Q1 2021 Clearway Energy Inc Earnings Call
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Good day, and thank you for standing by and welcome to the Clearway Energy, Inc. First quarter 2021 earnings call.
This time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question during the session you'll need to press star one on your telephone.
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I would now like to hand, the conference over to your Speaker today, Christopher Sotos, President and Chief Executive Officer. Please go ahead.
Good morning, Let me first thank you for taking time to join today's call. Joining me. This morning is Chad Plotkin, our Chief Financial Officer, and Craig Cornelius President and CEO of Clearway Energy group credit will be available for the Q&A 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 David <unk>.
Actual results may differ materially.
Please review the Safe Harbor, and today's presentation as well as the risk factors and our SEC filings.
In addition, we will refer to both GAAP and non-GAAP financial measures for information regarding our non-GAAP financial measures and reconciliations for the most directly comparable GAAP measures. Please refer to today's presentation.
Turning to page four.
Financially clearly is reporting first quarter, Kathy on negative $15 million, including the negative impacts from the February weather event, and Texas and acceleration of accrued interest due to the refinancing of the 2025 senior notes.
These negative effects were significantly offset by the strong performance at our west coast renewable projects demonstrate the benefits of a scalable and diversified portfolio.
As a result, we are maintaining our guidance at 325 million that will be provided on our call in February.
As indicated previously during the quarter, we were able to refinance our 600 million on the 25 senior notes with a 925 million new Green bond due in 2031, and a very attractive three seven and 5% interest rate on.
This issuance was used to refinance the 2025 bonds.
Pay our revolver borrowings with permanent capital and drove corporate purposes, all while saving clearway, approximately $10 million and interest costs.
Clearly has announced an increase in the dividend by one 5% to $32 90 per share for the second quarter of 2021.
This is on track for our Dps growth at the upper end of our 5% to 8% long term target for 2021.
As one of our key strategic goals this year I'm happy to announce more than two years prior to the expiration of the current tolling contracts and the middle of 2023 and a.
Seven five year resource adequacy contracts with established load serving entity for 100 megawatts at Marsh landing.
Not only is this and important important first step and mitigating future merchant exposure, but the pricing we were able to achieve while subject to confidentiality is sufficient to maintain the current Kathy profile Marsh landing if we were able to secure similar economics on the remaining capacity of the plant is important to recall that our gas plants will be materially debt free at the exploration of the existing <unk>.
Contracts.
And we still have a long way to go I want to reiterate this is a strong step more than two years ahead of the expiry of these contracts at a constructive tenor and pricing.
And reinforces the strong position that our GAAP <unk> occupied.
Our assets for some of the newest and most efficient and California.
And our strategically located inside of major load pockets and most importantly, they all have quick start and SaaS ramp and capabilities all in California to adjust for liability needs related to its renewable energy goals.
These attributes make clearly gas assets are critical part of California's overall supply stack as was demonstrated last summer.
During the quarter, we continued to execute and advance renewable growth for clearway, we closed the acquisition of the 264 megawatts non storm project, which is situated and our pinnacle and Blackrock assets.
Ill and clear way to effectively provide O&M services to these three sites and a competitive market efficiency is a key advantage and our ability to build out platforms and certain geographic locations.
And while achieving operational efficiencies is critical to our success.
We continue to work with our sponsor Clearway group on core investing on new partnership currently expected to be between one one and one seven gigawatts.
Which will further diversify clearly energy and provide additional Kathy certainty with a weighted average contract tenor of approximately 14 years.
In addition, clearway group is continuing to growth development efforts and we expect its current 10 gigawatt pipeline to grow meaningfully and the second half of 2021.
Finally, as I will discuss in more detail on the next slide clearway is increasing its pro forma Kathy per share outlook to $1 85 per share, which now supports our dps growth objectives through 2023.
Turning to page five to provide more color to our pro forma caffeine and dividend per share outlook.
Given the investments and growth that we have made as well as the recently completed refinancing discussed we are now increasing our pro forma cash the outlook to $1 85 a share.
If we assume that the cash the profile of our assets remains constant we can increase our dividend within our long term, 5% to 8% growth rate through the end of 2023.
And we recognize that merchant exposure and California, resulting from the natural gas assets reach and contract maturity and 2023 as uncertainty.
The current Kathy per share trajectory provides for flexibility to mitigate this uncertainty specifically.
Specifically the company has cushion against a reduction and cash per share of approximately <unk> <unk>.
While maintaining the ability to achieve our long term dps growth targets through this period of time for.
For example, at $1 75 of <unk> per share and 85% payout ratio clearly energy could pay a dividend per share of $1 49.
Which would fall in line with the low end of our long term dividend growth objectives of 5% to 8%.
