Q2 2021 Clearway Energy Inc Earnings Call
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Good day, and thank you for standing by and welcome to the Clearway energy incorporate H P.
<unk> 2021earnings call at this time all partner sales.
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Temptation there will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone if you require any further assistance.
Please press Star Zero I would now like to hand, the conference or where to your speaker today, Chris Sotos, President and CEO of Clearway Energy incorporated. Please go ahead.
Thank you.
And the 1 wafers. Thank you for taking the time joined today's call apologies for being a little bit late there were some technical difficulties.
Joining me. This morning is a kill Marsh and Investor Relations, Chad Plotkin, our Chief Financial Officer, and Craig Cornelius President and CEO of Clearway Energy group and Craig 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 date actual results may differ materially.
These review the Safe Harbor, and today's presentation as well as the risk factors and our SEC filings.
In addition, we 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 4.
I actually clearer is reporting second quarter, Cathy of $155 million and $140 million through the first half of 2021.
Due to the strong performance of our diversified portfolio and we maintain our full year cash guidance of $325 million, including the impact from the Texas Winter weather event.
He has announced and increasing its dividend by approximately 1.7% to $33.45 per share for the third quarter of 2021.
This is on track for Dps growth at the upper and over 5% to 8% long term target for 2021 targeting an annualized rate of $1.36 dividend per share going into 2020.2.
As we have discussed on our previous calls growth and <unk> per share is visible for the next few years. So we're focused and partnership with Clearway Energy group has been the extension of this trajectory over the long term and we are pleased with our progress.
Our newest partnership with Clearway Energy group is becoming more concrete.
It will comprise approximately 1.1 gigawatts of co investment and diversified portfolio of renewable assets.
Today, we're also announcing potential new dropdown opportunities comprising 452 megawatts of solar project in Texas, and a 133 megawatt portfolio of distributed solar projects and these investments will require funding between the second half of 2022, and 2020 for providing clear way additional visibility and towards growth plan.
And looking at growth beyond these discrete opportunities. We're very pleased by the progress we are making on renewable development and our integrated clearly enterprise as the investments Clearway group has been making and capabilities and projects have accelerate each year and are meeting growing demand from customers and expanding support from policymakers.
And this regard our integrated clean power enterprise.
And so among the industry leaders as renewable growth expands and the U S with over 75% of new electricity generating capacity last year, having come from renewable resources, we expect to see substantial growth and this asset class and for progress and the clear way development pipeline and sustained dividend per share growth for years to come.
Putting numbers to that progress Clearway group increased its development pipeline to over 16 Gigawatts. During the first half of 2021 through a full spectrum of development activities that involve sicker and control of late stage projects planned for completion and next 3 years.
Expansion of Greenfield development assets to greater nameplate capacity.
Substantial additions to the pipeline of paired and Standalone storage assets.
And initiation of additional early stage development projects that will sustain growth and the longer term.
Further the pipeline clearway group's developing is being tailored to further reinforced the type of resource diversification that enable us to provide in line financial results. During the first half of this year.
And it reflects a balance of course wind development regions, including sites that exhibit favorable correlation to our existing fleet.
A substantial volume of solar and storage projects that exhibit low generation variability and.
And potential for market and contracting position as complementary to our existing ones.
Having doubled its annual development and throughput to over 1 gigawatt last year.
Other way group aims to double this development throughput to over 2 gigawatts per year. Other 2024 project vintage and at $6.9 gigawatt pipeline of late stage projects provides a strong foundation for meeting that objective.
This pipeline supports a range of upcoming dropdown opportunities, including where I'll discuss on the next slide but as importantly, and even further set of dropdown opportunities for investment by the company as the pipeline of projects planned through 2025 mature toward financing commitments.
Next we continue to make progress on 2023 position regarding our California gas assets you are in active discussions around our open position and I expect further progress towards contract and the assets during the third quarter.
Yes.
