value to our stakeholders. In Chile, we have an average contract remaining life of 11 years (excluding Guacolda).

Additionally, we are venturing into the development of renewable energy projects that cause us to diversify our portfolio, including the reduction of costs in the generation of electricity among its benefits.

Regulatory Risks

The industry where we operate is sub-ject to multiple regulations governing

business operation. These regulations are likely to suffer changes in the fu-ture or to be interpreted in a different manner, an event that could have ad-verse effects on the transactions of the Company or on the approval of any application of environmental permits by the governmental authorities.

Risk of Natural Disasters

The occurrence of natural disasters can damage our electricity generation assets and the National Electric Sys-tem, thus decreasing our generation capacity and/or increasing production costs. If these events occur, we could be in the need to purchase energy from other generators at high prices to meet our contractual commitments, and this could have a negative impact on our financial results.

To mitigate this risk we purchase insurance policies for all our assets and operations, with a coverage con-sistent with the industry standard, against earthquakes and other natural disasters, and also against physical damages and coverage in the event of operational interruptions and mitiga-tion of lost profits, among others. On the other hand, we measure, control, and make strategic decisions for the comprehensive management of our generation portfolio, projects under construction and contracts to prevent any unexpected impact on the national electric system.

Foreign Exchange Risk

Our financial results can become af-fected by variations in the exchange rates, particularly of the Chilean Peso,

the Colombian Peso, and the Argen-tine Peso. Exposure to this type of risk arises when we face revenues, costs, investments, and financial debt de-nominated in currencies other than the functional currency of Company, the United States dollar.

In order to mitigate these risks, we have implemented a strategy to cover the exchange rate variations. The main sources of exposure to the exchange rate risk are: (i) exposure to the Chil-ean peso in the period between the dates of pricing, billing and collec-tion of sales from certain customers in Chile; (ii) constant exposure to the Chilean peso for fixed and variable costs in their operations; (iii) exposure to the Colombian Peso in dividend distributions from the Colombian op-eration to the parent company in Chile; and (iv) bank loans and obligations in bonds denominated in a currency other than the US dollar.

On a consolidated basis, the invest-ments in new plants and maintenance equipment are mainly fixed in US Dol-lars. Short-term investments asso-ciated with the handling of cash are carried out mainly in US Dollars.

We mitigate these exchange rate risks through the implementation of our hedging strategy. This strategy involves the execution of derivative contracts with financial institutions that make it possible to set the exchange rate of flows and/or transactions in currencies other than the functional currency.

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Interest Rate Risk

The interest rate risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market inter-est rates. Our exposure to the risk of changes in market interest rates relates primarily to our long-term debt obligations with variable inter-est rates.

We manage our interest rate risk by having an important percentage of our debt at a fixed rate or with interest rate swaps. To mitigate the interest rate risks involved in long-term obligations, we have entered into hedging trans-actions by way of interest rate swaps.

Commodities Price Risk

We are affected by the volatility of prices of certain fuels. The fuels used by the Company, mainly coal, diesel and liquefied natural gas (LNG), are “commodities” with international prices fixed by market factors beyond our control. It should be noted that, in Argentina, Termoandes purchases natural gas under fixed price short-term agreements that are reflected at the time of setting the sales price of energy under the contract.

The price of fuels is a key factor for the dispatch of plants and spot prices both in Chile and Colombia. Given that we are a company with a mixture of mainly thermal generation, the fuel cost represents an important portion of the sales costs.

Today, most of our power purchase agreements include indexation mech-anisms that adjust the price on the basis of increases or decreases in the price of coal, according to the specific adjustment indexes and Appendix of each contract, thus making it possible to mitigate much of the variations in the price of this fuel.

At present, our volume of contract energy is balanced with the generation of plants with high dispatch proba-bilities (efficient generation); there-fore, the other units (backup units) that use diesel or LNG are expected to operate only in straitened conditions, such as dry hydrologic conditions, by selling their energy in the spot mar-ket. Currently, the purchases of diesel and LNG have no associated hedge since the sale of energy in the spot market makes it possible to transfer the changes in the fuel price to the sales price.