In addition, please note that for $1 85 pro forma cap. The outlook does not include any further investments by clearway and additional dropdowns or third party M&A.
So in summary, the company continues to execute and adding the visibility around future growth and Kathy and dividend per share as well as to increase the certainty around that growth trajectory with that I will hand, the presentation over to Chad Chad.
Thank you, Chris and turning to slide seven.
Today Clearway is reporting first quarter, adjusted EBITDA of $198 million and cash available for distribution and our cap of negative $15 million.
Though these results came in below our expectations, we view overall financial performance favorably.
Excellent production at our renewable portfolio on the West coast and higher distributions from unconsolidated investments provided a substantial offset to the financial impact from the February winter event and Texas.
On the positive front, the prevailing winter weather and the quarter that impacted wind production in Texas and the Midwest had the effect of creating favorable renewable energy conditions in California, where production at the Alta Wind project was up over 30% relative to expectations.
Similarly, the same conditions led to above expectation performance for the West coast based utility scale solar projects.
On the negative side and as previously disclosed the company had estimated the full year cash impact from the February winter event and taxes to be and the 20% to $30 million range.
Today, we are narrowing that range to $25 million to $30 million as and the first quarter, we realized an approximate $25 million impact to cash D, which due to amounts attributed to third party equity investors resulted in an approximate $50 million impact to adjusted EBITDA given the effect on fully consolidated.
Revenue.
While there continues to be ongoing discussions and Texas on the long term implications of the February event, we do believe the material impact for the company has passed.
That said and based on our best available information, we continue to plan for some potential additional cash exposure, which is what informed and narrowed range. Currently noted on the slide.
Further impacting quarterly results was a timing dynamic relating to the successful issuance of the green bonds due 2031, and the repayment of the outstanding 2025 senior notes specifically the timing of when cash interest payments are made changed as roughly $14 million and accrued cash interest expense.
That would normally have been paid and the second quarter was accelerated into the first quarter.
Because of this change and the timing of corporate interest payments and to improve visibility and to quarterly expectations, we pro forma adjusted and normal seasonality disclosure in the appendix section of our earnings material to account for this modification.
Please refer to slide 14 of this presentation for this update.
And referring to this updated disclosure I would remind you that the first quarter is generally a seasonally low part of the year as most of the company's cash to use generated and the second and third.
That said and to put some perspective on quarterly performance. If we excluded the approximate $25 million reduction to first quarter Kathy from the February Texas Winter event.
<unk>, Kathy and the quarter would have been favorable to the modified pro forma first quarter expectations.
As noted in our last quarterly call. We indicated that the effective February of that and Texas was essentially offset by the expected full year contribution from the closing of the 35% interest on Agua Caliente and so we did not raise cap day guidance at that time to account for the growth investment.
Today, we are again, maintaining full year capex guidance of $325 million, which continues to be based on the achievement of key <unk> median renewable energy production for the full year, but.
But we do note that given the pro forma adjustment to our seasonality expectations and since we view the financial effect of the Texas event is outside of the scope of our normal sensitivity range. The company is currently trending favorably to our consolidated <unk> financial outlook for the full year.
With that I'll turn the call back to Chris for his closing remarks.
Thank you Chad.
Turning to page nine we are focused on our goals for 2020 one.
Despite the shortfall due to the difficult, Texas Winter weather event in February we are maintaining our guidance of $325 million of Kathy for 2021 or.
Our scalable and diversified portfolio, particularly our west coast renewable portfolio performed well and the first quarter mitigating a significant amount of the Texas impact. In addition, we remain on track to achieve the upper end of our dps growth rate of 5% to 8% through 2021.
As a result of our continued growth investments through Dropdowns and third party M&A as well as refinancing activities. We've increased our pro forma cash the outlook per share to $1 85, which provides a strong runway toward achieving our 5% to 8% dividend per share growth through 2023.
We continue to work for increase this pro forma cash outlook and working with our sponsor additional investment opportunities and we expect to see new transaction signed by the end of the year.
Finally, we are working to enhance the value of our California natural gas portfolio. We have closed on our first 100 megawatt contract more than two years out from the current contract expiry at attractive tenure and price point, while we have a long way to go and I reiterate the value position proposition that our guests assets and the region provide and I anticipate that we will continue to make progress on this position.
Over the next two years thank.
Thank you operator open the lines for questions. Please.
At this time, if you'd like to ask a question simply press star one on your telephone keypad.
Our first question comes from the line of Andrew Sorry, and Scott with Seaport Global.
Good morning, guys. So.
And congratulations on the on the resource adequacy on track.
And.
Again, you didn't provide much.
And as the turns that concern, but again, the fact that Kathy.
And is being maintained.
And so and again as you said David.
And it's become.
Is there any sense of the timing for the remainder of the capacity when we could be expecting those alright.