In addition, I want to address a topic that we have received a number of incoming questions about namely the potential sale of the thermal platform.
Energy is a highly attractive infrastructure asset class and our thermal platform represents 1 of the 3 large district energy platforms and the U S.
Due to significant interest from prospective buyers, we've decided to explore a potential sale of a solid platform.
Let me be clear, we do not need to sell thermal for capital formation purposes, and the asset class is a strong and well performing 1 for clear way.
And therefore any decision on the sale of the thermal platform is going to be very disciplined on price and to the extent and we move forward. We believe proceeds from such a potential transaction will exceed our current capital commitments and near term visible growth opportunities.
Finally, and as I indicated on our last call services its pro forma cash for sure outlook at $1.85 per share, which supports our dps growth objectives through 2023.
Pro forma cash the outlook does not factor in any uncommitted growth or results of capital deployment from asset sales.
Yes.
Turning to page 5 review, our current pro forma cash outlook as well as our prospective opportunities from the clear way development efforts.
As can be seen on the slide compared to the cafe guidance of $325 million. We enter 2021 with we now see our pro forma cash flow at $395 million when all of our current capital commitments are funded in line with our balance sheet objectives and are fully operational.
Focusing not on the absolute <unk> number and more importantly, <unk> per share, which takes into account capital formation, we're maintaining our $1.85 outlook versus $1.61 coming into this year. This.
And this represents an increase of approximately 15% on a per share basis versus where clearly we enter 2021 driving further dividend growth.
And providing more detail on growth that is not included in these numbers I would turn to the right side of the page the.
The first component of the overall investment opportunity encompasses 133 megawatts of distributed solar assets that have either recently come online we have near term cod's.
These assets comprise more than 50 projects and 133 gross megawatts.
Revenue contracts of 20 years on average and as with our other distributed solar assets provide hi, Kathy relative to other generating capacity.
The second component is approximately 450 megawatts of solar projects currently with 254 megawatts of these under node subtle ppas with a duration of 18 years and a complementary location and our Texas portfolio.
Last year, the 1.1 gigawatts of diversified partnership assets that are taking shape, including 2 solar plus storage projects for 463 megawatts and western states, along with a basket of other wind and solar projects with diversified off takers.
Before turning over to Chad.
And I want to reiterate that while we have significantly improved the portfolio and the past 12 months to continue our growth trajectory, but clearly enterprise continues to relentlessly focused on continuing our accretive growth through dropdowns and new projects third party acquisitions and capital recycling with that I'll hand, the presentation over to Chad Chad.
Thank you, Chris and turning to slide 7.
Today, we are pleased to report that <unk> benefited from its mix of generation and regionally diversified renewable portfolio and SEC.
First quarter, adjusted EBITDA of $365 million.
And cash available for distribution and Kathy of $155 million were in line with seasonal expectations.
With these results. The company has also reported first half 2021, adjusted EBITDA of $563 million and Cathy you have $140 million.
During the quarter and as noted in the appendix section of today's presentation.
And <unk> renewable portfolio was able to withstand weakness and generation conditions at the non California based wind assets, where production was below median expectations.
This was most prevalent and California, where the companies also wind project generated strong results in April and May and helping to support first half 2021 production at Ulta and that was 12% above our media and production forecast.
Further and and the second quarter, the company's utility scale solar portfolio performed well with production modestly above expectations, providing further mitigation to the lower than average wind generation and outside of California.
In addition, and primarily due to favorable weather conditions as well as the initial phases of demand recovery from the COVID-19 pandemic. The company's thermal segment had a solid quarter as thermo equivalent megawatt hours sold were up 16% versus the second quarter of last year.
Overall, and what the company results through the first half of the year in line with our sensitivity ranges. We continue to maintain 2021, Cathy guidance of $325 million.
As a reminder, this guidance does continue to assume <unk> median renewable expectations for the full year and is also affected by the approximate $25 million impact of <unk> and the first quarter due to the financial exposure from the February winter weather event and Texas.
