Q3 2020 Clearway Energy Inc Earnings Call
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Ladies and gentlemen, this is the up on your police conference is scheduled to begin momentarily until that time kilobytes will again be sent home. We thank you for your patience.
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Ladies and gentlemen, thank you for somebody and welcome to the keys away energy to acquire 2020 earnings call.
Kevin can you send me to prevent any background noise.
For the presentation, there will be a question answer session and instructions on how to do so will be given at the appropriate time. Thank you Mr., Chris Sotos, President and CEO of skier where energy Sir you may begin.
Good morning.
Thank you for taking the time to join today's call. Joining me. This morning is Chad Plotkin, our chief financial officer, or kill more or Investor Relations manager and Craig Cornelius President and CEO clearly energy group could.
I could be available for the Q and a portion of her presentation.
Before we begin I'd like to quickly note that today's discussion will contain forward looking statements, which are based on assumptions that we believe to be reasonable as of this date.
Actual results may differ materially.
Please review the Safe Harbor in today's presentation as well as the risk factors in RCC filings.
In addition, we will refer to both GAAP and non-GAAP financial measures for information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures. Please refer to today's presentation.
Turning to page four.
For the third quarter of 2020, Clearbridge had cash do you have a $171 million for a total of 265 million year to date users.
These results are within our expected since to be Rangers did.
To date, the effects of colder to remain mired with our teams maintaining safe and reliable operations through this difficult time clear.
Clearly as announcing an increase in our quarterly dividend by 1.8% 2.318 cents per share in the fourth quarter of 2020 and continues to see dividend per share growth at the upper end of our 5% to 8% long term growth rate through 2021.
As I'll go into more detail later in this presentation. She went has committed to invest approximately 450 million new growth. During 2020. This is comprised of today's announcement encompassing total growth investments of approximately $108 million, while generating $13.8 million of average asset Kathy over five year period, and our previous growth investments totaling three.
239 million, while generating approximately $36 million of asset average asset cap the over a five year period Intel.
In tandem with these accretive acquisitions clearly has also raised capital efficiently raised.
Or is 24 million and equity during the quarter by the ATM program for a total of $63 million year to date.
We also refinanced the upsize several non recourse debt facilities, releasing 96 million of new capital available for capital allocation at the corporate level.
In addition, all cash trapped due to the PGT situation has been released.
As a result, we have sufficient capital to fund all of the currently committed investments.
With this activity, we're updating our pro forma Cathy for sure view to $1.71 per share, which supports our target dps growth and 85% payout ratio through 2021 at the high end of the growth range as well as already positioning the company for growth beyond 21.
This is Jeffrey factors in the financings and contributions of the committed growth. We just discussed and does not include any additional growth opportunities.
As it relates to new growth, we continue to advance the opportunity set was clearly group, including the formal dropped off with the investment opportunity and partnerships comprising 1.6 gigawatts of projects comprised of 1.2 Gigawatts of new projects and increased interest in Miscued start with an expected capital commitment in the range of $230 million to $240 million.
Subject to negotiation by few ones independent Directors. In addition, and also working with CTG. We're in the early stages of structuring and additional portfolio opportunity of 1.1, Gigawatts with 2021 to 2023 commercial operation dates, we anticipate being offered to make a commitment on in the first half of 2021.
All in all 2020 has been a very successful growth year for C with sufficient pro forma cap to growth to achieve the high end of our long term dividend growth target in 2021.
Turning to page five I want to highlight our execution this year in new investments.
In 2020, and as already disclosed we have closed or committed to invest nearly $340 million of investments representing around 36 million of annual cap the contribution on a five year basis.
This leads to a cash yield of roughly 9.8% with a weighted average life of 13 years contracted excluding the black start project at Marsh landing.
And looking at the right side of the page today, we're announcing additional $108 million of investments with $44 million invested to acquire cpgs residual interest in our distributed generation partnerships as well as for contract associated with these assets. This investment is expected to Bruce $5.3 million of Cathy for cap to yield of 12.2%.
We're also committed to acquire the 160 megawatt lankford windfarm upon commercial completion of us Repowering expected by the end of this year for $64 million. This asset which is unlevered has been designed around a commercial profile optimize the balance risk and return in the ERCOT market and is thus less contracted than is typical for our projects at approximately 35% hedged.
Over 12 years, our revenue contract position that is supplemented by contracted stream of reliable PTC paygo cash flows.