Credit Risk

The credit risk is associated with the credit quality of our business partners and those of the subsidiaries. These risks are mainly reflected in trade

debtors and financial assets, including deposits with financial institutions and other financial instruments.

Our customers in Chile are mainly dis-tributing companies and industrial customers of high solvency, with an important percentage of them or their parent companies having both local and/or international investment grade credit ratings. Our sales in the spot market have to be made with other generation companies. In Colombia, AES Chivor has a variety of clients including distributing companies and industrial customers.

On the other hand, in Argentina, the main commercial partners of Ter-moandes are CAMMESA (Compañía Administradora del Mercado Mayoris-ta Eléctrico S.A.) and non-regulated customers called “Large Users of the Wholesale Electricity Market”, whose contracts operate under the Plus En-ergy standards.

Under all circumstances, counterparty risk assessments are made based on a quantitative and qualitative cred-it assessment, which in some cases could include the request of collaterals for the delivery of energy. This credit assessment is reviewed from time to time to monitor any variation in the rating of the counterparty.

With respect to the credit risk asso-ciated to the financial counterparties with which the Company does busi-ness, AES Gener maintains a policy

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that requires a local credit rating greater or equal to “A” (Standard & Poor's and Fitch) and “A2” (Moody's).

Liquidity Risk

Liquidity risk is related to the need for funds to meet payment obligations. Our goal is to maintain the neces-sary liquidity and financial flexibility through normal operating flows, bank loans, public bonds, short term invest-ments, committed and non-committed credit lines.

Sustainability Risks

We define sustainability risk as a risk that affects our business concerning ESG on a cross-sectional basis. Our analysis considers AES Gener value change, since the approach of our busi-ness strategy gathers the concerns and expectations of our stakeholders, in line with the precautionary approach set out in the Rio Declaration on En-vironment. Based on this guideline, in 2018 we reviewed the sustainability risks of our supply chain under a com-pliance plan headed by our legal “track compliance” area.

Emerging Risks

The new business model presents a permanently changing scenario in the market, where we have identi-fied emerging risks that account for those risks that were observed, but of which there is no further information in terms of impact on the sector and on particular for the Company, where no regulatory framework is yet available in relation to the impacts, and where the corporate accountability limits are being discussed by the society. However, these risks are reviewed and followed up by our risk manage-ment department, since we seek to integrate the challenges both in the international and national agenda of the markets where we serve. For more details of the risks that we consider to be emerging, see Appendix 1.

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Other Risks

• Our business may be involved in vari-ous litigations and could be adversely affected by court decisions in proce-dures that might not be successful.

• We are exposed to the impact that various international financial, politi-cal or other phenomena may have on the economy of the countries where we operate, and therefore our eco-nomic performance and financial liquidity may become affected.

• The economic cycles and interven-tions carried out by the authorities in the countries where we operate may have an impact on our economic results, financial condition, and stock market performance.

• Acts of terrorism and accidents can affect the operation of our assets and therefore our economic and financial performance.

• All the conditions for the financing of

future projects, capital expenditures, obligations due to maturity and debt refinancing are exposed to funding risks associated with financial market conditions.

• Part of the behavior of the demand of our generating park is influenced by a higher or lesser hydroelectric avail-ability, and therefore by the effects of climate change, thus altering the eco-nomic performance of the Company.

• The environmental regulatory frame-work and its governmental institu-tions can generate delays, increases in cost, or cancellation of the devel-opment of new projects.

• AES Gener projects could suffer the opposition of groups, bringing about reputational damage and possible delays in the development of projects or may even render their development impossible.

• The risk of failing to reach collective agreements and negotiations with the workers of AES Gener and its affiliates may have an impact on our business.

• Our information and communications systems and technologies can present security gaps that may give rise to interruptions or failures due to cyber-attacks that may cause a disturbance in our operations.

• Our operations require the service of power transmission systems that are not owned or controlled by AES Gener. In case of failures or poor per-formance, the dispatch of energy from our plants to our customers could become negatively affected.