As Chris discussed Clearway continues to both execute on and position the company for new opportunities to drive cap and dividend per share growth.
And with existing capital commitments on track to close within timeframe supporting our pro forma cap. The outlook. We are also focused on effectively waiting the financing of these transactions efficiently, while maintaining our balance sheet objectives.
With this and mine, we continue to focus on strategic flexibility and our approach to corporate capital formation.
Flexibility is available to us with $420 million of capacity currently under our revolver to temporarily finance transactions and a $126 million unutilized and the existing ATM program, providing an efficient means of placing equity as required.
While these means our effective vehicle to support our efforts. We are also mindful that success and asset dispositions can also provide even more flexibility as net proceeds on any transaction can lead to accretive recycling of capital.
And this would be the case for thermo, where potential net proceeds and a potential transaction would be expected to exceed both our existing capital commitments and new opportunities that may arise with that I'll turn the call back to Christopher closing remarks.
Thank you Chad so turning to page 9 we are focused on our goals for 2021.
Clearly continues to work to meet its 2021 financial commitments as described earlier, our scalable and diversified portfolio, particularly our west coast renewable portfolio and thermal segment has performed well this year mitigating the first quarter, Texas winter weather impact, allowing us to maintain our 2021 cap the guidance of $325 million yes.
In addition, we remain on track to achieve the upper end of our EPS growth rate of 5% to 8% through 2021 with a targeted annualized dividend of $1.36 by year and clear.
Clearly has and continues to increase its pro forma Kathy outlook per share providing visibility to dividend per share growth of 5% to 8% through 2023 with our within our target payout ratios through the acquisition of accretive assets and through the optimization of capital formation.
As you move through the remainder of 2021, clearly look to increase this outlook to executing on the investment opportunity discussed earlier and this presentation as well as potential capital recycling through a possible monetization of our thermal platform.
Finally, we are working to enhance the value of our California and natural gas portfolio.
And we closed on our first 100 megawatt contract more than 2 years out from the current contract expiry and an attractive tenor and price point and in addition, we're in active negotiations with Counterparties to secure additional contracts on the balance of the capacity we have available for offer anticipate updating our investors on and November call and those results. Thank you operator, please open the lines for questions.
Yes.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question. Please press the pound key.
Please stand by while we compile the Q&A roster.
Okay.
Our first question comes from the line of Julien Dumoulin Smith of Bank of America. Your line is now open.
Hey, good morning team, thanks for the time and the opportunity.
Good morning.
Good morning.
If you don't mind.
And you can you talk a little bit more on use of proceeds potentially from whether it's thermal or frankly any strategic.
Yes in California around your gas assets.
And the timeline and redeploying any proceeds I mean, obviously you talked about and expanded set of broadly described dropdowns.
Would you anticipate holding a liquidity or.
Can you elaborate how you think about use of proceeds of that quantity.
Sure.
Kind of early stages here. So in terms of exact timing of when this might close difficult to say at this point and time I think first half of 2022 for current type of timeframe, so I'm not going to be that much sooner.
Thank you all once again and Thats a potential and so I think from that question and obviously use it for the existing equity that kind of we haven't.
Issued to date from our dropdown that happened in December as well as the Mount Storm acquisition.
Also we probably hold onto I don't know about maybe a year, let's say depending on whats visible from the perspective of other dropdowns or third party M&A that we see in front of us. So I think depending on exactly when it closed we obviously see the proceeds.
Funding the equity that we Havent issued to date and Mount storm or dropdown 23 that was done in December of the White House transaction, but I think it really is a question of once again seeing what opportunities. We have after that is done and then figure how to redeploy capital, but Chad anything to add.
No I mean, I think at the end of the day Julien anything when we think about both capital formation and the reallocation of that capital.
Always take the lens of.