With those factors take into account, we believe the expected $8.5 million and Kathy generation and Unlevered, 13.2% CAFD yield make for an attractive investment profile. It takes into account the projects higher merchant position.
As you can see in the investments listed on this page I'd ask you to note our continuing emphasis on accretion.
While the cast yields these dropdowns create from our sponsor helpful. There.
Matched with the profile of investments, which takes into account the upfront cash flow weighted in the case of the distributed generation partnerships investment and the merchant cash flows of wafer.
So as we move to the future Dropdowns structure discussed on the next page I would suggest yields on this structure will be more aligned with what we have executed in the past for similar type of assets, while still providing for meaningful accretion on a highly diversified portfolio.
Turning to page six.
I want to provide a high level overview of our caf the outlook that Chad will have more detail in his part of the presentation were.
We are announcing 2021 guidance of $325 million, resulting in a $1.61 copy per share an update to our current pro forma Kathy outlook to $345 million, leading to CAFD per share of $1.71 user.
These numbers do not include the drops opportunity for the new partnership investments as listed on the right side of the page.
Disrupt opportunities well diversified comprising six new assets as well as increased ownership in the feedstock with a greater than 14 year Caf you weighted average contract life also.
We also further diversifies clearly energy into storage with 395 megawatts 1580 megawatt hours of Colocation storage in Hawaii and California.
As we indicated on our last call. Our goal is to provide more transparency to our shareholders regarding the capital needs of the business as such we anticipate subject to the approval at the end of pet directors and investment required for this portfolio between 230 and $240 million.
As mentioned on the last slide given the structure and asset mix overall, we would anticipate the yields in this investment to be commensurate to the risk adjusted profile of the substantial and diversified portfolio.
We're still working through the structure and other terms and conditions of the transaction with our CPG colleagues I want to emphasize that while ownership percentage, we approximately 50% from most of the assets. This is not a financing structure and trying to provide capital discipline.
Rather and working with CTG and our trusted partner, we are focused on optimizing ownership of these assets that allows for appropriate returns for C. As well as an accretive yield diversified contracted basis, while also allowing CTG develop more assets at their target investment returns.
When concluded these assets will contribute beyond the dollars to me one captive for show pro forma outlook.
This partnership platform, we intend to continue to utilize in the future and as such will be followed by additional 1.1 gigawatt portfolio off in the first half of 2021.
I clearly energy we are excited about this new structure August to continue our growth trajectory at attractive accretive and further de risk half deals with that I will turn discussion over to Jeff Jeff.
Thank you, Chris and turning to slide eight.
For the third quarter Fairway is reporting adjusted EBITDA of $312 million in cash available for distribution or Kathy of $171 million clear way of now realize $853 million of adjusted EBITDA and $265 million a capped the year to date.
During the quarter the company benefited from strong availability at the conventional segment as our California based gas plants performed exceptionally well during the key summer months.
This was especially evident during the extreme heat wave across the west coast, where our California plants demonstrated their value is critical reliability resources in the state.
Well the conventional performance in the quarter with a welcome respond to the challenging west coast weather conditions, the company's renewable portfolio did not benefit from the environmental and weather related events.
As noted in the appendix section of the presentation for solar projects were especially challenged as the fires on the west coast resulted in soybean and weaker radians, we need to production below 95% of expectations between August and September.
Additionally, when production during the quarter across the portfolio, we've got a 92% of expect expectations as strong results in August were offset by a weaker July and September.
As a company we continue to closely monitor the business impacts related to the COVID-19 pandemic.
Consistent with what we indicated last quarter the company's projects have maintained safe and reliable operations, but we have observed a reduction in volume metric sale, but the thermal segment, which continued into the third quarter.
Though this impact is not material from a consolidated company perspective, we do currently anticipate the volume metric degradation to continue into next year, which I will discuss momentarily when walking through forward financial expectations.
Lastly, and providing an offset to these items Kathy results in the quarter were favorably impacted by the timing of project level debt service due to the recent refinancings.
Overall, while Kathy performance year to date of moderately below expectations. Since results are within the company sensitivity ranges, we are maintaining CAFD guidance of $310 million.
Now moving to capital formation.
Inclusive of the DG partnership Holdco refinancing completed this week the company raised $96 million and new corporate capital through the upsizing of several non recourse financings at an effective weighted average interest cost of 3.3%.