Alright contract to be signed or renewed.
I don't think Theres really a cadence Andrew I think from our view. The reason we started early is to make sure we have flexibility to on negotiations that really try to optimize and be disciplined on price. So I don't want to say Oh, we're going to have them all done by X period of time, because I think as I've indicated on other calls it's going to take a while and it's going to be a variety of different counterparties.
And so theres not a specific date by which we say well we're going to have a position or not we are as I stated kind of two years out from that period of time. So we're going to continue working on it and continue making progress, but it will take some time to be fair to your question.
Okay and my second question for Chad I am not sure I understood the comments about performance.
And again.
Unchanged for Kathy guidance so.
But kathy guidance still incorporates the pyxis hit right. So even though you are still at 50 performance of all of their renewable assets for the entire year does incorporate day.
And so even with the Texas it.
We are still trading at trending well versed and Thats Cathy guidance.
Yes, so I think the way I would think about it is Texas the issues and taxes, we had which bear in mind part of why we kind of don't think about it and relative to how we normally think about our variability and the year was really because of the price excursion that happened with hitting the cash.
But that being said the way I look at it is is agua caliente and offset it. So basically obviously, we had the timing shift and shift in interest so upside and the base portfolio that may have existed before those two events would lead to us trending better than 325. So.
Hopefully that either just said another way the strong performance, we had out in the West coast has us and a favorable position at least through the first quarter.
Assuming we operate at <unk> 50 for the remaining three quarters you would technically be ahead of your $3 25.
Yes, great that's what I wanted to make and okay. Thank you okay sure.
Your next question comes from the line of Colton Bean with Tudor Pickering, Holt <unk> co.
Good morning, So just to follow up there on Andrews question around the Marsh landing on the agreement is there any background and you can offer on how that came together and maybe how you would characterize the counterparty associated with that.
Yes.
Sure.
Fixed comp and surety for this it would be for your question is playing out a lot I can talk about but we have and ongoing origination effort and California to manage our position in 2023. So we talked to a number of Counterparties. We look at R&D processes that may be coming and the future between <unk> and SCE and we're very active and the market and looking to manage the <unk>.
And over time, so I think this is something that as ive talked about over the years a lot of people. It's difficult three years ahead of time to talk about looking at hedges and I think two years is kind of about the timeframe. They have indicated and we are along those lines that we've talked about over the years.
From our view in terms of some color that I can give you.
Yes.
A larger load serving entity and the region expectation is be investment grade rated and that's frankly on one thing I want to make sure I stay within the confines on the confidence that agreement, but that's at least some color I could give you on it.
Got it understood and then just on the commentary on Clearway group pipeline, expanding and the back half of the year is that an expansion and aggregate or is that moving more projects to the construction and and advanced bucket.
Hey, Craig why don't you take that one sure.
Sure.
Yes.
<unk> is the answer to the question so on.
While we reported was the state of the pipeline as of day end of the quarter.
And we've been busy this year, we've been busy across the.
The country, the west central and eastern regions.
The vintages that were developing and planning extend from the period through 2000 Twenty's for on which we provide disclosure and also vintages past 2020 for that will underpin.
The dividend per share growth well into the decade.
And we expect that Youll see evidence of that development work.
On which should give us some confidence about our ability to sustain growth for the company for quite some time.
As well as our advancement of projects that would be able to commence construction late this year and early next for the 2023 and 2020 for vintages.
And we look to shape that pipeline to match up and particular with the capital allocation plans and growth plans of Clearway Energy, Inc. And are feeling constructive about.
And our ability to facilitate substantial project completion volumes over the course of the next three years that.
That will hopefully.
Support a constructive outlook for sustained growth.
Great and I appreciate the time.
Your next question comes from the line of Colin Rusch with Oppenheimer.
Thanks, So much guys could you talk a little bit about the growth on the energy storage pipeline. It looks like that had a pretty substantial bump here in the quarter and how that trends.
Trending relative to the existing products you have or some other accounts do you have on the pipeline.
Craig and Humana.
Sure.
Yes.
The growth within storage call and includes both.
On.
Planning for hybridization of existing operating assets that we have and the fleet.
As well as new development and and construction planning for.
New paired resources that.
Would include both solar and storage and we have in some instances starting to plan for Standalone storage.
Where the market structures allow for us to put in place long term revenue contracts that would be consistent with the type of investment profile, we look for Clearway Energy, Inc to make so.
So, it's both standalone and paired resources and on the <unk> front.
Planning for integration of storage with existing operating facilities within Clearway Energy, Inc. As well as new construction projects in general at this point.
And if we're looking out over the course of the next three years it appears that.
You could expect most of those resources to be in the west not strictly and California any longer.
And the prospect for storage attachment and the east is still something that.
