Q3 2020 Clearway Energy Inc Earnings Call
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Ladies and gentlemen, this is the operator police conference is scheduled to begin momentarily until that time feel like it will again be sent home. We thank you for your patience.
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Ladies and gentlemen, thank you for standing by again welcome to the keys away energy to acquire 20 can you give any school.
Having pay semi to prevent any background noise effort representation, there will be a question answer session.
Actually it's in how to do so will be given at the appropriate time. Thank you Mr., Chris Sotos, President and CEO of Kenya, where energy Sir you may begin.
Good morning, Let me first thank you for taking the time to join todays call.
Joining me. This morning is Jeff blocking our chief financial officer, or kill more our Investor Relations manager and Gregory Lewis, President and CEO, clearly energy group Craig.
I could be available for the <unk> portion of our 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 this presentation.
Turning to page four.
For the third quarter of 2020, Clearbridge you'd Kathy of $171 million for a total of 265 million year to date users.
These results are within our expected since to be Rangers.
To date, the effects of cold and remain mired with our teams maintaining safe and reliable operations through this difficult time.
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 will go into more detail later in this presentation. So you went has committed to invest approximately 450 million new growth during 2020. This.
This is comprised with 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 339 million, while generating approximately $36 million of ASP average asset Kathy over a five year period.
In tandem with these accretive acquisitions clearly has also raised capital efficiently raised.
There is 24 million in 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 trap 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 are updating our pro forma Cathy for sure view to $1.71 per share, which supports our target EPS 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 with 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 the miscued start with an expected capital commitment in the range of 230 to 249.
Again subject to negotiation by skew one's 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., one 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 wanted to highlight our execution this year in new investments in.
In 2020, and as already disclosed we have closed or committed to invest nearly $340 million of investments representing around 36 million of annual CAFD contribution on a five year basis.
At least the CAFD 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 on investments with 44 million invested to acquire cpgs residual interest in our distributed generation partnerships as well as struck contract associated with these assets. This investment is expected to Bruce $5.3 million of Cathy for cap to yield of 12.2%.
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 plus contracted than is typical for our projects at approximately 35% hedged.
Over 12 years, our revenue contract position that is supplemented by contracted dream of reliable PTC Paygo cash flows.
With those factors take into account, we believe the expected $8.5 million in Kathy generation and Unlevered, 13.2% CAFD yield make for an attractive investment profile that takes into account the projects higher merchant position.
As you can see in the investments listed on this page I'll ask you to note our continuing emphasis on accretion while the cash yield. These dropdowns create from our sponsor helpful. There match with the profile of investments, which takes into account the upfront cash flow weighted in the case of distributed generation partnerships investment and the merchant cash flows of lankford.
So as we move to the future dropdown 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 coffee outlook. The 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 ski star with a greater than 14 year Caf the weighted average contract life also.
We also further diversifies clearly energy into storage with 395 megawatts 1580 megawatt hours of co locate 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 approvals and the pet directors and investment required for this portfolio of between 230 and $240 million.
As mentioned on the last slide given the structure and asset mix overall, we would anticipate the yield on 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 our ownership percentage, we approximately 50% from most of the assets. This is not a financing structure and tend to provide capital to C.
Rather in 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 a diversified contracted basis, while also allowing CTG developed 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 from 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 clear way is reporting adjusted EBITDA of $312 million in cash available for distribution or Kathy of $171 million.
Clear way is 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 was 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 so railing and weaker radians, leading to production below 95% of expectations between August and September.
Additionally, when production during the quarter across the portfolio, we've got 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 sales at 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 over.
Overall, while Kathy performance year to date as moderately below expectations. Since results are within the company sensitivity ranges, we are maintaining kept the 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 in 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 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 nonrecourse project debt facilities that provided $96 million in additional capital.
Kathy is 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 Cappy 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 including the ski star in today's announcement of Rainford wind and the remaining interest in the DG partnerships.
Next while the company has had success in the identification of additional operational improvements. We're now factoring in around a $6 million budgetary impact impact that will reduce annual capex expectations.