Additionally, we continue to prudently utilize the ATM programming, having raised an additional $24 million during the quarter. This brings total equity capital raise under the program year to date to $63 million.
With the release of the $168 million and trapped PGT project related distributions.
And the $75 million previously raised through the residential solar portfolio sale in May that was used to acquire the remaining interest and Repowering. One data show. The company is also well positioned from a cash perspective.
With these combined resources and the fact that the company's corporate revolver is completely undrawn clear way is essentially fully capitalized to accretive we fund all committed growth. It has made year to date, while also preserving significant flexibility for new growth.
Yes, there is no requirement for any incremental new permanent capital, except for new growth, including the most recent dropdown offer of the partnership investment opportunity.
Turning to slide nine to discuss the company's updated pro forma cap the outlook in 2021 expectations.
In order to aid in understanding the various news in our cap the expectations, we provide a bridge commencing with our prior pro forma cap the outlook of $340 million.
First due to the refinancing and upsizing of the non recourse project debt facilities that provided $96 million in additional capital.
Kathy has reduced by approximately $9 million due to additional principal and interest from these transactions.
Next we add in the $22 million of new asset level Kathy from recent growth investments that were otherwise excluded from the prior pro forma outlook.
This contribution is based on the expected five year average Kathy profiles for these projects and include Mesquite Star and today's announcement of Rainford win and the remaining interest in the DG partnerships.
Next while the company has had success in the identification of additional operational improvements. We are now factoring in around a $6 million budgetary impact impact that will reduce annual cap the expectations.
This relates to increased cost associated with our overall insurance program and adjustments relative to support services under the MSA with clear way group and other back office requirements.
Additionally, and consistent with the approach we have communicated to you around budgeting for renewable energy production, we are factored into our statistical modeling additional historical data, which had a modest effect on expected P. 50 median production estimates across the portfolio.
With these changes we are raising our pro forma cap the outlook to an approximate $345 million or an amount that continues to be supportive of our ability to deliver on dividend growth within our payout ratio targets.
Moving to 2021 expectations.
Because our convenience of our pro forma cap the outlook is based on the five year average efficacy profile for new investments current year results will be affected by the timing of when a project reaches cod and the shape of the projects cash flow profile.
In this regard we anticipate a $17 million timing delta in 2021 related to the company's growth investments.
Lastly, while we believe these are all temporary variances, we do foresee further impact in 2021 of approximately $5 million due to COVID-19 related matters.
This includes lower volumes at the thermal segment and the impact from California State taxes, resulting from assembly below 85 that was an act enacted at the end of June which suspended the company's ability to utilize state net operating losses for the next three years.
With these adjustments clear way of initiating 2021 kept the guidance of $325 million.
As noted Kathy guidance and the company's pro forma outlook are based on P. 50, renewable production expectations for the full year importantly, it's also only factors in the committed in funded growth year to date, providing for additional upside to expectations. Upon the execution of new transactions such as the 1.6 gigawatt partnership investment.
And with that I'll turn the call back to Chris for closing remarks.
Thank you Jen.
Turning to page 11, I wanted to take a moment not to beat a list of what we have executed in 2020, but rather to provide an overview as to what we as a company are focused on first after coming out of the PGT situation. As we had indicated we have resumed increasing the dividend in line with our long term targets on tenure credit metrics and providing capital within our sincerity ranges second.
We've executed a variety of growth investments to further diversify our portfolio and accretive assets that serve to drive our CAFD per share the levels will support ongoing dividend growth within our payout ratio objective third we're working closely with our CPG colleagues to create investment structure with equity partners, who will provide a structure that emphasizes diversified contracted assets at accretive cash.
The yields but also increased transparency around the capital required. We also believe that this will allow us to establish more consistent timeframe of drop down expectations in the future.
All of this leads to an updated pro forma Kathy of $345 million or more importantly, a $1.71 per share which supports our long term dividend growth rate at the high end of our targeted range for 2021 as well as growth beyond 2021. Thank you operator, please open the lines for questions.
Thank you Sir at this time I would like to remind everyone in order to.
Ask a question. Please press star one again or phone again star one if you wish to cancel your request please press the pound or hedged.
The Boston I guess some of the trading of roster.
Our first question comes from the line of Julien Dumoulin Smith from Bank of America. Your line is open.
Yes.
Yes on your stepping in for Julian.
So I, just hey morning.
Just wanted to ask given the scarcity situation.
