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 C. <unk> 2021earnings call.
This time all partners.
Let me know.
I have 2.
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.
Please for as far as here I would now like to hand, the conference or where to your speaker today, Chris Sotos, President and CEO Clearway Energy incorporated. Please go ahead.
Thank you good morning, everyone wafers. Thank you for taking the time joined today's call apologies for being a little bit later, where some technical difficulties.
Joining me. This morning is a kill Marsh Investor Relations, 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 date actual results may differ materially. Please review the safe Harbor in today's presentation as well as the risk factors in 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 for 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, we maintain our full year cash guidance of $325 million, including the impact from the Texas Winter weather event.
He has announced an increase in its dividend by approximately 1.7 per cent to 30.345 cents per share for the third quarter of 2021.
This is on track for Dps growth at the upper end of our 5% to 8% long term target for 2021 targeting an annualized rate of $1.36 different per share going into 2022.
As we've discussed in our previous calls growth in <unk> per share is visible for the next few years. So our focus in partnership with Clearway Energy group has been on 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 gigawatt 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.
133 megawatt portfolio of distributed solar projects. These investments would require funding between the second half of 2022, and 2020 for providing clear way additional visibility into its profile.
And looking at growth beyond these discrete opportunities. We're very pleased by the progress we are making on renewable development in our integrated clearly enterprise as the investments clearly group has been making and capabilities and projects have accelerated each year at our meeting growing demand from customers and expanding support from policymakers.
In this regard our integrated clean power enterprise.
It's among the industry leaders as renewable growth expands in the U S with over 75% of new electricity generating capacity last year, having come from renewable resources, we expect to see substantial growth from this asset class and for progress in the clear way development pipeline sustained dividend per share growth for years to come.
Putting numbers for 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 in the next 3 years.
Expansion of Greenfield development assets to greater nameplate capacity.
Substantial additions to its pipeline of paired in Standalone storage assets.
And initiation of additional early stage development projects that will sustain growth in the longer term.
Further the pipeline clearly groups developing is being tailored to further reinforce the type of resource diversification that enable us to provide inline financial results. During the first half of this year reflect.
It reflects a balance of klos when 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, thanks, attracting position as complementary to our existing ones.
Having doubled its annual development throughput to over 1 gigawatt last year for.
For regroup aims to double this development throughput to over 2 gigawatts per year of the 2020 for project vintage 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 well 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. We are in active discussions around our open position I expect further progress towards contract and the assets during the third quarter.
In addition, I wanted to address a topic that we have received a number of incoming questions about namely the potential sale of the thermal platform.
District energy is a highly attractive infrastructure asset class on our thermal platform represents 1 of the 3 large district energy platforms in 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 classes, a strong and well performing 1 for clearway.
Therefore, any decision on the sale of the thermal platform is going to be very disciplined on price and to the extent. We move forward. We believe proceeds from such a potential transaction will exceed our current capital commitments and near term visible growth opportunities.
Finally, as I indicated on our last call service sees its pro forma cash per share 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 for results of capital deployment from assets sales.
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 <unk> guidance of $325 million. We enter 2021 with we now see our pro forma cash outlook 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 cash number, but 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 represents an increase of approximately 15% on a per share basis versus where clearly entered 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 pitch the.
The first component of the overall investment opportunity encompasses 133 megawatts of distributed solar assets that is either recently come online will have near term cod's.
These assets comprise more than 50 projects and 133 gross megawatts for revenue.
Tracts of 20 years on average and as with our other distributed solar assets provide high cash relative to their 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 day or 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.
I want to reiterate that while we have significantly improved the portfolio in the past 12 months to continue our growth trajectory, but clearly enterprise continues to relentlessly focused on continuing our accretive growth to dropdowns of new projects third party acquisitions and capital recycling with that I'll hand, the presentation over to Chad chips.
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, our second quarter, adjusted EBITDA of $365 million and cash available for distribution for Kathy of $155 million were in line with seasonal expectations.
With these results. The company is also reporting 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.
<unk> renewable portfolio was able to withstand weakness in generation conditions at the non California based wind assets, where production went below median expectations.
This was most prevalent in California, where the companies also wind project generated strong results in April and May helping to support first half 2021 production at Ulta that was 12% above our median production forecast.
Further and in 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 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> in the first quarter due to the financial exposure from the February winter weather event in Texas.
As Chris discussed Clearway continues to both execute on and position the company for new opportunities to drive Kathy and dividend per share growth.
With existing capital commitments on track to close within timeframe supporting our pro forma cap. The outlook. We are also focused on effects you're waiting the financing of these transactions efficiently, while maintaining our balance sheet objectives.