Looking at our balance sheet, and and Sheri, we're meeting our objectives and well obviously deploy capital in a manner that drives the most value and accretion to our investors.
Yes.
And if I can pivot to hear back to some of the commentary on the California gas portfolio, obviously, you've been talking about this for a bit and can.
And you, perhaps at least indicative Lee.
To provide an update on where the aggregate or consolidate global cash flows across this business segment is trending do you think about it not specific to a contract price, but do you anticipate any kind of drop and cash flow at all or sort of on a net basis net of financing that is could you actually see a flatter even increasing.
While the cash flow coming out and the California gas portfolio, given shall we say where you stand today on that contract and progress.
I think we could see it being flattish, but I think Julien and I don't want to write a check before kind of everything is done. So I think for us we want to kind of see where the contracts come in and see what open position, we have and the like I think as we indicated on our last call. The contract level, we were able to get a marsh landing would be once again able to be pro forma for the entire asset.
Be flat on an unlevered basis versus Levered.
Say levered platform today, but I think we have a little bit of wood to chop before I can say that definitively from what we said.
Yes, I'll keep checking in.
And then and then if we get and the pivot to screw quickly you can talk about more Texas here can you talk about hedging practices any further expansion how do you think about risk mitigation and broadly defined on any subsequent expansion and the state.
Sure I think as mentioned the current asset being contemplated as notes settled so a little bit different and less risky hedging structure, but I think for us we like ERCOT is and overall market and I think we really want to try to build out our portfolio. There are a variety of physicians that help mitigate risk overall and whether that means taking some megawatts on a small basis merchant to help off.
And that others for scarcity pricing will kind of see as the portfolio comes together, but I think to your direct question Julien the latest asset is node settled at least for where it sits currently for what it has hedged and I'll have to look at creating and overall kind of macro position and ERCOT with a variety of assets to help mitigate risk and the region overall.
Yes.
Got it and just to clarify the earlier question around use of liquidity here.
And then.
Affectively. This would go into normal course funding of Dropdowns right know.
Very linear and straightforward use of capital here and no pivot your strategy whatsoever.
Correct. If there were dropdowns available kind of the first use of this is to fund those dropdowns.
And the event anything yet.
Awesome, Alright, I will leave it there thank you and best of luck.
Our next question comes from the line of Cotton and Dean from Tudor Pickering Holt. Your line is now open.
Good morning, So just a follow up there on the thermal comments and I understand you're probably limited in what you can disclose but any general parameters on what you would need to see to transact on a potential divestiture.
No I think it's too early to tell like I said, we're kind of and the stages of exploring and so not yes.
Minimize the question, but its too early to say, what a minimum hold price system.
Fair enough and then maybe a question for Craig I think and the development backlog there was a reference to acquisitions and wait and see projects to.
And to secure site control and improved internet or interconnect Q positioning. So just 1 how important is the interconnect element and what options do you have to improve positioning and mitigate delays there.
Where we've made those acquisitions yet.
We did so not to mitigate risk and our pre existing controlled pipeline, but to add assets.
And that were in locations, where we wanted to build projects that are have offerings for load serving entities.
So that's what that reference means.
And more broadly.
We've been satisfied by the way that we've been able to actively manage the progress of our late stage pipeline through sort of the next 3 year vintage.
Management and acute physicians and the work of interconnecting utilities that certainly 1 dimension to that as is the maintenance of our supply chain and development progress and an environment that.
Certainly as challenging for salmon.
And in that regard.
As is true for some bigger enterprises like our own we've we've been satisfied by what we've been able to do to keep projects on track so.
And so I guess, that's what I'd say on that front in terms of other acquisitions that we've undertaken they've really been to support a full spectrum of objectives in some cases to populate projects.
That would support dividend per share growth that and the 2025 and beyond timeframe and in some cases to provide complementary dropdown opportunities between now and 2024.
And I think now where we said is we've been able to construct a pipeline that has over 8 gigawatts worth of projects and development and.