Could you talk about how you expect resource adequacy prices to trend and also is there potential to lock in longer tenors, when you re contract between demographic.
Im sure. This is Chris Sotos I think in terms of the pricing obviously, we'll have to see kind of where it turns out I definitely think what we saw in California would lead to higher pricing for resource adequacy. I also think the probability of being able to contract for longer tenor is higher but I think as I've said consistently.
Throughout the years and I think on our last quarter I think that pace is going to really pick up in 2021 in terms of discussions around re contracting. So I would say there is any really new information since the last quarter. We talked of I do think obviously what's occurred is helpful for pricing and also for contracts.
Okay great.
Then also can I ask about it on just on Kathy.
The latest announcement.
Kind of cut at the Gulf projects have had pretty high Castillo how should we think about just th capital projects that you announced in terms that Kathy how much opportunity is there is.
Maintain rates kind of near these levels.
Sure I think these levels are difficult and I tried to address in my comments. Some of that is due to lankford, you, obviously, having them less hedged position than typical even though with the paygo structure, obviously contracted cash flows so from our view and looking at the latest dropdown offer that we're working with our CPG colleagues in equity partner on that's about a 14.
Year weighted average cap the life for contracts.
I don't think that type of cap the level will be achievable I think if you look back in our history.
Seen kind of things, let's say, we go in the nines in terms of cap deal I once again I want to negotiate and negotiate here on the phone, but I think that that type of range probably is more probable than the ranges that you see in the latest drop downs that we announced today.
Okay, great. Thank you.
Sure.
Our next question comes from the line of Angie Storozynski from Seaport Global Your line is open.
Good morning, So just as a follow up since it's a good question, though we just heard.
So I understand that you're saying that this new partnership with CTG is not us announcing partnerships.
But.
It will be because I know the accepting some additional development and construction risk so.
Can you at least tell us if there would be some incremental caf.
Versus third party acquisition or acquisitions.
Operating projects that would see basically paying for that incremental risk that youre assuming.
Sure just to make sure we're clear there isn't any incremental risk we're not taking development risk. These are projects that are through the development cycle. So just to make sure. We're all clear that's not in the partnership also is going to be with a third party. Our long term owner, obviously CTG is the current developers kind of all three of US are working together to finalize the partnership.
So I think CTG is still acting as developer and operator similar to the Dropdowns, we had before so just for clarity.
But there are always some project right I mean, if I understand correctly. So even if they are fully developed it you wouldn't be providing financing for some of them dish broad based start commercial operations rights at the various deal would be assuming some construction risk.
No, we really deploy capital at Cod expiration date, so I don't think it's any different than what we've done historically.
Okay.
Okay I understand now moving on you said that Youve adjusted some of your expectations I forgot.
Regarding renewable power production volumes basically reflect the last.
Five years of data now it looks like we're going to have that yeah.
Continuing into next year is that something that could materially impact your especially when the production levels in 2021.
Chevron is good.
So yeah, so Andy maybe to take this in two steps. So I think one of the things that we've done consistently that we've talked about just on the first point is just as a matter of sort of prudency as we as we collect more historical data, we roll that through our modeling and in some instances it increases expected P 50 and project in some.
Instances it can reduce it I would say on that in the total given the dollars we're not talking about material moves overall, but we're just always trying to be honest with how we evaluate that I think on the line menia piece.
I kind of venture to GAAP exactly how whether we'll do I think I've seen some data points.
That suggests that you could have stronger production.
Through the course of next year as a result of it but I think from our perspective I'd like to kind of see what shows up.
Relative to expectations.
Alright, and then how that is dispersed geographically as well.
Okay. Thank you and last question on the.
Lower thermal units that you said that that weakness could persist so 21 or into 21.
I mean, just can you give us. An example is it just you know some of these projects that support to hotels or something like that and hence there is some sensitivity to volumes.
Precisely Angie.
Our San Francisco operations that tend to be more volume metric and the I'm sure as everyone on the phone to where a hotel occupancy in San Francisco is lower due to covance. So it is exactly that definitely.
We had expected the timing of expected cod dates.
And the Christmas point.
We want to provide the number relative to how we've looked at underwriting the investment, but importantly, our capital outlay doesn't occur until we get to the Cod date. So it is important to remember that our capital is not exposed until that point either.
And I think the big driver on this one would be in our growth profile a lot of that is related to the timing of pinnacle, just given what we've seen and observation of construction timelines, we're looking at a second half.