This relates to increased cost associated with our overall insurance program and adjustments relative to support services under the I must say, we're clearly group and other back office requirements.
Additionally, and consistent with the approach we have communicated to you around budgeting for renewable energy production, we have 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 approximately $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 Apple thermal segment and the impact from California State taxes, resulting from Assembly Bill 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 in 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 Chad.
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, while maintaining our credit metrics and providing kathy within our sense of the ranges second.
We've executed a variety of growth investments to further diversify our portfolio and accretive assets that serve to drive our captive for share the levels will support ongoing dividend growth within our payout ratio objective third we are 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 cap.
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.
To ask a question. Please press star one in your phone again star one if you wish to cancel your request. Please press the foundry.
Well first of all just a moment ago the trading of roster.
Our first question comes from the line of Julien Dumoulin Smith from Bank of America. Your line is open.
Okay.
It's on your stepping in for Julian.
So I just.
Okay.
I just want to ask given the scarcity of situation on California could you talk about how you expect leases adequacy prices to trend and also is there potential to lock in longer tenors. When you re contract in Threed NAND will reference.
Sure. This is Chris Sotos I think in terms of the pricing, obviously, we'll have to see kind of where it turns out but 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 wouldn't say, there's any really new information since the last quarter, we talked about I do think obviously what's occurred is helpful for pricing and also for contracts.
Okay great.
And then also could I ask about on just on Kathy.
The latest announcements you kind of put out there to go projects.
Had pretty high Kathy.
How should we think about just future growth projects that you're now contend that Kathy how much opportunity is there.
Yes.
Maintain rates kind of near these levels.
Sure I think these levels are difficult tried to address in my comments. Some of that is due to length offered 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.
So I don't think that type of cap the level will be achievable I think if you look back in our history.
You've 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. Thank you.
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 to that question, though we just heard.
So I understand that you're saying that this new partnership with CTG is not as financing partnership.
But.
We will be presenting the accepting some additional development and construction risks so.
Can you at least tell us if there would be some incremental caf.
Third party acquisition or acquisitions, our operating projects that would be 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 thats not in the partnership also is going to be with a third party. Our long term owner. Obviously CTG is the current developer was kind of all three of US are working together to finalize that partnership.
So I think CTG is still acting as developer and operator similar to the Dropdowns, we've had before so just for clarity.
But there are some projects right I mean, if I understand correctly. So even if that fully developed you wouldnt be providing financing for some of them before they start commercial operations right. So at the very DC 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.
Regarding renewable power production volumes at basis.
Basically reflect.
The last five years.
Now it looks like we're going to have that like yeah.
Continuing into next year is that something that could materially impact your especially when the production levels in 2021.
Challenged.
So yes, Angie maybe to take this thing to staff. So I think one of the things that we've done consistently that we've talked about this on the first point is.
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 in 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 media piece like I am not going to venture to GAAP exactly how whether we'll do I think I've seen some data points that suggest that you could have stronger production through.
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.
But 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.
Let me just can you give us. An example is it just you know some of these projects.
Support to hotels or something like that and hence there is some sensitivity to volumes.
Precisely Angie in our.
San Francisco operations that tends to be more volume metric and I'm sure as everyone on the phone to wear a hotel occupancy in San Francisco is lower due to covance. So it is exactly that definitely.
Great. Thank you.
The dates.
And the Christmas point.
We want to provide the number relative to how we've looked at underwriting the investment, but importantly, R capital outlay doesn't occur until we get to the debate. So it is important to remember that our capital is not exposed until that point either and.
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 in observation of construction timelines, we're looking at a second half.
In service date, which is obviously delay some of our original expectations as well.
Okay. Thank you and that makes a lot of sense and then.
Just a couple other quick questions on the link for project I think I heard in the earlier pre.
Prepared remarks that 65% that isn't contracted under 12 year PPA that's related to pay the paygo financing I just wanted to maybe clarify how that works is that just you receive.