5 isos and our teams around the country that adds to the strength that we have and California and those.
Physicians are intended to enable us to continue to add projects into the overall <unk> fleet, so that the diversification that supported as well and the.
Second quarter is something we would be able to continue to add on over time.
Got it and then just.
1 final question and then 2025 commentary as a good leading there.
Backlog now extending into late decade does that present, an opportunity to extend the guidance timeline following resolution of conventionals re contracting.
It could I think once again, obviously those are assets and developments I think we've kind of want to make sure that we have agreement and.
And a binding commitment between <unk> and before formulae extending that but I think to your point hopefully as we kind of get traction around 2023, and any volatility around the gas fleet is reduced and we kind of know where we sit I think you'll try and extend guidance is something we definitely shoot for but once again would want binding agreements before we felt comfortable doing so.
Okay and I appreciate it.
Okay.
Our next question comes from the line of Steve Fleishman of Wolfe Research. Your line is now open.
Yeah.
Yes, hi, good morning. Thanks.
So just.
Sorry to ask on a potential thermal sale again and.
And the like but just I think you said the proceeds would be beyond any near term and long term.
Growth needs so.
And that extra increment and beyond that.
Would you be considering share buybacks for that or what would you be.
Returning that capital.
Yes, I think Steve to be fair I said that we have current visibility into so if theres any growth opportunities beyond that would obviously be used for that and I think Steve as always you've worked with us for a long time, we focus on making sure the balance sheet and our ratings are kind of working and also a focus on accretion. So yeah, we'd look at any options. If there were growth opportunities, but way too early to.
To kind of speculate on that.
Okay, and you've mentioned a couple times on this focusing on accretion could you just clarify when youre looking at kind of value accretion and what is the main metric.
Our metrics that youre looking at and making sure the decisions.
We look obviously for <unk> per share from a public perspective, but I think as always we look at IRR and ltvs and the like as well, but I think the 1 that's most visible to the Investor base is obviously capital for sure.
Okay, so that could be more kathy or less shares I guess.
Great Okay.
And then the.
Just on the California.
Commentary.
Is it fair to say that the continued.
Volatility and <unk>.
Pricing and <unk>.
Kind of almost emergency conditions out there.
In terms of power needs are helping in terms of your contracting.
Positioning.
I would say Thats fair I think the current situation.
<unk> helps position the value of the assets you guys have been talking about for several years in terms of them being and load box and the like so I think to your point, Steve the current situation and California, Yes definitely shows the importance of those assets from the safety and reliability of the grid.
Okay.
Alright, great. Thanks.
Our next question comes from the line of their guests Chopra Evercore ISI. Your line is now open.
Hey, good morning team.
Quick clarification on the use of proceeds.
From the thermo potential permit term portfolio asset sale.
Are we going to have to pay down any debt or any tax consequences that we should also factor in or this is basically going towards either growth projects or share buybacks.
And I'll try to lunch day part 1.
Sure Doug I think.
And again, there's a little hypothetical based on a potential transaction, but in any transaction, we would execute any disposition across anything we would always look at the effect that that would have on our credit ratios and to the extent. It would begin to change that we would have to put consideration into how we would <unk>.
As the price of the platform of the company, so obviously, you're fat and tailed paying down debt or candidly just thinking about using more equity and subsequent transaction and graduate and sort of goes and the overall.
Sort of as I say, how we allocate capital so nothing just positive but it has clearly got the land as far as tax consequences go.
Similarly, any transaction independent of whether or not it would be a potential deal and thermal or any other asset disposition and obviously, we have to take a look at that are mindful of that if you look at our public disclosures you will note that our NOL balance as at the end of 2020 was well over $1 billion on a gross basis.
I think as we mentioned before there are some state things that you have to look at as well and mindful that if you recall last year for instance, and California.
State has suspended our firm for a company that had Nols and California, there was a suspension and the use of Nols. So those are type of things that we look at.