With this in mind, we continue to focus on strategic flexibility in 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 $126 million unutilized in the existing ATM program, providing an efficient means of placing equity as required.
While these means our effective vehicle to support our efforts. We're also mindful that success in 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 in 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 Chris for closing remarks.
Thank you Chad.
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 Dps growth rate of 5% to 8% through 2021 with a targeted annualized dividend of $1.36 by year end true.
He has and continues to increase its pro forma cash the outlook for share providing visibility to dividend per share growth of 5% to 8% through 2023.
With our truck 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 through executing on the investment opportunity discussed earlier in this presentation as well as potential capital recycling for a possible monetization of our thermal platform.
Finally, we are working to enhance the value of our California natural gas portfolio. We closed on our first 100 megawatt contract more than 2 years out from the current contract expiry and attractive tenure in price point. 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 in November.
Collyn 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 did 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.
Alright.
Good morning.
If you don't mind.
Ill sit here can you talk a little bit more on use of proceeds potentially from whether it's thermal or frankly any strategic.
<unk> in California around your gas assets.
The timeline on redeploying any proceeds I mean, obviously you talked about an expanded set of broadly described dropdowns.
Would you anticipate holding onto liquidity or.
Can you elaborate how you think about use of proceeds of that quantum.
Sure.
Honestly kind of early stages here. So in terms of exact timing of when this might close difficult to say at this point in time I think first half of 2022 for type of timeframe. So I'm not going to be that much sooner I think that's again that's.
Our potential and so I think from that question, 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 non storm acquisition.
Also we probably hold onto your 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 non storm or dropdown 23 that was done in December to the White House transaction.
It really is a question of once again seeing what opportunities. We have after that's done and then figure how to redeploy capital, but Chad anything yet.
No I mean, I think at the end of the day Julien like anything when we think about both capital formation and the reallocation of that capital, we always take the lens of looking at our balance sheet and ensuring we're meeting our objectives and well obviously deploy capital in a manner that drives the most value and accretion to our investors.
Yes.
Yes.
Indeed.
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.
Can you, perhaps at least indicative Lee.
To provide an update on where the aggregate or consolidate level cash flows across this business segment is trending.
Think about it not specific to a contract price, but do you anticipate any kind of drop in cash flow at all or sort of on a net basis net of financing that is could you actually see a flatter even increasing profile the cash flow coming out in the California gas portfolio, given shall we say where you stand today on the contracting progress.
I think we could see it being flattish, but I think Julian 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 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 leverage versus a levered platform today, but I think we have a little bit of wood to chop before I can say that definitively for where we said.
Yes, I'll keep checking in.
And then if we get them. The Covid just grew quickly you can talk about more Texas here can you talk about hedging practices any further expansion. How do you think about risk mitigation broadly defined on any subsequent expansion in this day.
Sure I think as mentioned the current assets being contemplated as notes settled so a little bit different and less risky hedging structure, but I think for us we like ERCOT as an 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, whether that means taking some megawatts on a small basis merchant to help.
<unk> offset others for scarcity pricing will kind of see as the portfolio comes together, but I think for your direct question Julien. The latest assets is notes settled at least for where it sits currently for what it has hedged I'll have to look at creating an overall kind of macro position in ERCOT with a variety of assets to help mitigate risk in the region overall.
Got it excellent and just to clarify the earlier question around use of liquidity here.
Yeah.
Effectively this would go into normal course funding of Dropdowns right no.
Very linear and straightforward use of capital here no pivot newer strategy whatsoever.
Correct. If there were dropdowns available kind of the first use of this is to fund those dropdowns.
In the event anything huh.
Awesome, Alright, I will leave it there thank you and best of luck.
Our next question comes from the line of causing Bean from Tudor Pickering Holt. Your line is now open.
Good morning, So just a follow up there on the thermal comments 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 in the stages of exploring it so not yet.
But minimize the question, but its too early to say, what a minimum hold prices over time.
Fair enough and then maybe a question for Craig I think in the net development backlog there was a reference to acquisitions of late stage projects.
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 debt.
We did so not to mitigate risk in our preexisting controlled pipeline, but to add assets.
Debt were in locations, where we wanted to build projects that are have offerings for load serving entities.
So that's what that reference means.
More broadly we 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 of acute physicians and the work of interconnecting utilities that certainly 1 dimension to that as is.
Our supply chain and development progress.
The environment debt you know certainly is challenging for some.
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.
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 out into 2025 and beyond timeframe 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 a very gigawatts worth of projects in development.
5 isos and Rts around the country that adds to the strength that we have in 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.