A portion of the value of the production tax credit asthma rate them from a tax equity investor.
Yes, but to be a little bit more precise to 65% on the revenue. So you could think about basically is to cash flow is obviously revenue from the asset about which 35% as hedge 65% is open and then also the Paygo, which obviously is contracted from a cash perspective, but obviously a subject to P 50 risk in terms of production. So when we look at a combined basis Contractive cat.
<unk> are subject to hitting the piece of the the PTC Paygo structure, and then also 35% of revenue with about 65% of revenue being open not necessarily just.
PTC Ortega.
Okay. Okay understood and then and then my last kind of just Cathy shaping question in prior powerpoints used to have a slide rule.
Related to distributed generation.
And how the calf the 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 it over time or is that still kind of a structure, where there's kind of five year step changes.
You should still expect a step change that we do not take out the tax equity.
Okay. Thank you I appreciate the time.
Great. Thank you.
Our next question comes from the line of cutting range from welcome primer, helping.
Thanks, so much guys.
As we see increased amounts of liquidity.
Market and availability capital.
Spread or you seem to be changing dynamics in terms of the competitive landscape goes at the the development level or the project acquisition level.
Olive progressive development.
The project acquisition level I think there we are seeing.
Tightness in terms of Kathy yields I think once again as in all things when you come in to look for the right intersection of where we can bid net 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 assessor trading price. If you don't mind interestingly developments.
Yeah, Hi, Colin.
I think for some parties tax equity availability clearly is an issue. We've we've we've we've observed that amongst some competitors needing 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 parker.
Partnership investment opportunities have been able to.
Secure 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 in in a market where there is some scarcity in terms of tax equity.
And construction dead in term that the market's remain truly as robust as we've ever seen them.
Both in terms of demand and the cost of financing that we're able to secure that helps us in terms of being able to propel further developing growth and also to be able to.
Offer purely attractive investment profiles for the cash equity interests that show up and see one.
On project M&A.
Yeah, I think what we've seen is a desire on the part of <unk>.
Smaller developers from whom we might buy preconstruction assets to see the election outcome play out.
And what that might mean for timelines and I need to develop N.
Fortunately, we've engaged selectively on some situations like that and I've also been able to propel growth in our organic development pipeline, which the disclosures indicated actually grew substantially in the prior quarter. So whether project M&A is available to her to us or not we actually feel quite confident in about the ability to.
<unk> to deliver a pipeline that will support see when it's 5% to 8% dividend per share growth.
Great and then just looking at how the industry Ms Ford with the lower cost capital.
I bet.
Really low cost batteries like really low cost batteries in available are you guys seen a 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 an opportunity for.
Some increased spread capture to emerge as you guys are probably a little bit more comfortable with some of those technologies some of the folks.
Would you like me to take that one to Chris Yes.
Yes.
Okay, Yeah, you know.
I think right now, calling our focus is more on central station storage solutions than behind the meter onsite storage solutions.
Commensurate with the pipeline and that we're developing in our operating assets, we do have.
Uhm smaller scale.
Repeated solar projects being deployed some of them.
Markets like Massachusetts that are paired with storage.
But most of our focus on storage as in the combination of new construction projects like those you see cited in the 1.6 partnership one six gigawatt partnership investment opportunity where.
In the case of the Daggett Solar project, we will be building more storage at a single solar site. Then I think that's actually been deployed before this year.
<unk>.
And projects like that in the future as well as opportunities for hybridization or retrofitting of solar and storage into our existing operating fleet, including wind projects and some of that same value capture your siting is achievable Ah and centrally interconnected.
Storage resources, as well and whether there's a standalone storage I T C or a need to pair storage with solar.
We're bullish the opportunity to deploy and that kind of format uhm at some scale forced to you in the future.
Great. Thanks, so much for us.
Once again, if you wish to ask a question. Please press the star what are your phone against Darwin.
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'll look forward to talking in February everyone's I said thank you.
Think that gentleman that concludes our conference for today. Thank you all for joining any I'll disconnect.
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