In service date, which is obviously delayed some of our original expectations as well.
Okay. Thank you and that makes lot of sense and then.
Just a couple of quick questions on the link for project I think I heard in the earlier prepay.
Prepared remarks that the 65% that is contracted under a 12 year PPA that's related to pay the paygo financing.
Just wanted to maybe clarify how that works is that just you receive.
A portion of the value of the production tax credit as an item from a tax equity investor.
Oh, yes, but to be a little bit more precise the 65% on the revenue. So you can think about basically was to cash flows obviously revenue from the outset about which 35% is hedged 65% is open and then also the Paygo, which obviously is contracted from a cash perspective, but obviously subject to P 50 risk in terms of production. So when we look on a combined basis you have the contract is.
Cash flows are subject to hitting the P 50, the PTC. The microstructure and then also 35% of revenue with about 65% of revenue being open not necessarily just PTC.
PTC or bigger.
Okay. Okay understood and then my last kind of just kept the shaping question in prior powerpoints used to have a slide.
Related distributed generation.
And how the KFC trajectory changes over time.
As part of the partnership that you acquired did you effectively take out maybe the tax equity component that was reducing overtime or is that still kind of a structure, where there's kind of five year step changes.
You should still expect a step change before we did not take out the tax equity.
Okay. Thank you I appreciate the time.
Great. Thank you.
Right.
Our next question comes from the line of Connie branch from Oppenheimer. Your line is open.
Thanks, So much guys now is as we see increased amounts of liquidity in the market and availability of capital.
Wide spread are you seeing any changing dynamics in terms of the competitive landscape Bose.
The development level or at the project acquisition level.
Yeah.
I'll, let Chris the development, yes on the on the project acquisition level I think there we are seeing.
Tightness in terms of CAFTA yields I.
I think once again, you know as an all things when you kind of need to look for the right intersection of where we can bid and add value to kind of really maintain our accretion, but I do think given current capital markets and liquidity you probably are seeing tightness in terms of where third party EPS are trading above Craig if you don't mind addressing the developments.
Yeah, Hi, Collyn.
I think for some parties.
Yes equity availability clearly is an issue we've we've we've we've observed that among some competitors.
Meeting to elect to move projects out in time or.
Otherwise be challenged in their tax equity financing options.
We've been pleased to be in the circumstances, where every project, we intend to take into construction, including those that you've seen cited in these.
Partnership investment opportunities have been able to secure.
Secured tax equity commitments from interested investors and.
We're finding that there is some preference for quality in terms of sponsorship and project composition, which we benefit from and in a market where there is some scarcity in terms of tax equity in terms of construction dad and term debt.
Markets remain nearly as robust as we've ever seen them.
Look in terms of demand and the cost of financing that were able to secure that helps us in terms of being able to propel further developing growth and also to be able to.
Offer truly attractive investment profiles for the cash equity interest that show up in C.
On project M&A.
Yes, I think what we've seen is a desire on the part of.
Smaller developers from whom we might buy preconstruction assets to see the election outcome play out.
And what that might mean for timelines and they need to develop and.
Fortunately, we have engaged selectively and some situations like that and have also been able to propel growth in our organic development pipeline, which the disclosures indicate actually grew substantially and the prior quarter. So whether project M&A is available to or to us or not we actually feel quite confident about the ability to double to deliver it.
Pipeline that will support ceilings, five day percent dividend per share growth.
Great and then just looking at how the industry much or lower cost capital.
At that rate.
The low cost batteries like really low cost batteries in available are you guys seeing that.
Different type of opportunity in terms of increased distributed assets different sorts of configurations and ability to serve load.
With the newer technologies that are available as you look at the development opportunity and is there opportunity for.
Some increase spread capture to emerge as.
Probably a little bit more comfortable with some of those technologies and other folks.
Would you like me to take that one too Chris.
Please.
Okay Yeah.
We're bullish the opportunity to deploy in that kind of format. That's some scale for steel and in the future.
Great. Thanks, so much guys.
Once again, if you wish to ask a question P. scratches star or why did you ever phone again star one.
Once again star one to ask a question.
There are no further questions at this time please continue.
Well. Thank you everyone for attending and I look forward to talking in February our listeners. Thank you.
Ladies and gentlemen that does conclude their conference for today, you take out for joining any I'll just kind of.
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