Q1 2021 Clearway Energy Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Clearway Energy, Inc. First quarter 2021 earnings call.
And this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
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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 the state.
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.
I actually clearly is reporting first quarter Cathy of negative $15 million, including the negative impacts from the February weather event, and Texas and the acceleration of accrued interest due to the refinancing of the 2020 five senior notes.
These negative effects were significantly offset by the strong performance at our west coast renewable projects demonstrate the benefits of of scalable and diversified portfolio.
As a result, we are maintaining our guidance of 325 million total provided on our call in February.
As indicated previously during the quarter, we were able to refinance our 600 million and 25 senior notes with a 925 million new Green bond due in 2031, and a very attractive $3, seven and 5% interest rate for <unk>.
Issuance was used to refinance the 2025 bonds.
We pay our revolver borrowings with permanent capital and general corporate purposes, all while saving clear way of approximately $10 million of interest costs.
Huawei has announced and increase that dividend by one 5% to 32 point of nine cents 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 'twenty 'twenty three and.
The new seven and a half year resource adequacy contracts with established load serving entity for 100 megawatts at Marsh landing.
The only assist and important an 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 of Marsh landing. If we were able to secure similar economics on the remaining capacity of the plant.
It's important to recall that our gas plants will be materially debt free at the expiration of the existing 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 X free of these contracts and a constructive tenor and pricing.
And reinforces the strong position that our gas assets occupy.
Our assets of some of the newest and most efficient and California.
Our strategically located inside of the major of load pockets. Most importantly, they all have quick start and SaaS ramp and capabilities all in California to address reliability needs related to its renewable energy goals.
These attributes make clearly the 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 of clear one we closed the acquisition of the 264 megawatts non storm project, which is situated and our pinnacle and Blackrock assets, allowing clearer way to effectively provide O&M services to these three sites and the competitive market efficiency is a key advantage and our ability to build.
Platforms and certain geographic locations.
While achieving operational efficiencies is critical to our success.
We continue to work with our sponsor Clearway group and core investing a new partnership current expected to be between one and one of one seven gigawatts.
Which will further diversify clearly energy and provide additional Kathy certainty with the weighted average contract tenor of approximately 14 years. And addition, clearway group is continuing the growth development efforts and we expect at the current 10 gigawatt pipeline to grow meaningfully and the second half of 2021.
Finally, as I will discuss in more detail and 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.
Yes.
Turning to page five to provide more color to our full form of 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 five per share.
If we assume that the cast and 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, where the.
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 vice for flexibility to mitigate this uncertainty specifically.
And specifically the company's cushion against the reduction and cash per share of approximately 10.
While maintaining the ability to achieve our long term dps growth targets through this period of time.
For example, at $1 75 of <unk> per share and 85% payout ratio clearly energy can pay a dividend per share of $1 49.
And we should fall in line with the low end of our long term dividend growth objectives of 5% to 8%.
In addition, please note that the $1 85 pro forma cap. The outlook does not include any further investments by clear way and additional Dropdowns for 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 of our cap the of negative $15 million.
Though these results came in below our expectations, we view overall financial performance favorably as excellent production at our renewable portfolio on the west coast and higher distributions from unconsolidated investments provided of substantial offset to the financial impact from the February winter event and Texas.
On the positive from 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 of the Ultra wind project was up over 30% relative to expectations.
Really the same conditions led to above expectation performance for the West Coast base 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 million 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 cap 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 tech centers on the long term implications of the February event, we do believe the material impact of 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 informs the narrowed range currently noted on the slide.
Further impacting quarterly results was the timing dynamic relating to the successful issuance of the green bonds due 2031, and the repayment of the outstanding 2025, senior notes and 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 into quarterly expectations. We pro forma adjusted the 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 of first quarter Kathy from the February Texas Winter event and.
Realized cap the and the quarter would have been favorable to the modified pro forma first quarter expectations.
As noted in the last quarterly call, we indicated that the effect of the February of that and Texas was essentially offset by the expected full year contribution from the closing of the 35% interest and Agua Caliente and so we did not raise cap the 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 <unk> median renewable energy production for the full year.
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 of 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 2021, 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.
Our scalable and diversify the 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 the increase this pro forma cash the outlook and working with our sponsor of additional assessments.
<unk> 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, and natural gas portfolio, we have closed and 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 gas assets and the region provide and I anticipate the we will continue to make progress and disposition.
Over the next two years. Thank you operator open the lines for questions. Please.
At this time of you'd like to ask the question simply press Star one on your telephone keypad.
First of question comes from the line of Andrew <unk> with Seaport Global.
Good morning, guys. So good morning, congratulations on the and the rest.
<unk> adequacy contract that's the.
And you know again, you didn't provide much of that size of the turns that concern, but again, the fact that Kathy.
It is being maintained and this is really big.
So and again as you said this is the theres more work to come.
Is there any sense of the timing for the remainder of the capacity when we could be expecting those those are a 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 down the negotiations to 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 kind of 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. My second question for Chad I'm, not sure I understood the comments about.
For men.
And again.
Unchanged Kathy guidance, so the cash.