So long story short I think all of these things that you are asking all go into any calculus that we look at as we would seek to evaluate.
And any type of disposition and the business.
Very helpful. Chad and then can you just clarify I think Chris you said first half of 2020..2 is that sort of where you would expect to announce something potentially a closed can you just clarify the first half 1 and you're going to comment.
I think thats, probably more of a closing once again, it's early days, so I could definitely be off there, but it's.
Obviously, a lot of the questions on the call are Wednesday alone when we might get proceeds.
Not a 2021 proceeds type of situation for sure.
Understood. Thank you guys.
Our next question comes from the line of call and Roche of Oppenheimer. Your line is now open.
Thanks, So much guys could you speak to the potential for raising the floor on your and your growth targets.
The scale and the opportunity is so substantial and your capability within that.
And thats yield with the renewables development schemes sufficient that you could potentially raise thats were pretty significantly what do you need to see to do that.
I think from our perspective cause we've talked about over the years is probably a little bit more interested and extending the runway versus saying listen from 5 day, we're going to move.
6% to 8 or something like that so to me I think that as kind of Craig's team continues to work through development and as we talked a little bit on this call that development pipeline becomes a little bit more concrete and we can provide that visibility toward and extension of the runway I think overall and I'm proud that more interested and saying listen we can now show dividend per share grew.
And at our 5 to 8 out through insert a day longer than 2023, that's probably the way we would go.
Okay. That's helpful and then given whats going on at the energy storage market and the tightness and and what do you mind sales and a little bit higher value.
For transportation applications versus some other power applications can you speak to the evaluation process for some of the emerging and storage technologies like flow batteries, and how that might impact some of your development activities.
Craig if you don't mind take them.
Yes sure.
I think.
If we're looking at deployment vintages through 2024.
For the type of scale projects were advancing.
CMI and battery technologies will be the technology that makes up what's built.
Yeah.
And you know Theyre finance ability and construct.
Construct ability and.
And our ability to be able to predict their operations and.
The.
And the central nature of that that technology. When you are looking at a resource adequacy contract and in terms of the importance of its ability to perform.
As you look to the 2025 and beyond and vintage.
There are certainly out in California.
A market, that's taking shape for something and that 6 to 8 hour duration, where.
Potentially alternatives to lithium ion technology could be.
Preferable from a from a cost and performance perspective.
And Youre, certainly right calling that.
Automotive demand and the price points that automotive applications can pay well.
And we'll push price up for lithium ion comparatively.
And I do tend to think from our own experience over these last couple of decades and the way that we saw solar module technologies evolve that.
We'll continue to see that lithium ion technology supply chain and be pretty competitive and presenting offerings. Both in terms of the volume that can deliver but also the and.
And better cost and total cost of BONAR ownership that we baked into and offering of 6 day and our product offering for load serving entities.
But we're evaluating some of the same things that I think you're asking about I, certainly see promise and some of them.
And what I think companies like ours, and others will need to do is to support those technology providers and demonstrating.
They're a manufacturer ability and their deployment and their operations.
At some modest pilot scale. So that then we can have sufficient confidence to be able to bake that technology and to you know offerings and scale and financing and construction. So I start and I still expect that you will see companies like ours that are doing gigawatts worth of storage deployment and develop.
And for load serving entities that need to be able to call on the resource tab.
And I have lithium ion and be the main stay through the mid part of this decade, but where.
Going to continue to evaluate whether some of these other technologies can can be built at scale and can be financed and.
It would be great to see some complementary offerings out there.
That's super helpful. Thanks, So much guys.
Again, if you would like to ask a question. Please press Star then the number 1 on your telephone keypad.
Yeah.
There are no further questions at this time.
Centres. Please continue.
Thank you everyone for your time and look forward to talking to you next quarter appreciate and once again apologies for the technical difficulties take care.
This concludes today's conference call. Thank you for participating you may now disconnect.
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