And he is evolving as.
As we look through the latter part of the decade really everything that we're putting in for early stage development include.
Includes potential options for battery integration.
That's super helpful.
And I guess, the second thing is really around Counterparties.
We're seeing massive commitments being made to get to net zero by.
And many corporations and.
And I'm wondering if there is an evolution in terms of.
And your ability to sign bilateral agreements, whereas with corporate rather than just with.
No.
Large utilities.
And if that's changing some of the pricing dynamics and.
And you guys are able to capture and that development pipeline.
For what it's worth the CGT and has been able to sign with corporates to date and <unk>, probably seen that shift a little bit and lighthouse transactions that has us on corporates as part of it Craig if there is any additional color thats further changed since the bottom plan is for those kind of announcement.
Yes, I mean I think.
Origination of contracts with commercial and industrial companies and something that's been a real focal point for us over.
Take the last five years Collyn and.
Over the five eight gigawatt.
Late stage pipeline that we've disclosed commercial and industrial companies.
And our customers already or are expected to be for a meaningful fraction of that pipeline and on.
And that also includes in states.
Where historically they've they've made they've been less of a direct wholesale market participants for example, and California Bob.
With that said we are pretty bullish also about.
And continuing to expand our customer base of regulated utilities.
Who has been a mainstay for us as well in particular, and the west and Pacific Northwest, where we've grown our pipeline materially on.
Two nearly three gigawatts worth of projects and on.
And we like those customers also because they.
They are able to sign contracts for.
Very long tenures still.
And with settlement structures that we like.
So I think as we go forward, yes, we expect to continue to grow our pipeline with a balance of both commercial and industrial customers with whom we've built.
Good track record of servicing demand, but also with the.
The utilities that have been great customers for us already and and and we'll be able to sign up for.
Longer contract tenders that allow us to create a balanced.
Profile like the one that Chris described for the for the $1 one to one seven gigawatt portfolio that we are in development.
Alright, thanks, so much guys.
And as a reminder, if you'd like to ask a question press star one.
Our next question comes from the line of Michael Lapides with Goldman Sachs.
Hey, guys. My questions are probably Chad oriented here just curious the <unk>.
Bond lower long term interest costs relative to the debt you took out when you look at the capital structure do you see significant opportunities for other refinancings that could make a material impact on long term interest expense.
Yes, Michael I think.
And why and I think the opportunity at the corporate level is somewhat limited because when we refinanced 25 notes and that was the shortest maturity, we had and the capital stack. So I think at the corporate level side.
I think we're kind of optimize I think at the project level side.
Michael We are always looking I think the way, Chris and I have defined it over the past few years, we're always mining.
At the project level to see what opportunities they have.
Theres always going to be some items that pop up but from a materiality perspective.
So share that I would sit there and count on that per se.
Add some additional.
Improvement there, but we will always keep looking.
Got it thanks, Kevin one other item.
Really for the whole team how are you.
And given the recent move over the last couple of months and all renewable related stocks are equities, including errors.
How are you thinking about your cost of equity and.
And how that.
<unk> future financings have either asked.
Acquisitions from third parties or Dropdowns from your sponsor.
Yes, I think Michael it's still a very constructive level I think we've talked about over the years and since may of 2016, and I took this role actually its a pretty good number for where we sit so I think if you take the $1 85, let's say cafe per share divided by about 27, eight you get about a mid sixes capped.
Yield once again, if you want to use that as a proxy for wax on obviously apples to apples, but that's still a very constructive equity cap to yield and so I think along with way of saying is we still see it.
And let's talk with you hired on a question that we are still be viewed as a very constructive cap yield for acquisitions and dropdowns.
Got it thanks guys much appreciate it.
Your next question comes from the line of Keith Stanley with Wolfe Research.
Hi, good morning.
Just one question, we saw a pretty sizable thermal business sales recently.
It's a smaller business for the company.
And how do you think about thermal strategically within clearway is that core to the company and how would you think about value there.
Sure I mean, as you know Keith we always kind of assess our portfolio for opportunities to drive value for shareholders. We've done dispositions previously and the past I think there's no need to look at monetizing that asset I think the prices that are out there on the market.
Interesting to us from our perspective district energy as a primary infrastructure asset class, there's only three large district energy portfolios and the U S and we own one of them. We think it's a great business and a great portfolio of assets. So I think from that view, there's obviously interest and the portfolio and we'll have to evaluate that but I think for us we're going to be anything we.
Look as can be extremely price discipline.
Great. Thank you.
And at this time there are no further questions I will turn it back over to Chris Sotos for closing remarks.
Well. Thank you everyone for your time and appreciate the support thank you.
Thank you, ladies and gentlemen that today's conference call you may now disconnect.
Okay.
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