In the second quarter is something we would be able to continue to add on over time.
Got it and then just 1 final question the 2025 commentary as a good leading there and where the 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 from developments I think we've kind of want to make sure that we have agreement and.
Binding commitment between CE GNC, 1 before formally 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 trying to extend guidance is something we definitely shoot for but once again would want binding agreements before we felt comfortable doing so.
Great I appreciate it.
Okay.
Our next question comes from the line of Steve Fleishman of Wolfe Research. Your line is now open.
Yes, hi, good morning. Thanks.
So just.
Sorry to ask on a potential thermal sale again.
And the like but just.
Thank you said the proceeds would be beyond any near term and long term.
Growth needs so.
Debt extra increments 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 but I think Steve as always you work 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 a true.
Kind of speculate on that.
Okay, and you've mentioned a couple of times on this focusing on accretion.
Could you just clarify when youre looking at kind of a value accretion 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 is in mtv's and the like as well, but I think the 1 that's most visible to the Investor base is obviously Cathy for share.
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 pricing and 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.
You helps position the value of the assets you guys have been talking about for several years in terms of them being in load box from alike. So I think to your point, Steve the current situation in California, Yes, definitely shows the importance of those assets for the safety and reliability of the grid.
Okay.
Great. Thanks.
Our next question comes from the line of <unk> Chopra of Evercore ISI. Your line is now open.
Hey, good morning team just 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 for share buybacks.
I'll try to launch date for 1 yeah sure.
Thank you.
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 advertise.
The platform of the company. So obviously, a bad entailed paying down debt or candidly just thinking about using more equity on subsequent transaction graduate sort of goes in the overall.
Sort of as I say, how we allocate capital. So nothing is 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 on thermal or any other asset disposition. Obviously, we have to take a look at that I'm mindful 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 I'm mindful that if you recall last year for instance in California.
State had suspended or for for a company that had Nols in California. There was a suspension in the use of NOL. So those are types of things that we look at.
So long story short I think all these things that you are asking all go into any calculus that we look at as we would seek to evaluate.
Any type of disposition in the business.
Very helpful. Jack and then can you just clarify I think Chris you said first half of 2022 is that sort of where you would.
Spec to announce something potentially of close can you just clarify the first half for when you're going to comment.
Yes, 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 when the alarm when we might get proceeds that's not a 2021 proceed type of situation for sure.
Understood. Thank you guys.
Our next question comes from the line of Colin Roche of Oppenheimer. Your line is now open.
Thanks, So much guys could you speak to the potential for raising the floor on your.
On your growth targets.
The scale of the opportunity is so substantial and your capabilities within that.
That's yield with the renewables development seems sufficient that you could potentially or is that for 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 in extending the runway versus saying listen from 5 day, and we're going to move.
6% to 8 for something like that so to me I think that as kind of Craig's team continues to work through development and you know 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 an extension of the runway I think overall I am proud that marched in saying listen we can now show dividend per share.
At our 5 to 8 out through insert a date longer than 2023, that's probably the way it would go.
Okay. That's helpful and then given whats going on at the energy storage market and the tightness in <unk> sales and a little bit higher value for.
For transportation applications versus some of our applications can you speak to the evaluation process for some of the emerging energy storage technologies like flow batteries.
And how that might impact some of your development activities.
Yeah.
Craig if you don't mind.
Yes sure.
I think if.
If we're looking at deployment vintages through 2020 for.
For the type of scale projects were advancing lithium ion battery technologies will be the technology that makes up what's built because of.
Their finance ability and.
Yes construct ability.
Our ability to be able to predict their operations.
The.
The essential nature of that that technology, when youre looking at a resource adequacy contracts in terms of the importance of its ability to perform.
Look for the 2025 and beyond vintage.
There is certainly out in California.
A market, that's taking shape for something in 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 debt.
Automotive demand and the price points that automotive applications can pay well.
Well, we'll push price up for lithium ion comparatively.
I do tend to think from our own experience over these last couple of decades in the way that we saw solar module.
Technology has evolved debt.
We'll continue to see that lithium ion technology supply chain be pretty competitive and presenting offerings. Both in terms of the volume that can deliver but also.
The embedded cost and total cost of BONAR ownership that we baked into it.
The offering of a 6 day at 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 in some of them.
And what I think companies like ours, and others will need to do is to support those technology providers and demonstrating.
Their manufacture 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 at scale in financing and construction. So I store I 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.
To have lithium ion be the mainstay 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 for.
Centres. Please continue.
Thank you everyone for your time and look forward to talking to you next quarter. Appreciate it 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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