Chassis guidance still incorporates the pyxis kit right, so even though youre still at the 50 performance of all of the renewable assets for the.
The year does incorporate day right, so even with the Texas.
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 the relative to how we normally think about our variability and the year was really because of the price excursion that happened with hitting the caps.
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 $3 25. So.
And hopefully that either the set 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 here and that's okay. Thank you sure.
Your next question comes from the line of Colton Bean with Tudor, Pickering, Holt and co.
Good morning, So just to follow up there and Andrew's question around the Marsh landing or the agreement is there any background and you can offer and how that came together and maybe how you would characterize the counterparty associated with that.
Yes.
Sure.
The confidentiality. So this would be for your question, there's probably not 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 our of processes that may be coming in the future between <unk> and SCE and we're very active and the market and looking to measure.
And over time. So I think this is something that as ive talked about over the years of lot of people and it's difficult for three years ahead of time to talk about looking at hedges and I think two years is kind of about the timeframes I have indicated and were along the lines that we've talked about over the years for.
Our view in terms of some color that I can give you.
Yes.
The larger.
Load serving entity and the region expectation as the investment grade rated and the Springhill one thing I want to make sure I stay within the confines of the confidential agreement, but that's at least some color I could give you on it.
Got it understood and then just on the commentary Unclearly 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.
Yeah, Hi, both is the answer to the question so.
What we reported was the state of the pipeline as of the end of the quarter.
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 2024 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 you'll see evidence of that development work.
Which should give us some confidence about our ability of the sustained 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.
We look to shape the pipeline to match up and particular with the capital allocation plans and growth plans of Clearway Energy, Inc. And are feeling constructive about our ability to facilitate substantial project completion volumes over the course of the next three years debt.
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 and the energy storage pipeline. It looks like that had a pretty substantial bump here in the quarter and how that.
Trending relative to the existing products, you have or some of the products they have and the pipeline.
Craig and few of them on.
Sure.
Yeah.
The growth within the storage call and includes both.
The 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 started the 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 the 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 prospects for storage attachment and the east is still something that.
Is evolving but as we look through the latter part of the decade really everything that we're putting in for early stage development Inc.
<unk> potential options for battery and integration.
That's super helpful.
And then I guess, the second thing is really around Counterparties.
We're seeing massive commitments being made to get to net zero by many many corporations and from <unk>.
Wondering if there's an evolution in terms of.
You or your ability to sign bilateral agreements, whereas with corporate rather than just with.
The large utilities.
And if that's changing some of the pricing dynamics and spreads and you guys are able to capture and that development pipeline.
For what it's worth the.
<unk> has been able to sign with corporates to date and in fact, you've probably seen that shift a little bit in the white house transactions of that has some corporates as part of it Craig if theres any additional color. That's further changed since the bottom planets kind of announcements.
Yes, I mean I think.
Origination of contracts with commercial and industrial companies and something that's been the real focal point for us over I'd say, the last five years, calling and <unk>.
Over the $5 eight gigawatt.
Late stage pipeline that we've disclosed.
And the industrial companies.
Our customers already or are expected to be for a meaningful fraction of that pipeline and.
And that also includes and states.
Where historically they've they've made they've been less of a direct wholesale market participants for example, and California.
With that said, we are pretty bullish also about continuing.
Continuing to expand our customer base of regulated utilities.
Who's been the mainstay for us as well in particular, and the west and Pacific Northwest where.
We've grown our pipeline materially.
Two nearly three gigawatts worth of of projects and and.
And we like those customers also because.
They are able to sign contracts for.
And a very long tenures still.
And with settlement structures debt that we like.
And so I think as we go forward, yes, we expect to continue to grow our pipeline with the balance of both commercial and industrial customers with whom we've built.
Good track record of servicing demand, but also with.
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 of like the one that Chris described for the for the $1. One the one seven gigawatt portfolio that we Havent development.
Alright, thanks, so much guys.
And as a reminder of if you'd like to ask a question press star one.
The next question comes from the line of Michael Lapides of Goldman Sachs.
Hey, guys. My questions are probably chat oriented here just curious the <unk>.
Green 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 expenses.
Yes, Michael I think.
The one I think the opportunity at the corporate level of somewhat eliminated because when we refinanced the 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.
Not so sure of that.
We sit there and count on that per se.
Add some additional.
The improvement there, but we will always keep looking.
Got it thanks, Scott one other item.
Really for the whole team how are you.
And then given the recent move over the last couple of months and all renewable related stocks of equities, including Eric How are you thinking about your cost of equity and the how that impacts future financings of either.
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 of 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 of cafe for share divided by about 27, eight you get about a mid sixes cash.
The yield once again, if you want to use that as a proxy for lack of biography apples to apples, but the full of very constructive equity cap the yield and so I think the longer the way of saying is we still see.
And let's talk to the hiring of questions that we're still be viewed as a very constructive cash 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.
The smaller business for the company. So how do you think about thermal and strategically within clearway is that core of 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 and the market.
Interesting to us for.
From our perspective district energy is of 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 Neil from 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 at it can be extremely price.
And.
Great. Thank you.
And at this time there are no further questions and I'll 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 concludes this conference call you may now disconnect.
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