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To access the DDHH page, please visit: https://www.aescol.com/wp-content/uploads/2019/01/Pol%C3%ADtica-de-Derechos-Humanos-AES.pdf

1.4 Sustainability Strategy and ManagementWe seek to fulfill our duty as energy generators in a responsible manner by taking care of the impact that our busi-ness may have on the people that make up or are related to our Company. This way, every day we seek to strengthen our relationship with stakeholders, and to contribute to the sustainable development of the communities of which we are part.

1.4.1 Sustainable Approach

We adhere to the guidelines of AES Corporation in terms of sustainabili-ty applied to every business. To such effect, we define broad strategic ini-tiatives based on financial excellence, operational excellence, environmen-tal performance, and commitment to stakeholders and our people.

Therefore, we are subject to regula-tions, standards and initiatives that are aimed at the identification of stakeholders and at the definition of the appropriate manner of assuming community commitments and risk as-sessments. Moreover, we adhere to the Universal Declaration of Human Rights and Corporate Human Rights Policy of AES Corporation, which is consistent with the United Nations Guiding Principles on Business and Human Rights.

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http://www.aescol.com/wp-content/uploads/2019/01/Pol%25C3%25ADtica-de-Derechos-Humanos-AES.pdfhttps://www.aescol.com/wp-content/uploads/2019/01/Pol%C3%ADtica-de-Derechos-Humanos-AES.pdf

Our main purpose is to achieve busi-ness goals by acting in a responsible manner and causing this responsibility to be recognized and generate legit-imate, effective, efficient, and sus-tainable channels for a collaborative relationship with the stakeholders.

For that purpose, we are working on completing, improving, and progres-sively implementing a set of Sustain-ability Policies and a Comprehensive Social Responsibility Management System with respect to all our stake-holders.

One of the AES Corporation tools that we replicate locally to facilitate the incorporation of sustainability into our business are the EHS (Environmental, Health and Safety) Standards, which establish performance requirements to complement the local regulations applicable to each business.

Another example is the Code of Con-duct that regulates the actions of all the people who work in our Company and ensures that they are consistent with the best practices.

Inclusion in the Dow Jones Sustainability Index Chile

For the fourth year in a row, we are part of the Dow Jones Sustainability Index (DJSI Chile Index), reaching the first quartile at a global level in “Elec-tric Utilities” sector (18th place of 61), thanks to a significant progress made

in the scores of areas such as market opportunities, power generation, op-erational eco-efficiency, and indicators of biodiversity, labor practices, and talent attraction and retention, among others.

To be included in the DJSI, certain sustainability criteria must be met, including the Total Sustainability Score (TSS), calculated by using the annual RobecoSAM Corporate Sustainability Assessment. According to the meth-od of calculation, the index in Chile is made up of 26 of the 40 companies currently participating in the IPSA.

ISO 14001 Certified Management System

We have sought to gather the require-ments contained in the standards of the Corporation, national regulations, and international standards (ISO 14001 and OHSAS 18001) to develop our own integrated management sys-tem, called GENERA, which manages environmental, occupational health, and safety topics. GENERA covers all the operations of the Company and all of its affiliates in Chile. Termoandes (Argentina) and AES Chivor (Colom-bia) have environmental management systems consistent with the require-ments of the AES Corporation ENV-3 Protocol.

Design and Implementation of a Social Indicator Management System under the scope of Dow Jones Sustainability Index criteria

During 2018 and as of the date of this report, we have been implementing a set of tools and instruments whose aim is to strengthen the sustainability management and to continue to com-ply with the criteria of the Dow Jones Index. This process considers the de-sign of a Sustainability Management System for the Chief Corporate Affairs Officer with the following goals:

• Identify gaps: Identify the gaps ex-isting between the current situation and the required situation under the management of the Social Dimension criteria of the Dow Jones Sustain-ability Index.

• Design indicators and management tools: Key performance indicators (KPIs) will be designed to measure the social impact of the transactions of the Company and certain goals will be set to measure progress of social initiatives. In addition, we will build instruments to improve the manage-ment, monitoring and reportability of the performance in the social dimen-sion of the index.

1.4.2 Sustainability manag